Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hormel Foods Second Quarter Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. [Operator Instructions]. This conference call is recorded today Thursday, May 22nd of 2008. I would now like to turn the conference over to Kevin Jones, Director of Investor Relations. Please go ahead, sir. Kevin C. Jones: Good morning. Welcome to the Hormel Foods' conference call for the second quarter of fiscal 2008. We released our results this morning before the market opened around 6.30 AM Central Time. If you didn't 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, Senior Vice President and Chief Financial Officer. Jeff will provide a review of the operating results and an outlook for the remainder of fiscal year 2008. Then Jody will provide detailed financial results for the quarter. The line will be opened for questions following Jody's remarks. An audio replay of this call will be available beginning at 11:00 AM Central Time today, May 22, 2008. The dial-in number is 800-405-2236 and the access code is 11113993. 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 24 through 29 in the company's 10-Q for the fiscal quarter ended January 27, 2008 for more details. It can be accessed on our website. Now, I will turn the call over to Jeff. Jeffrey M. Ettinger: Good morning everyone. We were happy with our results in the second quarter especially in light of the macro conditions confronting the food industry. In reviewing our performance this quarter, all five segments reported top line growth and three of our segments reported bottom line growth. Sales for the quarter reached $1.59 billion, up 6% from the prior year and up 4% excluding acquisitions. Earnings per share for the quarter were $0.56 compared to $0.49, an increase of 14%. I will now take you through each segment. The Grocery Products segment had another strong quarter, reporting 4% sales and 6% operating profit growth. I was particularly impressed to see this profit growth on top of last year's Q2 increase of over 20%. Operating profit also improved 30 basis points in Grocery Products compared to last year. Strong sales of the Hormel Compleats microwave trays and the SPAM family of products were key drivers to sales and earnings for this segment. Our growth rate per compleats was more modest during the quarter but still hit the double-digit level. The continued rollout of the green label products and the introduction of new promotional effort are expected to continue our momentum on this product line. Pricing was taken on the SPAM family of products, our microwave trays and bacon toppings to compensate for the increased input costs experienced by this segment. Notwithstanding the price increase, sales volume for the SPAM family of products was up nicely in the quarter aided by continued promotional and advertising support as well as increased distribution of SPAM Singles. Sales of our Hormel chili and Dinty Moore products helped offset the continued weaker results from Valley Fresh chunk meats and Chi-Chi's sauces. We just recently initiated the rollout of our reformulated Chi-Chi's sauces with new packaging and a new advertising campaign and are optimistic about the results. The Refrigerated Foods segment had an excellent quarter recording 26% higher operating profit and 4% increase sales. Sales increased 1% excluding acquisition. This group benefited from the lower pork raw material input costs but also saw continued strong sales from their value-added products. Both Hormel refrigerated entrees and Hormel Natural Choice sandwich meats experienced double-digit sales growth aided by national advertising campaign that drove increased volume. The acquisition of Burke Corporation also contributed to the segment sales growth for the quarter. Our Foodservice division experienced some lost volumes in the casual dining segment, offset in large part by pursuing other channels. Jennie-O Turkey Store's revenues were up 8%, reflecting a combination of price increases and volume gains. Sales volumes were up in retail products such as Jennie-o Turkey Store fresh tray pack products, frozen turkey burgers and marinated tenderloins. Commodity meat volumes also increased due to higher harvest counts and improved bird weights. These gains offset sales declines in other retail product lines such as Jennie-O Turkey Store pan roasts and turkey franks and certain foodservice and deli products. Jennie-O Turkey Store was not able, however, to cover all of its $39 million of higher grain costs through pricing, hedging and production efficiencies, leading to the reported decline in earnings of $2.2 million by this segment. We expect to reduce turkey poult placements by about 5% over the coming months which should result in reduced production by the beginning of our next fiscal year. The Specialty Foods segment reported increased sales of 8% but a 5% decrease in operating profit versus the year ago. The Specialty Products business unit's earnings were hindered by higher dairy and other input costs. Diamond Crystal Brands results were hurt by higher sugar costs, resulting from the Imperial Sugar plant explosion in February and higher dairy input costs for nutritional products, in addition to lower volumes. Century Foods International posted improved earnings resulting from higher sales in nutritional jar and ready-to-drink products. In the all other segments our international business team delivered another excellent quarter with sales up 19% and operating profits up 20%. Strong export sales of the SPAM family of products and fresh pork were the key drivers. Overall the results of the quarter once again illustrate the benefits of our balanced business model. I am proud that our team was able to come through with the 6% top line growth and a 14% earnings per share increase given the circumstances we confronted. As you