Q4 2019 Earnings Call

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As a global branded food company at a later in the industry. We believe it is our responsibility to lead and the situation.

Finally, we expect input costs volatility to persist into a fiscal 2020.

As a net fire protein major market swings can shift profits from quarter to quarter, when our pricing flags in the market.

Okay at the segments for 2020, we expect way about for business unit, So show sales and profit growth.

With the exception being grocery products as they laugh Cytosport type investiture for the first half of the year.

When you do however, expects sales and segment profit or.

For the rest of the grocery product segment.

Led by center store brands, such as spam, Jane Seymour and <unk>.

We also expect growth <unk>.

And remain extremely competent in our ability continue growing air Data's in Holy brand.

I am excited by be authentic and innovative products. They are right into the marketplace such as their data's refrigerated guacamole or does Taco Radio Street sauces, and Holy Smash drama counters.

We expect 2020 will represents a return for growth Virginia entropy score.

A queer focus on regaining loss leaned ground, Turkey distribution.

The efforts to re align our cost structure and slowly improving industry fundamentals gives us confidence we will get this business back in growth mode.

International is expected to show sale within the segment profit growth in 2020. However, we do expect volatility is we manage higher input costs in China and Brazil. In addition to short term noise related to an uncertain local trade picture.

Again this year, we expect refrigerated foods will grow sales and profits led by many brands across food service retail in Delhi.

I am a high level of confidence in this team's ability to execute in the marketplace and continue to grow grandage value added project.

And Investor Day, we highlighted great work happening within our supply chain group.

And I'm pleased to report we achieved our 75 million dollar cost savings goal of this year.

We also highlighted are long standing here <unk> controllable cost increases to less than 1% over the prior year.

Well large investments can impact the single year, we have specific targeted actions to improve our costs structure over time.

Achieving our one per cent can't result implies savings and 2020 of approximately $75 million similar 2019.

Taking all these factors into account we are setting our whole year earnings guidance at $1.69 dollar 83 per share and our sales guidance at $9.5 billion to $10.3 billion.

Our expected fiscal 2020 or Ganic pretax earnings growth rate is in line with our near term goal of 5% to 7% organic pretax earnings growth, we outline at our Investor day.

As a reminder, cytosport earnings in 2019 contributed 10 cents to earnings per share.

He also expect a higher effective tax rate in fiscal 2020.

At this time I will turn the call over to G.M. chance to discuss our financial information relating to the corner and can't assumptions for the school 2020.

Thanks, Jim Good morning, everyone.

That fills in the fourth quarter, where $2.5 billion down one person or.

Organic matter sales were up 2% with three or four segment showing grow.

Sales for 2019 or $9.5 billion down 1%.

Organic sales rep, 1%.

Pretax earnings for $324 million up 1% compared to before quarter of last year.

For 2000 in 19, the company group pretax earnings to $1.2 billion.

Two per cent increase.

Before your effective tax rate was 19.1% compared to 14.3% last year.

The 2018 tax rate was impacted by deferred tax remeasurements.

Effective tax rate for 2020 is expected to be between 20.5.

22.5%.

Earnings per share it for the quarter was 47, so this year compared to 48 cents last year.

Earnings per share for 2019.

Was a dollar and 80 cents.

3% decline.

The higher effect of tax rate contributed to the lower earnings for the quarter and the year.

For 2000, a 19.

S G.N.A., excluding advertising with 6.3% of sales compared to 7.2% last year.

The decline was due to the impact of the Cytosport sale.

We're selling unemployed related expenses.

In 2020, we expect S.G.N.A. is a percentage of sales to increase.

Excluding cytosport expenses will increase because of the costs related to project or Ryan.

That allocated expense was down significantly in 2019, resulting from.

The gain on the sale of Cytosport.

They were selling expenses.

And they legal settlement in the first quarter.

Advertising was $131 million.

Down from $152 million in 2000 to make team.

The decline was due to the Cytosport sale.

In 2020, we plan to increase advertise it expense to support our leading brands.

Including natural choice.

Waibel, Holy <unk> <unk> <unk> <unk>.

For the full year operating margins were 12.6% compared to 12.4% in 2018.

Lower S.G.N.A. was a benefit to margins in 2000 and like team.

In 2020, we anticipate operating margins to be flat Oh, we may experience periods of volatility due to input costs.

We generate a cash from operations of $923 million during the year down 26%.

The decline resulted from higher working capital as we strategically built inventory in anticipation of higher input costs due to African swine fever.

