Maple Leaf Foods Inc.

Michael McCain - President and Chief Executive Officer Debbie Simpson - Chief Financial Officer

Michael Van Aelst - TD Securities Irene Nattel - RBC Capital Markets Christine Healy - Scotiabank GBM Ken Zaslow - BMO Capital Markets Mark Petrie - CIBC

Thank you and good afternoon everyone. I appreciate you joining us this afternoon.

On today’s webcast, we will discuss Maple Leaf Foods’ financial and operating results for the second quarter of 2014. The news release and today’s webcast presentation are available at mapleleaffoods.com under the Investors section.

Some of the statements made in this call may constitute forward-looking information and future results may differ materially from what we discuss. I would ask that you refer to our 2013 MD&A and other information on our website for a broader description of operations and risk factors that could affect the company’s performance.

I will begin with an operating review today and then I will turn the call over to Debbie Simpson, our newly appointed Chief Financial Officer to provide other financial information and certainly welcome Debbie to this forum. We will then be opening the lines to your questions.

So, if I could begin on Page 2 of the presentation. There are six headlines from the second quarter of 2014 for Maple Leaf.

First, over the last few quarters, pork import prices have risen significantly following the record run-up in live hog costs due to the impact of the PED virus. In Q2, we implemented material prices increases across our entire portfolio and all channels to match increased raw material costs.

As anticipated, there has been a demand response to these material price increases. We saw an immediate volume decline right after, but volumes are steadily improving.

We are monitoring this carefully and showing some patience expecting consumer and customer demand to recover. During the quarter, we continued to make progress in converting to a new prepared meat supply chain.

Our performance is improving in our two Western facilities, Winnipeg and Saskatoon and the commissioning of the new Heritage plant in Hamilton, Ontario is proceeding on plan. And wieners, it has begun in sliced meats.

However, the cost of duplicate supply chains as you know continues to be a significant drag on earnings. Also the protein markets were substantially higher than Q2 last year.

On May 23, we closed the sale of Canada Bread for net proceeds of $1.66 billion. We immediately paid off our debt and the balance sheet is now in outstanding shape.

Finally, we announced in the quarter a comprehensive organizational restructuring to properly size the new organization for effective and efficient support of our new monoline protein company. This eliminates any potential for negative synergies in shared services related to the bakery sale.

In summary, we are managing very, very significant change along with our base business performance. Our earnings continues to be impacted by the duplicate supply chains, but we are satisfied with our progress towards our 10% EBITDA strategic target.

Turning now to Slide #3 please. Our adjusted operating earnings for the quarter was a loss of $12.1 million compared to a loss of $32 million last year, while adjusted EPS was a loss of $0.13 compared to $0.25 a year ago.

During the quarter, improved results in our primary pork at hog production operations more than offset lower earnings in the prepared meats business due to the cost of the network transition and volume reductions that I referred to earlier. Adjusted EBITDA margin for the quarter was positive at 0.7% compared to negative of 0.8% last year and a trailing 12-month EBITDA margin that was negative 0.9%.

A very, very important story beneath these numbers however is the progression that we saw during the quarter, before and after the pricing impact which occurred in the middle of May. There was a very significant progress between the month of April and the month of June.

Turning to Slide #4, we have tried to offer two different views to explain and describe our quarterly performance. The first is comparing our results to the prior year and later on I will discuss the bridge to 2015 strategic targets.

On Page #4 we have got the detailed breakout of the material factors in the year-over-year change to our adjusted operating earnings. The two positive drivers for quarter-over-quarter improvement were protein markets and prepared meats margin expansion.

We have realized a $34 million year-over-year boost from stronger protein market conditions. The majority of this, $24 million was the improvement in the markets underlying the hog production business as hog products – prices have been a record highs and grain prices are lower than a year ago.

We did not experience however the full impact of the higher hog prices generally in the market as our strategy is always to sell our hogs forward when reasonable margins present themselves as we did in hogs late in 2013 and early this year. Consequently, we did not realize the full effect of the recent spike.

Poultry and pork markets were also improved this quarter compared to a year ago in the amount of $10 million. The profitability of our Japanese business improved through the quarter as we increased pricing in that market as well.

It is still below our long-term averages where we think it will end up at a substantially higher than what it was prior to this pricing action. Although protein market factors have improved on the year-over-year basis, it is important to note that they are still only neutral against our five year averages.

Protein commodity markets continue to be highly volatile due in large part to the PED virus effect in the U.S. markets.

As referenced earlier in May we took a very significant price increase roughly 8% on an average across our prepared meats portfolio. As a result of this we were able to recover our historic margins, which is an increase year-over-year in the quarter of $18 million.