are aware, grain and fuel cost has continued to rise to record levels. The pricing actions we have taken in recent months are insufficient to cover the latest round of these increases. And so our team will once again be challenged to recoup these additional costs through pricing and through finding other areas to control costs in the upcoming quarters. In addition starting late in the second quarter, we have seen a rapid run up in hog input costs. While we have been expecting the higher hog prices for 2009, these recent market moves have been sharper and earlier than anticipated. In our view the jury is out and whether this current run up will moderate, given that there is still very significant number of hogs coming to market in the coming months. We will continue to implement price increases and are trying to stay even what the input cost while maintaining our focus on growing our value added products and pursuing manufacturing efficiencies. After evaluating all of these factors, we are reconfirming our fiscal 2008 guidance range of $2.30 to $2.40 per share. At this time, I will turn the call over to, Jody Feragen to discuss the financial information. Jody H. Feragen: Thank you Jeff good morning everyone. Earnings for the fiscal 2008 second quarter totaled $77.6 million or as Jeff just indicated $0.56 per share compared to $68 million or $0.49 per share a year ago. Earnings for six months of fiscal 2008 totaled $165.7 million or a $20 per share compared to a $143.3 million or a $3 per share a year ago. Dollar sales for the second quarter totaled $1.6 billion compared to $1.5 billion last year, a 6% increase. Acquisitions added about $30 million to the top line in the second quarter. For the first two quarters of 2008 dollar sales increased 7% to $3.2 billion with acquisitions adding about $69 million to the top line for the first six months of 2008. Volume for the second quarter was 1.1 billion pounds up 5% from fiscal 2007. Acquisitions added 20 million pounds to the quarter. Volumes for the first two quarters of the year was 2.3 million pounds up 5% from fiscal 2007. Acquisitions of added about 49 million pounds to the first half of our fiscal 2008. Selling and delivery expenses in the second quarter were 13.2% of sales this year, compared with 12.8% last year. Year-to-date the expenses were 13% of sales flat with last year. We do expect selling and delivery expenses to be above last year's levels for the remainder of the year due to higher freight and warehousing costs. Advertising expenses calculated on a GAAP basis were 1.7% of sales for the quarter, which is the same as last year. Year-to-date the expenses are 1.7% of sales compared to 1.8% in fiscal 2007. We expect advertising expenses for the full year to be above fiscal 2007 levels as we begin advertising the Hormel Compleats line in the third quarter and continue media campaigns for several other product lines. Administrative and general expense was 2.7% of sales for the quarter and year-to-date even with last year's quarter and year-to-date percentages. We expect administrative and general expenses to remain at current levels for the remainder of the year. Interest expense for the quarter was $6.4 million compared to $7 million last year. Year-to-date interest expense is $13.1 million compared to $13.4 million last year. We expect interest expense to be approximately $26 million for the full year. Total long term debt at the end of the quarter was $350 million and we ended the quarter with $25 million outstanding on our short term line of credits, related to some working capital needs. Depreciation and amortization for the quarter was $31 million compared to $32 million last year. For the first half of the year, depreciation and amortization was $64 million compared to $63 million last year. We expect full year depreciation and amortization to be about $125 million to $130 million. Our effective tax rate for the second quarter was 36.1% versus 37.4% in fiscal 2007. Year-to-date effective tax rate is 36.4% compared to 36% last year and for the full year we expect the effective tax rate to be between 36% and 36.5%. Capital expenditures for the quarter totaled $36 million compared to $34 million last year. For the first six months of the year capital expenditures totaled $68 million compared with $70 million last year. For 2008 total year we expect capital expenditures to be about $140 million to $150 million. Capital expenditures related to the construction of our new microwave tray plant in Dubuque, Iowa will begin towards the end of our fiscal year. The basic weighted average number of shares outstanding for the second quarter and first six months of the year was 136 million. The diluted weighted average number of shares outstanding for the second quarter and first half of the year were 138 million. We repurchased 205,000 shares of common stock during the second quarter at an average price of $37.87. We have 3.6 million shares remaining to be purchased from the 10 million share authorization currently in place. We processed 2.4 million hogs in the quarter even with last year. For the first six months of the year we processed 4.8 million hogs compared to 4.7 million last year. The actual live hog cost in the second quarter was $43 per live 100 weight in line with the forecasted market we provided in our first quarter conference call. This compared with an average live base price of $48 in the same period last year. We are anticipating an average market of $53 to $57 per life 100 weight for the third quarter compared to 55 last year. Though sow liquidation has increased recently we continue to see an abundant supple of hogs in the market and believe the prices will come down from the current levels during the third quarter. At this time, I would like to turn the call over to the operator for questions and answers. Question And Answer

