Good day and welcome to the Hormel Foods Fourth Quarter 2015 Earnings Conference Call. All participants are in a listen-only mode. Today's conference is being recorded. At this time, I would like to turn the conference over to Jana Haynes, Director of Investor Relations. Please go ahead Ma'am.

Good morning. Welcome to the Hormel Foods conference call for the fourth quarter of fiscal 2015. We released our results this morning before the market opened around 6:30 AM, Eastern Time. If you did not receive a copy of the release, you can find it on our website at hormelfoods.com under the Investors section. On our call today is Jeff Ettinger, Chairman of the Board and Chief Executive Officer; Jim Snee, President and Chief Operating Officer and Jody Feragen, Executive Vice President and Chief Financial Officer. Jeff will provide a review of the operating results for the quarter, and then Jim will comment on our outlook and guidance for fiscal 2016. Jody will provide detailed financial results for the quarter and the year. The line will be opened for questions following Jody's remarks. As a courtesy to the 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 AM Central Time today, November 24, 2015. The dial-in number is 888-329-8893 and the access code is 6355504. It will also be posted to our website and archived for one year. Before we get started with the results of the quarter, I need to reference the Safe Harbor statement. Some of the comments made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed in or implied by the statements we will be making. Among the factors that may affect the operating results of the Company are fluctuations in the cost and availability of raw materials and market conditions for finished products. Please refer to pages 34 through 40 in the Company's 10-Q filed on September 4, 2015. It can be accessed on our website. Additionally, please note the Company uses non-GAAP results to provide investors with the better understanding of the Company's operating performance by excluding the impact of certain non-recurring items effecting comparability. Discussion of non-GAAP information is detailed in our press release located on our corporate website. Please note that during our call, we will refer to these non-GAAP results as adjusted earnings. Now, I'll turn the call over to Jeff.

Thanks very much, Jana, and good morning everyone. We are pleased to report a strong finish to fiscal 2015. Adjusted earnings in the fourth quarter were a record $0.74 per share, up 17% from last year. Sales for the quarter were $2.4 billion, down 6%. For the full year the Company earned and adjusted $2.64 per share representing an 18% increase over fiscal 2014. On an adjusted basis, all five segments registered earnings growth this year. Sales for the full year were $9.3 billion, a decrease of 1%. Lower sales for the quarter and the year were primarily due to turkey supply shortages in our Jennie-O Turkey Store segment and price deflation in the pork markets impacting sales within our Refrigerated Foods and International segments. I will now take you through each segment. Grocery Products operating profit was up 57% in the quarter. Normalized input costs and improved productivity drove the gains. Sales grew 4% this quarter led by SKIPPY peanut butter, DINTY MOORE stew, HORMEL chilly, and WHOLLY GUACAMOLE dips. For the year, adjusted segment profit was up 23% and sales were up 4%. We are especially pleased with the sales growth of our SKIPPY peanut butter products given a price decrease in the peanut butter category earlier this year. We continue to build momentum in our snacking portfolio with excellent results from our WHOLLY GUACAMOLE minis along with positive early reads on our most recent innovation SKIPPY P.B. Bites!. Refrigerated Foods' fourth quarter segment profit increased 27%, with sales down 5% and volume up 2%. For the full year, operating profit in this segment was up 26% and sales decreased 6% on a volume increase of 1%. Results in the fourth quarter were driven by nice increases by our affiliated foods businesses, higher pork operating margins, the addition…

Thank you, Jeff. Good morning to all of you. Looking ahead to fiscal 2016, we expect renewed revenue growth as the year proceeds. Grocery Products should benefit from improved pork and beef input costs this year especially as compared to the first half of 2015. Along with positive sales trends for our key product lines including WHOLLY GUACAMOLE dips, SKIPPY peanut butter, and our SPAM family of products, we have made significant improvements in manufacturing efficiencies over this past year, giving us the confidence to raise our long-term Grocery Products segment operating margin guidance from 12% to 14% up to the 13% to 15% range going forward. Our value-added businesses and Refrigerated Foods should benefit from favorable raw material costs and the segment is positioned to start the year with strong earnings momentum. We expect modestly lower pork operating margins and hog prices in 2016, and plan to increase pork production by 1% to 2% over fiscal 2015. While Refrigerated Foods clearly benefited from favorable market conditions in 2015 our team has also made significant progress in their efforts to improve product mix and drive sustainable margin improvements. Given these advancements, we are increasing our long-term segment profit margin range from 5% to 8% up to 7% to 10% going forward. We look for Jennie-O Turkey Store to return to growth in the back half of the year if there are no significant recurrences of highly pathogenic avian influenza. Volumes will remain constrained in the early part of the year as we continue to rebuild our system after significant bird losses last spring. In addition to lower volumes, Jennie-O Turkey Store is also facing difficult comparisons to fiscal 2015's strong first half performance. We expect turkey breast meat prices to remain elevated until the industry can see the impact of…

