荷美爾 (HRL) 2010 Q1 法說會逐字稿

Welcome to the Hormel Foods first quarter earnings conference call on the 18th of February, 2010.

Throughout today's recorded presentation, all participants will be in a listen-only mode.

After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

I will now hand the conference over to Kevin Jones.

Please go ahead, sir.

Good morning, everyone, Welcome to the Hormel Foods conference call for the first quarter of fiscal 2010.

Wer released our results this morning before the market opened, around at 6:30 AM Central Time.

If you didn't receive a copy of the release, you can find it on our website at www.hormelfoods.com under the investor's section.

On the call today is Jeff Ettinger, Chairman of the Board, President and Chief Executive Officer, and Jody Feragen, Senior Vice President and Chief Financial Officer.

Jeff will provide a review of the operating results for the quarter.

Then Jody will provide detailed financial results for the quarter.

The line will be open for questions following Jody's remarks.

An audio replay of this call will be available beginning at 10:30 AM Central Time today February 18, 2010.

The dial in number is 800-406-7325 and the access code is 4198205.

It will also be posted to our website and archived for one year.

Before we get started with the results of quarter, I need to reference the Safe Harbor statement.

Some of the comments made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those expressed in or implied by the statements we will be making.

Among the factors that may effect the operating results of the Company are fluctuations in the cost and availability of raw materials and market conditions for finished products.

Please refer to pages 30 through 35 in the Company's annual report for the fiscal year ended October 25, 2009 for more details.

It can be accessed on our website.

Now I will turn the call over to Jeff.

Good morning, everyone.

We got off to a great start in the first quarter.

We had record earnings up 37% from a year ago, including double-digit profit gains from four out our five business segments.

We are particularly glad to have registered a dollar sales gain of 2%, which is a significant turn around from our fourth quarter last year.

Our recent announcement of our new Hormel brand advertising campaign demonstrates our commitment to building our brand strength across both our grocery products and meat products product lines.

The aim of this new campaign is to create synergies across all of our 15 categories in which the Hormel brand is a major player.

I will now take you through each of our operating segments.

For Grocery Products, segment profit increased a substantial 37%.

Segment profit was aided by lower raw material cost and increased sales of our core products.

Our Grocery Product Segment reported a dollar sales increase of 8%, up 4% netting out the impact of the new MegaMex sales and the discontinued Carapelli Olive Oil sales.

Sales of Hormel Chili, our SPAM family of products, and Dinty Moore Stew were all up nicely, on top of double-digit gains a year ago.

We are already seeing the benefit of our MegaMex venture to sales and earning.

The added sales of Mexican products under this venture more than compensated for the discontinued Carapelli Olive Oil sales.

We were encouraged to see stabilization in sales of our Hormel Compleats Microwave Meals line during the quarter.

We recently opened our new plant in Dubuque, Iowa and we look to that state of the art facility to meet our long-term growth expectations for this product line.

Our Refrigerated Foods Segment reported a 53% increase in operating profit, helped in part by favorable cutout margins.

You may recall that cutout margins were particularly unfavorable during our first quarter a year ago.

Refrigerated foods experienced flat dollar sales for the quarter.

Overall meat product sales were roughly even with a year ago, as we experienced softer demand for fresh pork, hams and bacon.

Foodservice sales remain down overall, as the food service trade continues to be soft, though at a lesser rate of decline.

Sales of our Natural Choice deli meats, Austin Blue's Barbecue products, Cafe HS McProducts and pizza toppings all grew during the quarter.

We added the Country Crock Chilled side dish business to the refrigerated foods portfolio at the end of the quarter.

This product line generated $50 million in sales in 2009 and we expect it to be an excellent complement to our Hormel refrigerated entrees and Lloyd's Barbecue products.

Our early efforts will be focused on working with retailers to restore momentum to this product line.

Segment operating profit at our Jennie-O Turkey Store Segment increased 14%, largely driven by increased whole bird sales.

We also benefited from stronger dark meat prices as a result of decreased supply conditions and good export demand.

