Hormel Foods Corporation (HRL) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Hormel Foods Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, November 20, 2012. I would now like to turn the conference over to Mr. Kevin Jones, Director of Investor Relations. Go ahead, sir.

Thank you, Jill. Good morning, everyone. Welcome to the Hormel Foods Conference Call for the Fourth Quarter of our 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 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 and the year and our guidance for fiscal 2013; then, Jody will provide detailed financial results for the quarter and the year. The line will be open for questions following Jody's remarks. [Operator Instructions] An audio replay of this call will be available beginning at 10:30 a.m. Central Time today, November 20, 2012. The dial-in number is (800) 406-7325 and the access code is 4482517. It will also be posted to our website and archived for 1 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 32 through 38 in the company's 10-Q for the quarter ended July 29, 2012 filed September 7, 2012 for more details. It can be accessed on our website. Now I'll turn the call over to Jeff.

Thanks, Kevin, and good morning, everyone. We are pleased to report solid results for the fourth quarter. Earnings per share were $0.49, up 14% from a year ago, on sales of $2.2 billion, a 3% increase. As another example of our balanced business model in action, we generated segment profit and sales increases in 4 out of 5 segments. For the full year, the company earned $1.86 per share, representing a 7% increase. We provided earnings guidance a year ago on this call wherein we said we would earn between $1.79 and $1.89 per share for the year, and I am pleased to report we finished in the upper half of that range. We also exceeded $8 billion in sales for the first time in company history, ultimately reaching $8.2 billion for the full year, up 4%. I am also glad to announce that our team was successful in achieving the goal of $2 billion in sales of new products by 2012. All 5 of our segments made significant contributions to reaching this goal. I will now take you through each segment. Our Grocery Products group contributed significantly to our solid Q4 results, with segment profit up 22% and sales up 21%. You may recall that we began including sales of Don Miguel products in our Grocery Products results beginning in the third quarter of this year. Sales for Grocery Products in the quarter grew 3% excluding Don Miguel products. For the year, segment operating profit was up 12% and sales were up 10%. Excluding the Don Miguel sales, sales were up 1% for the year. Contributing to our sales growth in the quarter were our MegaMex Foods joint venture, our SPAM family of products, Hormel chili and Hormel bacon toppings. Strong sales of our SPAM family of products were propelled by our advertising campaign featuring Sir Can-A-Lot and the publicity around the 75th anniversary of this product. In our MegaMex Foods business, sales gains were led by Herdez sauces and foods, Wholly Guacamole refrigerated dips and Don Miguel frozen and refrigerated products. Sales of our Hormel Compleats microwave meals were somewhat soft in the quarter reflecting a shift in promotional timing. We remain confident that sales will resume growing in 2013 as we continue to rollout new products and support them with marketing efforts. Our Refrigerated Foods segment profit declined 12%, with sales down 3%. For the full year, operating profit in this segment was down 22% and sales increased 1%. Sales of our value-added products were not able to fully offset lower pork operating margins in the quarter. Spiking grain prices adversely impacted our costs for hogs sourced internally and those contracted under grain-based grow-out arrangements. Sales declined on flat volume due to lower commodity meat prices in the quarter. Nonetheless, our Meat Products group had some solid sales performers in their product portfolio, led by Hormel pepperoni and party trays and Hormel Cure 81 premium hams. We were also pleased to see sales growth of our Hormel refrigerated entrées in the quarter. Our Foodservice group enjoyed nice contributions from its value-added products, led by sales of Hormel Natural Choice deli meats, Hormel Always Tender prepared pork and premium bacon. Our Jennie-O Turkey Store segment completed a very strong year with a solid quarter. Both segment profit and sales were up 5% during the quarter. For the full year, segment profit was up 16% and sales increased 6%. Results of Jennie-O in Q4 were driven by continued growth in value-added sales and an improved product mix. These more than made up for higher feed costs and lower commodity meat prices during the quarter. Sales increased for Jennie-O in both retail and Foodservice value-added products, led by Jennie-O Turkey Store retail tray pack, turkey bacon and turkey burgers. Our third Make The Switch advertising campaign focused on our new turkey bacon and breakfast sausage. Our Specialty Foods segment had another solid quarter, with a segment profit increase of 8% and a sales increase of 7%. Higher sales of canned meats, sauces and broths were the primary drivers of the positive results during the quarter. Full year results for Specialty Foods showed operating profit up 8% on 11% higher sales, with improved year-over-year results for 3 consecutive quarters. Our International or All Other segment capped off an excellent year by posting another good quarter, with segment profit up 24% and sales up 1%. Strong export sales to Canada and lower costs for our SPAM family of products drove the positive results. Our China operations also continued to improve. For the full year, operating profit was up 38% and sales were up 7% for our international team. Moving into fiscal 2013, we intend to again grow both sales and earnings. We expect our Refrigerated Foods, Grocery Products, Specialty Foods and International segments to contribute to the earnings growth. We expect our Jennie-O Turkey Store segment to register an earnings decline due to higher grain costs and tougher comparisons. Headwinds to our outlook for 2013 include higher grain costs and volatile protein costs and processing margins. We plan on reducing our harvest levels in both our Jennie-O Turkey Store and Refrigerated Food segments by 1% to 2% in order to mitigate our exposure to these higher commodity costs. We will also continue to take strategic and modest price increases where we need them. On the positive side, we continue to enjoy solid top line momentum, with a significant number of our important value-added franchises. For example, the continued strong sales growth of our Jennie-O Turkey Store fresh tray pack, turkey burgers and now turkey bacon should continue in 2013, fueled by our Make The Switch ad campaign and the trend toward eating more nutritious products. Our Mexican food portfolio has begun to leverage its scale and our full range of product offerings in this fast-growing category. Our SPAM family of products has great momentum in both the U.S. and abroad. We look for continued strong contributions from Hormel pepperoni and Hormel party trays as snacking occasions continue to be a big part of the consumer eating landscape. Hormel Compleats microwave meals should benefit from new products and refreshed advertising. These are just a few of the growth platforms that we believe will contribute to our success in 2013. We believe our balanced model will continue to smooth out volatility in our earnings stream as evidenced by our track record of increased earnings in 27 of the last 30 years. We feel our innovation and strong brands in niche categories put us in a position to deliver strong results for years to come. After taking into account all of these significant factors, we have established our fiscal 2013 earnings guidance range at $1.90 to $2 per share. On previous calls, I said I would provide some added color with respect to operating margins in our Jennie-O Turkey Store and Grocery Products segments. For Jennie-O, we believe that a range of 11% to 15% can now be considered a normal range. For Grocery Products, given that we are including an increased level of sales by our MegaMex joint venture and recognizing only half of the profits, we believe that a range of 14% to 16% is now reasonable. At this time, I will turn the call over to Jody Feragen to discuss the financial information relating to the fourth quarter and fiscal 2012.

