Good day and welcome to the Hormel Foods' Fourth Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Jana Haynes, Director of Investor Relations. Please go ahead.

Thank you. Good morning. Welcome to the Hormel Foods' conference call for the fourth quarter of fiscal 2014. 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 Web-site 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 along with our guidance for fiscal 2015. Then Jody will provide detailed financial results for the quarter and the year. The line will be open for questions following Jody's remarks. As a courtesy to other analysts, please limit yourself to one question with one follow-up. If you have additional queries, you are welcome to get back into the queue. An audio replay of this call will be available beginning at 11.30 A.M. Central Time today, November 25, 2014. The dial-in number is 888-203-1112 and the access code is 9752232. It will also be posted to our Web-site and archived for one year. Before we get started with the results of the quarter and the year, 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 costs and availability of raw materials and market conditions for finished products. Please refer to pages 31 through 37 in the Company's 10-Q for the quarter ended July 27, 2014, which was filed on September 5,2014, for more details. It can be accessed on our Web-site. Additionally, please note the Company uses non-GAAP results to provide investors with a better understanding of the Company's operating performance, by excluding the impact of certain non-recurring items affecting comparability. Discussion on non-GAAP information is detailed in our press release located on our corporate Web-site. Now, I'll turn the call over to Jeff.

Thank you, Jana, and good morning everyone. We are pleased to report a strong finish to fiscal 2014. Earnings in the fourth quarter were a record $0.63 per share, up 9% from a year ago, on sales of $2.5 billion, also a 9% increase. For the full year, the Company earned a record $2.23 per share, representing a 14% increase over last year. We also achieved record sales of $9.3 billion, an increase of 6%. I will now take you through each segment. In addition to discussing segment results, I will also provide an operating profit margin guidance range for each segment, which is our estimate of margin potential over the next few years given our current business structure, product mix and typical market volatility. Grocery Products segment profit was down 21% in the fourth quarter with sales down 3%. High meat input costs and related pricing actions hampered the growth of some of our brands, including Hormel chili and Hormel Compleats microwave meals. On the positive side, HORMEL bacon toppings, WHOLLY GUACAMOLE dips and HERDEZ authentic Mexican foods grew during the quarter. For the year, segment profit was down 9% and sales were up 3%. We continue to support our iconic brands. This year we increased our Grocery Products' advertising spend by over 20%. At the end of September, we kicked off a national SKIPPY peanut butter advertising campaign after many years off air. Effective at the beginning of fiscal 2015, we will integrate Fresherized Foods, the maker of WHOLLY GUACAMOLE, into our sales and distribution systems to give this brand the full benefit of our consumer products sales force capabilities. Going forward, we will report 100% of the estimated $200 million in sales in our Grocery Products segment revenue. We will continue to report only 50% of the…

Thank you, Jeff. Good morning, everyone. Net earnings for fiscal 2014 fourth quarter totaled $171.3 million or $0.63 per diluted share, compared to $157.3 million or $0.58 per share a year ago. Net earnings for the 12 months of fiscal 2014 totaled $602.7 million or $2.23 per share, compared to net earnings of $526.2 million or $1.95 per share a year ago. Dollar sales for the fourth quarter totaled $2.5 billion compared to $2.3 billion last year, a 9% increase. For the full year, dollar sales were $9.3 billion, a 6% increase from last year. Volume for the fourth quarter was 1.34 billion pounds, up 3% from fiscal 2013. For the full year, volume was 5 billion pounds, up 1% over last year. When we announced the acquisition of CytoSport, we indicated that the acquisition would have a neutral impact on fiscal 2014 earnings, net of transaction costs. Besides the expected transaction costs of $4.8 million, we incurred the fair value inventory adjustment of $4.5 million, which negatively impacted the results of our Specialty Foods segment. The inventory adjustment was not included in our original guidance. As previously stated, we expect CytoSport to contribute approximately $0.05 per share to our fiscal 2015 results. Selling, general and administrative expenses in the fourth quarter were 6.5% of sales, compared to 6.3% last year. For the full year, selling, general and administrative expenses were 7% of sales compared to 7.2% last year. We expect selling, general and administrative expenses to be between 7.5% and 7.8% of sales for fiscal 2015. The growth over fiscal 2014 will come as a result of plans for the increased advertising Jeff alluded to, including the marketing associated with CytoSport. Advertising expense for the fourth quarter was $22.4 million compared to $16.6 million last year. The increase over…

[Operator Instructions] I will go first to Kenneth Zaslow with BMO Capital Markets.