Our Jennie-O Turkey Store Segment posted a sales increase of 5% related primarily to the increased sales of whole birds during the quarter.

Although harvest volume declined during the quarter, these sales included whole birds that were in cold storage.

Importantly, value added sales also grew, supported by our advertising and promotional efforts.

We achieved success during the quarter in the foodservice channel and with certain retail products, including Jennie-O Turkey Store pan roast, franks and turkey burgers.

Our Specialty Food Segment reported strong segment operating profit growth of 28% in the quarter, with positive contributions by each of its three business units.

The leading drivers of these improved results were sales of private label canned meat products and sugar substitutes.

Sales by our Specialty Food Segment grew 5% during the quarter, again reversing prior trends.

In our All Other Segment operating profit declined by 6%, due primarily to weaker exports of fresh pork products.

Sales by our International business was modestly higher, as improved exports of the SPAM family of products helped offset the lower fresh pork exports.

Reflective of our strong results in the first quarter, we announced this morning that we are raising your full year earnings guidance range from $2.63 to $2.73 per share to a range of $2.68 to $2.78 per share.

We recognize that this was an extraordinary quarter.

While we are optimistic about operating earnings for the remainder of the year, we expect to generate more modest gains in subsequent quarters.

In our November call, we said we expected higher hog cost in the second half of the year.

Those higher costs have come sooner than we anticipated.

We see this trend continuing as we get into warmer weather.

We also enjoyed strong cutout margins in the first quarter, particularly compared to a year ago, and we do not expect this comparison to be as favorable going forward.

At the earnings per share level, the strong investment performance of our rabbi trust last year will result in a more difficult comparison, offset in part by our 53rd week this year.

Jody will discuss this in more detail later.

Notwithstanding the foregoing considerations, we believe we have a number of strengths that should allow us to continue to thrive.

They include our strong portfolio of leading brands, featuring many products that consumers see as a good value proposition, and our balance business model between packaged foods and value-added protein products.

We also expect to benefit from our increased advertising levels over the next few quarters, featuring the new Hormel brand ad campaign that I mentioned earlier.

At this time I will turn the call over to Jody Feragen to discuss the financial information relating to the first quarter.

Thank you, Jeff.

Good morning, everyone.

Earnings for the fiscal 2010 first quarter totaled $111.2 million or $0.82 per share compared to $81.4 million or $0.60 per share a year ago.

Dollar sales for the first quarter totaled $1.73 billion compared to $1.69 billion last year, a 2% increase.

Volume for the first quarter was 1.2 billion pounds, up 3% from fiscal 2009.

Selling, general and administrative expenses in the first quarter were 8.4% of sales, even with last year.

Advertising expenses were 1.4% of sales for the quarter compared to 1.5% in 2009.

We expect a year-over-year increase in advertising expenses in 2010, primarily related to the brand campaign Jeff referred to.

Interest and investment income was $443,000 for the first quarter compared to $2.4 million in fiscal 2009.

The majority of the difference is due to lower returns on our rabbi trust investments, as well as lower interest income.

As Jeff indicated, we expect to see lower comparable results for interest and investment income for the balance of fiscal 2010.

If you remember, our 2009 results for the quarters two through four included a gain of $3.6 million on the sale of the Carapelli business and a total of about $14 million in gain on our rabbi trust investments.

Interest expense for the quarter was $6.6 million compared to $7.5 million last year.

We expect interest expense to be about $27 million to $29 million for fiscal 2010.

Our effective tax rate in the first quarter was 33.8% versus 34.5% in fiscal 2009.

For fiscal 2010 we expect the effective tax rate to be between 35% and 36%.

Basic weighted average number of shares outstanding for the first quarter was 134 million.

The diluted weighted average number of shares outstanding for the first quarter was 135 million shares.

We repurchased 421,000 shares of common stock during the first quarter and we have 697,000 shares remaining to be purchased from the 10 million share authorization in place.

Total long-term debt at the end of the quarter was $350 million.

Depreciation and amortization for the quarter was $31 million, even with last year.

