Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

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

Jody H. Feragen - Senior Vice President and Chief Financial Officer

Kevin Jones - Director of Investor Relations

Analysts

Farha Aslam - Stephens Inc.

Akshay Jagdale - Keybanc

Diane Geissler - Alpha

Christina Macglone - Deutsche Bank

Robert Moskow - Credit Suisse

Eric Larson - Soleil Securities

Ann Gurkin - Davenport & Company LLC

Jonathan Feeney - Janney Montgomery Scott LLC

Hormel Foods Corporation (HRL) F4Q09 Earnings Call November 24, 2009 9:30 AM ET

Operator

Ladies and gentlemen thank you for standing by and welcome to the Hormel Foods fourth quarter earnings conference call on today, 24 November 2009. (Operator Instructions)

I will now hand the conference over to our host Mr. Kevin Jones. Please go ahead sir.

Kevin Jones

Good morning everyone. Welcome to the Hormel Foods conference call for the fourth quarter of fiscal 2009. We released our results this morning before the market opened around 6:30 am 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, Senior Vice President and Chief Financial Officer. Jeff will provide a review of the operating results for the quarter and the year. Then Jody will provide detailed financial results for the quarter. The line will then 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, November 24, 2009. The dial-in number is 800-406-7325 and the access code is 4173819. 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 34 in the company’s 10-Q for the quarter ended July 26, 2009, which was filed with the SEC September 4, 2009, for more details. It can be accessed on our website. Now I’ll turn the call over to Jeff.

Jeffrey Ettinger

Thank you Kevin and good morning everyone. Our priority in fiscal 2009 coming off just our third down year in 26 years was to get back on track in terms of earnings growth. We are therefore pleased to see that our strong earnings momentum from the past two quarters carried through the fourth quarter as well.

Earnings per share for Q4 increased to $0.77 up a substantial 54% from a year ago and all five business segments contributed to the results. Also impacting this result were investment income and non-operating items which Jody will address later.

For the full year our earnings per share were $2.53 up 22% from last year, total segment operating profit was up 7% from a year ago. Total company sales for the quarter were $1.68 billion down 10% from a year ago. Part of this substantial decrease is attributable to the planned reduction of turkeys at our Jennie-O Turkey Store segment, decreased sales revenue due to lower commodity prices in our pork and turkey complexes, greater promotional spending, our continuing weak food service sales environment, the loss of Carapelli sales and some additional intentional product rationalization.

In addition our top-line was impacted more significantly in Q4 by changes in consumer spending. For the full year, sales were $6.53 billion down 3% from 2008. I will now take you through each segment.

For our grocery product segment, segment operating profit was up 12% and sales were down 12% for the fourth quarter. For the year segment operating profit was up 9% and sales were down 2%. Segment profit was aided by lower raw material costs and reduced freight and warehouse expenses. We also achieved an improved product mix as certain less profitable sales were rationalized. Strong sales of Hormel Chili added to the improved results for grocery products.

The reduction in sales in this segment resulted in part for the discontinuation of the Carapelli Olive Oil business and also from continued weakness in the microwave category, increased promotional spending overall and some product rationalization. On top of this we experienced flat results for this quarter from such franchises as Spam Luncheon Meat and our Mexican portfolio which generated solid top-line growth on a full year basis.

Our Refrigerated Foods segment finished a strong year with an excellent quarter, posting segment operating profit of 23% and sales declined 9%. For the full year, segment profit was up 7% and sales were down 2%, and improved mix and lower raw material, freight and warehouse expenses more than offset lower cut off profitability compared to a year ago. Lower primal values and a continued weak food service environment contributed to lower sales.

Although our meat products group posted a sales decline overall for Q4, we did generate strong sales at Hormel Pepperoni, Lloyd’s Barbeque products, DiLusso Deli Company products and prepared deli foods. Foodservice sales remained weak during the quarter.

Our Jennie-O Turkey Store segment posted a 6% increase in segment operating profit in the quarter reflecting lower feed costs due to our planned cuts in turkey production and a decrease in the cost per ton. Sales of Jennie-O Turkey Store declined 10% reflecting the reduced production levels and lower market pricing.

For the full year, segment operating profit was up a 11% and sales were down 3%. Industry supplies have continued to decrease and cold storage levels have begun to decline compared to a year ago. As a result we began to see improved commodity turkey prices at the end of the quarter.

