Hormel Foods Corporation (HRL) Q2 2011 Earnings Report, Transcript and Summary

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, 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 per share a year ago. You may recall that our adjusted results last year excluded onetime charges totaling $0.05 per share associated with the Valley Fresh plant closing and the change to the health care laws. Total dollar sales were up 15% over a year ago, and we were again able to register sales gains in all 5 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 $1 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 Kids 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 continued 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 a 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 Café 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 3 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 meat, 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 product lines, 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 product line 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 onetime charges related to the closure of our Valley Fresh plant and tax charges primarily related to changes in the health care laws. These onetime 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 onetime impact of health care 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 tenured 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 6 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?

[Operator Instructions] And our first question comes from the line of Akshay Jagdale with KeyBanc Capital Markets.

Jeff, can you talk a little bit about turkey? You did say you feel like it's in good balance, supply and demand, cold displays [ph] 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 eggs, [indiscernible] and 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, I mean, we feel that the amount of product going to market will support solid pricing on a commodity basis, and there seems to be a good demand for it. And in turn that's helpful on the value-added side. Clearly, that's 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's 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 spike up, I guess similar to what we've seen, I mean, can you just give us a sense of how you're feeling about that business looking forward now compared to, like, '08?

I guess I'm feeling when I look at the aggregate of the business of -- very solid about it. I think there's a lot of efficiency gains that our team up there has brought to the market, that's very helpful. And then we really stepped up our efforts on the branded side, and what -- we're really the only player out there doing advertising in turkey, and we're doing more than ever, if you look at both last year and our plans for second half of this year, and it's paying dividends. I mean, we've seen very strong value-added sales, which ultimately is what we're trying to accomplish there.

Great. And one last one on Grocery Products. You mentioned last quarter that you were trying to get to a pricing, and looking at the top line this quarter, it seemed like there was some resistance. Can you just tell us what you're 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's been some demand resistance on the fresh side as well. And I wonder if that's similar to what you've seen in the value-added side?

Akshay, this is Kevin. I'm going to ask Jeff to respond to the Grocery Products question, and I think we need to move on.

Okay.

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 has been announced there. I wouldn't say we're getting resistance in the form of a refusal by the customer to go with the pricing that we're suggesting. However, it isn't across the whole portfolio. For example, we've cited to you a couple of times in the area of Hormel Compleats that we're 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's a fairly key component of Grocery Products. We've not taken pricing on that, because we've not been satisfied with the sales thus far.

And our next question comes from the line of Farha Aslam with Stephens.

Just continuing on the Grocery Products segment, Jeff, you had mentioned that you'd taken pricing, but there's 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. With -- the comment about lag really was sort of an across-the-board comment, because even at the Jennie-O, I mean that's just been a steady wave of an upward market in terms of the inputs, and on top of that, you have hedged 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, and in that case, it's not always a day-to-day exactly a match-up to when the costs roll higher.

Okay. And then in Refrigerated, do you feel like those, the pricing in your Refrigerated Foods, has caught up with the commodity? Or it's there more work to do?

There's probably some more work to do there as well. I mean, Refrigerated also has the billion-dollar Foodservice portfolio within that group, and the Foodservice 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 volume, how has volume held up as you've taken pricing? Is that in line with the elasticity you've expected, more or less?

I would say to be honest with you, it's been better than a traditional elasticity would suggest. And I would think the reason for that in large case would be that the whole market is encountering it instead of just doing an elasticity on, "Okay, you wanted to just take your product up." Everyone's 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, in Natural Choice and entrées, and so I think that's supportive of the move we've been making as well, and that's why volumes continue to grow as well as extra price kick on top of that.

And final question, it's 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 category? And are there any near-term opportunities?

Hi, this is Jody. And of course, we don't talk about near-term opportunities that we're looking at. But I would say that 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 become a little bit more challenging for some strategic buyers versus the 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're proud of our dividend history, and we also have some room left on our share repurchase authorization. So those are our priorities.

And our next question comes from the line of Diane Geissler with CLSA. [Technical Difficulty] Diane Geissler - Credit Agricole Securities (USA) Inc.: 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 of years, it's just the sustainability. Do you 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're talking about higher grains that we'll see in turkey and/or the higher inputs that we're seeing in Grocery Products, which caused a little bit of margin compression there? 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 to sort of outsize profits quarter-in, quarter-out? Whether it's Refrigerated Foods or Turkey does better, whatever.