We expect depreciation and amortization to be about $127 million to $129 million in fiscal 2010.

Capital expenditures for the quarter totaled $19 million compared to $26 million last year.

For fiscal 2010 we expect capital expenditures to be approximately $135 million to $140 million.

At this time, I will turn the call over to the operator for the question and answer portion of the call.

Operator.

(Operator Instructions) The first question comes from Farha Aslam.

Please go ahead.

Hi, good morning.

Hi, Farha.

Congratulations on a great quarter.

Thank you.

Question about Grocery Product volume, do you think that you sourced the volume from new entrance in the category and where are those volumes being sourced from in your belief.

Well, it would really vary by subcategory.

In some of our traditional products we are clearly the share leader, as I think we've shared in prior calls.

We have seen some consolidation of offerings in some of the retailers and with us being in the leading share position and having strong programs with these retailers, I do believe that's benefited us.

In some of the other categories, such as Mexican food, our share is not nearly as large.

And so I think there we are making great entries by gaining distribution and by having more significant feature activity with few retailers.

Jeff, do you think you sourced volume from some stumbles on the soup side at all in our Dinty Moore and maybe SPAM brands?

I really wouldn't have any basis for knowing that at this point.

We might glean some information as we study Nielsen data over the next few weeks, but I don't have any basis right now for saying anything like that.

Okay.

Then your refrigerated foods margins were absolutely terrific.

Could you just help us understand Hormel in terms of cutout and the benefit from cutout versus how we should model rising hog costs and your ability to pass on those rising hog costs,

Well, I think we've talked about in prior calls is there are three big moving parts and they don't model very easily sometimes.

There is just shear input cost.

And we've talked about we clearly recognize that lower hog inputs are favorable to our value-added items.

We have also pointed out, though, in the past that we've done well in higher markets as well.

So we don't see that as a fatal or dangerous condition for our business in and of itself.

The second variable clue is cutout margins.

Those had been somewhat more consistent, but these last couple years have certainly seen some extremes in that.

They were terrible last year for the first quarter and they certainly were significantly improved in the first quarter this year.

We are seeing more normalcy, I guess, albeit at a bouncing around level for what we are seeing so far into the second quarter.

And then the third big variable is the one we really stake most of our attention on, which is driving growth in our value-added business and enhancing our product mix.

And so over the long haul, our goal would be to just continue to be able to generate increases in operating earnings from that segment by the combination of volume growth and enhanced mix.

Okay.

And then my last question, then I will pass it on, is you are probably closer to the foodservice market than almost any other packaged food Company.

What are your trends in foodservice kind of as they progress through the quarter.

And could you give us any color of where they stand right now.

Well the decline is certainly not as steep as the year before.

I think we are seeing some glimmers of improvement.

Our DCB business continues to hold its own.

Our Jennie-O foodservice sales were actually up for the quarter.

Hormel is more of a mixed bag, overall decline, but in some of our value-added items, such as the ones I referenced earlier, we saw increases and we were not seeing increases like that last year.

So we are hopeful that the tide is starting to turn and we will be able to benefit from that.

And for the full year would you -- are you right now expecting volumes in your foodservice to be up year-over-year?

I, for the full year, flat would probably be more realistic, given that we are starting in a trough.

Okay.

That's very helpful.

Thank you.

The next question comes from Jonathan Feeney.

Please go ahead, sir.

Good morning, thanks.

Hi, Jon,

Hi, Jeff.

I wanted to get more specific, actually, on Farha's questions.

Specifically, when you looking at that first piece of raw input, it seems like over the course of the quarter that became more and more difficult and yet when I look at your numbers compared to Sara Lee and Tyson's, it seems like you put up excellent or even better numbers, despite it looked like January got tougher.

Did hedging play a role in your raw input, cost realization this quarter, and can you comment at all about what your hedging looks like for the reminder of the year.

Hi, Jon, this is Jody.

I will help Jeff with that, answering that question.

You are right, the cutout situation did deteriorate as the quarter moved on and at the end of January, although it didn't turn upside down like it did last year, that benefit was diminishing.

