Hormel Foods Corporation (HRL) Q2 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Hormel Foods Corporation Second Quarter Earnings Conference Call. [Operator Instructions] I will now hand the conference over to your host, Mr. Kevin Jones. Please go ahead, sir.

Good morning, everyone. Welcome to the Hormel Foods conference call for the second quarter of fiscal 2013. 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, then Jody will provide detailed financial results. The line will be opened 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 23, 2013. The dial-in number is (800) 406-7325, and the access code is 4617224. 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 28 through 35 in the company's Form 10-Q for the quarter ended January 27, 2013 for more details. It can be accessed on our website. [Operator Instructions] Now I'll turn the call over to Jeff.

Thank you, Kevin, and good morning, everyone. We announced second quarter earnings this morning of $0.46 per share, down 4% from last year. Sales were $2.2 billion, an increase of 7%. Total volumes increased 4% despite a planned reduction in harvest levels at both our hog processing and turkey processing operations. The addition of Skippy peanut butter sales and the consolidation of our Don Miguel sales in our grocery product segment were a significant contributor to the sales gains. This will be the last quarter of comparison to quarters without Don Miguel product sales. I will now take you through each segment. Our Grocery Products segment delivered a good quarter. Segment profit increased 10%, and sales grew 49%, including sales of Skippy peanut butter and Don Miguel products. We were pleased that sales by Grocery Products were up 4% even excluding Skippy peanut butter and Don Miguel products. Sales gains in Grocery Products were led by CHI-CHI'S and Herdez products, Hormel Compleats microwave meals, and Dinty Moore stew. Sales of our Hormel Compleats microwave meals increased for the second consecutive quarter, as our new cheesy pasta items helped drive growth. Segment operating profit for Refrigerated Foods was up 3%, as overall improvement across most of the business modestly offset losses in live production operations. Our affiliated business units, which include Farmer John and Burke, among others, showed significant growth. Sales for Refrigerated Food declined 2% in the quarter, primarily attributable to the planned reduction of harvest levels in our hog processing operations and from exiting our feed sales business. We saw growth in retail sales of Hormel party trays, Hormel convenience bacon and LLOYD'S Ribs, and in Foodservice sales of Hormel Natural Choice deli meats, HORMEL pecanwood bacon and our new HORMEL FIRE BRAISED Meats. We are excited about the potential growth that our new HORMEL REV snack wraps will bring to our Refrigerated Foods sales. These products are arriving on shelf at retailers nationally, and we will launch a significant advertising campaign starting in July to support this new product line. Segment operating profit at Jennie-O Turkey Store declined 26% on a sales decline of 2%, as we faced significantly-higher grain cost and lower commodity turkey meat prices. Increased sales of our value-added product in the retail and food service trade channels were insufficient to offset these headwinds. Nonetheless, sales of our Jennie-O Turkey Store fresh tray pack items and turkey bacon remained particularly strong as we continued to benefit from our Make The Switch advertising campaign over the past 3 years. Harvest levels at Jennie-O declined more than 2% during the quarter, which reduced our exposure to weak commodity turkey prices. Our Specialty Foods segment achieved another strong quarter with operating profit up 24%. These results were attributable to significant sales growth, as the team has done a nice job expanding the customer base. Sales grew 7% during the quarter, led by ingredients, ready-to-drink beverages, nutritional products and sugar. The agreement allowing Diamond Crystal Brands to sell SPLENDA sweetener into the food service trade channel will expire at the end of June. Our Specialty Foods segment will be challenged by the loss of these sales in the back half of the year. We also regret to report that this loss of business will necessitate Diamond Crystal's closing of its Perrysburg, Ohio plant. Diamond Crystal will be offering severance payments and priority status for employment opportunities at their other facilities to those impacted by this action. Our international and other segment continues to thrive. Operating profit grew a robust 21% on a 21% increase in sales. These results were led by increased sales of our SPAM family of products, improved profitability of our fresh pork products and better results from our China operations. We are excited about the benefit that the Skippy peanut butter business will bring to our sales and profitability in this segment. The integration of international sales outside of China that were part of the closing on January 30 is progressing well. We still expect to close on the sales within China and the operation located in Weifang by the end of our fiscal year. We expect a strong overall finish to fiscal 2013. In our grocery products area, we are seeing solid momentum in all 4 key product platforms, including our core canned items, our Mexican products, our microwave meals and Skippy peanut butter. Regarding Skippy, we are pleased with the progress we are making in gaining new distribution, and in obtaining strong execution at the store level. Our outlook remains bright for our international and other segment as well, as we start to attain the benefits of distributing our SPAM family of products and our new Skippy line together. We also expect continued sales growth and efficiency gains from our business in China. At Jennie-O turkey Store, we are looking for improved results in the second half, as pressures from higher grain costs and weaker commodity turkey prices begin to moderate. We are encouraged by the continued strength of our Jennie-O value-added products. For Refrigerated Foods, the processing margins in pork have been weaker than we had anticipated this year. This segment has experienced some of the same challenges as Jennie-O in terms of higher grain cost in live production areas and weaker commodity pork prices. However, we do expect a balance to eventually return to this area. We believe the investment we are making in the Rev snack wrap rollout will establish the foundation for a beneficial new product platform for the Refrigerated Foods group. After a great first half, our Specialty Foods segment will now be tasked with replacing the lost SPLENDA sweetener business. We have a number of initiatives underway aimed at building their other businesses. Taking all of the foregoing significant factors into account, we are maintaining our fiscal 2013 earnings guidance range of $1.93 per share to $2.03 per share. At this time, I will turn the call over to Jody Feragen to discuss the financial information relating to the quarter.