Thank you, Jim. Good morning everyone. On a GAAP basis, net earnings for the fourth quarter of fiscal 2015 totaled $187.2 million, up 9% over last year. GAAP diluted earnings per share were $0.69, a 10% increase. Excluding non-recurring charges adjusted net earnings for the fourth quarter of fiscal 2015 totaled $199.9 million, up 17% from net earnings of $171.3 million last year. Adjusted diluted earnings per share for the quarter were $0.74, up 17% compared to $0.63 per share a year ago. As Jeff mentioned, we made the decision to sell a portion of the Diamond Crystal Brands business. This business has now been classified as held for sale and asset impairment tests were performed as part of the evaluation process. The fourth quarter included pre-tax non-recurring charges of $21.5 million relating to a goodwill impairment charge for this business and that is reflected in our Specialty Foods segment. We also had a positive $8.9 million adjustment due to a reduction of a contingent consideration liability related to the CytoSport acquisition. This adjustment was due to an updated evaluation of the earn-out targets associated with the acquisition. The CytoSport earn-out agreement requires aggressive financial targets to be met and sales got off to a slower start than anticipated in the earn-out. To be clear CytoSport continues to meet the base business case used in our valuations. For the full year, adjusted earnings per share were $2.64 representing an 18% increase over last year with all five segments contributing to the earnings growth. Sales for the fourth quarter totaled $2.4 billion compared to $2.5 billion for the same period last year, a 6% decrease. Sales were down 10% excluding the incremental impact of APPLEGATE and MegaMex products not included in last year's results. Lower pork prices, turkey supply shortages due…

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions]. And our first question, we'll hear from Adam Samuelson with Goldman Sachs.

Hey, yes, thanks. Good morning everyone.

Good morning.

So I guess more detail on the margin, so let's say in the quarter and in the outlook the normalize ranges that you provided. Maybe in the quarter can you provide a little more clarity on, and especially in Grocery and Jennie-O, the very sharp year-over-year margin improvement that you saw, and maybe give a little more color on the drivers there? Was it simply timing of raw materials, manufacturing efficiencies, mix, a little bit more granularity there? And then on the long-term target, I appreciate you updating the long-term ranges, but I'm just trying to think about where you are today and especially Grocery, Refrigerated, and Jennie-O still running near at the high-end of the ranges that you've laid out and thinking about the contributors to earnings growth going forward, if you still think your margins are near the high-end of the normalized range? Thanks.

Thanks, Adam, this is Jeff. So in terms of the current quarter, on the Grocery Products side, what we feel we're seeing is a return to normalized margins in terms of some of the raw material inputs coupled with some systemic changes in our overall operations environment, while we feel we have added efficiencies that will stick and we attribute that to the strong quarter they just generated and also that was why we have now increased that earnings guidance range by 1% on either end for the Grocery Products group. In the case of Jennie-O Turkey Store, you'll recall we provided our best shot at what our second half adjusted guidance range would be in light of avian influenza and it pulled the range down to the 10% to 12% range. We certainly did see better returns in that in the fourth quarter on the aggregate for the half that turned out to be closer to 14%. They were able to do better on some of the dark meat-based items than we originally anticipated and they did a nice job of obtaining as much efficiency as possible in their operations. In the case of Jennie-O Turkey Store, you will see, we really are not changing the upper end of the guidance range, but we did tighten up the bottom end like partially to their success and being able to achieve what they did this quarter. The only other thing I guess I would add in terms of the long-term target ranges is clearly the Refrigerated Foods group with their performance this year broke out of the previous range and we were at a 5% to 8% range and they exceeded 9% this year. We have confidence in that business unit’s ability to maintain margins and grow them over time from that level, and hence we've raised that guidance range to the 7% to 10% range. Specialty Foods have seen improvement within the range as Jim indicated in his comments, but the overall results for the year are still within the guidance range we had previously provided, so we're leaving that unchanged especially with the DCB issue still lurking out there. Overall, what we felt it added up to was a 100 basis points change in the total Company margins and so we're looking at now 10% to 13% as being what we think we can look at going forward versus the 9% to 12% we had previously provided.

