荷美爾 (HRL) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the Hormel Foods' second-quarter earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference is being recorded today, Wednesday, May 25, 2011.

I would now like to turn the conference over to Kevin Jones.

Please go ahead, sir.

Good morning.

Welcome to the Hormel Foods conference call for the second quarter of fiscal 2011.

We released our results this morning before the market opened around 6 a.m.

Central time.

If you did not receive a copy of the release, you can find it on our website at www.HormelFoods.com under the Investors section.

On our call today is Jeff Ettinger, Chairman of the Board, President and Chief Executive Officer and Jody Feragen, Executive 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 a.m.

Central time today, May 25, 2011.

The dial-in number is 800-406-7325 and the access code is 4434269.

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

Before we get started with the results of the 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 affect 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 27 through 33 in the Company's Form 10-Q for the quarter ended January 30, 2011, which was filed with the SEC on March 11, 2011, for more details.

It can be accessed on our website.

Now I'll turn the call over to Jeff.

Good morning, everyone.

We are pleased to report another excellent quarter in terms of both earnings and sales.

Earnings for the second quarter were $0.40 per share, up a solid 18% over adjusted earnings of $0.34 a year ago.

You may recall that our adjusted results last year excluded one-time charges totaling $0.05 per share associated with the Valley Fresh plant closing and the change to the healthcare laws.

Total dollar sales were up 15% over a year ago and we were again able to register sales gains in all five segments.

This is the fifth consecutive quarter we have achieved year-over-year sales increases in every segment.

On the earnings side, this quarter once again demonstrated the benefit of our balanced business model as the strong performance by our Refrigerated Foods, Jennie-O Turkey store and all other segments more than made up for softer results from our Grocery Products and Specialty Foods segments.

I will now take you through each segment.

Our Grocery Products segment reported a segment operating profit decrease of 9% from our adjusted earnings a year ago and a dollar sales increase of 1% for the second quarter.

We saw solid sales growth from core products such as SPAM luncheon meat, Dinty Moore stew and Hormel Mary Kitchen hash.

But distribution costs associated with the launch of our Hormel Compleats kits line of microwave meals and softer sales of our existing line of Compleats microwave meals hindered our results in the quarter.

We remain pleased with the performance of our MegaMex food venture as increased sales of our Mexican food products continue to contribute positively to our overall results.

Our Refrigerated Foods segment had another strong quarter with segment operating profit up 27% aided by higher pork operating margin.

Sales were up 16%.

On the retail side, we enjoyed strong sales of Hormel party trays, Hormel Natural Choice deli products and Hormel Cure 81 premium hams.

Our Hormel Country Crock line of side dishes also contributed nicely to our sales growth.

The food service trade remains choppy with areas of strength and areas that remain soft.

Sales of our branded products, including Natural Choice deli meats, Austin Blues BBQ products and Cafe H ethnic products all grew during the quarter.

Our Jennie-O Turkey store segment had another outstanding quarter with segment operating profit up 45% and sales up 25%.

Jennie-O's results came from higher commodity meat prices, improved efficiencies throughout the entire business and vibrant sales of value-added products.

Export sales of dark meat from Turkey also remained strong.

Sales increased for Jennie-O in all three value-added areas -- retail, food service and deli -- led by retail tray pack fresh turkey, turkey burgers and turkey bacon.

We continued to generate excellent exposure for the Jennie-O Turkey store brand through our sponsorship of the Biggest Loser reality TV show.

Segment operating profit at our Specialty Foods segment declined 11% on a net sales increase of 4%.

Segment profit results were hurt primarily by higher raw material costs and the unit is in the process of catching up to these with its pricing.

For Q2, stronger sales of private-label canned meats, sugar and blended products offset softer nutritional jar sales.

Our All Other, mostly international, segment had an impressive quarter with segment operating profit up 104% on a sales increase of 45%.

Strong exports of fresh pork and of our SPAM family of products were the principal drivers of the improved results for this segment.

Looking forward, we expect higher raw material costs to continue to impact our value-added products in the second half of the year.

We are working to offset those increased input costs through a combination of improved productivity and through pricing though we anticipate a lag effect.

We will also closely monitor the impact of higher pricing on our volumes.

We anticipate higher hog costs as we get into warmer weather.