Can we just talk about the guidance for a second? I was just surprised by the muted tone of it. I guess when I think about it, if I strip out the CytoSport and I strip out some of the weather and issues that you happened to have last year, which I thought was going to recur, it seems like the internal growth is about mid-single digits. First of all I guess my question is, did I do my math right, and then second, does that strike you as the right balance, are you conservative on that, how do you think about that in terms of the internal growth, that's how I look at it?

Let me walk you through our thinking in terms of the guidance range that we've established for 2015. Starting with Refrigerated Foods, as we talked about earlier in the call, we do expect processing margins to not be as favorable as they were in 2014. Notwithstanding this, Refrigerated Foods we would expect to still grow modestly due to their value-added sales momentum in foodservice and with their retail brands and due to improved general efficiency, but it will be fairly modest growth in 2015 at a segment profit operating level. This more favorable cost environment should help Grocery Products, so we do expect Grocery Products to rebound to more normal growth rates, plus the fact that they will no longer have the earn-out as part of Fresherized Foods in their costs. The favorable cost will also help International. We expect International to achieve its fifth consecutive year of double-digit growth. For both Grocery Products and International, there are certain lingering high costs in the inventory that will continue to sort of dampen their results in their opening quarter of the year, but as the year goes on we'll be working through that inventory. Clearly Jennie-O Turkey Store, our expectation is to have another good year. They are in a more favorable grain environment, plus they have great value-added momentum, and this should move them towards the top of the operating profit range that we just articulated. That being said, there are some mitigating factors for Jennie-O Turkey Store. The grain benefit is partially offset by hedges. We've talked before about our hedge philosophy. The soymeal side of the grain formulas has remained stubbornly high. And we do have certain grain based contracts with foodservice customers within that segment. Secondly, we expect the turkey commodity meat markets, which have been at an all-time high, to not be quite as favorable in 2015. And then third, we have approved an enhanced advertising budget for Jennie-O Turkey Store, the Make The Switch campaign has driven good results, and so we're going to be investing further there. In fact, overall advertising spending, as we talked about, was up double digits in 2014 for the whole Company and should be again in 2015. For Specialty Foods, by the fourth quarter that the unit had recovered from the year-over-year SPLENDA change in business operations, their results were actually up modestly in Q4, if you don't count CytoSport at all. And so we expect again modest growth of the overall Specialty portfolio in 2015, plus they should attain the $0.05 a share benefit from the acquisition of CytoSport. So for us, this adds up to a range of $2.45 to $2.55, exclusive of the nonrecurring events. The midpoint of this range is a 12% increase over the year we just completed, on top of the 14% increase we generated in 2014. So that's our thinking at least in terms of providing this kind of guidance range.

That's great. And then just a follow-up, is the cost savings, is there a greater initiative at Hormel to focus on cost savings? I know obviously one facility you're closing down, you're thinking about the Vietnam, is there something that you're doing more broadly that we should be thinking about, maybe internal actions, and does it have to do with the retail environment, or these are just one-offs that I shouldn't read anything into it?

I guess I wouldn't read anything into it. I mean the timing on those types of decisions, I mean we've had the investment with our partner in Southeast Asia in the Vietnam operations for several years, and kind of given that we think a good try there but really feel we'd be better off focusing our attention elsewhere. In terms of the Stockton plant decision, I mean it's an older facility. We really had to kind of make a determination, do we pour more money into that facility or could we utilize the capacities we have available in more modern grocery facilities elsewhere in the U.S., and so we made that difficult decision for that reason.