From a hedging perspective, we don't traditionally have hedges on our hog position.

The things that we do hedge would be our direct inputs into our turkey and any hogs that we do long sell.

There is no hedging benefit from hogs that are in that refrigerated foods.

Maybe this is a simplistic question, but what is timeframe from the time you -- what is the cash conversion there from the time you are actually purchasing a hog in the open market to the point where you are realizing revenue from that.

Is it like two or three weeks.

Boy, it depends on the items.

The fresh items would be quicker than that.

Some of the value items could be quite a bit longer than that.

And if you are talking right now, we would be putting down hams for the holiday, Easter holiday season.

So it really depends on the category that you are looking at.

Okay.

So it is all over.

Okay.

And just finally on the refrigerated foods margins, specifically like the mix of value-added business.

I know there's -- you used to actually put this pyramid out that was interesting, where you have this ladder of value and I know at the top of that you have some products, like spiral hams, that have significantly higher than average margins, even this 7.9% margin.

Did you see an improved mix relative to your expectations this quarter.

No, not really.

As we have continued to innovate, we certainly do believe we have added new entries to that top, those top rungs of the ladder, the Natural Choice's Party Trays, our newer Pepperoni items and so forth, and it was a mixed bag this quarter on sales in some of those items.

But overall, it was fairly flat quarter at the meat products level within underneath refrigerated foods.

In contrast, we had really quite a strong quarter almost across the board in grocery products with our franchise.

Yes, and that was going to actually be my next question was just on the Grocery Products side did you see an improved mix?

I think it would be, it is fair to say it would have been an accretive mix ultimately to the perform at the bottom-line performance.

The traditional items did well and those are good items for us.

We have over time winnowed our way out of some laggards in the area.

We don't sell Viennas any more.

Frankly, the joint venture with Carapelli was generating sales, but not much for earnings.

And so that that's improved the overall picture, too.

I guess I was specifically thinking more about MegaMex.

That has helped.

I mean, it is on track for what our expectations had been.

MegaMex added a couple of new franchises, La Victoria and Embasa.

We didn't see just blockbuster sales of those items right out of the gate, but we are starting to gain momentum on those.

And we had quite good sales of the items that we had already been involved with, their Dez and the Chi-Chi's tortillas and those types of items.

I would think, despite your grocery segment margins were pretty high, but those probably over index.

Right?

Being over 20 right now is the level that we are not thinking we would be sustaining.

Okay.

Thank you very much.

Appreciate it.

The next question comes from Tim Ramey.

Please go ahead.

Good morning.

Add my congratulations, guys, and (inaudible) really nice.

Notwithstanding your comments to Jon a second ago, he said perhaps accretive to mix, but I was getting the sense increased sales of whole birds, increased sales of private label canned meats, that maybe the trade down is still on.

How do you, how would you react to that?

Do you think that consumers are starting to find the bottom?

Or are they still interested in kind of more extreme value propositions?

Well, mixed answer.

The whole bird improvement for us I don't really feel has anything to do with a trade down.

It is the same branded items.

I think we are performing better in that area.

We managed the portfolio better there.

I would agree that our increase in sales within specialty foods of private label items certainly would be consistent with trends that retailers are seeing of increases in private label.

Obviously, our major emphasis is still in the branded side of the business.

And again, referring to grocery, where it is easier to get the share information.

We are seeing increases by private label, but they have not really been at our -- expense of our branded items and we are doing, I think, a good job of driving our result as well.

So, if you think about the more value oriented pieces in those, maybe, kind of margin and high mix items within the portfolio.

Just to pick SPAM, that sort of product were we seeing generally continued strong movement into the product or is it sort of leveling out.

We had another good quarter in SPAM and then we certainly had a good year.

And we would concede that the overall economic situation, we think, has helped the franchise.

Our team there really started restoring momentum on that item when we started advertising it, when we supported the product line with the expansion of an item such as SPAM singles.

We were starting to see increases even in '08 in the product line.

They have built an excellent momentum.