It's very helpful, Jeff. And maybe just on Refrigerated piece, as you think look about the 200 basis points increase in the range there, would you attribute that to any particular part of the business? Bacon comes to mind as an area that's been seems to be particularly strong this year or really just manufacturing efficiencies and value-added mix, any more color there?

It's been a strong performance all the way around and we think it's a sustainable progress with these brands. Bacon is clearly a shining spot for that group both on the meat products and foodservice side. While both of those value-added units had excellent results beyond just the bacon franchise as we mentioned some of the brands that did well in the release, pepperoni and party trays and entrees for the Refrigerated Foods retail group and then on the foodservice side pizza toppings and Fire Braised meats and other items. The affiliated part of Refrigerated Foods which is our Farmer John, Burke, and Dan's Prize operations, all had excellent years and contributed nicely to the results and they too as I mentioned with Grocery we've tried to attain some long-term efficiencies Refrigerated Foods certainly has not been quiet in that respect also. And so it all really adds up to that new level that they are now able to attain.

And next we'll move on to Farha Aslam with Stephens Inc.

Hi good morning.

Good morning.

Could you share with us your pork margin, basic pork margin estimates for this year and also if that's factored into your guidance and then the longer-term outlook what's kind of in your longer-term guidance?

Sure. I guess everybody is pointing at me Farah. I have to take the pork's operating margin question. So certainly they were stronger than we expected in the fourth quarter and moving into the first quarter of 2016, they are pretty robust. I would expect as the year goes on that those will trend downward and we'll see modestly lower pork operating margins. Supply seems to be robust. Demand at this point in time is robust as well so that's basically what we factored into our business model going forward. Really this was the first quarter where we saw pork operating margins for Refrigerated business unit being a contributor to the year-over-year results and that's really been an improvement on their mix and the value-added products.

And just as a follow-up. Could you talk about the recovery in the turkey business and the timing of that recovery?

What we're seeing in terms of the supply challenges, fortunately it's been a benign fall thus far and there is obviously close watch even in terms a wild bird testing to make sure that we're not encountering the renewed presence of high pathogen avian influenza and kind of knock on wood thus far, we've not seen that. We were able to completely refill our barns, but as we talked about before, the primary turkey for most of our value-added items is our tom turkeys. It's a 22-week market cycle and so we will not been fully back to normalized volumes throughout the earliest of second quarter of fiscal 2016. That being said, the team has done the best job they can with making sure that we have the product allocated fairly among our customers in terms of what is available. And then ultimately as Jim indicated, if everything continues to go well and we don't have any further outbreaks, we should be in a position by second half of next year to renew our successful Make The Switch advertising campaign and restimulate growth for Jennie-O Turkey Store brand.

And next we'll move on to Kenneth Zaslow with BMO Capital.

Hey good morning. This is Patrick Chen in for Ken. A quick question about pork exports, we understand that China has opened its borders again to a couple of processing plants including yours. Just wondering what the broad implications are for your pork exports, your pork margins, and input costs for other parts of your business? Thank you.

Good morning, Patrick, this is Jim. Last year 2015 was a struggle with the pork exports especially in our International business. One of the bigger contributing factors was when Russia banned the imports from the European Union that supply had to go somewhere and it did find its way into the Asian market in general at similar favorable currency rates, and so more supply, favorable rates really were almost a perfect storm against us last year. Certainly the opening up of the China market and the approval of our plants, while we don't export pork directly into the China markets because of their ractopamine or lack of ractopamine requirement, what we do think it'll do though is really maybe redistribute the supply of the available product. And so as we're looking into 2016 for our pork exports in the International business specifically, we think sometime in the second quarter, the back half of the year, we'll be able to return to more normalized levels of our export business which is still a very important part to our overall International business.

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

And next we'll move to Heather Jones with BB&T Capital Markets.

Good morning.

Hey Heather.

I had a question first on your pork business. Talking about, it sounded like you have a pretty bullish outlook on the fresh pork side. And one thing that we've been hearing from a number of companies in the industry is that, you were looking at the USDA cutout? Just how that's trending? Is there seem to be a widening gap between what USDA is reporting on that cutout and what company are seeing on a blended basis? And I understand you guys have not a value-add, but just wondered if you're seeing a similar trend, so that maybe the USDA cutout is not as good proxy as it used to be for just trend for pork prices?