Thank you, Jeff. Good morning, everyone. Net earnings for the fourth quarter of fiscal 2012 totaled $132.6 million or $0.49 per share compared to $117.3 million or $0.43 a share a year ago. Net earnings for the full year totaled $500.1 million or $1.86 per share compared to net earnings of $474.2 million or $1.74 per share a year ago. Dollar sales for the fourth quarter totaled $2.2 billion compared to $2.1 billion last year, a 3% increase. For the full year, dollar sales were $8.2 billion, a 4% increase from last year. Volume for the fourth quarter was 1.3 billion pounds, up 2% from fiscal 2011. Year-to-date, volume was 4.8 billion pounds, flat to last year. As Jeff mentioned, a portion of our hog costs were directly impacted by rapidly escalating grain costs during the quarter. These include hogs sourced from our Arizona, Colorado and Wyoming sow operations and represent less than 20% of our total hog harvest. Selling, general and administrative expenses in the fourth quarter were 7.4% of sales, even with last year. Year-to-date, selling, general and administrative expenses were 7.4% of sales compared to 7.8% last year. We expect selling, general and administrative expenses to be between 7% and 7.5% of sales for next year. Interest and investment income was $1.7 million for the fourth quarter compared to a loss of $3.3 million last year. Year-to-date, interest and investment income was $6.5 million compared to a loss of $786,000 a year ago. Interest expense for the quarter was $3.2 million compared to $3.3 million last year. Year-to-date, interest expense was $12.9 million, down from $22.9 million last year due to lower debt levels and lower interest rates. We expect interest expense to be approximately $12 million to $14 million for 2013. Our effective tax rate in the fourth quarter was 33.1% versus 34.3% in fiscal 2011. The year-to-date effective tax rate was 33.4% compared to 33.3% last year. For fiscal 2013, we expect the effective tax rate to be between 33.5% and 34.5%. Basic weighted average number of shares outstanding for the fourth quarter and full year were 262.9 million and 263.5 million shares, respectively. The diluted weighted average number of shares outstanding for the fourth quarter and full year were 268.1 million and 268.9 million shares respectively. We repurchased 382,000 shares of common stock during the fourth quarter, spending $10.7 million. For the full year, we spent $61.4 million purchasing 2.1 million shares. We have 1.2 million shares remaining to be purchased from the current authorization in place. We announced an $0.08 per share increase to the annual dividend, making the new dividend $0.68. This represents a 13% increase on top of an 18% increase last year and marks the 47th consecutive year in which we have increased our dividend rate. Depreciation and amortization for the quarter was $30.9 million compared to $31.2 million last year. For the full year, depreciation and amortization was $119 million compared to $124 million last year. We expect depreciation and amortization to be approximately $120 million in fiscal 2013. Total debt at the end of the quarter was $250 million, the same as last year. Capital expenditures for the quarter totaled $38 million compared to $41 million last year. For the full year, capital expenditures totaled $132 million compared with $97 million last year. For fiscal 2013, we expect capital expenditures to be approximately $130 million to $140 million. At this time, I will turn the call over to the operator for the question-and-answer portion of the call. Operator?