Thank you madam. Ladies and gentlemen at this time we will begin the question and answer session. [Operator Instructions] And our first question comes from the line of Farha Aslam with Stephens Inc. Please go ahead.

Hi. Good morning. Jeffrey M. Ettinger: Good morning, Farha. Jody H. Feragen: Good morning Farha.

Could you clarify how SPAM trends are going? Because I've just heard mixed review on that. And what your outlook is for that business as the economy weakens? Jeffrey M. Ettinger: Were you talking about SPAM trends? Is that what you said? Okay, my connection wasn't that tight. They have been excellent. We have a significant promotional campaign against SPAM. We have the first national advertising campaign on the brand in several years, and we saw very solid results in the first and in the second quarter. Due to input costs we've had to push pricing in that category but the brand has withstood that increase and has delivered excellent results. And we have... our outlook going forward is very favorable toward it.

And would... are you able to inventory SPAM when hog prices are weak so that in periods like the summer when you are experiencing higher hog cost that can protect your margin there a little bit? Jeffrey M. Ettinger: Well, yes, in theory, you could. What realistically happened this year is that our sales volumes have been so significant in both the domestic market and in the international market that we weren't able to get particularly far ahead that we've been running very strongly in our facilities to keep up with current demand.

Okay, and could you just share with us, given the volatility in hog prices and grain prices, how you're running your businesses differently and how you're pricing your products differently? Jeffrey M. Ettinger: Well clearly, where the pricing is hit or the cost has hit our business, the soonest was in the turkey segment of the business and we have talked about that in past calls, they were given their vertical integration and given their ownership of feed mills and the fact they feed even the family farm, turkey operations within their region, they've had to bear the brunt of the entire feed increase and have had to significantly change their operating performance in relation to that. They've looked for every opportunity they can to find operational efficiencies, moving production lines where they make sense into other product areas and they've gained some efficiencies in terms of their logistics area. And then obviously, they've had to really be aggressive on the pricing side to try to stay even as best they can with these cost increases. I think the team up there really did a very nice job during the first half of this year and taking what was at that time that wave of cost increases which was kind of from the mid $3 range up to about $5 corn, we were talking about the last time we were on the call, where we've had a more difficult time recovering, pricing would be in the remaining commodity elements of the business where clearly they still face the same price... same cost pressures in terms of the input but have less of an ability to drive pricing beyond the market rate. Right now, the market rate for commodity meat, although it's on a historical basis they'd be considered just fine, they are not covering cost of production. The challenge then for the other... for the remainder of the business is really comes down to what the outlook is for the hog market. We recognize that in the long run there is going to be a migration at some point to cost of production within the hog side of the business as well. There obviously has been a pretty steep increase here recently in hog prices. As we indicated earlier, it's kind of hard... it's a hard read right now for us to determine with just an early run, typical summer run, or is this the start of a new plateau in terms of values for hogs. And there are contradictory signals out there. There are plentiful hog numbers still, there is high cold storage holdings which would indicate that the pricing potentially should come down. We also certainly hear about the sow liquidation and we understand the cost of production side which would go the other direction. Either way the burden then on our team is to make sure they are on their game and are keeping our pricing as current as possible against what the cost environment is that they're are going to be confronting.

Are you at all concerned about low hog prices in the fall and then going into the early part of '09, a really steep price increase in hog, so then you would have low pork prices in the fall and have to put in very, very steep price increases in the early part of next year and that would be a challenge for you. Jeffrey M. Ettinger: Well. We've talked before that we have a history of being able to perform well whether they're high or low market situations. So that the advent in the long run of higher values of hogs isn't something that should harm our business in the long run. We also though have conceded that fast moves are hard. And if any time, there is a steep increase the value added element of our portfolio just by the way the business world works is you don't just walk into your customer and say tomorrow we are going up in prices. So whether it comes in the fall or whether it comes next year, it would obviously be a preferable scenario for us to have it be more gradual, but we'll obviously fend for ourselves and do the best we can whichever environment we end up in.

Okay, Thank you. Jeffrey M. Ettinger: Okay.

Thank you. Our next question comes from the line of Mark Churchill with Piper Jaffray. Please go ahead.

Can you please give us an idea of the current distribution of the Hormel Natural Choice line of deli meats, where you think that can go and whether you are looking at line extension such as antibiotic for your organics? Jeffrey M. Ettinger: Sure, the current distribution of Natural Choice is in the 70 plus percent range in terms of National ECB [ph] on the sliced items, that would be sliced ham, sliced turkey. The roast beef was a more recent introduction. And to be honest with you I don't have that number. I know that we've been satisfied with the acceptances to date but whether it's got enough to that same 70% level, I am not totally sure. We do believe that the Natural Choice line can be a platform for numerous product. We've already introduced such items as Chicken Strips, Uncured Bacon and Crusted Pork Loin and we are experimenting with the potential of having kind of a secondary item within the line that would not only be an all natural product but would be antibiotic fee but that's at very early stages right now.