I'm not familiar with where your data is coming from, but one of the contributing factors could be the fact that the drop credits that are not included in the cutout have significantly declined from normalized type level, so that could be causing some of it -- those are credits or items that aren't traditionally sold in the U.S. or byproducts of the productive process.

Yeah, I was talking about on the cutout specifically, but it sounds like you're not seeing same things. On your Jennie-O business, what do we understand Hormel is backwards integrated back to the greeters where it's quite a bit your competitors not, so it sounds as if Hormel's Jennie-O's volumes may return to normal borrowing another operate quicker [indiscernible] overall industry will return to normal from the volume perspective. It's what we understand basically on our conversations. And I guess my question is, I understand the difficult comparisons for the first half, but as we're thinking about late Q2 and Q3, I know a lot of your business is valued-added and more fixed price contract type of thing, but the part that is on the market, should we see some benefit from you guys having your volume return to normal quicker than the overall industry and there is still being benefit from some elevated pricing?

Well, Heather. Let me I guess make sure we're on the same page in terms of the verticality of the Jennie-O operation. We don't actually engage in the breeder stock, we do have our own hatcheries, so we do have a direct egg source. Our egg experience from what we're seeing in the industry maybe a little bit better than the overall industry number, but that's as close as I can get to being able to compare ours to others. In terms of that the second half outlook, we've frankly been the leader when it comes to branded value-added products for some time. I mean we're the one that's advertising. We're a local company that creates innovative new products. We have a dedicated team that focuses on the sale those items into multiple channels, and so definitely if we have the supply in place, that team is primed and ready to renew our momentum of growing the value-added businesses indeed. I mean before this thing hit in the first half of this year, all three of our groups the Retail deli and Foodservice at Jennie-O Turkey Store, their value-added sales were all up double-digit, so they were really on a roll here and we would expect during the second half of this year, if we have the meat supplies available and can turn the advertising back on to renew that kind of growth.

And next we'll move to Diane Geissler - CLSA.

I just wanted to ask on Diamond Crystal. So you obviously took a charge there, I'm assuming that's in anticipation of potential sale. Can you help us just how big is that business and what are its topic contribution then so as we model out this year, we can kind of get an idea for what the potential dilution to your EPS would be?

So I don't think we specifically called out any profitability numbers on that business and we will provide you the appropriate guidance when we do have a transaction to talk about. From the sales perspective, it's about $250 million to $260 million, without a margin structure that's generally lower than the guided range that we have further Specialty Foods segment. We'll try to help you when we have something to talk about.

Okay. I appreciate just given quantification on the size of the business. And then Patrick ask about China, so you talked about the plant additional CapEx this fiscal year to finish the construction there. How do you think about the timing in terms of obviously for SPAM etcetera that's been a product that you had introduced [indiscernible] poll. Can you just kind of talk about what your plans are with regard to when the plant is up and running and how long you think it will take to get products, kind of out of the door and under shelves and just kind of the maybe a longer-term 12 to 24 months outlook on your business in China. Thank you.

Thanks Diane and this is Jim. Our business in China really has been performing exceptionally well here over the last couple of years. That team is really hit their strides. In terms of needed capacity, the sooner we complete this plant the better offer going to be. We are expecting the plant to be completed in the fall of 2016, so if we think about the September timeframe, and as a reminder that plant will be a combination of Refrigerated meats and also our in-country SPAM production as you mentioned. So that plant in the capacity that's going to be made available to our business in China. It's really going to keep us on the path of sustained growth that we've been able to deliver here the last couple of years. Business is very well developed both in the retail and foodservice channels, not only on the meat side, but with our SKIPPY business, and so as we think about it going forward we're exceptionally well-positioned to continue to grow the business in me instantly and were very excited about the synergies that will get within country production a stamina and being able to leverage them against what we've learned through the SKIPPY business. And so as we think about it going forward we're exceptionally well-positioned to continue to grow that business in meats and SKIPPY and we're very excited about the synergies that we'll get with the in-country production of SPAM and being able to leverage them against what we've learned through this SKIPPY acquisition integration, so lots of the letter great things coming out of China.

[Operator Instructions]. And next we'll move on to Mario Contreras with Deutsche Bank.

So I wanted to clarify on the guidance for fiscal 2016, on the 53rd-week mathematically would expect that to add 2%, so given it's not going to add 1%. I'm just curious is that related to timing or some of that extra week profit going to be reinvested back into the business?