Although value added sales declined over all by 3% during the quarter we saw strong sales at Jennie-O Turkey Store fresh tray pack products, pan roast and franks. The specialty food segment reported a segment operating profit gain of 9% and a sales decrease of 12% in the quarter. For the full year, segment operating profit was down 2% and sales were down 9%, down 11% excluding acquisitions.

Improved earnings in the specialty foods segment during the quarter were primarily driven by increased sales of private label products by our specialty products business and decreased freight and warehouse expenses. These elements more than offset continued weak sales of nutritional and ready-to-drink products in our Century Foods business. Results for Diamond Crystal were flat with a year ago.

Our all other segment which consist primarily of our international business had a strong finish reporting segment operating profit of 53% on sales down 13%. Our improved earnings in this segment resulted from lower raw material and freight expenses in addition to better currency exchange rates.

Pork exports remain challenging in light of bans resulting from the novel H1N1 virus still in place. For the full year, segment operating profit was up 2% and sales were down 2%. We are clearly pleased with our results from an earnings standpoint during the quarter and for fiscal 2009, the magnitude of the sales decline in Q4 was greater than we had expected and represents an area which will receive renewed focus in 2010.

To continue building on the success of our brands in fiscal 2010 we will increase our advertising spent level. This in conjunction with enhanced promotional efforts should allow us to maintain and grow market share. We are confident in our ability to restore top line growth on an annualized basis in fiscal 2010, over and above the revenue gains which will emanate from our MegaMex expansion. It may not happen right away but we expect to see this increase by the second half of the year.

During the first half of the year, we should continue to benefit from more normal input cost and from reduced freight and warehouse expenses. In the back half of the year we recognize we may see higher hog costs.

The turkey industry is seeing a return to balance between supply and demand which we believe will support improved earnings at our Jennie-O Turkey Store segment. We also expect improved results from both our specialty food and all other segments as improved sales in the former and more favorable currency exchange rates and improving export markets in the ladder should lead to better results.

We will face some difficult comparisons with the higher investment income from our rabbi trust results this past year and we will face higher pension expenses in 2010, and finally we recognize and have built into our plans the extra week in fiscal 2010. After assessing all of these significant factors affecting our business we are setting our fiscal 2010 earnings guidance range at $2.63 to $2.73 per share.

At this time I will turn the call over to Jody Feragen to discuss the financial information relating to the fourth quarter and fiscal 2009.

Jody Feragen

Thank you Jeff, good morning everyone. Earnings for the fiscal 2009 fourth quarter totaled $103.9 million or $0.77 per share compared to $67.8 million or $0.50 per share a year ago. Earnings for the 12 months for fiscal 2009 totaled $342.8 million or $2.53 per share compared to $285.5 million or $2.08 per share a year ago.

Dollar sales for the fourth quarter totaled $1.7 billion compared to $1.9 billion last year, a 10% decrease. Year-to-date for 2009 dollar sales were at $6.5 billion, a 3% decrease from last year. Volume for the fourth quarter was £1.2 billion down 3% from fiscal 2008, year-to-date volume was £4.6 billion down 3% from fiscal 2008.

Selling, general and administrative expenses in the fourth quarter were 8.5% of sales compared to 7.1% last year. Year-to-date, SG&A expenses were 8.7% of sales for 2009 compared to 8.2% last year. Advertising expenses were 1.1% of sales for the quarter compared to 1% in 2008. Year-to-date advertising expenses were 1.4% of sales compared to 1.5% in fiscal 2008. As just stated, we expect to see increased advertising expenses in fiscal 2010.

Interest and investment income was $2.2 million for the fourth quarter compared to a loss of $20 million in fiscal 2008. For the full year interest and investment income was $19.6 million compared to a loss of $28.1 million in fiscal 2008. Favorable market returns on our Rabbi Trust investments drove the improvement. We have transitioned this portfolio into more fixed returns investments to help limit our exposure to market volatility going forward.

Interest expense for the quarter was $6.7 million compared to $7.4 million last year. Year-to-date, interest expense is $28 million even with last year. We expect interest expense to be approximately $27 to $29 million for fiscal 2010. Our effective tax rate in the fourth quarter was 34.1% versus 41.9% in fiscal 2008. The year-to-date effective tax rate is 34.7% compared to 37.6% last year.

