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Hormel Foods (HRL)

Q2 2012 Earnings Call

May 23, 2012 9:30 am ET


Kevin C. Jones - Director of Investor Relations

Jeffrey M. Ettinger - Chairman, Chief Executive Officer and President

Jody H. Feragen - Chief Financial Officer, Executive Vice President and Director


Farha Aslam - Stephens Inc., Research Division

Christine McCracken - Cleveland Research Company

Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Kenneth B. Zaslow - BMO Capital Markets U.S.

Robert Moskow - Crédit Suisse AG, Research Division

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Ann H. Gurkin - Davenport & Company, LLC, Research Division



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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hormel Foods Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, May 23, 2012.

I would now like to turn the conference over to Kevin Jones, Director of Investor Relations. Please go ahead, sir.

Kevin C. Jones

Good morning, everyone. Welcome to the Hormel Foods conference call for the second quarter of fiscal 2012. We released our results this morning before the market opened around 6:30 a.m. Eastern Time. If you did not receive a copy of the release, you can find it on our website at 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. 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, May 23, 2012. The dial-in number is (800) 406-7325, and the access code is 4535051. 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 28 through 35 in the company's 10-Q for the quarter ended January 29, 2012, which was filed with the SEC on March 9, 2012. It can be accessed on our website. [Operator Instructions]

Now I will turn the call over to Jeff.

Jeffrey M. Ettinger

Thanks, Kevin, and good morning, everyone. We are pleased to announce a record quarter for both earnings and sales. Earnings for our second quarter were $0.48 per share, up 20% from a year ago, 4 of 5 segments contributed to these results. Sales increased 3% during the quarter and again, we're up in 4 out of 5 segments. Total volume declined 2%, though much of the decline was due to reduced sales of commodity meat in both our Refrigerated Foods and Jennie-O Turkey Store segments.

This quarter once again demonstrates the benefit of our balanced model, as the strong performances by our Jennie-O Turkey Store and All Other International segment and year-over-year gains by Grocery Products and Specialty Foods, more than made up for the softer results by our Refrigerated Foods segment. I will now take you through each segment.

For Grocery Products, segment profit increased 10% on a 1% sales increase. We again experienced softness in center of the store sales during Q2, but we did see some improvement in comparison with the first quarter. Sales of our SPAM family of products grew during the quarter, aided by our fresh round of advertising, featuring a new animated character, Sir Can-A-Lot. It is noteworthy that this product line is celebrating its 75th anniversary this year and is still growing, both in the U.S. and abroad. Sales of our Compleats microwave meals were soft, along with the category.

Our new product packaging and several new product varieties have still not been fully reflected in retail stores. We will continue to advertise our Hormel brand, which features this product line, along with Hormel Natural Choice deli meat and Hormel pepperoni. We are pleased with the growth of our MegaMex food product line led by Wholly Guacamole refrigerated dip and [indiscernible] Salsa. We have also rolled out some new varieties of our Wholly refrigerated salsas. Our Refrigerated Foods segment reported a 25% decline in operating profit due primarily to unfavorable pork operating margins. The company overall did benefit during the quarter from lower pork raw material cost for our value-added products, benefiting foodservice and meat products within Refrigerated Foods.

Sales for our Refrigerated Foods segment declined 1% in the quarter, reflecting lower sales of commodity pork. The team reduced harvest level during the quarter in order to limit our exposure to the unfavorable pork operating margin. Sales of retail value-added products grew, led by Hormel Natural Choice deli meats, Hormel party trays, Hormel sliced pepperoni and our Di Lusso Deli products. Foodservice sales were also higher, with solid gains from Hormel Natural Choice deli meats, Café H ethnic products and Hormel premium bacon.

Our Jennie-O Turkey Store segment had another outstanding quarter, with segment profit -- operating profit up 50% on a sales increase of 7%, driven primarily by expanded sales of our retail value added products. Jennie-O Turkey Store's results also demonstrate efficiency gains throughout its farms, plant and supply chain. Sales of our Jennie-O Turkey Store fresh tray pack items and turkey burgers were particularly strong, as we continue to benefit from our Make the Switch advertising campaign late last year.

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