Pork operating margins have not been quite as strong lately as they were in recent quarters.

We expect them to remain higher than historical levels, but lower than a year ago during the second half.

The turkey industry is in good balance and we expect that status to continue.

However, we anticipate Jennie-O Turkey store's second half to be more difficult as we cycle in higher grain costs.

Notwithstanding these challenges, I am most impressed and encouraged by our outstanding sales momentum across all sectors of the business.

This means we are connecting with consumers through both our newer and traditional productlines and it bodes well for our continued success.

Our leading brands are an important part of this success and we plan on continuing to invest in those brands.

For example, we will continue to support our Compleats productline, as well as Hormel Natural Choice and Hormel Pepperoni products as part of the Life Better Served Hormel brand advertising campaign during the second half of the year.

We also plan to resume our Make the Switch marketing campaign for Jennie-O Turkey store this summer and fall.

Taking these considerations into account, and given our strong results in Q2, we are again raising our full-year guidance range, this time to $1.67 to $1.73 per share from the previous range of $1.62 to $1.68 per share.

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

Thank you, Jeff.

Good morning, everyone.

For the second quarter of 2011, GAAP net earnings totaled $109.6 million, or $0.40 per share, compared to adjusted net earnings of $91.3 million, or $0.34 per share a year ago.

GAAP net earnings for the first half of fiscal 2011 totaled $258.4 million, or $0.95 per share, compared to adjusted net earnings of $202.5 million, or $0.75 per share a year ago.

As Jeff mentioned, adjusted earnings for 2010 exclude the impact of one-time charges related to the closure of our Valley Fresh plant and tax charges related to changes in the healthcare laws.

These one-time charges resulted in a total adjustment to diluted earnings per share of $0.05 for the second quarter of 2010.

A table reconciling our adjusted earnings calculation to earnings calculated under generally accepted accounting principles was included in our earnings release.

Dollar sales for the second quarter totaled $2 billion compared to $1.7 billion last year, a 15% increase.

For the first half, dollar sales increased 13% to $3.9 billion.

Volume for the second quarter was 1.2 billion pounds, up 7% from fiscal 2010.

Year-to-date, volume was 2.5 billion pounds, up 5% from fiscal 2010.

Selling, general and administrative expenses in the second quarter were 8.2% of sales compared to 8.6% last year.

Year-to-date, SG&A expenses were 7.9% compared to 8.5% last year.

We expect selling, general and administrative expenses to be approximately 8% of sales for the full year.

Interest expense for the quarter was $7.2 million compared to $6.6 million last year.

Year-to-date, interest expense was $13.8 million compared to $13.1 million last year.

We expect interest expense to be approximately $22 million to $23 million for fiscal 2011.

Our effective tax rate in the second quarter was 33.9% versus 40.7% in fiscal 2010.

The 2010 tax rate was higher due to the one-time impact of healthcare legislation changes and the tax treatment of Medicare Part D reimbursement.

The year-to-date effective tax rate was 34.3% compared to 36.8% last year.

For fiscal 2011, we expect the effective tax rate to be between 34% and 35%.

The basic weighted average number of shares outstanding for the second quarter was 267 million shares.

The diluted weighted average number of shares outstanding for the second quarter was 273 million shares.

We repurchased 770,000 shares of common stock during the second quarter and we have 7.5 million shares remaining to be purchased from the 10 million share authorization in place.

Depreciation and amortization for the quarter was $31.1 million compared to $30.6 million last year.

For the first half of the year, depreciation and amortization was $62.2 million compared to $61.5 million last year.

We expect depreciation and amortization to be approximately $125 million in fiscal 2011.

Total debt at the end of the quarter was $600 million, of which $350 million will be repaid on June 1, the maturity date for that bond.

We issued $250 million of 10-year bonds in April of this year.

Capital expenditures and property acquisitions for the quarter totaled $19 million compared to $22 million last year.

For the first six months of the year, capital expenditures and property acquisitions totaled $43 million compared to $40 million last year.

For fiscal 2011, we expect capital expenditures and property acquisitions to be approximately $100 million to $110 million.

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

(Operator Instructions).

Akshay Jagdale, KeyBanc Capital Markets.

Thank you.

Good morning.

Jeff, can you talk a little bit about Turkey?