The effective tax rate in 2008 was negatively impacted by the non-deductible Rabbi Trust losses. For fiscal 2010, we expect the effective tax rate to be between 35% and 36%. The basic weighted average number of shares outstanding for the fourth quarter and full year was a 134 million, the diluted weighted average number of shares outstanding for the fourth quarter was 136 million shares and 135 million for the full year.

We repurchased 671,000 shares of common stock during the fourth quarter and we have 1.1 million shares remaining to be purchased from the 10 million share authorization in place. Depreciation and amortization for the quarter was $33 million compared to $31 million last year. For the full year depreciation and amortization was a $127 million up about $1 million from last year. We expect depreciation and amortization to be approximately $127-$129 million for fiscal 2010.

Long-term debt at the end of the quarter was $350 million, our short-term line of credit was repaid during the fourth quarter. During the quarter, we also made an additional $45 million contribution to our pension plans bringing our total contribution to over a $100 million in 2009.

Capital expenditures for the quarter totaled $26 million compared to $30 million last year. For the full year capital expenditures totaled $97 million compared to $126 million last year. For fiscal 2010 we expect capital expenditures to be approximately $140 to $150 million.

At this time I’ll turn the call back to Kevin.

Kevin Jones

I would just ask our sell side analysts to please little your questions to one question plus one follow up question and if you have any further questions to get back at the end of the queue. I apologize for the inconvenience but I just want to make sure everybody has an opportunity to ask questions. Operator, at this time we will turn this over to the question-and-answer portion of our call.

Question-and-Answer Session

Operator

(Operator Instruction) Your first question comes from Farha Aslam - Stephens Inc.

Farha Aslam - Stephens Inc.

Jeff, you had mentioned throughout your commentary that freight and warehousing was lower. Is that market conditions or is there something that Hormel is doing that is more structural?

Jeffrey Ettinger

I think it’s a combination of both. We clearly have seen market relief on some of the major fewer related costs. But our team has done a very nice job attaining logistics efficiencies in the operation and those should continue going forward.

Farha Aslam - Stephens Inc.

And so, if you had to kind of break down the profitability of that pieces, more structural, how much would you say we can translate into future years roughly?

Jeffrey Ettinger

I really, I mean, I have never done that. So I would really be having to wing it. So, maybe we can follow up with you at a later time to be able to quantify that a little bit more precisely.

Farha Aslam - Stephens Inc.

That would be great. One follow up, in terms of volumes that you see in your business going into next year particularly for refrigerated foods and your turkey division, any color on that?

Jeffrey Ettinger

On the question of volumes?

Farha Aslam - Stephens Inc.

Yes.

Jeffrey Ettinger

We plan to hold to the level of production cuts that we established at Jennie-O. So I would expect volume to be fairly flat at Jennie-O on an annualized basis in 2010. For refrigerated foods, our expectation is to see a decline in the later part of the year in terms of available supplies kind of what we had originally thought was going to happen in 2009 and so right now that’s what we’ve based our plans on.

Operator

Your next question comes from Akshay Jagdale - Keybanc.

Akshay Jagdale - Keybanc

So just wanted to just question a little bit on your guidance and what it implies for divisional EBIT growth. I mean If I run the math, and I may be off, but it implies about double digit earnings growth at the divisional level, if that’s correct and if I’m not if you could tell us what your modeling or sort of give us a sense of what type of growth you are expecting from the divisions that would be great.

Then just talk to, what your expectations are with each of the divisions. I mean from my perspective obviously turkey we should continue to see earnings growth there given the numbers we are seeing on the cold storage etc. But if you could give us a little bit more guidance on what you are expecting on grocery products as it relates to your marketing spent etc. that will be great.

Jeffrey Ettinger

Okay. At an operating level similar to what we discussed at Investor Day, we do expect to have stronger operating results than the total EPS figure would be. So we are modeling at kind of around 9% increase on a year-over-year basis at the segment level. Grocery, we kind of look at them versus their peer group and look at maybe a 6% level as being probably an appropriate growth rate to task that group with. The other groups we look at what we have articulated as our long term guidance which is kind of in the ballpark of our 10% goal.

From an advertising standpoint we did introduce ad campaign in the later part of 2009 for Jennie-O Turkey Store and for Spam, we are working on a new campaign for the umbrella Hormel brand, which will be hitting the marketplace probably in February and on an annualized basis we expect to increase our ad spending on a year-over-year basis in 2010.