[Operator Instructions] And our first question comes from the line of Farha Aslam.

In Refrigerated Foods, I was surprised by your commentary in hogs. Could you just review kind of what percentage of hogs, I think, it's 11% you sourced internally? And just provide us some color on the grain contracts, in terms of how you source your hogs. I didn't understand that completely.

Well, let me take a stab at that one, Farha. This is Jody. We have less than 20% of our hogs that have some type of grain impact. Most of those are sourced from the sow operations that we have in Colorado, Wyoming and Arizona. A large portion of them go to our Farmer John operation and the balance of them go to the Midwest to be finished. And we take responsibility for the cost of finishing those hogs.

Okay. And then just a question on cash. I mean, you have net cash on the balance sheet. Could you share with us kind of your priorities for that cash? How does the M&A environment look? Are you looking more domestically, internationally, and how that relates to share repurchase?

I'm becoming a broken record. We certainly do look for opportunities to invest either organically, and we've made some nice investments in capital projects within the company this year. And we also look for acquisitions that meet our strategic initiatives. And we continue to look at those. There's also returning to our shareholders. We increased our dividend this year on top of an increase over the last few years that have been pretty robust, and then we look for share repurchase.

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

The guidance that you're laying out is a little bit less than your growth rate over your long term as well as last year. I was wondering if you could talk to the point of is there something that might be slowing down? Obviously, the grain costs, I get that. But is there something that's structural that may be slowing down your growth rate? Have you reached a certain size that maybe the growth rate historically may not be as applicable going forward? And can you just talk about that as a longer-term thought process?

Sure, Ken. It's a very fair question. No, we really don't think we've slowed down. We recognize that both the results we just completed in 2012 and the guidance range that we provided you for 2013 are below our long-term 10% bottom line growth algorithm. If you look at the 3 years prior to that, we were well into the teens. So there is a little bit of an ebb and flow going on. And to us really, a lot of it really does relate back to the grain and the input costs. We've -- our team's done a good job at mitigating a lot of those costs. They've taken pricing where they've had to, but it's been an environment where that's kind of been a nonstop effort for the last couple of years and will continue into 2013. The underlying health of the franchises, though, to me is very robust. And so I'm quite optimistic that our long-term goals remain very reachable, even at the current size we are as a company, having now reached $8 billion.