You did say you feel like it is in good balance, supply and demand.

(inaudible) are up slightly, but can you just tell me -- give us more detail on the supply and demand outlook over the next 12 months that you have and perhaps compare that to fiscal '08 or 2008?

Well, I'm not sure I can go all the way 12 months out.

We certainly see egg set and poult placement numbers that take us through the end of this year and a little bit into next fiscal year.

But right now, on the basis of those numbers, on the basis of what we see in terms of production in the industry and on the basis of cold storage numbers, coupled with still strong demand on the export side, we feel that the amount of product going to market will support solid pricing on a commodity basis and there seems to be good demand for it.

In turn, that is helpful on the value-added side.

Clearly, that is our emphasis is selling products in a value-added form.

There, we are challenged with having to continue to look at advancing pricing because the inputs have gone up so significantly.

But it is probably a little bit easier to do that in an environment where the commodity markets are supportive of that kind of pricing.

And just in contrast to fiscal '08 when you had commodities [stop], I guess similar to what we have seen, I mean can you just give us a sense of how you are feeling about that business looking forward now compared to like '08?

I guess I am feeling, when I look at the aggregate of the business of -- very solid about it.

I think there is a lot of efficiency gains that our team up there has brought to the market that is very helpful.

And then we've really stepped up our efforts on the branded side.

We are really the only player out there doing advertising in turkey and we are doing more than ever if you look at both last year and our plans for second half of this year and it is paying dividends.

I mean we see very strong value-added sales, which ultimately is what we are trying to accomplish there.

Great.

And last one on Grocery Products, you mentioned last quarter that you were trying to get through pricing and looking at the top line this quarter, it seemed like there was some resistance.

Can you just tell us what you are seeing out there competitively in the marketplace and how the pricing is flowing through relative to your expectations?

And also, related to that, maybe comment on fresh pork spreads.

I know you made some comments about where you expect them to be, but there has been some demand resistance on the fresh side as well and I wonder if that is similar to what you have seen in the value-added side?

This is Kevin.

I'm going to ask Jeff to respond to the Grocery Products question and then I think we need to move on.

So on the Grocery Products side, some of the pricing actions we took were undertaken later in the quarter and so the full-quarter results are not reflective of all the pricing activity that had been announced there.

I wouldn't say we are getting resistance in the form of a refusal by the customer to go with the pricing that we are suggesting.

However, it isn't across the whole portfolio.

For example, we have cited to you a couple of times in the area of Hormel Compleats that we are still working on new things with that brand.

Those of you who are able to come to Investor Day are going to see some new label design and some other new product samples and so forth related to Compleats.

So that is a fairly key component of grocery pricing.

We have not taken pricing on that because we have not been satisfied with the sales thus far.

Perfect.

Thank you.

Farha Aslam, Stephens.

Hey, good morning.

Just continuing on the Grocery Products segment.

Jeff, you had mentioned that you had taken pricing, but there is going to be a lag in terms of when input costs flow into the P&L versus when pricing flows in.

Do you think that that catches up in the third quarter or is that more of a fourth-quarter event?

Well, on the grocery side, I think we will start seeing improvement in the third quarter.

The comment about lag really was sort of an across-the-board comment because, even at a Jennie-O, it has just been a steady wave of an upward market in terms of the inputs, and on top of that, you have hedge positions that are rolling off that are less favorable.

So the team has done a good job thus far obviously in trying to keep up with their pricing, but there is more to do.

Then, in that case, it is not always a day-to-day exactly a matchup to when the costs roll higher.

Okay.

So then in Refrigerated, do you feel like the pricing in your Refrigerated Foods has caught up with the commodity or is there more work to do?

There is probably some more work to do there as well.

Refrigerated also has the $1 billion food service portfolio within that group and the food service group is much more current on their ability to price.

The retail side is certainly on top of it as well, but, in that case, we still have some actions yet to come.

And just on volume, how has volume held up as you have taken pricing?

Is that in line with the elasticity you expected, more, less?

I would say, to be honest with you, it has been better than traditional elasticity would suggest.

And I would think the reason for that, in large case, would be the whole market is encountering it instead of just doing an elasticity -- okay, you want to just take your product up, everyone is in this boat.

But on top of that, I mean I think the vibrancy of what we have to offer.