As expected the price increase of this magnitude had a short-term impact on volumes as volume decline was most dramatic in the first weeks after the price increase, but since then it has been steadily recovering. We are cautiously optimistic that all our volumes will be restored but that patience is required.

The pace at which this occurred is certainly one of the outstanding – the pace at which this occurs I should say is one of the outstanding risk factors for the balance of this year. Our network transition costs increased by $12 million reflecting a much higher level of activity compared to Q2 last year most of this was connected to the initial start up phase of our largest investment the Heritage plant in Hamilton.

In absolute terms these costs were $25 million in the quarter compared to $13 million in 2013. The other negative of $9 million shown on this chart contains a number of items, but the two most significant are poultry plant inefficiencies and increased advertising and promotional spend which we pulled forward in the year to help transition to higher pricing.

Slide #5 reiterates that we are still operating a two for one supply chain model in our prepared meats business. This drives a significant amount of duplicate overhead costs.

Our organization is focused on racing to complete our mission to get our new state-of-the-art low cost supply chain fully up and running. This intense activity is going to continue throughout 2014 as we commission the new Heritage plant and transfer volume out of our subscale legacy facilities by the end of the year.

We are within six months of that goal and we are starting to feel very energized by it notwithstanding the significant work that we still have ahead of us. On Slide #6, you can see the steady progression toward or upward of our transition cost as our activity level underlying this has increased.

Transitional costs were $25 million in the quarter. The dynamic here is that the startup costs are reducing in our Western plants namely Winnipeg and Saskatoon, but this has been more than offset by the cost of ramping up the Heritage facility in Hamilton.

Turning to Slide #7, you can see that the hog prices declined initially during the quarter, but then very quickly rose again to new record highs, which occurred in July. In response, we implemented the significant price increase in May, which I referred to earlier and that was sufficient to restore our margins.

Obviously, this is a challenging time in the meat industry as hog prices have set 50-year record highs. You can see from the futures graph that hog prices are predicted to decline as we move through the third and fourth quarter.

However, they are forecasted to still do well above the 5-year averages for that time of year. As well, there is material volatility in the marketplace that’s unprecedented in this industry.

This is an industry wide challenge. We are paying very careful attention to it and managing it day-to-day.

On Slide #8, I will take you through the current state of our network startups, which is very important information. In the Brampton facility, this project went satisfactorily and Brampton is now the center of excellence for our fresh and frozen sausage business.

We will continue to optimize line efficiencies and yields throughout 2014 in that facility. In Winnipeg, we have made excellent progress in moving productivity and yields for bacon and ham towards their targets.

In aggregate, we are now substantially at target for this facility. In Saskatoon, we continue to face challenges.

We are making some progress to improve production volumes, but we still have significant issues with negative operational variances in that facility. However, given that this facility is relatively small, the financial gap to target is not overly material.

In the Heritage facility in Hamilton, the wiener plant or hotdog plant is fully operational and performance continues to improve. We are still producing hotdogs in kitchener and we expect to transfer this volume over in the third quarter.

The Heritage sliced meats faces, receives full occupancy and CFIA approval in the second quarter and that’s a very significant milestone, which makes the construction phase for the Heritage plant now complete. For sliced meats, there are four thermal lines, i.e., cooking lines.

They are being installed and tested now. We produced our first salable product on these lines in one of them just last week.

There are 13 slicing halls to support these four thermal lines. There are two dimensions to the commissioning and startup of this facility: first, achieving the operational performance of individual lines and equipment and second to transfer over 300 individual SKUs with each requiring a comprehensive development process.

Once complete, this will trigger the closure of the final four legacy facilities. Finally, the Eastern Distribution Center is a project that’s been well executed.

Most of the milestones have been met and we are just in the final cost optimization phase, which we expect will be complete by the end of the third quarter. All-in-all, we are making consistent progress.

That said, of the startup and the commissioning curve at the Heritage facility in Hamilton, which is in front of us for the balance of this year, continues to be our most significant risk factor for the balance of the year and the timing associated with hitting our 10% EBITDA margin target for 2015. We expect it to be complete for the first quarter of 2015, but the unpredictable nature of such startups could easily yield an uncontrollable delay of a quarter or two.

This is fully consistent with our expectations of risk that has been previously discussed. On Slide #9 as I referred to earlier we are updating the bridge or path forward where we are at today versus our target of 2015 10% EBITDA margin and base lining this of our actual results in the second quarter.