The primary uses up cash in 2000, a 19 were dividends.

Debt reduction.

Effects and surely purchases.

We paid or 365th consecutive quarterly dividend effect of November 15th.

Annual rate of 84 cents per share.

We also announced at 11% dividend increase for 2020.

Making the new annual rate 93 cents per share.

This marks the 54 consecutive year, we have increased the dividend and the 11th consecutive year of double digit increases.

In 2019, we repaid the remaining $375 million in debt associated with the Columbus acquisition.

Capital expenditures for 2019 or $294 million, including the expansion of the purpose Solti project Orion an additional capacity for fonts in any products.

We targeted capital expenditures of $360 million in 2020.

With a bogus on value added capacity projects and automation.

Shared purchases for 2000, a 19 totalled a record $174 million.

Most double any single prior year.

4.3 million shares were repurchased.

We will continue to take a disciplined approach the capital allocations utilizing our sprung balance sheet to grow through acquisitions and capital investments.

We will remain focused on long term investments to drive exceptional shareholder return.

Generally higher input costs for the poor order we're in line with expectations.

The 2020 guidance range assumes higher protein prices Porky input.

African swine fever continuous impact the global Hawk supply these spreads in China.

Southeast Asia and parts of Europe .

The U.F.D.A. is projecting exports to grow seven to eight per cent in 2020.

To meet the growing need or exports total domestic production is expected to increase 2% to 3% according to the U.S.D.A.

Hog prices are expected to increase in excess of 15% in 2020.

We anticipate the U.S.D.A. composite value increases to be consistent with increases in Hong price.

Selling price is in 2020 are projected to be marginally higher with periods of volatility.

We expect pork and beef trim markets to be higher in 2020.

The Turkey industry is beginning to show signs of recovery.

Industry data shows Turkey placements down 3% since the beginning of 2000 a 19.

Additionally, cold storage of whole birds continue to decline leading to improved pricey.

Pricing for the fourth quarter was up modestly over 2000 at 18.

We should see the majority of the pricing benefit realized for the 2020 holiday season.

Cold storage oppress made as 5% below last year.

Recipe pricing has traded near $2 over the past 12 months.

We expect the market to improved in the second half of 2020.

Other Turkey commodity items, such as I mean should benefit for better pricing in 2020.

Due to supply shortages on other competing prototypes.

Based costs, which were up modestly compared to 2018 are projected to be marginally higher next year.

Project Orion continues to progress on schedule.

In the first quarter of 2020.

We will begin the implementation across h. or finance.

In supply chain organization.

We are excited to begin the transformation of our company to increase efficiency and or analytical capabilities to manage our business.

At this time altering the call over to the operator for the question and answer portion of the call.

Thank you.

Signal by pressing star one on your telephone keypad.

Function is turned off.

Equipment.

He's passed by one to ask a question. Please limit yourself to one question I'd want to follow that question.

[noise] first question from.

Please go ahead.

Yeah. Good good morning, everyone happy Thanksgiving tall, Sarah morning.

Well. It quick question. We saw you know it is Jim outlined we saw a fairly significant inventory build at the end of the year. So how much <unk> costs visibility does that give you folks as it does it cover the first half for a good portion of 20 or.

How should we look at your.

<unk> ability to control your cost of for the New York <unk> with that inventory.

[noise] happy Thanksgiving, Eric This gym, she and I think simply we we did build inventory at the end of the year and that'll give us visibility on some important <unk> into the first quarter. So I would say well into the first quarter.

Okay, <unk> and then just real quickly as a follow up question on your marketing spend here I was down sharply for the air was mainly divesture of Cytosport, but you also bumped up your spending in <unk> with with your what's your Burger campaign looks a bit.

Very successful. So if you were to look at your marketing spend for the year kind of on an apples to apples basis, excluding settle sport would've been winter than flat top down slightly I mean, how should we look at that marketing spend number.

Yeah, I can say that for the air was it was relatively flat yeah. One of the things that we've we've done really well over time as we've been able to consolidate some of our advertising dollars against key brand player wait we used to have dollar spread a little more widely.

But when you think about the work that we've done with spam with Skippy less natural choice with Hormel Pepperoni and now really getting back in the game with our Jenny O., Turkey store advertising efforts and select key markets.

Our our our focus has changed a little bit and so but in both we've been pleased with the results and the dollars would say relatively flat for the full year.

You will not take my next question from.

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He's got.

[laughter].