I mean we have some very unique franchises in terms of party trays and Natural Choice and entrees and so I think that is supportive of the moves we have been making as well and that is why volumes continue to grow, as well as the extra price kick on top of that.

Thank you.

And final question is just your M&A activity.

You have a very low debt structure and a lot of flexibility.

Could you share with us how robust M&A activity is in your categories and are there any near-term opportunities?

This is Jody.

And of course, we don't talk about near-term opportunities that we are looking at, but I would say the deal structure has picked up.

I would also add that the multiples that people are paying have maybe not turned back to the frenzy days, but they have become a little bit more challenging for some strategic buyers versus financial buyers.

So we continue to look.

I will be using a portion of that cash to pay down the bonds that mature on June 1 and we continue to look for opportunities to invest in our businesses organically or through M&A.

We are proud of our dividend history and we also have some room left on our share repurchase authorization.

So those are the priorities.

Okay, thank you.

Diane Geissler, CLSA.

We are having a hard time hearing the operator.

I'm sorry.

Hi, can you hear me?

It's Diane.

Hi, Diane.

Hi.

Good morning.

So I guess I think the major concern the market has with regard to your earnings, which have been fantastic now for pretty much quarter in, quarter out over the last couple years, is the sustainability.

You do have some higher input costs that are going to roll into your P&L.

Can you just talk about your long-term growth target and how do you match these results given the environment out there, the higher commodity environment, whether you are talking about higher grain that we will see in turkey and/or the higher inputs that we are seeing in Grocery Products, which caused a little bit of margin compression there?

Can you talk about how do you stay on your growth track of whatever high single digit, low double-digit earnings growth when you just kind of keep having this sort of outsized profits quarter in and quarter out, whether it is Refrigerated Foods or turkey done better or whatever?

Well, our long-term growth goals remain 5% on (technical difficulty) and 10% on the bottom line and by the time we are done with this year, I think if you look kind of at a five-year CAGR, we are probably close to 6% top line and maybe closer to 10% or 11% on the bottom line.

So we have been able to attain those.

I guess that is part of what we are suggesting here with our total guidance is clearly the first half has been kind of a blowout, very strong half and so the second half will be more moderate, but we kind of try to take things year-to-year.

And so when you look at both the sales growth and the middle of our guidance range now for the year, we will end up being quite happy then with where 2011 ends up.

And we are not in a position quite yet to start talking about 2012.

But clearly in terms of momentum of some of the franchises, we are very excited about, whether it is ranging from the Mexican food portfolio to value-added products to Jennie-O to some of these more innovative items in the Refrigerated portfolio.

We have a lot of good things happening.

But there is nothing within what you are looking at, and I appreciate fiscal '12 doesn't start for another six months, but there is nothing within your viewpoint about your businesses that suggests that this is going to be a peak year and then earnings are going to be flat to down in 2012?

I am just not going to be able to provide a color at all at this point for 2012.

Okay.

Thank you.

Ken Zaslow, Bank of Montreal.

Hey, good morning, everyone.

Can you talk more about the pricing in terms of your ability to get it?

Are you getting it through list increases, less promotional activity, new product mix?

And if I think about it, can you talk about where the momentum will continue beyond the next few quarters on the pricing environment?

Well, the different lists you suggested really are all elements of where it can come from.

In some cases, we will talk retail first.

There clearly have been list price increases.

In some cases, there has been some modification, other promotional formulas.

On the food service side, it tends to be a much quicker response to what the markets really are.

And then as we talk about I think each quarter, I mean we have a decent amount of our portfolio, particularly within Refrigerated Foods, that are traditionally market-moving type items -- bacon, ham, fresh pork -- that always move with markets and so that pricing certainly has been responding.

We have catch-up still to do, especially as we talk about some of the protein pieces that are dealing with the big spike in grains as we roll off the more favorable hedge positions.

We still have more to do in the second half of this year and potentially even into the early part of 2012.

And then it is just kind of hard to tell right now where is that going to level off.

Obviously, all of us hope, at some point, if we can get to a more flat environment for the next year and catch up on that, that would be advantageous.

I guess I am going to ask a second question, but it is really not that -- the question I'm asking is, all right, for the conference that you are going to be having at the Analyst Day, will you start giving us some sort of color for 2012?