Akshay Jagdale - Keybanc

Just one follow one for Jody, in terms of the cash, again I guess a good position to be in with about $3 a share in cash on your balance sheet. Can you just talk about cash allocation? Are you modeling anything for buybacks for next year or should we assume that the guidance just takes into account the same number of shares outstanding.

Jody Feragen

Obviously we intend to use our cash to return to our shareholders and certainly the dividend increase that we announced today starts that process. I would say the next we would really like to reinvest back into businesses to grow them.

Obviously we expect to see capital expenditures bump up versus where they were in 2009 as we were very deliberate about trying to put some cash on our balance sheet given the uncertain credit conditions in the economic conditions overall, so we will see those increase both to do some strategic investments on productivity level and the plans as well as just to get caught up on some of the normal repair and maintenance things that we do.

Then certainly we have a group that’s very dedicated to looking at possible strategic acquisition. I would hope that obviously we have nothing to talk about today, but I would hope that in the near future we would see something come to fruition there, and then as always we have available 1.1 million shares to be repurchased and we will do that in a very strategic as well.

So I don’t know that we specifically modeled a huge share repurchase into the EPS numbers that we have guided towards, but if we have cash we will deploy it as we should.

Operator

Your next question comes from Diane Geissler – [Alpha].

Diane Geissler - Alpha

Can we just talk about the sales line a little bit, particularly in the grocery products group. You highlighted several key factors and I understand that commodity exposure and what’s going on there. But could you talk about what you saw in the grocery products group in terms of what was the impact of Carapelli, what’s the impact of microwave, what was the impact of promotional, if you could maybe give us some sense of the scope and size there?

Jeffrey Ettinger

Okay. I mean those were roughly a quarter of the decline with Carapelli, a quarter of decline with added promos done, overall we saw some softness in terms of some of the franchises that earlier in the year has had very strong momentum.

So that clearly is one of our tasks of our team going forward is to restore momentum in those areas, and so, even beyond those one-time items there clearly was an effect, not just grocery product but the whole company had very strong sales in Q4 last year. I mean we reported I think was 11, 12% increase. So we were up against those sales.

We obviously don’t like to get sales from this kind of a situation, but last year there were a couple of significant hurricane incidents in the country that impacted both the grocery product sales and our food service sales in a positive way in 2008, which were obviously was not repeated in 2009.

Diane Geissler - Alpha

Okay. And then I guess just as a follow up on the promos spending on that piece. So what should we be looking for in terms of what you will have to spend back behind the products in grocery as you move into the early part of 2010?

Jeffrey Ettinger

Well, the one area that we are clearly still trying to get our footing with is microwave. We spend fairly aggressively against that category in the latter half of the year and we would anticipate continued efforts there until we find the way to get that franchise going against. Excluding that and excluding any comparable effects for MegaMex which will have some moving parts in terms of how that’s reported, otherwise promotional spending for grocery products should be consistent with the traditional franchise.

Operator

Your next question comes from Christina Macglone - Deutsche Bank.

Christina Macglone - Deutsche Bank

Jeff, I saw that guidance for ‘10 was better than kind of your tone at the Investor Day, maybe it’s just my impression but I’m wondering if anything improved since then or maybe what changed if anything changed?

Jeffrey Ettinger

Well, the overall range of both ‘09 result and our ‘10 guidance shifted upwards since we were talking at Investor Day, we did finish more strongly here and feel comfortable in our ability to deliver the 263 to 273 range that we’ve now established for 2010.

Otherwise I think what we are trying to indicate in Investor Day is clearly our long-term guidance that we have provided is that we wanted to grow our bottom line by 10% and we recognize even the range we have provided doesn’t do that at an EPS level and we come very close to doing that at a segment profit level for 2010, but with the head winds of that are run by trust and the added pension expense as we talked about in investor day, we thought that would impact our ability to bring all 9% down to the bottom line in terms of EPS.

Christina Macglone - Deutsche Bank

As a follow-up, I was just curious about, you talked about expanding that’s going to be flat in the fourth quarter is that more of a comp issue or what exactly is going on there and will it start to ramp up again.

Jeffrey Ettinger

I expect both of those franchise do well in 2010. the Mexican we have strong efforts as we now put the MegaMex adventure together, they have some sales successes that they have already generated they want some will ship Q1, some will ship Q2 but I’m expecting big things out of that operation. The Spam team has done an excellent job at rejuvenating that brand and connecting with more consumers and I’m looking at Q4 as more and immorally.