Thank you, Jeff. Good morning, everyone. Earnings for the second quarter of fiscal 2013 totaled $125.5 million or $0.46 per share compared to $127.9 million or $0.48 per share a year ago. The results for 2013 include non-recurring cost incurred in the Skippy acquisition of about $9 million. Dollar sales for the second quarter totaled $2.2 billion compared to $2.0 billion last year, a 7% increase. Volume for the second quarter was 1.2 billion pounds, up 4% from the same period last year. Selling, general and administrative expenses in the second quarter were 8% of sales, up from 7.4% of sales last year. Selling, general and administrative expenses were higher due to Skippy-related transition and transaction costs in the second quarter. We expect a minimal impact on selling, general and administrative expenses from the China closing of Skippy. SG&A expenses are expected to be around 7.5% of sales for the full year. Interest and investment income was $1.1 million for the second quarter compared to $2.3 million last year. Interest expense for the quarter was $3.1 million, down from $3.3 million last year. We expect interest expense to be approximately $12 million to $14 million for fiscal 2013. Our effective tax rate in the second quarter was 31.5% versus 33.5% in fiscal 2012. The lower tax rate is primarily due to settlements with various foreign and state tax jurisdictions. For fiscal 2013, we expect the effective tax rate to be between 33% and 34%. The basic weighted average number of shares outstanding for the second quarter was 265 million. The diluted weighted average number of shares outstanding for the second quarter was 271 million. We repurchased 200,000 shares of common stock during the second quarter, spending $7.9 million. We have 11 million shares remaining to be repurchased from the current authorizations in place. Depreciation and amortization for the quarter was $31 million, up slightly from $29 million last year. We expect depreciation and amortization to be approximately $120 million to $125 million in fiscal 2013. Total long-term debt at the end of the quarter was $250 million, unchanged from last year. Capital expenditures for the quarter totaled $23 million compared to $28 million last year. For fiscal 2013, we expect capital expenditures to be approximately $120 million to $130 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] Our first question is from Ken Zaslow from BMO Capital Markets.

Just one housekeeping question. When you said Jennie-O's improved results will be improved in the back half, is it sequential or year-over-year?