I think they are doing a better job at reaching consumers that were friendly toward SPAM, that had it in the cupboard, but just did not got it out of the cupboard lately.

And so the advertising is focused on simple recipes and on getting that usage.

We think that is paying off.

Terrific.

Thank you.

The next question comes from Akshay Jagdale.

Please go ahead.

Good morning.

Congratulations on a good quarter.

Thank you.

Just one question on divisional EBIT, if I may, the new guidance (inaudible) 6% to 10% EPS growth rounded up.

What does it imply, Jeff, for divisional EBIT.

From your last call, I remember, you said you expected about 9%, 9% to 10% increase in divisional EBIT, but your new guidance can you give us a sense of what that implies regarding divisional EBIT.

If I am correct in translating what you are calling divisional EBIT to what we are calling kind our segment profit level.

We do continue to expect that our segment profit results will be somewhat higher than our EPS results.

And that relates to the factors that Jody mentioned that we are up against both in terms of the rabbi trust comparison and the Carapelli sale last year, which was another below the line addition.

But as I referenced, I talked about my expectation is not 30% increase we experienced this quarter, but it will be more modest increases, but we do expect to see growth still at the segment level.

If I may follow-up on that.

Can you give us some color from each division.

Where do you expect the most slow down and growth if you look at grocery products, refrigerated and Jennie-O turkey, for example.

Akshay, maybe -- in order to make sure everybody has enough time for questions, maybe if you can just focus your questions a little bit more for Jeff.

Rather than every single segment maybe you can focus on one or two.

If you can comment on Jennie-O turkey, I think we have seen a lot of inventories clear out.

Can you give us a sense of what you expect this year when you started off with much leaner inventories from an industry standpoint.

Well, the mission there is really about gradual improvement.

We succeeded in delivering that last year.

We are off to a good start this year.

The markets are still not terrific this time of year in the $1.40 breast meat range.

That is clearly below cost for everybody in the industry, but it is early in the year.

The winter is usual the least favorable time.

We expect that to improve, but we don't think it is going to be fantastic at that level.

But again, our focus is always on the value-added items and so as long as we can continue to turn the momentum in those areas and grow those items and run the operation efficiently, we think we can steadily increase the results from that unit.

Okay, great.

And then just one for Jody, in terms of managing your cash.

Yes, you brought back some shares.

Can you just talk to us a little bit about priorities about using cash and maybe talk -- comment a little bit on the M&A environment and what you are seeing.

Sure.

Well, actually the -- our priorities for cash haven't really changed.

We continue to look at opportunities to invest in our business, whether that is investing in brands that we already have or looking for additional things.

And certainly the addition to the Country Crock lines to Refrigerated Segment is a nice add and the fact that we have got our MegaMex joint venture up and going is a very good positive.

We continue to give back to our shareholders, increase the dividend.

We have actively been purchasing shares.

As far as the M&A front, our team is focused on looking for those opportunities that meet our criteria for expanding our business and growing.

So don't have anything specific to tell you today.

Okay.

Thank you.

I will follow-up offline.

Thanks, Akshay

The next question comes from Eric Larson.

Please go ahead.

Good morning, everyone.

How are you.

Hi, Eric.

Good to hear from you.

Good to hear you too, Jeff.

Just a real general question to start with.

Your overall sales level, obviously, particularly in grocery, I think it kind of goes back to maybe Tim's question.

You weren't up against particularly easy revenue to compare year-over-year and you had such significant recovery sequentially from the fourth quarter, did the overall pick up in your first quarter sales for the organization, particularly grocery, surprise you at the strength?

Well, the netted out number, when you cancel out the Carapelli and you cancel out the new MegaMex, was a 4% increase, which would be consistent with what I hoped the unit would deliver over the long-term.

will concede that given not only grocery's negative revenue trend in the fourth quarter, but really the across the board trend, we certainly refocused everyone's attention on the important need to make sure we are growing our franchises and I was happy to see not only their increase, but really pretty much across the board in all the business segments the recovery we were hoping to get.