Great, I appreciate it.

We'll go next to Farha Aslam with Stephens Inc.

I noticed you had a considerable step-up in your CapEx expectations for 2015. Is there something incremental that you're investing in for next year?

Sure, Farha, this is Jody. Jeff talked about the new SPAM production facility that we're going to be – Refrigerated Foods production facility that we are building in China. So a portion of that plant will impact 2015. We had started the construction of additional SPAM lines domestically that will flow over into 2015 as well. And then we have several other initiatives that we're looking at to expand capacities for some of our product lines that are running at tighter capacities. So, yes, it is a step-up and then we have just the general repair and maintenance type CapEx that comes with operating many facilities across the country.

Right. And then in terms of capital allocation overall, it looks like you have a net debt-free balance sheet. Could you share with us your uses of cash and kind of your priorities in terms of how you look to deploy that capital going into next year?

We certainly took a good step forward with the 25% increase in the dividend that we made this year. So that's obviously something, a legacy that we are extremely proud of and would look to continue to do that going forward. We've made several acquisitions, SKIPPY in 2013 and then more recently the CytoSport acquisition in 2014. So we'll continue to look for opportunities there that fit with our strategies of brands that are number one or number two in the marketplace, transactions that can be accretive both from a margin perspective as well as overall profit, certainly looking for things that provide us the global footprint, and then more recently trying to look at things that fit more into a health and wellness type portfolio appealing to younger consumers addressing the snack area as well as our ability to add innovation to anything that we would purchase.

And then share repurchase?

You know that's probably a little more opportunistic. We did do some this year and I would expect that we'll take a look at doing that a little bit in 2015 as well.

Okay, great. Thank you.

We'll go next to Eric Larson with Janney Capital Markets.

Thank you and happy Thanksgiving to everybody. I'd like to drill down just a little bit more on the cut-out margin. I think it's reasonable to assume that the cut-out margin would normalize a little bit more next year, but demand has remained I think a lot stronger than what we would have all expected. Now I think there can be a lot more competition from chicken next year as well, but can you – exports for pork have been particularly strong, can you try to put some of the demand context into that how you're looking at that cut-out margin?

Sure, I'll give the wheel here. We certainly have seen some volatility in those operating margins in the first part of our fiscal year in November here, so they've been a little bit all over the board, certainly lower than they were last year at this time from that perspective. We do expect to see hog numbers increase 3% to 3.5%, we're not taking our harvest up that high, but that should provide lots of availability. The demand seems to be the equation that we'll see what happens with that. We would expect the cut-outs to come off the historical highs that they have been and we've seen some of that come already. So our balance is that they're going to go back more to a normalized range, maybe not as low as the five-year average, and that's what we've used in our assumptions.

Okay, alright. And then just one follow-up question on Jennie-O, obviously your ad campaigns have been very successful for your value-added products and you're going to bump up your advertising next year. Is part of that reflecting the fact that you might have easier fuel comps and fuel comparisons this upcoming winter, I mean Lord knows what that will be, but is part of the thinking that you'll just reinvest some of the positive variance in some of your operating costs in that division?

I mean we do pulse the advertising somewhat based on macro conditions, but clearly the Jennie-O brand has benefited from being on-air and from emphasizing this sort of Make The Switch theme, and the most recent version has been the taco campaign, but we had a burger campaign and a bacon campaign in prior years as well. Their plans right now are to kind of roll into some new markets with that advertising to support some product placements that we've been able to attain through our sales organization. And so, we'll definitely be on-air early in the year and we may complement that with more of a fall campaign as well.

Okay, thank you. I'll pass it on.

We'll go next to Adam Samuelson with Goldman Sachs.

I want to spend a little time in Grocery, if we could, and talk about the volume outlook there. I think they were down 5% in the quarter and it's been really challenged for most of the year, and help us think about some of the product categories, I know there's been a big focus on Compleats over the course of the year to right that, but maybe a bit of context in terms of the categories where that have struggled this year and some of the actions that you're taking or anticipating can drive an improvement in 2015?