We're talking year-over-year comparisons, so for the first 2 quarters, clearly, significant drops from the prior year. As we had indicated when we headed into the year, we knew last year had really strong commodity turkey prices in the first half of the year, and we were in a much more beneficial position in terms of those grain costs, both in terms of the actual daily cost and with our hedges from the prior year. So we dropped nearly kind of $18 million a quarter year-over-year for the first 2 quarters. We expect that to improve significantly at the end of second half, getting back to even and then gaining as the half proceeds.

Okay. And then my bigger picture question is can you talk about your input costs and your ability to price for the Grocery Products business and how you think about that going into the back half of the year, but also going into 2014?

Well, we don't have any 2014 pricing relating guidance yet. I mean we certainly -- it's sort of a franchise-by-franchise approach when it comes to the grocery group right now in terms of cost. I mean, it ranges anywhere from pressure we're getting in costs on beef- and chicken-related items to, frankly, the pork side costs have been fairly -- have been fine. We've had favorable avocado costs. We're new to the peanut butter business, but we've had favorable peanut cost thus far. In terms of announced pricing actions, I mean, kind of right before we closed on the deal, Unilever did follow a price decline on peanut butter and so that's enacted in the marketplace. There's no further pricing actions that we have at this time on that franchise. We did take a price increase on Hormel Compleats. That was the first one in several years. We wanted -- I think, as we talked about in prior calls, wanted to get that franchise humming again, get the right marketing support, get the right product mix, and we're happy with what the team has done in that regard, and so we just have now coupled that with a sort of a catch-up price increase on that item. But at this point, otherwise, we don't have any broad pricing actions in store for grocery products.

So you assume -- so the volume should be relatively at historical level? There wouldn't be any dislocations with volumes throughout the next, call it, 6 to 24 months that we could see?

No, on grocery, I mean, we have really great momentum right now in grocery. I'm expecting very solid results on both top line and bottom line for grocery for the remainder of the year.

Our next question is from Christine McCracken from Cleveland Research.

Jeff, you said that you had really strong margins on your export business, and it was a bit curious, given some of the trade interruptions that we saw in the quarter, and I'm just curious if it was a delayed response, if that product had already been sold or if those markets to Russia and China just aren't a big deal for you.

It's more of the latter. I mean, we're really kind of a niche player when it comes to exports. We tend to sell more of the off all-based items when it comes to fresh pork. Clearly, SPAM is also a major export component of our overall portfolio for international, and in that case, those margins and sales have been solid contributors to the growth that international has been providing.

And are you anticipating any retaliatory actions on this COOL legislation here, I guess, the deadline is today, in terms of Canada and Mexico and what that could mean to the overall pork market?

Well, I mean, we've been supporters of the American Meat Institute and other trade associations' articulation to our government that we really felt that a modification to the country of origin labeling program would be beneficial frankly to us, as well as the trading partners in North America. It's kind of hard to read whether that's falling on deaf ears or whether there's going to be at least some progress in that. But in terms of retaliation, I don't have any greater sense, Christine, I guess, than anyone else as to what might happen in reaction to that.

Our next question is from Eric Larson from CL King. Eric J. Larson - CL King & Associates, Inc., Research Division: Jeff, could you give us a little flavor? This is on the turkey side. We've seen a relatively steady increase in sort of the production metrics for the industry over the last, let's say, 6 -- 4 to 6 quarters in egg sets, et cetera, and it looks like it finally kind of started catching up on the commodity pricing in that sector. Could you give us a little feel of where you think that -- the production numbers for the industry will be and why that should start maybe kind of even getting better in the second half?