And then can you talk about certain brands that have actually gained more momentum than you expected through the quarter? Are there certain things that -- certain brands that on the top line you're looking forward to having a little bit more greater penetration going forward?

Sure. I don't know that there's -- they're necessarily surprises to what we expected, but we have a lot of brands that are really doing quite well and enjoyed very solid quarters. In many cases, these were double-digit increases. So on the Refrigerated Foods side, you have Hormel pepperoni and party trays. We have convenience bacon. We have our relaunch of our Cure 81 hams. We also enjoyed good sales growth of our entrées. On the Grocery side, SPAM had a great quarter, bacon bits. The Mexican portfolio is doing very well across the board, a 5% increase not counting Don Miguel, not counting the Wholly franchise, and those are both growing as well. Our Foodservice group is having good luck. They've had their most successful new product launch in their history with one of their new premium bacon items, and they continue to also grow within their ethnic items, such as Café H and their Natural Choice-based items. Jennie-O had solid double-digit growth in fresh tray pack and burgers and in bacon, the latter supported by their ad campaign. So we're really excited, and that's not counting International either which has delivered 2 terrific years in a row. We're growing the SPAM franchise and we're growing other pork-based items in various markets, particularly in Asia. So we're really -- from a top line standpoint, we're very excited about what's going on in the company.

And our next question comes from the line of Tim Ramey with D.A. Davidson. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Jeff, you laid out the normalized EBIT margin for Jennie-O Turkey Store at 11% to 13%. Did you -- if you said, I missed it, but did you say if you thought fiscal '13 would fall in the normalized range or be below the normalized range or...

Okay. The range I attempted to say was 11% to 15%. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Oh, 15%. I'm sorry, I misheard you.

Yes, that's okay. And then yes, we do expect Jennie-O to fall within that range. We do expect some reversion back more to the middle of the range. They had achieved at the very high end during fiscal 2012, but that -- we do think they will perform within that new range. Timothy S. Ramey - D.A. Davidson & Co., Research Division: And I guess one of the things I continue to struggle with is if that business did a 6.2% margin in fiscal '08 and there have not been structural changes, at least in terms of acquisitions and so on in the intervening time, what is it about the business -- and it was, I guess, sometime in the last 10 years, there was a 3% margin in that business. What is it about that business or the change in that business that makes you comfortable with saying that the long-term margin range is 11% to 15%?

Sure, 2 main areas. So one on the cost side; the team has done a number of things to improve their overall sustainable cost position. We recognize that when you invest in a vertical system, I mean you're putting a lot of capital out there and that puts the burden on you to deliver that. But they've done a wonderful job, whether it's the hatchery levels, the feed mills, the farms, the basic processing facilities. That's one of the advantages of that acquisition that keeps playing out, although we recognize the acquisition itself was a number of years ago, but you continue to find benefits as time goes on. And so we do feel we've lowered our systemic kind of cost per pound, cost per employee. We did an Investor Day presentation a year ago. I know the head of operations showed the year-over-year kind of sale -- the employee count decline versus an increase in sales. So that's again something that we do believe is sustainable. And then on -- the key part has been on the value-added sales side. We made major investments in advertising, took a little bit of a gamble on that, in a category where no one else was advertising. And it's driven just big-time double-digit increases in key franchises that are margin accretive to the overall average of the company. And we now have just really nice outposts for those key products in retailers throughout the grocery store. And as I just mentioned, again, I mean, the most recent quarter, again they were all up double digits, a lot of those key franchises. So we think that momentum is sustainable as well. And so those are the 2 major components. And then we also talked about our production cut again this year; that's on top of our production cut the year before. We've been very disciplined about making sure that we're only creating meat that's going to support our value-added items. We're not looking to be a big player in the commodity meat side. So those are the key elements to the Jennie-O story right now.

And our next question comes from the line of Robert Moskow with Crédit Suisse. Robert Moskow - Crédit Suisse AG, Research Division: I guess 2 questions. Did you give any guidance for the dollar amount of grain cost inflation that you expect for fiscal '13 in turkey? And then secondly, in Refrigerated Foods, how will you work through what is likely to be a more inflationary environment, especially in the back half, on pork-related meat products? The futures market indicates that hog prices are going to go up. Do you expect to have to raise prices on sliced meats and any other of the value-added items?