I mean on the positive side, as we talked about, I mean bacon business had a fantastic year. We have two brands within the Mexican portfolio that are really on a roll in terms of double-digit growth, the HERDEZ brand and WHOLLY, and now the WHOLLY sales in 2014 were not being reflected in our results. So that would have changed the year-over-year results had we had those in there, and starting in 2015 we will have that. Our franchises, our iconic brands of SPAM and SKIPPY, had fairly flat Q4 results but both have what we hope are good solid marketing campaigns going forward and we expect growth out of both of those brands in 2015. The areas where we have struggled a little bit more have been some of the other traditional canned meat items, the Dinty Moore and the Hormel chilli items. And then we kind of continue to have coming up and down experience with our microwave meals, we are going to market with a little bit different tactics within that category in terms of tiered pricing and new offerings and we'll see if that works. That's our game-plan going into 2015.

Okay, that's helpful. Maybe that rolls into my follow-up on the 5% plus sales growth target, I would imagine in spite of 3% growth from CytoSport, if that layers in, I think you're consolidating some different parts of the business that you haven't in the past, but I would imagine that the commodity price environment in pork and refrigerated as well as in turkey would be a little bit of a headwind, and so I guess I'm surprised that – am I thinking about it right that the 5% is really about acquisitions and some of the kind of consolidating different businesses as opposed to underlying with offsetting price declines and more flattish volume environment across the portfolio?

Pricing is always a wildcard. I mean our long-term revenue goal is a 5% goal. We actually expect to exceed that here in 2015, in part because of the WHOLLY brand coming onto Grocery sales. And so in general, I mean if you look at our long-term track record, we have actually exceeded the 5% over the last five years, but that is definitely with some assistance from acquisitions such as SKIPPY and the MUSCLE MILK acquisition. So in general, clearly when I look at the grocery store environment, I think our perimeter based items, we do expect to be able to grow at that kind of a 5% clip. Center of the store, maybe not quite that robust, but we have had investments in acquisitions such as SKIPPY that have added to that portfolio and we think Mexican can definitely grow at that pace. Our Foodservice Group has done a nice job with that as well. So our target kind of not counting acquisitions is certainly in the 3% to 4% range, and then we've been able to round that up by virtue of finding the right prospects periodically.

Alright, that's very helpful. I'll pass it along.

We'll go next to Diane Geissler with CLSA.

I wanted to ask you about the normalized ranges that you provided this morning. It looks as if you've taken down the Grocery Products normalized margin by about 200 basis points, but you've improved your JOTS margin by 200 basis points. So my question is really in the Grocery Products segment, how much of the margin reduction is due to the fact that you'll be rolling in sort of 100% of the Fresherized Foods and what percentage is just due to your ongoing outlook for whatever tighter protein markets which impacts that margin or slower growth coming from the center of the store, is there any way to quantify for us what's going on with your outlook on the Grocery Products margins?

I can tell you for 2015, our expectation is that the net margin will be kind of equivalent to what you saw in 2014. So what you have there is the watering down effect of a lot of the Fresherized sales coming in with only half margin being reported, but an expected improvement in terms of – we said we had some very difficult operating cost challenges during 2014 and we don't expect those to recur. So altogether, those two factors should cancel each other out. I guess I would also point out that if you take away MegaMex, so I mean you've got a great growing business with great consumer franchises but franchises that were accounting 100% of the sales and only half of the earnings and the after-tax of that in some cases, the core Grocery Products portfolio not counting MegaMex is still, we still look to be in the high teens in terms of their operating delivery. So we really don't feel we've seen a denigration in the portfolio, we just are seeing the impact of MegaMex rolling through there in terms of that range we just provided.

And I would add that MegaMex generally is growing at a little faster clip than our corp portfolio is.

Okay, that makes a lot of sense. And then I wanted to ask about the new plant in China. I think you said, peanut, bacon, ham, pepperoni, whatever, I'm assuming that's going to be under a branded, like Hormel brand, and I guess if you could just few more details about what your strategy will be in China, do you expect to open retail outlets, do you have partners there who will be providing the sourcing materials, I mean can you just give us a little bit more clarity on what your plans are when that plant opens in 2016?