Okay.

And then just one final question in grocery.

You are nearly 21% operating profit margin, obviously before corporate expense, your segment margin.

That looks like that was a record margin.

Would you expect that to hold.

Obviously with cutout margins potentially coming down, is that a number that is sustainable?

No.

I think we have talked.

Last year it was in the 17s.

I think we would like to get in the 18s on a sustained basis.

We did have favorable cost situation in the unit for the quarter.

And then you have got to watch any quarter's the quarter to quarter comparisons.

There is a different sales mix.

in any given quarter and so that wouldn't necessarily translate to the whole year even if costs stayed the same.

So, very good quarter and I'm encouraged, particularly, by what you referenced at the beginning, which is the sales growth and the long haul if we can get -- keep that at those levels, that will be very good contributor to the overall results.

Okay, great.

Thanks, everybody.

The next question comes from Christina McGlone, please go ahead.

Good morning, congratulations.

Thank you.

Jeff, I wanted to ask you on the Refrigerated Segment you had noted softer demand for some of like the commodity pork and hams and bacon, is that because the retail featuring for pork was not as strong or did exports decelerate.

What happened there.

Well, during the later part of the quarter, as we saw hog prices increase, those tend to be the market based pricing that goes into the retailers.

Those become more competitive, you don't always win the features against someone else and there are times that the retailers say, okay, you have now reached a price point that I would rather feature something else.

And I think we saw that a little bit during the later part of the quarter.

And now that prices have seemed to come back a bit in some of the cutout values, do you think that you will regain the retail featuring?

We could, but we are also kind of ready for it to go back up.

We recognize that it has slid down somewhat here and we will have a little bit more favorable picture for this quarter, but we know there has been some level of liquidation going on.

And so our expectation as we head into summer is that we need to be prepared for higher markets.

Okay, thank you.

And I wanted to talk about Target's new concept, the PFresh concept.

It seems like they are going to be featuring case ready meat pretty aggressively and I think you are their sole supplier, if you can confirm that.

I just wanted to know what does that mean for you in terms of earnings or margin incrementality.

Target is an important customer.

Their PFresh initiative certainly will effect a number of their stores.

The assortment in those stores is quite a bit more limited than what would be in their traditional SuperTarget format or any other traditional retailer.

Our joint venture with Cargill, the preset venture, is the manufacturer for the Sutton & Dodge line and so that is the beef and pork products that would be within those cases.

And so we certainly think it will be helpful, but I don't know that it is a -- it is not a major EPS moving item in and by itself.

Okay.

And just to follow-up on Farha's question on foodservice.

I remember at the investor day you said you thought that we would see growth in the second half.

But it seems -- from what the restaurants are reporting and even your tone, things are a little bit better.

Do you think that maybe you are more optimistic than you were at the Investor Day now.

I think that is correct.

It still is spotty.

There are certain markets that are still quite weak.

But overall that's the tone I am hearing from our foodservice professionals is more optimism.

They are having more successes, both at an item level and in certain markets.

So, yes, I think we maybe are seeing them turn around earlier.

Okay.

And last question, if I can squeeze it in.

The Compleats line, it was great that is stabilized.

I was wondering what drove that and is that sustainable, because sometimes we see it stabilize or do well and then the next quarter it weakens.

I wanted to get an idea of what the trend is.

I think the history you've pointed out, that's a fair characterization, so I am guarded on it.

I will believe it when I see it in terms of, okay, now don't have we stabilized it, but are we increasing.

But our repeat rates are very good with consumers.

We are having good success with many retailers.

We are seeing some of our heavy users come back into the category.

So in the long haul, we are still very optimistic in the product line.

Clearly, there has been a timeframe here where people traded off some of the added convenience for price if they thought they could get comparable items, say, in a can format.

But the time pressed nature of modern life in America really hasn't changed any and we think that these items will deliver against that.

And we should be growing again here in the very near future.

Okay, great.

Thank you.

The next question comes from Robert Moscow, please go ahead.

Hi, thank you.

Hi, Robert.