And the reason I ask and it goes to Diane's question as well is clearly consensus is pretty clear that they don't believe that your numbers could actually grow year-on-year.

So is there any context, and I appreciate you are not going to give any context today, but will you start laying out a foundation for growth in 2012 that we can start to build onto?

How do you expect to let the market know about this 10% growth possibility or not possibility or how do we think about 2012?

When will you start letting us kind of get closer to that 2012 outlook?

Will it be at the June Analyst Day?

We will give consideration to some way to describe what we are thinking about 2012, but we are also trying to be respectful of our own process.

Our internal teams have not submitted their strategic plans to our management yet.

Our Board has not reviewed it yet.

So I mean typically we give you that number in November -- in our November call.

But if there is some way we can provide a little added color, to both your point and Diane's, at Investor Day, we will take that into consideration to see what we can do.

That would be greatly appreciated.

Thank you.

Lindsay Drucker Mann, Goldman Sachs.

Thanks, good morning, everyone.

First on Refrigerated Foods and just thinking about cutout margin, you guys, and Jody, in particular, you have been vocal about the fact that you didn't believe that the run rate levels were sustainable that we saw over the past 12 months or so, but there wasn't a real clear reason as to why we might get some margin compression and here we are today with a little bit of giveback on the margin side.

So curious if you can shed some light on what has changed over the past several weeks versus a very strong performance that we have been seeing over the past several months.

Sure.

It is nice to finally be a little bit more right than I was for the last prior quarters.

I think pricing has a lot to do with demand and as that continues to move higher, at some point, you hit a push point with the balance between what we are offering and the rest of the protein markets are offering.

And obviously, hog costs generally used to be related to the cost of raising those animals and that seems to be reflective of what the environment is looking at.

Although I see in the summer that they probably will be less profitable for the producer.

So I don't have a silver ball on where they are going in the future, but I would expect them to be more -- definitely less than the robust margins that we had in the second half of 2010, probably higher than what our old five-year average was.

And I am not sure that five-year average is going to be the new norm going forward.

So we will have to wait and see.

So your view is that this is really a demand pushback issue relative to high prices rather than any change on the production side?

I mean we do see hog supply being down, but only about a 1% for the year and that is kind of where the industry is at.

So the market seems to be in good balance for the pork industry.

It is (technical difficulty) robust export demand and at some point, if that gets too expensive, I would sense there would be some pushback.

Okay, thanks, that's helpful.

And then just on Jennie-O, given the low levels of corn inventory that we are looking at today, and the very late start to planting season for much of the Corn Belt, are you guys concerned at all about availability of corn supplies in September, October?

When you say at all, I mean, yes, we would be concerned in an extreme situation.

I think that has been one of our concerns about a national policy that, within a 10-year timeframe, gobbled up a major component -- went from 3% of the corn crop going to ethanol to almost 40% this year.

But most outlooks right now would suggest that things will stay tight and that pricing is still going to be quite high, but that we will have a sufficient supply to continue to meet our needs.

Okay, and then last one before Kevin lays down the law here on how many questions I have, on the export side, very great quarter.

How much of this do you think is a function of specific to Japan some restocking related to the implications of the earthquake?

Well, you're referring to export in terms of what our international results were?

Yes.

Okay, yes.

For us, international, Japan is in significant, particularly in fresh pork.

We do next to nothing there.

We are selling SPAM in Japan and have launched actually a redoubled effort to have that gain better distribution in Mainland Japan and that is off to a good start.

We did enjoy strong results in Korea in terms of our export sales, so the big two drivers of international results were SPAM sales in multiple markets and then pork exports in Mexico and Korea in particular.

Okay, thanks.

Eric Larson, Soleil Securities.

Hi, everybody.

How are you today?

Hi, Eric.

Two real quick questions, one question in two parts I guess is how I should phrase it.

First, in your turkey business in the quarter, were there any positive mark-to-market gains from your hedge positions?

I would assume that most of that took place in your first quarter and you are now more apples-to-apples?

That is correct.

Okay.

Second question, let me kind of go back in the opposite direction on this.

What do you think it would take from the fundamentals in the overall market, i.e., either supply or demand, to either maintain your hog and turkey margins today or go higher?