Sure. So right now we have three plants in China. One of them is a SKIPPY peanut butter plant, exclusively for that production, and so that one we won't count that right now but our team definitely operates that in terms of the G&A efficiencies of the total operation and it's a great sales vehicle for us in that and other markets. We then have two other facilities that we've operated for more than a dozen years, one in Beijing and one in Shanghai, that produce these similar refrigerated based items. Our team has done a very nice job growing that business over time, I mean that's many times a 20% plus growth trajectory, and so as we project forward with the kind of business we have, we needed new plant capacity and so the team has been working on identifying kind of where that should be and how that would roll together. And so that production in terms of the sourcing for the last several years, we buy meat from approved suppliers within the Chinese market, we don't raise hogs ourselves and we're not a basic slaughter in that market, but we're confident that we have sufficient meat suppliers to meet these growth needs that will go ultimately into that new plant.

We'll go next to Mario Contreras with Deutsche Bank.

You had mentioned PEDV briefly. I just wanted to maybe get a little bit more of your thoughts on what you've seen so far now that we're getting into the kind of early months of the core winter weather, and then how do you anticipate potential impact on profitability if prevalence is greater or less than maybe what you're expecting?

This is Jody. That certainly could be a wildcard. What we have seen in the industry is, it slowed down during the summer months as one would expect, as the weather seems to be more conducive in the winter when it's cold and damp, but we've also seen a lot of the producers really increase their bio security and I think that will have a positive impact on any further spread of the disease. So our assumption is that hog production should grow in the 3% to 3.5% for the industry as a whole and that assumes that there is a lot less impact than there was last year on PED.

Okay. And then one additional question, if I could, on the International segment, I believe you had indicated your volume was up 6%, but if I back out the benefit from SKIPPY China and CytoSport, is it fair to say that core volume was down, am I thinking about that right for that business?

I wouldn't want to do the math on the fly. I mean certainly it was flattish. It wasn't the best quarter either for SPAM in terms of we had high inputs and then some cases then had some deferred shipments to some of our export markets, and we had an uneven quarter in terms of SKIPPY, we have a couple of markets where it's going great but a couple of others where it receded somewhat. But overall, I mean they saw a double-digit growth on a full year basis for International last year and we expect a strong growth heading into 2015.

Okay, so I guess it sounds like maybe you view that as more of sort of a one-off weak quarter with some timing issues but strong when we look into 2015?

Yes, with the other caveat that I mentioned earlier that from a margin standpoint International still will be kind of – SPAM is a major product line for example on the inventory carrying cost that they have from the spike in raw materials this summer will still impact them certainly through Q1, but after that they should be in better condition.

Okay, great. Thank you.

We'll go next to Akshay Jagdale with KeyBanc.

Good morning and happy Thanksgiving. So first question is on SG&A, you mentioned you expect an increase next year. Can you address where you ended up this year? I believe came in a little bit less than what you were expecting. So is part of next year's increase a timing shift and if you can just give us a sense as to why this year's SG&A to sales came in lower than what you were expecting? That's my first question.

So, part of the driver for 2014 SG&A being somewhat lower was the timing of some compensation accruals we had last year but we didn't have this year. As far as 2015, the majority of that increase is really being driven by the increased advertising campaigns.

Okay. And then with your long-term guidance on margins, very helpful, what timeframe should we be thinking of that margin outlook to be? And you've made a lot of portfolio changes, Jeff, so in general where are your portfolios today versus where it was five years ago? I mean do you feel generally better about expanding margins longer-term as a whole or you feel better about the growth prospects, organic growth prospects of this portfolio?