Well, I mean, I think you're right in terms of sort of the long-term ramp that's occurred in the turkey business, but there has been kind of a reaction as things have moderated, as the commodity markets are less favorable, as grain costs have gone up. And so our read of the industry numbers is we're looking at kind of down 2% to 3% numbers. And of course, as we announced at the beginning of the year in terms of what our production levels were going to be, we've sought to put our production levels at about a 2% decline on a year-over-year basis. So that's a fairly favorable outlook heading out for the remainder of the year. We know there is 1 new plant coming online starting next year, the far-best organization in Indiana, and so that you may at some point see a tick-up in egg sets and whole placements related to the filling of that facility, but otherwise, I think we're in a fairly benign environment for the balance for turkey. Eric J. Larson - CL King & Associates, Inc., Research Division: Okay. The -- just a follow-up on that. Do you expect your harvest numbers for turkey to be kind of down that low-single percentage range for your second half? And then also your harvest numbers in pork, what would be the second half outlook for harvest numbers for that division as well?

I think we'd stick with the full year number we've given you. We'll admit it's -- we don't always hit it exactly on the nose. I mean, turkey is a good example of that, and we talked about 1.5% to 2% decline on an annual basis. In the first quarter, the weights came in a little more favorable than we thought, and so we didn't -- it wasn't that steep a drop. The second quarter was actually steeper than 2%, but on average, we're still, for both supply chains, looking at that range.

Our next question is from Diane Geissler from CLSA. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: Could you tell me please how big the SPLENDA business is? Obviously, it's material -- you had to close the plant, but I'm just trying to get an idea about revenue coming from that business and its contribution on an operating profit basis.

We really don't do line by line, either sales or operating profits, I mean, in terms of we're trying to give you a little bit of a sense of magnitude of impact for Specialty Foods by virtue of our comments that here or there really strong growth numbers that they managed to deliver in the first half. We're saying it's going to be much more of a challenge in the second half so it's significant, but I can't give you a precise number on that. I will also add, though, that when it comes to kind of the bottom line impact, our overall guidance in maintaining our annualized range is baking in everything we see coming in terms of the impact from the loss of that business for 2013. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: Okay, and the -- what is the ACV on the Rev product at this point?

The reported ACV from the team is in the 70% to 80% range, but they're telling -- that's kind of the acceptance level. I mean, I'm not sure than Nielsen, when you scan it, you -- there can be as much as a month lag sometimes, it's from -- when a customer says, "Okay, I'm taking it" to when it actually shows up on the shelf. But those are the kind of numbers we expect to have in place here, I would assume, by next month and we want -- for sure, we want them in place by July when the advertising kicks off and our team seems very confident that we're going to hit that. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: And how many SKUs are on that product platform and are the retailers taking all of the SKUs or...

There are 8 varieties and most retailers are taking all of them. There are a few that are taking 5 or 6 versus all 8. In many cases, we're getting double facings for each item and so it's -- we're very excited about where it -- for the chains that we already see it on shelf and how they're executing it, it's going to be in a good position. And our repeat numbers, we've kept the test markets, the 3 markets that we started last fall, we've continued to have those markets in place with the product and the repeat numbers are still very strong for that item so that's very encouraging as well. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: And the price point on that is what?

It's plus or minus from $2. You'll see some in the high $1s. You'll see some in the low $2s.

Our next question is from Akshay Jagdale from KeyBanc.

First question is just on Refrigerated Food volumes and even Jennie-O turkey, actually, so it's 2 parts. Can you break down the volume decline in terms of value-added versus commodity? From what I understand your -- the hogs prices weren't down, I mean, they were down like 1% or something. So I'm just trying to understand the dynamics there, if there's anything going on, on the value-added side that we need to be maybe concerned about?

I guess I'll take the Refrigerated Foods side, Akshay. Well, we did see the reduction in harvest volumes, as well as some feed sales that we had been doing that we are no longer in that business. So those would be the 2 big impacts on volume for Refrigerated Foods. As far as the value-added franchises, obviously, the fresh pork business moves up and down with the harvest volumes. So you're going to see reductions there when the harvest is lower, but we're excited about some of our value-added franchises in the Refrigerated Foods section. We saw great results on our party tray business. So we continue to look for those to deliver along with the Rev products that will be hitting in the back half of the year.