Sure. On the first question, I mean, it's hard to get very precise about it. I can give you a ballpark of $50 million to $100 million. It obviously depends some on hedge positions and other things going on. But clearly, when you look at what the core grains have gone up post drought, I mean, it's certainly a significant amount of money. On your second question -- well, I mean, let me finish on the first question because it kind of ties in terms of pricing. So the Jennie-O team, since it's a vertically integrated operation, already has those costs coming at them. And so they've announced price increases on many of their portfolio items in Foodservice deli and retail already to the trade. In terms of the Hormel side of the equation, so more of the beef- and pork-based items, we're seeing the same thing you are, which is that there's certainly a possibility of cost increases in the second half of the year. They're not here yet, so we're not announcing current pricing actions on those items. But we're going to watch them closely. And so that may well be something that the team has to have as part of their reactions during the second half of the year. But we have been taking pricing in past years here and, by and large, with our #1, #2 position brands in most of our categories, we've been able to take them and sustain our share positions. Robert Moskow - Crédit Suisse AG, Research Division: Jeff, do you think your pricing decisions will depend more on the level of inflation or what your competition does, if they decide not to raise, maybe you'll hold off, or is it just kind of like a combination per category and depends on the situation?

Well, in most of our categories where we have the leading share, we often then view that comes with the mantle of having to push pricing to where it belongs in order to sustain the system in the long run to be able to support it with consumer advertising and the right promotions in store and so forth. There are some isolated categories where we're more the #2, or even in a couple of cases, the #3 player. In those cases, you may -- you probably do watch your competition a little bit more to see what they do in the category, but that would be the minority of the different franchises that I've cited thus far this morning.

And our next question comes from the line of Diane Geissler with CLSA. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: I wanted to ask about your comments that you made about the production levels. I think it's fairly clear in jobs what you're talking about. But I just -- I was unclear when you say 1% to 2% reduction in the pork business. Is that total slaughter or is that just in the amount of hogs you expect to raise, fiscal '13 versus fiscal '12?

Diane, that would have been in our total harvest numbers. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: Okay. All right. And then I guess did you have any commentary about what you'd expect your grain cost to be year-on-year?

I mean Jeff threw out the $50 million to $100 million on the Jennie-O side of the business. It's obviously a lot less on the Refrigerated side. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: Okay. And then can you just -- any commentary on what you're seeing from Foodservice? Here, I'm really talking about just general industry trends. I know you tend to do better than the industry or better than some of your competitors, but can you just talk about what you're hearing from your customers about things like foot traffic, et cetera?

Sure. The image I'm picturing is sputtering, but that's more negative than I want to really get across because it's not like it's not moving forward. But it's -- it does seem like every time the industry gets a couple of months where, boy, okay, they seem to have turned the corner and it's solidly doing well, either they get hit with a gas price increase or a food cost increase or some sort of change in consumer behavior. And so it's not just a steady robust environment out there. Overall, though, it's certainly better than the early part of the recession. I think the industry would say overall that they're seeing positive trends. And then we've had, as you mentioned, better results than that with our strategy of providing value-added items with an emphasis on the noncommercial segment, as well as the commercial. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: Do you think that, that will improve in 2013? Here I'm just talking calendar because it just seems like we have so much -- we kind of came off the election thinking, okay, now that's done, and we can kind of move on. But it just seems like sentiment hasn't really picked up because of all of the issues with regard to the fiscal cliff and the Middle East and Europe and et cetera.

Well, we're expecting a solid year out of our Foodservice group, and they feel they have enough good initiatives going on with their key partners that they should see that kind of growth and be able to help drive that kind of growth for many of the operators. In the aggregate, I think it does seem like kind of modest optimism is the word of the day.

And our next question comes from the line of Akshay Jagdale with KeyBanc.

First question, just a follow-up on Diane's. Have you seen -- you play both in the perimeter of the store and the center of the store. Have you seen any shift from the consumer back into the center of the store? There was a large publicly traded company that said they saw that recently. So I'm wondering if any movement that you're seeing back into the center of the store at all.