Okay. Then on the foodservice side what percentage currently goes to that channel? Jeffrey M. Ettinger: Well I mean on a company wide basis if you count all the different elements we have in foodservice it's almost a third of total sales, it's nearly $2 billion counting all the different divisions of Hormel that have some sales into the foodservice channel.

Okay. And then obviously it stayed flat for the year for the quarter, it sounds like but some of that, there were some lost volumes that you had to make up for. Was that on restaurants you are selling into closing or just lower cost there... store sales for the casual dining customers? Jeffrey M. Ettinger: Well clearly I mean what we are hearing from the restaurant industry is a picture of more flat sales. We do think we've had some successes in certain segment of the foodservice industry and with certain product lines within our portfolio that we are still delivering other than that. But the net overall right now is that instead of kind of the high single digit growth that we had enjoyed for foodservice, that this is a little tougher slog for them right now. But again we've talked about our balanced business model in the past and we feel this time if foodservice is having a little harder run that we are probably seeing some benefit in terms of our grocery business because we really did have very solid performances by both of our retail units here at Hormel.

Okay and then given the macro pressures on Jennie-O, is there any think you can do it to show improvement in that segment, are you just trying to tread water until the micro environment improves? Jeffrey M. Ettinger: Well no, I mean we're not... we wouldn't be satisfied with long-term treading water but we recognize though when we get the steep run-up in costs, this happened to us last year for a couple of quarters where the timing of the pricing actions don't match up exactly with the timing of the cost increases. All the... in the long haul if this is the new reality of what it costs to raise turkeys, we have to have our products priced accordingly in the marketplace. The other thing we are taking a proactive stance and it is the poult reduction we talked about this. As we do in our pork business in our turkey business where we raise turkeys or support the raising of he turkeys in the system, to support our value added businesses. And given that we have seen a little bit of a slowdown in the volume trend there and given that we're feeding $6 plus corn to the turkeys there is not reason to bring in extra at this point. And so we are looking at reducing the amount of poult we place in the barns over the next few months, which should reduce and.... should result in reduced volume next year of available commodity meat. But as I mentioned earlier on the call at this stage we are selling commodity meat at a loss and so that is something that should benefit the division overall if it's pulled off correctly.

And are you seeing competitors follow suit on that? Jeffrey M. Ettinger: It's too early to tell. I mean we certainly have heard that kind of commentary out of focus on the chicken side of the business, and some are seeing and some aren't but on the turkey side, I really don't have an indication yet for you.

Okay, Thank you very much. Jeffrey M. Ettinger: Okay.

Thank you. Next question comes from the line of Jonathan Feeney with Wachovia Securities, please go ahead.

Hi, good morning. Jeffrey M. Ettinger: Hi Jon.

This is actually John San Marcos [ph] on behalf of Jonathan Feeney. Jeffrey M. Ettinger: Okay.Sure.

You referenced a couple of soft spots in the Jennie-O value added portfolio, what was the cause of that, was that pushing the pricing lever too quickly or something else? Jeffrey M. Ettinger: I think we are running... in the categories of products that are less differentiated if you are on bid business to a major foodservice operator, or if you're in your mid tiered deli type items as we've had to push price two three four times, there always could be a player out there that looks at the situation differently and decides that either they want to run their plants more aggressively or they don't have an alternative outlook for the meat or whatever and they don't take the same pricing action you are doing, you would have some vulnerabilities and to lose those kind of bids. In our more differentiated areas of the business such as our retail, fresh tray pack and retail tenderloins and so forth, we are still seeing excellent growth on those items where we really bring a significant point of difference.

Okay, so presumably those soft spots should harden as the timing sort of corrects itself relative to your competitors' pricing? Jeffrey M. Ettinger: I think that's correct.

Okay and just one more on Jennie-O related to pricing, I mean was that three or four rounds of price increases of late and input costs have done any thing but tread water since those... whose pricing sensitivity threshold do you think is more threatened? Is it your customer or do you guys get a sense of the consumers running out of capacity to absorb more pricing? Jeffrey M. Ettinger: I think it depends on the area of the store and it depends on what's happening with the competitive set. There has been some element within our business that maybe as we've lost some deli turkey sales because the turkey prices have been pushed that we may well have gained some of that back recently in ham sales because ham has been a better value than turkey. If hog markets go the level that they may go, based on cost of production that gap would get narrowed and again you just would kind of adjust your selling behavior accordingly. I'll give you some example, you asked about Jennie whether if I could go into the grocery area for the example. I mean we've had to take pricing within the grocery area as well as inputs have been up on such items as Hormel Compleats and SPAM luncheon meat. But we're still seeing very robust sales there because I think the consumers in this environment are still seeing those excellent values versus some of their alternative meal options. And so we feel we can still drive our business even in this environment.