So for Jennie-O, clearly the total pounds processed were down, the total pounds sold were down, but most of the drop in sales really came out of -- was in the commodity side of it. Our value-added volumes were actually up for the quarter, very significant gains continuing on the retail side and solid gains on Foodservice, a little less so on the deli components. So those are kind of our 3 go-to-market, value-added components, but overall, from a Jennie-O franchise basis, we're still in very good shape in terms of our sales volumes through to consumers.

Okay. And just one on Skippy so can you talk about sort of longer-term? I know you haven't owned that business for that long, but for the time that you've owned it, what have you learned, like top 2 maybe positives relative to your expectations and 2 -- 1 or 2 sort of negatives relative to your expectations.

Sure. Well, I don't have any negatives right now, Akshay. I guess that's a good thing. From a positive standpoint, our team's done a great job of getting ahead of the curve in terms of the integration aspect. So we had a 5-month transition agreement in place with the seller that we ended up getting out of in 3 months because we were ready to go, both from a plant standpoint and an order-to-cash standpoint. The sales team is very excited about having this franchise. They're working on a customer by customer basis to see if there were distribution voids or opportunities, to see if they can promote the product better. In some cases, this is what we said when we announced it -- this was going to instantly be our single largest grocery products franchise. And so in some markets, we're finding -- I mean, this has really made us a much more major distributor and supplier to certain retailers, and so it really kind of elevates our game in terms of what we can talk about there. One of the things sort of yet to come in terms of the Skippy franchise is our assessment on the marketing and the advertising side. We're starting to study that, what would be a good proposition there, where would that rank compared to our other opportunities in the company, and we'll certainly have some guidance and information on that as we head into 2014, but that's a task for the remainder of -- kind of middle and fall of this year.

Our next question is from Farha Aslam from Stephens Inc.

First, just a quick housekeeping. Skippy sales, are you willing to disclose what they were in the quarter?

We really don't do line-by-line sales. I mean, we gave you a sense of those sales, though, for on a kind of U.S. and foreign basis when we closed the deal, and it's consistent with kind of -- it's not a particularly seasonal product, so I mean, you can certainly get close to the number by looking at it that way.

Okay, that's helpful. And then just following on to Diane's question regarding that Specialty Foods in the second half, do you expect operating profits to still be positive for that segment or do you think year-over-year, we should build in some cushion and anticipate some downside risk?

Well, I mean, based on the announcement today, you can see there is an element of a ramp-down to it, the business, we end up leaving our facility and our sales organization at the end of June so that takes us -- we still have it for 2 periods of third quarter. So I mean, I think, you can look at third quarter, there'll be less of an impact, and fourth quarter, there'll be more of an impact.

But just to clarify, the segment will be profitable.

You -- no, of course, the segment will be profitable, but do you -- but year-over-year, you expect profits in that segment, particularly in the fourth quarter, to be down?

That's a fair statement, yes.

I would expect that.

Okay, perfect. And then just going forward, now that Skippy is largely integrated, looking at your balance sheet and cash flow and organization, do you feel like you're ready to look at incremental M&A opportunities, and could you just share with us any color you can about that M&A landscape?

Sure. Yes, we're very pleased with the domestic integration of Skippy. We still have the international piece that will come later this year and we believe we have all the teams in place to get that done successfully. So certainly, a great testament to the people putting a lot of effort behind that. And we are absolutely willing and able to take on additional opportunities as they present themselves, and we continue to look for things that fit with our strategic areas of focus, and we will continue to do that, and I believe that we have plenty of capacity.

Our next question is from Robert Moskow from Credit Suisse. Robert Moskow - Crédit Suisse AG, Research Division: I wanted to know if you're looking at the next couple of quarters, maybe 4 quarters, you're guiding to higher turkey prices, lower grain cost headwinds both in refrigerated and in turkey. Can we add lower input prices for peanut butter in there as well?