Operator

Your next question comes from Robert Moskow - Credit Suisse

Robert Moskow - Credit Suisse

I guess I have never seen margins so much higher than my expectation and sales so much lower than my expectation in a given quarter for Hormel and with grocery now just abut 20% in the quarter I remember Hormel used to put 20% margins pretty consistently, you know 6 years ago in grocery, can you give us some help here Jeff on what’s, is there a new margin structure for grocery. I just I feel like I’m off now by a factor of 300 and I think this business tends to be more predictable than that maybe as just as…

Jeffrey Ettinger

Well I think we have been kind of whipsawed the last couple of years, the last year it was in the form of plenty of sales and not much in the way of bring it or on bottom line and this year perhaps the pendulum as the year ended swung a little hard at the other direction, I don’t expect grocery to maintain the 20% level, I think we wanted the kind of incrementally increase it from the 16 that it had been into and back into the 17 and 18 range and clearly 20 is somewhat a product of a depressed sales number for that quarter versus obviously what the earning number turned out to be.

I’m looking at 2010 as we move into the year, reaching more to that equilibrium that the cost picture is fairly constant and what we have seen in 2009 and as we restore growth in the top line I think it should be hopefully a easier than follow on model our company

Robert Moskow - Credit Suisse

Do you thing 16 to 18 is the right range maybe little bit higher 17 to 18.

Jeffrey Ettinger

Yes I thing that’s what we would be comfortable, because I know a lot of the other package food companies have talked about that as kind of a target level and clearly we talked about wanting to increase our ad spending, grocery is one of the area that will come in and so we want to make sure we are continue to both grow the traditional franchises and have some ability to sponsor new items as they come out it within that portfolio and within our other segments.

Robert Moskow - Credit Suisse

Okay. And lastly, you are not alone in alone in facing challenges in Microwavable meals in this economy, and I think that the companies that are going to do well for the next year are going to be the ones that are prepared for a weak consumer spending environment, and are putting money in the right places. So, I was kind of surprised to hear that you dialed up the marketing on Microwavable meals in the back half. It sounds like it didn’t have the intended effect.

Do you feel like you are kind of chasing after a consumer that just isn’t ready to pay for items like Compleats perhaps, and really want some more of the can chilly, or maybe products that are used as meal enhancements for cooking at home?

Jeffrey Ettinger

Well, I was referencing specifically promotional spending as we did have a couple of price increases on that line over the last couple of years, and so that was one of the things we certainly want to explore with our retail partners, is whether there is an optimal promoted price point, or shelf price point that will continue to enhance volume there.

When you get to marketing on a bigger picture basis, I mean the Hormel brand is going to be our lead item within our advertising portfolio, and we still believe in Compleats as an element of that advertising spent and I think we will feature natural choice we may have something with Hormel Chilly, we may have something with our party tray items and our pepperoni items. But we still view Compleats as being very strong contemporary items that are good value for consumers and that are worth getting behind.

Akshay Jagdale - Keybanc

And maybe I can just sneak in one more on the refrigerated section, because that division did do a lot better than I thought, and it looks like it’s a shift to value add. What are you seeing in terms of consumer trends in that refrigerated meats kind of category?

Are all the players doing well or are you taking a lot of market share, it seems like we have seen pretty decent results from misfiled foods and kraft and even [cereal] altogether, is that part of the store or grocerers very happy with that part of the store or is this really just kind of a margin kind of thing that you guys are all enjoying at the same time?

Jeffrey Ettinger

I think that part of the store has held up in certain areas, I can’t speak to the other companies, but looking at our franchise particularly on an annualized basis we had an excellent year with natural choice.

We had an excellent year with pepperoni, we saw a little bit of that softness in our meal segment in terms of the Hormel refrigerated on trays and Lloyd’s, and so that would be the one area kind of to your point earlier about convenience, but maybe there is a little bit of a trade down going on there. But overall we had an excellent year in our meat products area, both from a volume and a margin standpoint and have a good momentum heading into the next year.

Operator

Your next question comes from Eric Larson - Soleil Securities.

Eric Larson - Soleil Securities

Could you give us a quick look as to what you think, the hog price outlook is for the next 6 to 12 months. Obviously prices have come up a little bit. You didn’t mentioned an awful lot about that. And you gave a very good thorough review at your analyst day. Can you just give us maybe some incremental thought from what may have changed since then or what your thoughts are?