It would seem to me that your portfolio relative to the package foods base at large does have sort of an advantage value positioning in an environment like this but does that make some of those, more value offering products more susceptible to private label competition? And if so, have you seen any change there in the private label gap and competitive threat from private level? Jeffrey M. Ettinger: We really haven't seen any change in the pricing gap, I mean the value added... excuse me the private label players are confronting many of the same cost increases as we are and so to stay in business they're going to have to adjust their prices into their retailers as well. It's a mixed bag in terms of our categories just to how significant a threat part of the label is, some areas of the deli that their entire grocery store programs that are private label until. And so those are something we have to deal with. In the grocery environment, I think we've said in the past, couple of the segments that we have in the more significant competition would be salsa and the chunk chicken area and those are two areas that we are having little more trouble. And so it could be in part a migration to private label there but in other franchise such as a branded items like Hormel chili and Dinty Moore stew and SPAM luncheon, I mean those sales were great last quarter and so we're really not seeing that in those areas.

That's very helpful, thank you for taking our questions.

Thank you. Next question comes from the line of Robert Moskow with Credit Suisse. Please go ahead.

Hey. Good morning. Jeffrey M. Ettinger: Hi Robert. Jody H. Feragen: Good morning.

Is there anyway of quantifying the benefit that you've experienced in the first half of the year, from very low hog prices? And then trying to quantify what the risk to earnings would be if the futures market is correct and by next year we have lean hog futures in the $0.90 range and maybe this And maybe this is not the way to look at it, but you did have an outstanding profit growth in the first half of the year and my perception anyway is that the low hog price environment was the big driver of that. Jeffrey M. Ettinger: The low hog price environment certainly helped the Refrigerated Foods group but they were helped by really strong value added sales, their innovative new products by bringing on the Burke Corporation and the earnings we've gotten from that. We've seen even improvement from our Farmer John operations albeit from a very low base but the team I think has got the right things in place to make that business grow. I don't think you can pick just one component like that out, I wouldn't have that number for you anyway but even if I did I mean it really depends on what are the values of the primals in relation to the hog price that we are having to pay, how fast does it go up. There are significant elements of both our retail and foodservice refrigerated group that are still kind of market based pricing, typical bacon, ham sales that over the history... they trend with those same markets and so those would be less susceptible to getting compressed just because hogs go up. And then the area that we'll have to keep our eyes on would be are more value added items that don't trend sell so on a market basis, Hormel Pepperonis and refrigerated entrees and so forth. And in those cases if we get to a point where we say yes the market is up, and it's going to stay up and here's new input, then they are going to have to price their products accordingly.

Okay and another thing Jeff on your analyst day you presented some very good numbers on how you've taken miles out of the system and that has helped you manage through a higher diesel cost environment. Can you give any more color on what you are doing, what your next steps are in that regard and how that might help you or manage the next tranche up in diesel costs? Jeffrey M. Ettinger: I think the team continues to do an excellent job, and we've seen far even better results in terms of their ability to offset steep increases in fuel from even what we presented last fall. They are doing an excellent job in increasing weights for truck, they are doing a great job in finding rail options whenever that makes more sense and that's both in the parent system and the best we can in the subsidiary systems. And then another area I could point to where we've really continued to drive synergy would be in the purchasing area where we bought a number of companies obviously over the last few years and as we get our hands around those operations and those teams become more used to the Hormel system, we are doing a better job of collaborating on the key buys we do as the company and again try to offset of the steep grain and other inflation by our controlling costs in some of the other raw materials. Jody H. Feragen: But we will see an increase in the selling and delivery expense for the back-half of the year because diesel's really taken a move up and as much as the guys take pride in their ability to offset some of that I think we are hitting the point where we will see an increase in that.

That sounds unavoidable. One of your competitors has said that what they are specifically trying to do is to reduce the number of touches that they have from slaughtering product to doing the value added to getting to the distribution center. Are there opportunities like that in your supply chain as well or are you pretty efficient in that in making sure that instead of touching four facilities it only goes to two or something like that? Jeffrey M. Ettinger: There are some opportunities in that, there we do have somewhat... a network of some co-packers in addition to our own plants and we have been examining where we should run what products. I think things that we are working on maybe more significantly, I mean in the whole area of sustainability that really gets you focused on reducing packaging on reducing shipment, on reducing usage of energy and other raw materials. And I think our facilities have made some nice gains there, and then I think both of our larger operations teams have done a good job at really examining our total plant portfolio and where necessary moving product lines to the best place, the place closest to the right raw material or places where we can have long run without lots of cleanups for doing short runs. And so there are some opportunities to continue to gain efficiency there. Jody H. Feragen: And we've also taken actions with our customers to encourage them to make larger orders, less frequently.