I know that you are more muted for your second half, which makes sense, but to maintain the current margins in this environment, pork cutout margins and turkey margins, what would it take to keep at this relatively high historical margin level for those two businesses?

Well, on the turkey side, clearly what we rely on in the long run is taking products and moving them up our value ladder.

So the more we can enjoy robust sales of our turkey burgers and bacon and tray pack, that in turn will be supportive of the long-term operating margins of the division.

We recognize that the commodity markets are on the higher side right now for turkey.

So that has been supportive of our results and we also recognize the uncertainty of how high is up in terms of these feed costs.

I think we have done a good job thus far in pricing to cover the run-up in feed cost, but we also know we have more coming at us.

Jody is going to talk to you about the Refrigerated segment.

Refrigerated includes a lot more than just pork operating margins, but because they have been so favorable, that has been a big driver, but we do tend to want to focus on our value-added businesses.

But I guess if I were to see those margins actually expand from where they had, you would have to see quite a bit more supply of hogs come into the market and we are not seeing that.

I would think, in today's environment, with the high cost of grains and particularly if you look out into the future, it looks like a less profitable venture to get into.

So the supply, as well as the demand side of things and at what point do the prices get too high for a lot of the robust exports to continue also depends on the dollar too.

So lots of moving parts in that equation.

Okay, thank you much.

(Operator Instructions).

Ann Gurkin, Davenport.

Good morning.

I have two questions, one starting with Jennie-O.

If I remember correctly, you all were very promotional in the second half last year.

Should we see that kind of level of promotion this year and how is the sell-in going for the holiday season for Jennie-O?

You will see a similar element.

It is not quite as high in the second half this year.

This year, we ran a little bit of it earlier in the year.

So it is on an annual basis, so it will be close in terms of the advertising spend.

In terms of the holiday sell-in, that was one of the reasons why the Jennie-O volume was so strong in the second quarter is that, given that markets are robust and that customers were ready to make moves on it, we ended up going ahead and selling a higher amount of our inventory on a current production basis as opposed to putting it in cold storage and selling it late in the year.

So we are doing quite well in terms of being in a position to ultimately sell through our full inventory by the end of the year.

Great.

And then just on general (inaudible), as you look to the second half, are you now going to need to increase prices again or more than you thought you would need to say looking back at the start of the fiscal year?

Yes.

I mean it just keeps ratcheting up it seems like, particularly on the sides where we have the direct input exposure.

And so clearly we are looking at second round (technical difficulty) cases of the franchise.

That's great.

Thank you very much.

Robert Moskow, Credit Suisse.

Thank you.

The way I was looking at fiscal '12 is I was trying to look at -- just isolate two things, the packer margins on a dollar per head basis, which you say have been at record highs and are now somewhere in between the average and record levels.

And I want to know if you could just give me order of magnitude, where do you think your packer margins are right now?

Are they around $10 a head, $11 a head and what do you think the five-year average is?

And then the other thing I was just trying to look at is try to make some assumptions on where your grain costs are today and where they are probably going to be six months from now based on how high grain prices are?

Is there any way you can give me kind of an order of magnitude on those two things?

Thanks.

Packer margins clearly have been quite high as we have talked about.

At least for the second half of this year, we are expecting them to be higher than the historic norms for that time of year, but not as high as what we were seeing in both the first half of this year or during the very high levels of last year.

Probably don't have a specific number for you in terms of, okay, well, what do we expect in terms of less return on the packer margin next year.

But again, we always point back to -- it is a multiheaded monster, if you will, and within Refrigerated Foods, we have depressed margins, in some cases, on some of the value-added items because, in part, these inputs have been so high.

So we are not necessarily banking year in and year out on really high (technical difficulty) to drive results for Refrigerated Foods.

In terms of grain costs, I mean we would -- you get used to new norms.

We would love to have the markets at least settle in at some point and moderate at a certain level.

Grain markets have been incredibly volatile lately period with so many speculators in there and with such a tight supply situation.

And then on top of that, I mean this is always the time of year where it is the most volatile.

Everybody is everyday what was the weather, what are you hearing about planting, etc.

So it is high right now.

We certainly have a hope that as the crop comes in things may moderate some, but we don't have that visibility right now.

All right.

So on a grain basis, just order of magnitude, Jeff, what is running through your numbers right now?

Is it in the $5s, on a $5 per bushel basis, $6 per bushel?