I would say our numbers definitely support that. I mean we saw sluggishness with some of our center of the store grocery categories for Q1 and into Q2 a little bit. But as we finished the year off, a lot more of them are on the upswing right now. So yes, I would agree with that.

And why -- what do you think is driving that, just to get a sense of how sustainable that could be?

Well, I mean we talked on the prior calls about why it was down before and people had different theories. We think with some of the price increases, that made it more difficult to hit some of the promoted prices that in the past had driven sort of the 10 for 10s or some of the hotter deals. For our business, especially when you look at franchises like chili and stew back in the winter months, we do feel the more benign winter that occurred in 2012 versus quite a cold winter in 2011 played into those comps. And so as we move through the year, that became a nonfactor. I don't know, that could be helping the comps as well.

Okay. And if I can just on Jennie-O Turkey, I mean truly impressive what you're guiding to in light of what's happened with the commodity, meaning grains. So my guess is a lot of it had to do with the mix improvement value-added and the type of margins that you're getting on that product. So first, can you just give us an update on where you are, percentage of value-added versus other? And second, as it relates to Refrigerated Foods, I mean why isn't a move like that possible on Refrigerated Foods, like why can't you margin up that business? I know it's probably a pretty complicated answer, but I'm just trying to get your thoughts on that.

Okay. First, in terms of the Jennie-O and the percent, the percent itself of what we count as value-added hasn't changed dramatically. We've been on a dollar sales basis in that kind of mid to high 70% range for a time. But we always talk about the value ladder and the different steps. And we clearly have moved up a lot of the franchise into higher-level products. So we're in fewer categories and are relying less on the categories where there's 7 or 8 different competitors and the products are relatively non-differentiated. And instead, we're pushing it into innovative items, items where our brand really plays a major role. And so that has been the bigger upgrade at Jennie-O. In terms of Refrigerated, I think the general theme of your question I would agree with. I mean, it clearly is a work in process in that regard. Their operating margins are more on the 5% to 7% range today. They have -- in the basic pork business, although there's a lot of the commodity elements that pull that down somewhat, some of the more market-based products such as fresh pork or raw bacon are also not huge margin contributors. But we do believe that team over time, as they continue to develop and move themselves up that value ladder in the Foodservice and meat products area ought to be able to migrate those margins upward. And we think that's one of the stronger opportunities long term for the company.

And our next question is from the line of Ann Gurkin with Davenport. Ann H. Gurkin - Davenport & Company, LLC, Research Division: I wanted to ask you about innovation and are you changing where you focus that? Will it be across the portfolio and then also, as innovation relates to the Compleats line of business?

Sure. Well, really all of our teams kind of understand the company mission of seeking to grow 5% top line, 10% bottom line. And, clearly, innovation is one of the sources that they're all going to be utilizing to achieve that growth. They've each had wonderful successes that led to our achievement of the $2 billion challenge. We have platforms in various segments now that are $50 million to $100 million, in some cases larger than that, that weren't in existence in the year 2000 that are now really strong key figures for us. Natural Choice, party trays, the refrigerated entrées, our Di Lusso Deli Company product lines, on the Grocery side, the newer Compleats items, Jennie-O's newer versions of burgers and ground tray pack products, so -- and then the International teams had some as well. So it's going to be a key driver for us going forward. In terms of Compleats specifically, absolutely, we rolled out at Investor Day about 1.5 years ago the new color scheme and the fact that we're going to have marked [ph] Cafe Creations blue line of Compleats and a relaunch of the green line, the more health-oriented items within the line. This fall has now seen the introduction of what we're calling our cheesy pasta type items. So mac and cheese and then other items that utilize the new technology that we put in place in our Dubuque, Iowa plant to really upgrade the quality of those items. They will be a feature of our advertising campaign in 2013 for the Hormel Compleats brand. And so that we're -- and our early read on the sales results is quite strong. So definitely innovation is going to play a role for Compleats and that microwave meal segment as well.

And our next question comes from the line of Jonathan Feeney with Janney Capital.