I just -- to see a 10% volume increase in grocery, just after a fourth quarter where there was, as I recall, a mid-single digit decline in grocery.

It just seems like such a shocking turn and I am sure that your products are doing well and consumers are reacting well to them, but why the big swing.

And especially in an environment where none of these consumer staple companies are able to get any volume at all.

And how -- are we -- is there any chance that some of this got pulled forward into first quarter and away from second.

I think there, frankly, is a little more of a chance that some of it might have got pulled forward from the fourth quarter into the first.

That -- I mean, the Nielsen trends in many of these categories were not down anywhere near the levels of what we saw in shipments.

And so I think there were a lot of factors across the board.

There were some customers tightening inventories.

We had hurricane comparison issues in the fourth quarter year-over-year.

I personally think there is a little element of psychology in the Company that the prior year had been a down earnings year and we were very focused on driving earnings for results in 2009.

And so when people had a choice to make, potentially, as they headed toward the end of the year, I think they were leaning toward the higher margining items potentially at the expense of volume in some cases.

I thought at the time the fourth quarter drop could be more of an anomaly.

And so far I am encouraged by the results of not only grocery, but the other divisions that that seems to be the case.

How much of the fourth quarter or how much of the first quarter do you think benefited from kind of that shift out of the fourth quarter.

I am just kind of giving you my sense of it and it would be -- to be really clear with it, the only area that it could have even possibly happened in is grocery.

The meat items on a perishable basis don't move quarter to quarter.

They sell when they need to sell.

And so it would be minimal.

It would be a 1% to 2%.

Do you think it is safe to say that we will see volume growth in grocery for the rest of the year.

Yes, or you will clearly see it because of the MegaMex addition and we will keep calling out each quarter the netting out of -- Carapelli we'll have one more quarter to do that with because by the end of the second quarter we were done, but we will point out which items just came on for MegaMex.

But, no, we have good momentum in that franchise.

I do think we -- I hope we stabilized Microwave and I see hopes for that growing and we still have great momentum in the canned traditional items.

So I am encouraged the grocery should continue to grow.

Okay.

Well, very good.

Good quarter and good luck, thanks.

The next question comes from Diane Geissler.

Please go ahead.

Good morning.

Good morning.

Congratulations on your quarter.

Thank you.

Jody, you mentioned that you saw hog prices move earlier than you originally expected.

Could you give us some guidance there on kind of what were your original expectations and what are your expectations for the full year.

I think we talked at the end of last year that we expected the hog prices to kind of remain status quo for the first half of the year and that the sow reductions would really kick in mid-year.

Whether it is weather related or, hard to tell when you are in the Midwest and we've had a lot of interesting weather days.

But I do think that it has moved up and I would expect that what we expected to be in the back half of the year we will now see in the second quarter through the end of the year, which is higher hog prices.

Certainly this summer will be the tell tale.

Okay.

And then you also said you saw that exports on the fresh side were weaker.

Could you comment on, certainly Mexico has been very strong on the profit side, but could you comment a little bit on what you are seeing out of China.

Yes, we don't play in that market place very well and I haven't seen the new export numbers, but they appear to be very strong and that's what tends to drive the cutout values a lot.

And last year we certainly saw evidence of that.

So I think as the new report comes out with exports we will get a better picture of where that's at.

But they are strong.

Okay.

And then I think I missed your comment on the share repurchase.

What did you repurchase and what was your average price.

We spent about $16 million for 421,000 shares.

And also, now that you've closed on the Country Crock, what are your expectations regarding accretion from that acquisition.

It would be fairly modest in this first year.

They had been suffering from just some distribution losses.

It really wasn't in the sweet spot of the former owner.

We are a category captain in that refrigerated meal area.

We have had good dialogues already with some retailers.

But in year one we clearly are going to have to do some investing to get that franchise back on a healthy basis.

After that, it's still -- it is not a huge -- it's $50 million in sales and it would have margins that would be typical of the value-added items within refrigerated, so maybe the low teens kind of margins.

Okay.

All right, I can work the math from there.