Well, our long-term growth goals remain 5% on the top line and 10% on the bottom line, and by the time we're done with this year, I think if you look kind of at a 5-year CAGR, we're probably close to 6% top line and maybe closer to a 10%, 11% on the bottom line, so we've been able to attain those. I guess that is part of what we're suggesting here with our total guidance is it clearly the first half has been kind of a blowout, very strong half, and so the second half will be more moderate, but we're -- we tend to try to take things year to year, and so when you look at both sales growth and the middle of our guidance range now for the year, we'll be -- end up being quite happy than what -- where 2011 ends up. And we're not in a position quite yet to start talking about 2012. But clearly, in terms of momentum of some of the franchises, we're very excited about whether -- 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. Diane Geissler - Credit Agricole Securities (USA) Inc.: But there's nothing within what you're looking at -- I appreciate fiscal '12 doesn't start for another 6 months, but there's nothing within your viewpoint about your businesses that suggest that this is going to be a peak year, and then earnings are going to be flat to down in 2012, which is...

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

And our next question comes from the line of Ken Zaslow with Bank of Montréal.

Can you talk more about the pricing in terms of your ability to get it? Is 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, I mean the different lists you suggested really are all elements of where it can come from. In some cases -- we'll talk retail first. I mean, there clearly have been list price increases. In some cases, there's been some modification on the promotional formulas. On the Foodservice 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; bacons, hams, 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 spike in grains as we roll off the more favorable hedged positions. We still have more to do in the second half of this year and potentially even into the early part of 2012. And it's just kind of hard to tell right now is that where is that going to level off? Obviously, all of us hope at some point if we can get to more flat environments for the next year and catch up on that, that would be advantageous.

I guess I'm going to ask a second question, but it's really not that -- the question I'm asking is the conference that you're going to be having in 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 it's pretty clear that they don't believe that your numbers could actually grow year-on-year. So is there any context, and I appreciate that you're not going to give context tonight -- today, but will you start laying out a foundation for growth in 2012 that we can start to build onto? Or how do you expect to let the market know about this 10% growth possibility or not possibility or how we think about 2012? When will you start letting us kind of get closer to that 2012 outlook? Will it be at the -- in the June Analyst Day?

We'll give consideration to some way to describe what we're thinking about 2012, but we're also trying to be respectful around process. I mean, 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, that's in our November call. But if there's some way we can provide a little added color, to both your point and Diane's, at Investor Day, we'll take that into consideration, see what we can do.

And our next question comes from the line of Lindsay Drucker Mann of Goldman Sachs.

First on Refrigerated Foods, and just thinking about cutout margins. You guys, and Jody in particular, you've 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 give-back 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've been seeing over the past several months.

Sure. It's 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're offering and the rest of the protein markets are offering. And obviously, hog costs generally used to be related to the costs 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'll probably be less profitable for the producer. So I don't have a silver ball on where they're 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 5-year average was. And I'm not sure that 5-year average is going to be the new norm going forward, so we'll 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's kind of where the industry's at. So the market seems to be in good balance for the pork industry. It's the robust export demand. And at some point if you -- if that gets too expensive, I would sense there would be some pushback.

Okay, thanks, that's helpful. And then on -- just on Jennie-O, given just the low levels of corn inventory that we're looking at today and the very late start to planting season for much of the corn belts. Are you guys concerned at all about availability of corn supplies in September, October?

When you say "all", I mean, yes, we will be concerned in an extreme situation. I think that's been one of our concerns about a national policy that's within a 10-year time frame. Gobbles up a major component, it 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, if you're referring to export in terms of what our international results were?

Yes.

Okay, yes. For us, International in Japan is insignificant, 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's off to a good start. We did enjoy strong results in Korea in terms of our export sales. So the big 2 drivers of international results were SPAM sales in multiple markets and then pork exports in Mexico and Korea in particular.

And our next question comes from the line of Eric Larson with Soleil Securities.

2 real quick questions. One question in 2 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 hedged positions? I would assume that most of that took place in your first quarter, and you're now more apples-to-apples.

That's correct.

Okay. Second question, let me kind of go back at the opposite direction on this. What do you think it would take from 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 you're more muted for your second half, which makes sense, but to maintain the current margins in this environment, pork cutout margins and turkey margins or to take -- to keep at this relatively high historical margin level for those 2 businesses?

Well, on the turkey side, I mean, clearly what we rely on in the long run is taking products and moving them up our value ladder. And 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, and so that's 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've 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 about Refrigerated.

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'd have to see quite a bit more supply of hogs coming to the market, and we're 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 the 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.