Certainly, for the remainder of the year. I mean, we really haven't frankly done a lot yet with '14. Robert Moskow - Crédit Suisse AG, Research Division: Okay, but it could be -- is this possible it could spill over into '14 -- like all of these factors?

Sure. Robert Moskow - Crédit Suisse AG, Research Division: Okay. All right, good. And then -- and maybe just to follow-up on refrigerated, I don't remember the last time that increased grain costs showed up as a negative to profits in Refrigerated Foods. Can you remind us like what your live production operations are in terms of size and what's the strategic value of holding on to those?

Sure. Perhaps about less than 20% of our production comes from our live production units that are based in the western part of the United States or contracts that we have with growers that include a grain-based component. I would expect some of those grain-based contracts will end at the end of this year, but I do think that we'll keep a component of those going forward. From a strategic standpoint, we continue to evaluate all our operations and look to sustain those that provide the best shareholder returns. So I don't have any specific comment on our live grow operations at this point. Robert Moskow - Crédit Suisse AG, Research Division: Okay. And Jody, what about the packing margins in the quarter? Did you say what those were, whether they were -- how they were different versus a year ago?

Boy, the comparisons have become much more difficult with the USDA changing the mandatory price reporting, I think, effective in April. So we're no longer getting the comparable voluntary price reporting, as well as the USDA changed the methodology used in building up that USDA cutout. So year-over-year comparisons are a little difficult. If I look at just our business and the way we do it, I would say it would be a net even to last year. We do expect the industry to get back into some more moderating and normalized levels in the back half, and that there should be some improvement, but giving you a year-over-year is difficult at this point. Robert Moskow - Crédit Suisse AG, Research Division: And how do you feel about your processing capability there, the efficiency of your packing, the strategic value of doing that? Do feel like you're -- I've noticed very good numbers from Tyson in that regard, like do you feel like there's a way for you to close that gap in terms of improving your efficiencies?

Well, we have 2, 3 plants that basically do live harvest, and we've looked at our Farmer John plant to really bring in the number of heads that equal the amount of value-added product that they need, and they've done a great job of reducing cost in that area by doing that. Sure, our Fremont plant probably could be a little more efficient because it's only a single harvest, but it better matches what we need for our value-added. So I would say that having those processing capabilities to provide our own sole source of raw materials is valuable to us at this point.

[Operator Instructions] We have a follow-up question from Christine McCracken from Cleveland Research.

I just wanted to say, it was an awfully cold spring. We had snow, as you probably know, until late May in a lot of areas. I'm wondering, as you look at your grocery portfolio, curious if there is any effect on overall sales you think from the colder weather?

Boy, maybe in Dinty Moore, otherwise, of the items that we're carrying the day, no, I mean, Mexican really has very little seasonality, we've learned that peanut butter has very little seasonality. Microwave meals, if anything, skew to back to school, in that kind of time range. So no, I guess I really don't see that as having that kind of impact on our grocery portfolio.

Okay. And then if you think about the consumers right now, we're getting a lot of, I think, a pretty wide array of data points in terms of consumer strength, especially in the protein area where prices have gone up quite a bit. You obviously have record high beef prices, and I think turkey has had a bit of pushback from the higher prices. Just curious, how would you -- can you put any color around what you're seeing in terms of buying patterns? Are they going towards the value end of the portfolio? Or has there been any pushback in terms of these price increases that you needed to put through?

Well, I mean, it really seems to vary item by item, and I suppose our items probably have different consumer targets or different consumers who frequent those areas. So let's just take turkey as an example. I mean, our fresh tray pack items are still growing very solidly. We have had to take pricing on them on a fairly steady basis, unfortunately, with the -- not just this year's increase in grain cost, but a multiple year increase in it. Yet, I think we've done the right things in terms of marketing that brand and appealing to the health element for that consumer, and so that's -- it's still growing great. Behind the glass, deli sales of turkey, those are softer, and I do think price point is a factor in that, as both the retailer and the manufacturer unfortunately had to push those up some. I do think there's been some migration by consumers to other choices there. So it seems to vary by item. I just look at the overall franchises of the company, and I'm just pleased that we have so many of them that are in solid volume positions, and so overall, I'm satisfied with where we're at in terms of our pricing.