Thank you.

The next question comes from Mike Hamilton.

Please go ahead.

Good morning.

Hi, Mike.

Jeff, you had mentioned that you saw some activity on the Jennie-O side in Foodservice.

Could you comment a little bit on where you are making progress there.

Well, just in general, our numbers were up for the quarter, which was encouraging.

Jennie-O does a very nice job in the noncommercial institutional side, which we had kind of said all last year.

Wasn't off nearly as much as the commercial side.

And so that's maybe not surprising then that their recovery is coming quicker.

So that would be their strong spot of their foodservice group.

So nothing new in terms of inroads in restaurant area.

It is really the traditional strikes.

That's fair.

We are not a big QSR player.

We are not a Subway supplier, for example, so it is not being driven there.

And traditional white table cloth restaurants still don't market a heck of a lot of turkey, unfortunately for us.

So that's not a big driver of their business.

Thanks and congratulations.

Thank you.

(Operator Instructions) We have a follow-up question from Akshay Jagdale.

Please go ahead.

Thanks for taking the question.

It is once again for Jody, just on the cash situation in terms of share buybacks.

Can you, in terms of your guidance, are you factoring in a certain level of buybacks.

It is just you have about $450 million on the balance sheet in cash and I know you've talked about your priorities and you have been very disciplined, but leaving it on the balance sheet is probably not the best use of cash.

So just trying to get a sense of what we can expect in terms of buybacks for the reminder of the year.

Fair enough and I agree leaving it on the balance sheet is not the right -- the focus that we have.

And so we have traditionally used our share repurchase program as kind of a relief valve.

And given there are possibilities in the M&A area and if those come up I would assume that share repurchase would not be a priority.

So we have the balancing act and certainly have made a nice step forward with repurchase in the first quarter.

Thank you.

Really appreciate it.

We have a follow-up question from Jonathan Feeney.

Please go ahead.

I am sorry, thank you very much.

Jody, just one follow-up question on the -- .

Could you give us a rough number for what input costs were down in the Grocery Products Segment, as you experienced in this quarter and what you think that is going to look like for

I would expect for the year that we are going to see continue ramp up in input costs, certainly as they relate to pork based items, because we are expecting to have those higher markets that we now saw at the end of this period.

Sure.

We saw below the line expense decreases in freight and warehousing.

And on the inputs for non-pork based items, those were basically flat for this quarter.

And for the pork based items this quarter in grocery.

I am sorry if I missed it.

Think we haven't said a specific number, but clearly the markets were low for some of those inputs early on.

And so whether it is SPAM or bacon bits, they were favorable for GP.

Are we talking like down mid-singles or -- ?

I guess, maybe we would have to have Kevin follow-up with you on that.

Okay, great.

I would be pulling out a number that I don't fully have in front of me.

A guy can always try, right.

Okay.

Your next question comes from Alan Brochstein.

Please go ahead.

Hi, guys, congratulations.

I have been following your Company for, I guess, about six quarters now and I continue to be very impressed.

But I had one thing I haven't been able to figure out, which is how much of your business would you say is either private label or kind of the close to the low end of the branded market in terms of price.

Have you thought about your business that way?

Allan, this is Kevin Jones.

Who are you with, I don't know if I had the pleasure of meeting you.

I'm sorry, AB Analytical Services.

I am an independent analyst.

Okay and your question is on percentage that is private label?

Either private label or like SPAM, where there is -- it's clearly more value focused.

We are primarily a branded Company.

The only area of our business where we really have any kind of focus on private labels within our Specialty Foods Segment and we do some canned meat items.

We have traditionally done packaged gelatin items and so forth.

But it is not a large percentage.

We are primarily a branded value-add Company.

Okay, thank you.

(Operator Instructions) There appears to be no further questions.

Please continue with any other points you wish to raise.

Thank you, everyone, for joining us.

Hope it is nice and warm down there in Florida.

Feel free to follow-up with me after the call.

Thank you very much.

Have a great day.

This concludes the Hormel Foods first quarter earnings conference call.

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