Jody Feragen

Yes, I guess I’m the hog person.

Eric Larson - Soleil Securities

Hi Jody.

Jody Feragen

I quit giving specific guidance even though I was getting fairly good at it for a while there. We have seen about a 2% liquidation, I think the USDA is calling for something in the range of 4% going forward. From the discussions I have had with our folks here a lot of the liquidation in the herd is being offset by increased productivity. So, I would plan that for the first half of the year I think we are going to see quite moderate prices on hog.

Now, obviously they seem to jump around, and we have seen some strength there lately, and then in the back half we are kind of expecting some of the reductions and the herd will come to roost and we will see the prices increase, but hopefully at a modest level going forward.

Eric Larson - Soleil Securities

Okay, the follow up question here for me is, kind of back to the grocery and with a thrifty consumer we have kind of all, we are kind of beating the horse to death a little bit, but I suspect that in order to create the proper value or incentive for consumers to purchase your products, your promotional spending ratio would probably remain quite high, would they not, Jeff, going into next year, as opposed to a car lot price decrease?

Eric Larson - Soleil Securities

I think that’s fair to say that we will steer our efforts to stimulate certain brands in the promotional area. I just would acknowledge again just how choppy it is out there right now, and that’s what we are trying to deal with.

I mean just even in Q4, Hormel Chili was still up, Spam was relatively flat and Jennie-O was down, and the all three had been these traditional can franchises that in the early part of the recession, consumer seem to be gravitating toward and now it’s a little bit more of a mix bag, it’s a little harder to read, could be in part though the comps we were dealing with in Q4 of last year. But I think to your general point I think that’s correct, that we will want to try to attain the right feature price for consumers to continue to drive volume for these franchises.

Operator

Your next question comes from Ann Gurkin - Davenport.

Ann Gurkin - Davenport & Company LLC

Jody, did I hear you say we might hear news of an acquisition in the near term, is that correct?

Jody Feragen

No, I said we have nothing to announce today, sorry Ann.

Ann Gurkin - Davenport & Company LLC

Okay, I was just going to ask what the positive might be. Okay. My other question is what are you including for contribution from export markets in 2010?

Jeffrey Ettinger

Well, I mean it’s been somewhat trouble situation for us this year, particularly China. We have made up for that somewhat with quite strong exports to Mexico and that seems to be still looking fairly favorable. We hear positive things about China opening up, we haven’t seen a lot of evidence of it yet in our shipments, but we are certainly hopefully of that going forward, and as always, I mean in the scheme of our total business that’s not a big direct factor, but it certainly can have market effects that would be very significant.

Ann Gurkin - Davenport & Company LLC

Okay, so you look for some growth maybe in 2010?

Jeffrey Ettinger

That’s what we would hope to see.

Operator

Your next question comes from Jonathan Feeney - Janney Montgomery Scott LLC.

Jonathan Feeney - Janney Montgomery Scott LLC

So I guess, if you wouldn’t mind just giving me a little bit more detail, and I know this is something you have done historically, but on the other hand it’s kind of an unusual situation.

When you look at the guidance for next year, I think you have been very clear about the high single digit, to like looks like 8% to 10% type range in segment operating profit. What kind of volume would you need across the segments to drive that do you think, looking overall as it, maybe can you give me a sense what’s going to be up and down to sort of get to that range?

Jeffrey Ettinger

Okay, the first half of the year on an overall basis, we are expecting it to be flat to even potentially slightly down as built into our plan for next year, gaining some momentum as the year goes on.

That again as I mentioned earlier in the earlier part of the call that’s all sort of netting MegaMex, I mean we will see revenue increase that’s $80, $90 million over the course of the year, that that’s going to add to the top line with the new franchise that that group sells that will go through the grocery division. So, we will see that, we also call that out each quarter as to how much is affected by that new business and how much is organic growth.

Overall though to hit the guidance range we are looking for, we need to restore momentum in our top line, by the second half of the year, or we are not, we think the cost environment that we benefited from continue to help us in the earlier part of year, but we recognize that ultimately we have to have robust franchises to get our long term objectives.

Jonathan Feeney - Janney Montgomery Scott LLC

And I guess specifically, if you could drill down into grocery versus refrigerated, assuming the others are sort of, I mean would you be looking for that trajectory of growth to be more pronounced in terms of improvement over the course of the year in grocery, because of what maybe recovery in microwavables is that what you are looking for or is it that you are counting on sort of export volumes or just overall we did food service volumes to drive your refrigerated foods business, I mean which of those two do you think would be a stronger volume driver next year?