Got it. Very good. Thank you. Jeffrey M. Ettinger: It's alright.

Thank you. Next question comes from the line of Bill Chappell with SunTrust Robinson Humphrey. Please go ahead. William B. Chappell: Good morning. Jeffrey M. Ettinger: Hi, Bill. Jody H. Feragen: Good morning. William B. Chappell: Can you talk a little bit more about on the institutional side or, I mean, on the food service side. Do you think we have seen a bottom or trends? Do they look to improve as we move throughout the rest of the year, and then maybe your ability to pass off price increases through that channel? Jeffrey M. Ettinger: I don't know whether we have seen a bottom. I mean we kind of... the National Restaurant Show was this last weekend, I mean we certainly communicate to a lot of folks there. That's not the most optimistic group of people right now that you will ever run across. But there are certainly parts of the food service segment that are still enjoying success in this environment, but it's a... it is a challenge right now. So, I don't have a sense for you whether, okay, is it turning now or is it turning a quarter from now, is it turning two quarters from now. In terms of pricing, it's kind of the same story I was mentioning earlier when I was using Jennie-O as an example. I mean if you are... as we have developed some unique items that have strong points of difference, I think we should have a very strong ability to make sure we're getting the price for those products that deliver a sufficient margin for our total system. If your in components of the food service business that are very bid based or very competitive, and you've got some more wild cards in play. Now, even at that I mean, all the other competitors are facing the same cost increases, we are, and so that's part of the environment. We certainly hear examples from the foods service trade of efforts they are making potentially to lower portion size in some cases to downgrade their offering, et cetera to address a critical cost, critical price point on their menu. And we are certainly working with them try to help them find some solutions in that regard. But beyond that, I don't have... I can't quantify for you precisely. William B. Chappell: Got it. Well, did you see trends deteriorate sequentially or did they pretty much flat? Jeffrey M. Ettinger: Well, I mean we have seen it last I mean that unit, the larger food service unit for us would be within the Refrigerated Foods group. And after several years in a row of kind of high single-digit growth, we went through a couple of quarter of mid-to low single-digit growth and then this quarter it was down to flat. So, if there has been graduality to it, but it's not just a fluke at this point, certainly. William B. Chappell: And finally just kind of on use of cash, is the M&A environment any better any worse, is there any further thought of changing your leverage ratios with some of the uses of the cash, and how you look at that as we move through the year? Jody H. Feragen: Well, today I am not so sure I am unhappy with our current underleveraged position but we look to add to our business through acquisitions. The environment I think is improving. We still get the opportunity to look at plenty of transactions some of the pricing still seems to be a little bit unrealistic. I can't say that we have any thing that we are announcing today because obviously we would have put that in the press release. William B. Chappell: Great. Thank you. Jeffrey M. Ettinger: Thanks.

Thank you. Next question comes from the line of Tim Ramey with D. A. Davidson. Please go ahead. Timothy S. Ramey: Good morning. Jeffrey M. Ettinger: Good morning Tim. Timothy S. Ramey: Were there any mark-to-market hedging gains or losses in the quarter that we should be aware of? Jody H. Feragen: No. Jeffrey M. Ettinger: Don't think so. I mean there is clearly I think when we quantify it in public releases, we'll have hedging offsets as I mentioned then earlier to some of the corn run-up and some of soy run-up. But Jody H. Feragen: Tim we... our accounting for hedges qualifies under the FASB 133, so we don't have mark-to-market. Everything that any hedging, gains or losses, that are realized, goes in to our product cost. William B. Chappell: Got it. Okay. And Jeff the discussion on kind what to do strategically on the production of Turkey for next year I think is interesting because obviously Turkey and poultry in general has a higher conversion rate for corn, so could be price advantage versus pork and beef. How do you kind... I mean you said that there is no reason... you made a very strong statement, there is no reason to continue to increase at current losses and yet that might be a reason. What do you think about that argument? Jeffrey M. Ettinger: Well, I mean, we do have some flexibility within the system, and if the environment changes, we are not closing barns, that's why we are doing it on a poult placement basis. But that is our best outlook for the next, kind of 12 to 18 months and it takes certain amount of time obviously to enact this kind of the change. But given the volume that we would need to support the value-added businesses next year and given what the reason trends have been in terms of commodity values that we think this will put us in the best return basis we can for, let's say 2009, again and we can make a change again later. Okay. And then on food service, would characterize the... you said you picked up business in other channels. Flowers this morning said that they were seeing it in quick serve and fast food as a pick-up from casual dining. Are you seeing it there or are you seeing it in on the retail side? Jeffrey M. Ettinger: Well, two things. Within what we would categorize as kind of reported or food service results, they are gaining some benefits of offset in the non-commercial segment, selling to schools, hospitals and other institutional sale. When flip over retail, I guess, I do believe that we are seeing benefit. We had a really strong quarter when you look at retail items within the grocery trade. I don't know how much of that is a trade from people from food service to grocery items. We obviously think that we are engaging in activities that are helping to drive that as well. We've had stepped up advertising really focused advertising campaigns against the Hormel brand for the last couple of years. And the total Hormel brand sales are up significantly in both grocery and meet items. And we've talked clearly that we have added ad campaigns SPAM and to Dinty Moore and we saw a good performances from those items as well. So I think it's a combination of the advertising efforts, sales force execution, some products within those areas and then admittedly some economy effects as potentially are shifting out of restaurant occasions and into home occasions. William B. Chappell: Thanks a lot. Jeffrey M. Ettinger: Okay.