Our next question is from Tim Remy from D.A. Davidson. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Jody, could you parse the 7% sales number into acquisition, volume and price mix or anything like that? I didn't see that you did that but if I did -- if you did, I'm sorry.

We split out the sales numbers on -- boy, I don't -- you know what, Tim, I don't have that off the top of my head. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Okay. I see you did a lot of that in the segments, but just trying to avoid the math. And also, on the Skippy one-time charge, is that a net of tax number or was there a tax cost associated with that or a tax benefit associated with that?

That's the before-tax number so that's what would be included up in the segment. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Right. And so in a normal tax rate?

Those would be generally deductible from a tax standpoint.

Our next question is from Ann Gurkin from Davenport. Ann H. Gurkin - Davenport & Company, LLC, Research Division: I wanted to start with Skippy and the conversation about the one-time charge for -- of $9 million in the quarter. Should we expect any more charges in the back half? I know you commented on China, but is there anything else to think about?

Nothing that would be substantial. So that would be the major portion and a lot of that's banker and legal fees and due diligence fees. So those are already done, even for the China sites. Ann H. Gurkin - Davenport & Company, LLC, Research Division: Okay, great. And then any changes in anticipated synergies from Skippy?

No, in fact, we continued to reevaluate potential opportunity for synergy. Ann H. Gurkin - Davenport & Company, LLC, Research Division: Okay. And then if we could just walk through the outlook for the year, you maintain your outlook, which includes the Skippy cost, I would assume, the lost SPLENDA sales, so what is the offset for that lost SPLENDA sales, and can you walk me through the different components? And what's maybe changed in the different segment outlook as a component of the overall company outlook?

Okay. Well, here's how we look at second half. We see Grocery Products in a position to deliver very strong results. They're really hitting on all cylinders in terms of their different franchises. We have good MegaMex business. The can business is by and large growing. Microwave has now had restored growth, and then Skippy clearly will kick in a contribution to that as well. The other segment that we're expecting a really solid second half from would be international. I think, historically, people have looked at our international, and thought, oh, gee, that's kind of small and maybe doesn't have as big of an impact. But I pulled the comparison just on a 3-year basis for the first half so this year first half segment profit for international is $32.7 million. In 2010, it was $11.8 million. So I mean, it's become a major contributor to us, and we expect the growth in the second half for international to be every bit as strong as it's been in the first half. They've got good SPAM momentum. They've got good niche pork items, China's doing well, and again, Skippy will kick in, not -- obviously, we don't have the sales in China yet, but for the international sales that are outside of China. When it comes to Jennie-O and refrigerated, I mean, we're looking at them being contributors to growth in the second half, but not barnburners. In Jennie-O's case, that is a positive overall to our outlook because as I mentioned at the outset, obviously, we had some fairly significant deficits year-over-year coming out of Jennie-O in segment profit for the first half of the year as we had anticipated, and so we should now be back in a position where Jennie-O can hold its own and grow a little bit. And then Refrigerated Foods is kind of in that mode as well. I mean, overall, refrigerated has probably been a little bit under our expectation for the first half, and so we're not seeing a huge gain out of them in the second half, but it will -- but certainly, a gain. And so all those positives, obviously, as you point out and as we've talked about earlier in the call, the event with SPLENDA and the Specialty Foods was not something we had anticipated when the year began, but we now -- know it's coming and feel that the other 4 units are going to be able to more than cover any declines that are related to the loss of the SPLENDA business.

[Operator Instructions] We have a follow-up question from Akshay Jagdale from KeyBanc.