I wanted to follow-up a little bit on your discussion at Jennie-O, Jeff. I mean, I get everything that Hormel has done to improve internally the margin structure of Jennie-O, both in terms of product mix and discipline around volume, and that's been great. I guess what I'm surprised at and surprised positively at is the level of discipline the rest of the industry has exercised in the face of the stimulus of having enormous profits in this business by historical standards. Do you get the sense others in the industry have adopted your strategy, discipline towards -- and there's just a lot less commodity product out there? And, I mean, what explains that there hasn't been -- what are you seeing on the competitive landscape pricing-wise that sort of gives you confidence that the 11% to 15% can stick?

Sure. Oh gosh, on industry discipline, I mean everybody makes their own decisions. We, obviously, announced our decision here again today in terms of making sure we keep our production levels tight. We know of at least one expansion going on in the industry that's been announced in terms of a new plant complex going up in the Indiana area that's going to be late '13, early '14. But otherwise, we haven't seen a lot of expansion which probably makes sense given the drought and the grain pressures that a lot of the entities are under. In terms of being able to lead in price, I mean, we do think having the leading brand, the one that's supported in the marketplace and that consumers have a significant demand for, does provide us with an ability to take that leadership position in that area. We're looking forward to the year where we don't have to deal with a $1 or $2 bushel grain increase and that the team can just run with the wonderful portfolio they have. But we'll play the cards that are dealt this year. They'll deal with the cost increases that are coming. But they really do have excellent momentum in terms of covering down their other costs and in terms of their value-added franchises.

And our next question is from the line of Eric Larson with CL King. Eric J. Larson - CL King & Associates, Inc., Research Division: Jeff, just a follow-up question on how we should kind of look at your overall corporate volume growth. You've got the dynamics in turkey where you've got -- you're holding capacity tight but you've got a very positive mix in value-add. And each one of your divisions has the various different components of that. How should we look at what your overall volume growth for the company is going to look? And what should that average over time? I mean, sometimes if you don't have any volume growth, it doesn't necessarily mean you have a -- it's bad. It's just that your mix has changed so much. So how should we look at volume growth for Hormel on average over time?

That's a fair question, Eric. We'll probably not see it this year with -- based on the production cuts and having less commodity meat to sell in both the Refrigerated and Jennie-O side. But I would think over time, looking at a 2% to 3% in terms of volumes would be the right mix to get us to the 5% ultimately in sales, with the rest coming mostly from mix enhancement as we roll out more value-added items. It further can be a little bit of a hard read in this environment where there are certain cases with value-added items where we've chosen, in lieu of a pricing action, to change packaging size. And so that holds your volume down, but ultimately, is the right thing to do with that franchise. But I cited a number of the brand-by-brand examples to one of the earlier questions. And in those cases, all those items I was citing, had very solid volume number increases, in addition to net sales increases. So it's not just the price increases that we're registering in terms of the unit growth. Eric J. Larson - CL King & Associates, Inc., Research Division: And when you look at your various divisions, which ones would you characterize would have the potential for better volume growth overall relative to the corporate average?

Well, Grocery Products clearly, and especially in the shorter run here with the advent of MegaMex and we're bringing on -- Don Miguel effect hit part of 2012, but will also have a lapping effect here in 2013 where the first half of the year will, once again, have new sales that don't have a comparison. But beyond that, I mean, between the Mexican franchise and the Compleats franchise, we really have a lot of optimism for Grocery Products. Our International division ended up the year kind of slow on the reflected sales standpoint, but their underlying franchises are quite strong. And so I'm optimistic that they're going to be delivering growth that's above our 5% levels as well on the top line.

[Operator Instructions] And it appears there are no further questions, sir, so please continue.

Okay. I'd like to thank everybody for joining in on this conference call, and we wish everyone a happy Thanksgiving. Is Tim Ramey still on the line? Does he have a wine recommendation? If not, I'm sure that one of his Pinot Noirs would pair very well with a nice Thanksgiving dinner. Thank you all. Bye-bye.

And ladies and gentlemen, this does conclude the Hormel Foods Fourth Quarter Earnings Conference Call. Thank you for your participation, and you may now disconnect.