Is there any way you can give us a sense?

All in, it is probably in the $5s.

High $5s I would say.

Okay, great.

Thank you very much.

Diane Geissler, CLSA.

Hi, it's me again.

Could you just talk about how much pricing did you realize in the Grocery Products segment in the second quarter and what is your -- I realize you are not pricing everything in your portfolio, but what are your expectations for the second half?

And also for the turkey division, if you could give some break between how much was pricing and was there any volume lift in the turkey division in the second quarter?

Well, on the second one, it would be an easier question.

The answer is yes, definitely.

We saw volumes increase across the value-added franchises, as well as pricing.

And it was a really pretty consistent picture to what the numbers we are reporting counting everything.

I mean the whole -- if you look at the total Company, volumes were up 7% and net sales were up 15%, so you have got -- the differential on sales is both mix and some price increases, but the volumes were quite solid across the board.

So if I look at turkey being up 25%, what would be the breakdown on the volume piece versus price mix?

There, you do start factoring in what we were just mentioning that we sold an additional amount of whole turkeys, which they are not a high-margin contributor, but they just happened to move at an earlier timeframe.

So really I think Jennie-O ended up in the high single digit, low double-digit range in terms of the products, the value-added products we are really looking to sell in terms of the growth that we saw.

Okay.

And pricing in Grocery Products, what did you realize in the second quarter and what are your plans for the second half?

We probably were halfway there in terms of what we were trying to accomplish and what we want to see in terms of a full quarter.

But there is a little caution there in terms of that -- well, that was trying to catch up to what we understood the cost position to be when we announced the price increases and as some of the other earlier questions have indicated, there has been additional pressure in some of those areas.

And so for example, we have already announced a second round SPAM price increase at this point going forward here.

So we still have work to do as we go through the second half of the year on catching up to that.

Okay, so should we expect a 2% price increase on the top line, 3%?

Can you give me an order of magnitude?

Maybe Kevin can in a follow-up.

I don't want to just throw a number out and I don't have one offhand.

Okay, all right.

I will follow up with Kevin.

Lindsay Drucker Mann, Goldman Sachs.

Hi, thanks for the follow-up.

Just had two quick ones.

A couple headlines recently on GIPSA and the political process there.

I was just curious if you had an update for us on where we are?

Well, what I hear, I was just in Washington a couple weeks ago.

I mean they are going through with the economic study.

What I hear is that clearly a lot -- we would love it if they would withdraw the thing altogether.

That is probably not what I am hearing is going to happen.

What I hear is there will be a new submission, new draft that will have some different elements to it and we will just have to see if there are elements that make sense and ultimately are more palatable to the industry.

But it has been a frustrating proposed reg.

A lot of the elements of the initial reg were things that Congress specifically decided not to put into the law and through regulation folks back, they were trying to jam it in anyways.

There was just a letter that was co-authored by 135 different folks in the House of Representatives specifically talking to the Secretary about needing to make sure that the GIPSA new regs are much more in accordance with where the law was from the last farm bill, but it is something the industry is certainly closely monitoring.

Okay, thanks.

And then on the turkey side, curious how proactive you guys can be about managing the supply dynamic to try and help turkey prices keep pace with some of this extreme grain inflation once your hedges roll off.

Well, all we can do, we can manage our own system and we do that.

I mean we cut back on our supplies here about 18 months to 24 months ago and those have rolled through since.

There was another time earlier in the last decade when the turkey industry got out of balance and again, we were quick to make sure that we brought our supply in line.

And then frankly, our key driver internally is not just the macro factors, but also, well, how much meat do we need to support the value-added products.

And we talked about wanting to make sure we, over time, get more consistent results out of Jennie-O by better matching that supply up with our value-added products.

So right now, we are in a pretty good match.

I mean if we continue to see as robust growth as we have with our value-added items, there may come a time when we need a little bit more supply just to support those.

But we are not in that picture right now.

Okay, thank you.

I am showing no further questions at this time.

I will now turn the call back over to management for any closing remarks you may have.

Thank you, everyone, for participating in the call.

Feel free to call me with any follow-up questions.

This is Kevin Jones.

And have a great day.

Thank you.

Ladies and gentlemen, that does conclude our conference call for today.

You may now disconnect.