[Operator Instructions] And our next question comes from the line of Ann Gurkin with Davenport. Ann Gurkin - Davenport & Company, LLC: I have 2 questions, one starting with Jennie-O. If I remember correctly, you all are very promotional in the second half last year. Should we see that kind of level of promotion this year? And how is sell-in going for the holiday season for Jennie-O?

Yes, you'll see a similar element. It's 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's -- on an annual basis, there'll 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 the markets are robust and the 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're doing quite well in terms of being in a position to ultimately sell through our full inventory by the end of the year. Ann Gurkin - Davenport & Company, LLC: Great. And then just on general -- on pricing, 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 rationing up, it seems like, particularly on the side that we -- where we have the direct input exposure. And so, clearly, that we are looking at second rounds in certain cases of the franchise.

And our next question comes from the line of Robert Moskow with Crédit Suisse. Robert Moskow - Crédit Suisse AG: The way I was looking at fiscal '12 is I was trying to look at, isolate 2 things that the packer margins, on a dollar-per-head basis, which is to say are -- have been at record highs and are now somewhere between the average end and record level. And I want to know if you can 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 you do you think the 5-year average is? And then the other thing I was just trying to look at is, is try to make some assumptions on where your grain costs are today and where they are probably going to be 6 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 2 things?

Well, packer margins clearly have been quite high, as we've talked about, at least for the second half of this year. We're expecting them to be higher than the historic norms for that time of the year, but not as high as what we've been experiencing both the first half of this year or during very high levels of last year. I don't have a specific number for you in terms of what do we expect in terms of less return on the packer margin next year, but, again, we always point back to it's a multi-headed monster if you will. And within Refrigerated Foods, I mean, 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 don't -- we're not necessarily banking year in and year out on really high packer margins to drive results for Refrigerated Foods. In terms of grain costs, I mean, we would -- you get used to new norms. I mean, 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, with such a tight demand -- tight supply situation. And then on top of that, I mean, this is always the time of the year when it's the most volatile. Everybody's every day, "What was the weather, what are you hearing about planting," et cetera. So it's high right now. I mean, we certainly have a hope that as the crop comes in, things may moderate some, but we don't have that visibility right now. Robert Moskow - Crédit Suisse AG: All right. So on a grain basis, just order of magnitude, Jeff, are you -- what's running through your numbers right now, is it in a $5 -- on a $5 per bushel basis, $6 per bushel? Is there any way you can give us a sense?

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

High-$5s, I'd say.

And our final question comes from the line of Diane Geissler with CLSA. Diane Geissler - Credit Agricole Securities (USA) Inc.: 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're 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 would be the easier question. The answer is yes, definitely. We saw volumes increase across the value-added franchises as well as pricing. And it was really a pretty consistent picture to what the numbers we're reporting, counting everything. I mean the whole -- if you look at the total company, and volumes were up 7%, and net sales were up 15%. So I mean you've got the differential on sales is both mix and some price increases, but the volumes were quite solid across the board. Diane Geissler - Credit Agricole Securities (USA) Inc.: So if I look at Turkey being up 25%, what would be the breakdown on the volume piece?

Well there, you start -- yes, there you do start factoring in what we're just mentioning, that we sold an additional amount of whole turkeys, which is not -- they're not a high-margin contributor, but they just happen to move at an earlier time frame. So we're 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're really looking to sell in terms of the growth that we saw. Diane Geissler - Credit Agricole Securities (USA) Inc.: Okay, and pricing in Grocery Products, what did you realize in the second quarter? And what are your plans for the second half?

Yes. 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's a little caution there in terms of that -- 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's been additional pressure in some of those areas. And so, for example, we've already announced a second round of SPAM price increases this going forward here. So we still have work to do as we go through the second half of the year. I'm catching up to that. Diane Geissler - Credit Agricole Securities (USA) Inc.: 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.

And we do have a one further final question from the line of Lindsay Drucker Mann with Goldman Sachs.

I just had 2 quick ones, couple of headlines recently on GIPSA and the political process there. I was just curious if you have an update for us on where we are?

Well, what I hear, I was just been watching it a couple of weeks ago. I mean, they are going through with the economic study. What I hear is that, clearly, we would love it if they would withdraw this thing altogether. That's probably not what I'm hearing is going to happen. What I hear is there'll be a new submission, a new draft, that will have some different elements to it, and we'll just have to see if there are elements that make sense and ultimately are more palatable to the industry, but it's 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 some regulation folks back there 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's something that the industry is closely monitoring. Diane Geissler - Credit Agricole Securities (USA) Inc.: Okay. 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 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're 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're not in that picture right now.

And I'm showing no further questions at this time. I'll 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/e 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.