Jeffrey Ettinger

Well, I guess I don’t know that I would pick one over the other. I think maybe the best guidance I could give you would be that our articulated long term goal for our franchises is 5% growth, that maybe difficult to hit on an annualized basis. We certainly expect to be tracking at that kind of pace by the later part of the year, and we expect to have sales deposit on an annualized basis.

Jonathan Feeney - Janney Montgomery Scott LLC

The 5%, you are talking about the sales number, right?

Jeffrey Ettinger

Yes.

Operator

Your next question comes from Diane Geissler - Alpha.

Diane Geissler - Alpha

Can you just tell me what were your realized prices on hog this quarter, did you give that and I missed it?

Jody Feragen

We haven’t been giving those numbers out. But I would tell you that it was slightly less than last year.

Diane Geissler - Alpha

Slightly less than last year. And what did it look like on a sequential basis?

Jody Feragen

This quarter versus last, oh man, I don’t have last quarter’s numbers with me today.

Kevin Jones

I can forward.

Diane Geissler - Alpha

Maybe I can get that from Kevin.

Operator

Your next question comes from Akshay Jagdale - Keybanc.

Akshay Jagdale - Keybanc Capital Markets

Actually I wanted to ask something that Diane asked, in terms of the, I was just looking at hog prices this quarter, and according to spot data they were at $36 live weight which should be down $17 or $18 year-over-year. But I guess what you are trying to tell us is that, that’s not what you realized, is that correct?

Jody Feragen

We realized that they were less than they were last year, our hog cost.

Akshay Jagdale - Keybanc Capital Markets

Okay, but not as much as I am indicating here?

Jody Feragen

What was the $36, no I didn’t. We were in the high teen.

Akshay Jagdale - Keybanc Capital Markets

Okay, yes. I just, as it relates to that I was a little bit, I guess I just wanted to drill a little bit deeper into the different parts but then refrigerated foods, food service and the meat products as well as the commodity side. Because what I was seeing was that hog prices were down significantly this quarter, everything in the spot market and we didn’t see the same sort of reaction on the EBIT side or drop down in terms of savings.

So, I just wanted to get a sense of maybe if you can give us a little color on the different moving parts. I know you have talked about Lloyd’s a little bit, but just talk a little bit about the three different parts in refrigerated foods for this quarter.

Jeffrey Ettinger

I mean from our standpoint we thought refrigerated foods actually ended the year very strongly. We were suffering earlier in the year from the kind of week and week after week of those negative cut out margins which we recognize as just one of the number of factors that are important to refrigerated food.

Those became more benign as the year went on and that allowed the value added part of the portfolio to shine through particularly on the retail side. But even in food service as they featured some of their more value added items they were able to be a solid contributor to the earnings result of refrigerated foods as well.

Operator

(Operator Instructions) Your next question comes from Robert Moskow - Credit Suisse.

Robert Moskow - Credit Suisse

I’m just trying to encourage Tim Raymond to call in with a wine selection for the Thanksgiving.

Jeffrey Ettinger

Well, there you go. It’s a Thanksgiving tradition. I don’t know what can it is to-date.

Robert Moskow - Credit Suisse

Don’t you guys have anything you can throw out our way, I am more of a diet coke fan.

Jeffrey Ettinger

I think just as long as you go at the Jennie-O Turkey or Cure 81 Ham we have that part of the meal coverage.

Robert Moskow - Credit Suisse

All right. Left are own devices. Have a good holiday.

Jeffrey Ettinger

You too.

Operator

(Operator Instructions). We do not appear to have any further questions. Please continue with any points you wish to raise.

Kevin Jones

Thank you. I would like to thank everybody for participating in our call today and response Rob’s question, a good new Beaujolais and Chardonnay or Pinot Noir would go very well with Jennie-O Turkey and either a Pinot Grigio or Riesling with the Cure 81 Ham. Hope you all have a great Thanksgiving, safe travels. Talk to you later. Bye-bye.

Operator

Ladies and gentlemen this concludes today’s conference call. Thank you for your participation and you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Hormel Foods Corporation F4Q09 (Qtr End 25/10/09) Earnings Call Transcript
This Transcript
All Transcripts