Thank you. Next question comes from the line of Diane Geissler with Merrill Lynch. Please go ahead. Jody H. Feragen: Good morning Diane. Jeffrey M. Ettinger: Hi, Dan.

Just a question on Turkey. Sort of had a lot of question on it here in relation to the grain, but if I look at, your results this quarter versus the quarter a year ago either on an EBIT basis or on an absolute basis. Given that you won't see the benefit of your production cut until the beginning of your next fiscal year, in the back half are we looking at sort of a similar trend year-over-year, or would it be... on an order of magnitude, would we expect Turkey to be down even further than what it was in this quarter? Jeffrey M. Ettinger: I think your perception is right. That would be out best assessment right now as in the coming couple of quarters we could well see it down on a year-over-year, a little bit worse than what we've experienced in Q2 as that unit absorbs the full impact of the kind of latest run-up we've seen in grain.

Okay. And some of your commentary sounds like that is a bit of a change over the last few months. In addition, we've had a bit of the change on sort of original expectations about where hog prices would be this year versus your February call. So, I guess, with keeping guidance at the $2.30 to $2.40 level, what is the area that is outperforming your original expectations that keeps you confident in maintaining the guidance? Jeffrey M. Ettinger: Well, couple of things. I mean, we are still... we still see strong trends in grocery. We see strong trends in international. We think specialty will improve somewhat, but not... that won't be a big change in overall picture. And so, for the second half, I mean here we finished the first half where both quarters we had 14% earnings growth over 15% for the half. That was probably little better than we originally had expected for the year. And now going into the second half, the second half is looking quite a bit more challenging than we've had expected at the beginning of the year. As Jennie-O, as we just talked about probably does a little worse than they did in the most recent quarter, and as Refrigerated Foods is probably going to be a little more pressure to be able to keep up with these 20 plus percent increases that they have been generating. And so net-net, we see second half still being... we should still have an ability to grow our business. But we don't think it's going to be at the rate we have been delivering in the first half, and that's where we kind of added up to being leaving the earnings guidance where we had it.

Okay. And then I guess, my other question really revolves around hog, hedging hogs. I know you have many methods under which you buy hogs, whether it's in the spot market or under your long-term contracts with your growers et cetera. Can you comment at all about, where you... what you might have put into place prior to the run in hogs? Do you actively hedge in the hog market, or are you more hedging in the grain market? Jody H. Feragen: We actually are hedging programs typically just cover our input costs, and we look at our hog contracts as being a hedge against that. But they are mostly based at market prices.

Okay. Alright. Okay. Thank you very much. Jody H. Feragen: Thank you. Jeffrey M. Ettinger: Thank you.

Thank you. Next question comes from the line of Ann Gurkin with Davenport. Please go ahead. Ann H. Gurkin: Good morning. Jeffrey M. Ettinger: Hey Ann. Jody H. Feragen: Good morning. Ann H. Gurkin: Wanted to... could we get some more detail on the export of fresh pork. I'm assuming strong results seeing sales were up year-over-year, is that right? And are you picking up any new business from new markets? Jeffrey M. Ettinger: Well, or us, our fresh pork sales were very strong. Our team there has done an excellent job of developing customers in many key markets. We're not a big player in Japan. We are not a big...we really do not have any fresh pork sales to speak of in those numbers to China, like a lot of folks have talked about in the overall market. We tend to be more of a niche player, but we are still seeing very strong demand in those segments for the items that we have developed. Ann H. Gurkin: Okay. And then switching to a Jennie-O Turkey business, have you set your contracts with retailers for the fall? Where are we with that? Jeffrey M. Ettinger: Well, whole... you are talking about whole bird sales for the season? Ann H. Gurkin: Whole bird sales, yes. Jeffrey M. Ettinger: It varies. It's really kind of a... it's a negotiation and in some cases it's up to what the retailer wants as to whether they want a lock in pricing way back in the spring, whether they want to base it off of a market, and same thing in terms of when they take delivery at the turkeys frankly. Whole bird market is looking decent this year. It's, obviously, cost production is high, but the values have been reasonably good and so we're in a pretty comfortable position right now in whole bird. Ann H. Gurkin: Great. Jeffrey M. Ettinger: It's never a big profit area for the company, but it's... we think it's an important thing for our brand to carry it at the most important time of year when people think about turkeys. We are very happy with our oven-ready ready franchise and want to continue growing kind of value-added whole turkeys for the holidays. But overall, it shouldn't be a big pressure point for us. Ann H. Gurkin: That's great. Thank you.