I guess we're probably putting these ranges out as reasonable over the next three to four years. I mean things can change, both in macro conditions and in our businesses, so we would want to keep an eye on those and update those as those things make modifications. In terms of your other question, I mean we certainly hope we've improved the portfolio over time, that's been the goal. I think it depends on which segment we're talking about as to whether the expansion of margins versus growth is the bigger area of emphasis. So clearly within Refrigerated Foods, that team understands very clearly that their mission is to expand margins. They had a very nice year this year in terms of moving upward and expect to hold that in 2015 and grow from there. In other areas such as Jennie-O Turkey Store or International, I think those are excellent growth opportunities. So the bigger those two pieces can become of our overall portfolio, the better off we'll be in the aggregate. When we announced the CytoSport acquisition, we conceded that at least on an onboarding basis, it was kind of even with Specialty Foods' margins, but we do think that as we get our hands around that business and drive efficiency and growth going forward that that can start migrating those margins up, and so that was why that range has an upside to it that's above where they are at today. So it kind of depends on the area of the business.

That's helpful. I'll pass it on. Thanks.

We'll go next to Robert Moskow with Credit Suisse.

Just a few kind of odds and ends questions. On Jennie-O, you said that you expected commodity turkey prices to be a little lower. Can you give me some of the drivers behind that? I thought supplies have been tightened quite a bit. Do you expect supplies to increase? Secondly, I think your competitor in peanut butter is taking a price cut. Are you going to do the same? And then lastly, I'm planning to visit your offices in January, any wardrobe recommendations for visiting Minnesota in January?

Boots and a long coat.

Alright, thank you for that.

[Once you reach] [ph], we'll have you well taken care of. The roads are a different story.

No golf outing this year in January?

We'll find you a simulator somewhere. I don't know, that would be a [better idea] [ph]. So let's start with Jennie-O. We have seen increases in egg sets and poult placements recently. We had a flat year in 2014 in terms of total pounds brought into the system, yet our value-added businesses keep growing, and so we will be increasing our supplies somewhat going forward. The market also seemed like it kind of got an early jump last year when a number of entities had issues with propane and winter weather and so forth and the meat supplies tightened quite a bit. So we are expecting a more normal situation there. We have taken steps to get our hands on more of the propane ourselves so that we're not quite as much at mercy of the marketplace for that, and I don't know what others have done. But overall, I mean they were at very high levels this year and our best outlook is that it will still be strong levels next year but not at what we've benefited from this year. In terms of the peanut butter equation, going into this fall and going into our fiscal year for 2015, we had not been looking at taking further price decreases. The crops certainly have been more favorable lately and there was an overall decline in costs, but relatively speaking that decline has not accelerated in recent months, it pretty much was already priced into the crop. But when the leading share player made their announcement as to their strategy going forward, we huddled our group and really thought about, okay, what's our reaction going to be to this? We're still pretty early on in the ownership of this brand, we recognize that we're at kind of almost a 2-to-1 deficit when you look at market share in the U.S., and so we thought – and we're not really asserting that SKIPPY is a premium peanut butter product, it's a mainstream product, and so our assessment was, when the market leader has modified the price and that we want to in essence stay competitive with that price, and so we will be executing a price decrease in the marketplace. We think that this should allow fewer promotional dollars to be spent in the category because the bases are lower, so the feature that needs to come off with that doesn't need to be as deep, and so that will be our execution strategy going forward.

Got it. So [indiscernible], yes, but the price cut, so that didn't really affect your profit outlook for fiscal 2015 for SKIPPY, you think that the promo adjustment will kind of balance it out?

I guess I don't want to give you a one line item like that. I mean in the aggregate of our Grocery, what we expect for Grocery Products, what we're spending our ad dollars on, et cetera, we're comfortable with the returns that SKIPPY will deliver in terms of the overall growth we're expecting for grocery in fiscal 2015.

Yes, okay. Alright, have a great holiday.

At this time, there are no further questions.

Okay, we will conclude our call. I am pleased with the opportunity to announce another record performance this year. This has been the result of the hard work and dedication of the really talented team here at Hormel Foods and we're looking forward to an even stronger fiscal 2015. So on behalf of our team, I want to wish you all happy Thanksgiving and thank you for joining us today on the call.