Okay, Mario, this is Jeff. Our business is the hybrid business between the store grocery channel and in the protein base channels, and I guess the way we assess it is yes on the protein side when you have meat coming at you in the system, you should anticipate frankly a full extra week, you'll have full cost and frankly should deliver full margins. When it comes to the Grocery side of the business which impacts not only our Grocery product segment, but also our international piece is significantly Grocery base. Our experience in the past has been, non-buying programs or those types of items, you really don't get a whole extra week. A lot of them are on monthly programs and so forth and so we're just trying to provide the guidance based on what our best experience has been. I would say though there is a certain element of reinvestment going on. We've have [stuffing] up ad spend on an annualized basis, and this current plan no exception to that. We have a number of brands that we're excited about that we think we can continue to build momentum in the marketplaces, so there is a little bit of element in general of us making sure we're reinvesting in our brands.

Okay, thanks for that. And then just one additional clarification there, corporate expense was a bit higher than its historical trend? Was there anything unusual there this quarter and what type of run rate do you think would be appropriate going forward that line item?

I would expect that, well in the fourth quarter we really had some higher employee related expenses as we took a look at all of our incentive programs and made adjustments there. We also had some higher legal expenses for some activity that was going on there. On a normalized level, I think he could look at possibly 5% increase over where we finish this full year. That ends up being a spot where lots of miscellaneous adjustments, so it's little harder to forecast.

And next we'll move on to Robert Moskow with Credit Suisse.

Hey there. A great year, great two years in a row, so here is a question about turkey. I literally just bought our turkey at Stop & Shop $75, $3.12 a pound. I mean it seems like a shockingly high priced.

Probably Jennie-O.

First question, would it be cheaper the Jennie-O. The second question, I look at your pricing back half of the year, there was no pricing despite the fact that the industry is sort of volume constraint and I'm trying to think about next year for Jennie-O. What is the pricing kind of flattish and for next year, will it continue to be flattish? And then I'm still not quite sure, I understand the cautious guidance for the first half for '16 for Jennie-O if fourth quarter came in loudly above what I had forecasted and I understand the volume constraints, but can you give us an order of magnitude on the first half profit guidance for Jennie-O?

I mean first of all, when whole bird pricing, I mean it's a relatively small percentage of the overall results of the business and you're also dealing with something that's very retailer specific and retailer dependent. I mean it ranges from apparently you hadn't experience where the retailer was certainly seeking to attain some margins out of their whole turkey sales, all the way to kind of the more historical treatment. Frankly there is a lot of retailers usually there is a lot sweeter and so you'll see a price out there and you might think that's breathtakingly low sometimes, that's not necessarily what our value was into them. It's up to the retailer to decide how to price the product.

In the aggregate we came up with as many whole birds as we could for this year given the shortages we were fronted with and allocated them out on a national basis. In terms of your question about pricing in general and the guidance, fourth quarter is traditionally our strongest quarter, most favorable feed conversions and so forth in your birds. You do have the added bump if you will of the Thanksgiving sales rolling through. We know we're going to be short product again in Q1. We're certainly going to try to perform as strong as we can. We're going to be comparing against a very robust performance by Jennie-O Turkey Store in Q1 and Q2 in fiscal 2015. So we're comfortable that Jennie-O will be a solid contributor to the guidance range that we've provided you on an aggregate basis with most of it coming in the second half of the year.

Okay, but pricing like -- there is no pricing in Jennie-O right now and I imagine no pricing next year either and in the capacity constrained environment, I would have expected pricing to be higher. Is it because of those contracts in place with retailers or is there something else?

It kind of runs the game, Robert. In some cases you're dealing with product shortages. In a significant enough shortage position, you may end up having a raise of price of what you have left. There are other aspects or other portfolio that you are on more of a contract basis or on a committed basis, so it's just kind of ends up blending out to the position you're seeing. Clearly there have been a steep increase in the commodity turkey pricing, but I think as we've talked about in the past, even in years and we're not sure of turkeys, we're not really a net seller of breast meat at commodity meat markets, and so these very lofty $4 and $5 rates that you're seeing on the commodity breast side that's not something we're able to enjoy in our sales.

And there are no further questions at this time. I would like to turn the call back over to Jeff for any additional or closing remarks.

Well, thank you very much. I just want to conclude by saying that I'm proud of the excellent quarter and full year performance by our team as we achieved record earnings for a 10th straight quarter. It's an extraordinary experience of our employees throughout the Company and that's such a key factor to our ability to consistently deliver strong results for the Company. On behalf of this team, I want to wish all of you Happy Thanksgiving, and thank you for joining us today.