Thank you. [Operator Instructions]. And our next question comes from line of Christina McGlone with Deutsche Bank. Please go ahead.

Hi. Good morning. Jeffrey M. Ettinger: Good morning. Jody H. Feragen: Good morning.

Jeff on the last call you quantified feed costs to be an additional $80 million, I guess about the $40 million you had talked earlier. Can you give us some update on that numbers? Jeffrey M. Ettinger: The best I can do is that it's north of where it was before. We did have that discussion in the last call and actually kind of some back and forth even with some of your brethren in the investor community about whether that was all that helpful number without a hedge number with it. And kind of on balance, given that that's an important factor too and that we really don't want to be disclosing our hedge positions for competitive reasons, I guess we're going to kind of go to rather not being quite as specific on it. But I ... clearly, we're talking $5.10 corn. I think last time we are online and now it's over $6 and so it clearly is an even higher number right now.

Okay. I guess may be, another way, where... if we in order to observe $6 corn, where did turkey prices, if we are looking at say breast meat prices, where do they need to be? Jeffrey M. Ettinger: They need to be north of $2.

Okay. Jeffrey M. Ettinger: And not just a penny or two.

Okay, like in that $2.50 range or ? Jeffrey M. Ettinger: Yes. It's probably between $2 and $2.50.

Okay. And maybe could you talk about some of the fundamental factors in the hog market, because it seems like you are saying you are seeing a lot of hogs come so the price today, it's not really fundamentally justified perhaps. I mean what about the liquidation in Canada. Is that having a big impact and could that make this run up more sustainable? Jody H. Feragen: Well, we certainly expect every spring to see a run-up or a spike in the hog market. What happened this spring was much earlier and much sharper than we originally expected. But on the other hand, we are still seeing large numbers of hogs out there. The process in the industry has been maintained at pretty high levels from a historical standpoint. The Canadian situation I think there is a push to get those hogs out of Canada and down into the U.S before the country boards and labeling starts. We've seen a significant numbers come in form Canada has slowed a little bit in the more recent trends. But obviously, the guidance that I gave you for the hundred weight live prices indicates, I am assuming that it's going to back down a little bit more as we go into the third quarter. We will, as Jeff indicated at some point, see hog prices rise up to the cost of production or the supply-demand will right-size itself.

Jody, I thought that the language for the country of origin in the farm bill that it was actually going to say now from the U.S, Canada or Mexico. Maybe can you talk about the farm bill language? Jeffrey M. Ettinger: There is different categories that are going to be allowed. There will be a category that is U.S-raised only. There is a category that would say could be a product of U.S and Canada, and in that case it's only for feeder pigs. They are not going to be able to bring in market hogs across the border and have it be that. That would... if a market hog is processed here in the United States that was raised in Canada completely, that's going to have to be product of Canada. The question that's still out there is, okay, are there retailer... how many retailers are going to want product only of U.S versus one that will take to the mix label items, and it's too early to tell that right now. But that is having a chilling effect also in terms of the thoughts of Canadian exports going forward. And of course the whole situation with currency isn't exactly favorable for them to bring in hogs right now either. Jody H. Feragen: Well, actually I think the last numbers I looked at showed increases in exports to Canada on pork.

Okay. And then last question, Jody, you talked about an increase in short-term debt to cover working capital and I am assuming with the increase in corn and maybe hogs in there too. But are you seeing an impact with your hedging from the higher margin requirements. Is that something we should think about going forward or is that not really material? Jody H. Feragen: I wouldn't worry about the hedging side of things. Really the working capital borrowing has to do with, you're right, higher inventory prices and the timing of some tax payments.

Okay. And I think before you tell me working capital would be kind of mutual this year, now we should look for a use. Jody H. Feragen: I would say because of the run-up in the values on inventories, it will probably continue to see those increases.

Okay. Thank you.

Thank you. And I am showing that there are no further questions. Mr. Jones, at this time, I'll turn it back to you for closing comments. Kevin C. Jones: Thank you. I appreciate all of you taking the time today to listen in, and those of you who participate we appreciate your questions. So, thank you all for joining us today.

Thank you. Ladies and gentlemen that will conclude today's teleconference. We do thank you again for your participation. And at this time, you may disconnect. Have a nice day.