Just on Skippy, can you just remind us, in terms of your guidance for next year, I'm assuming it's not changed from your previous guidance. But more importantly, what type of assumptions do you have in there for peanut costs? And are we -- like this quarter, I'm assuming we didn't see a benefit to their margins from peanut costs. Can you just help me with that?

I can't do much for you at this point with 2014 yet, I mean we just really on a company-wide basis have not gotten into laying down our business plan, and therefore, be able -- being able to compare, gee, how does that look versus the 2014 guidance we provided when the acquisition was announced. I don't know of any material problem related to that range, but I just -- we have not updated it. In terms of what's going on this year, those peanut costs have been favorable. There was an element of that, that was positive to the business during the second quarter, but obviously, we had a lot of one-time charges in there as well that mitigated that. But during the second half of the year, that will be beneficial to both the Grocery Products and international franchises.

That's helpful. And just one for Jody, a couple for Jody. Just on Skippy itself, your guidance for D&A, how much of that in '13 is just related to deal-related amortization? And so what should we expect on a full-year basis on deal-related amortization for Skippy?

We took the range up, I think, this quarter, and that would include any amortization related to Skippy, amortizable, intangibles and any additional depreciation. We have not finalized our purchase accounting so there may be some adjustment in there, but I feel pretty comfortable with that range I gave you.

But the -- is it fair to assume that the change is related to the acquisition or not necessarily?

Some of the change -- the majority of the change is related to the acquisition. There's some other minor things, but that would be.

Our next follow-up question is from Diane Geissler from CLSA. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: Just a further question on the SPLENDA. In terms of Diamond Crystal, is SPLENDA the biggest component of Diamond Crystal? I know you have other condiment businesses, et cetera, in there, but if you could answer that question. And the other thing is what exactly happened with the contract? Was it just that you were so successful, the owner of the property wanted to keep it? Was it a failure to come to an agreement on the split in terms of the economics? If you could give us some color on why it was a surprise and what exactly happened.

Sure. I can't quantify precisely for you in terms of the segment impact other than to tell you, obviously, it was significant enough in the total volume of Diamond Crystal that it prompted us to make a very tough decision in terms of the production facility, and obviously significant enough in terms of profit delivery that we're going to go from a year that's been very solid for Specialty Foods to a second half that's going to be more troublesome. In terms of what happened, I mean it's a franchise that we've been involved with now for a number of years. The owner of the brand had the right to bring it back in-house upon an expiration of a contract. We had been in discussions with them with hopes to extend that contract, and ultimately, the decision was made that they wanted to bring it back in-house and go their own route. And so we will now look for other opportunities. That will be one of the things we outline in Investor Day here in June. Well, Don Kremin who runs that area will be one of the presenters, and he will be able to outline for you kind of, okay, well, what does Diamond Crystal look like and what kind of things there will they be pursuing now that this contract arrangement is no longer in place.

Our next follow-up question is from Eric Larson from CL King. Eric J. Larson - CL King & Associates, Inc., Research Division: Just one quick question on your guidance. What is -- I just want to find out what is in your guidance and what isn't? Your $9 million or $0.02 per charge for Skippy integration and those costs are in your guidance, I believe. Is any severance costs for the shutdown of your plant with Diamond Crystal is -- are those costs included in your guidance as well or will that be a separately-disclosed item?

Eric, everything's baked into the guidance range so we've included the non-recurring costs related to the acquisition of Skippy, as well as any charges for shutdown of a plant and severance, including the lost business related to SPLENDA, so everything's in.

Thank you. There appear to be no further questions. Please continue with any other points you wish to raise.

Thank you, everyone, for participating in our conference call this morning. Please feel free to follow-up with me with any additional questions you may have, and we thank you for your time. Have a great day. Bye-bye.

Thank you. Ladies and gentlemen, this concludes the Hormel Foods Corporation Second Quarter Earnings Conference Call. Thank you for participating. You may now disconnect.