Consistent with last quarter, the largest contributor which represents about half of the improvement at 5% or roughly $165 million increasing our operating earnings on an annualized basis is the completion of a network transition. This has two components; the elimination of the transition costs, the most significant element here is the elimination of the duplicate overhead costs which occurs when we close the old – the four old plants.

The second component of the network transition bar is realizing the remaining cost benefits from running our business of a streamline low cost manufacturing network. In essence this is the delta between full added cost and contributing benefits from the capital spent.

During the last few quarters of the transition, we have incurred indirect costs in our legacy prepared meats facility as we executed the transition these costs are primarily caused by disruptions to our manufacturing and distribution facilities as production shifts and people transition to these new plants. We have introduced a significant amount of change into our supply chain in a very short period of time and this is the collateral damage.

These costs represent 1.1% of that bridge or approximately $30 million of operating earnings on an annualized basis. By definition when the four legacy plants close this cost burden goes away.

The next bar is the restoration of the prepared meats margins which has decreased in the quarter to 1% and is worth approximately $30 million in annualized operating earnings. As we discussed we took pricing half way through Q2 which dramatically closed this gap.

The expectation is that this bar will continue to reduce in Q3 if the equilibrium between our pricing and input remains – input prices remains intact. The one gap to target on this slide that has gotten larger in the second quarter and expectedly so is the volume bar.

This is now worth 2.1% of EBITDA margin or approximately $60 million. There are two components of roughly equal size here.

First, there is the volume reduction triggered by our recent price increases in prepared meats. As recently discussed the recovery of this is progressing well.

The second component of this volume bar is that over the last few years much as we have discussed in the last several quarters, we have shed some volume in our prepared meats business because it was either unprofitable or added unnecessary complexity to our network. We have concrete plans to recover this in 2015.

And finally we have another bucket that captures a variety of other smaller items which are not significant. So we clearly understand the building blocks to our 2015 margin target and what it takes to deliver each one of them.

We have a confidence level that we will reach the target. The issue that we potentially see is around timing and that’s no different than what our perspective has been for the last year.

The most significant risk as we have said consistently to our timing is the startup of the Heritage plant. By its very nature the difficulty of plant startups are hard to predict in advance.

Our plan has us heading the 10% EBITDA margin rate by Q1 2015. But if the Heritage plant startup is extended as I described earlier it’s possible that we could be delayed hitting that target on a run rate basis by a quarter or two.

With that I will turn the call over to our brand new CFO, Debbie Simpson. Debbie welcome to the team.

Thank you, Michael and good afternoon everyone. Turning to Slide 10 as Michael mentioned in his opening remarks our balance sheet is in very – is very strong following the sale of Canada Bread.

The transaction closed on May 23 for proceeds of $1.66 billion. And concurrently we repaid virtually all of our debt.

We originally estimated that cash costs associated with the transaction would be $160 million. At the end of Q2 we have recognized $142 million of these costs.

You will recall that the biggest component was the debt make-whole premium. We are now expecting to come in under the $160 million estimate as the only remaining cost left to recognize are approximately $8 million in additional restructuring.

For the quarter, cash used in operations was $341 million. There are number of puts and takes on our cash flow statement, but the most significant items are the company’s investment in working capital and the one-time payments of $100 million for make-whole payment, swap settlement costs and other financing costs related to the retirement of our long-term debt facility.

The $226 million investment in working capital has two components to it. The first is approximately $125 million and restores working capital for Maple Leaf Foods closer to what we view is historic and more normalized levels for the business.

In addition, the cash flow reflects the impact of Canada Bread, up until the May 23 sale date. And as a result of that, approximately $100 million of this working capital increase relates to Canada Bread.

In addition, the recent price increases have put upward pressure on working capital at the end of Q2. We ended the quarter with a positive cash position of $540 million and given the sale of Canada Bread, we have reduced our remaining credit facility to $200 million in the period.

Moving to Slide 11, during the quarter, we took steps to streamline our SG&A structure to fit the new protein-only business. This resulted in $8.9 million in cash restructuring charges during the quarter and there maybe further adjustments when the Grupo Bimbo transition services agreement ends.

These reductions eliminated negative synergies in shared services related to the Bakery sale and are consistent with attaining our 10% EBITDA margin target. On to Slide 12, we invested $74 million in capital expenditures from continuing operations are the protein business in the quarter compared to $78 million in 2013.

Of this amount, $60 million comprised strategic capital in our prepared meats network. In 2014, we are estimating the net capital expenditures for the protein group will be $215 million, including $140 million of strategic capital.

In 2015, we estimate that maintenance capital expenditures for the protein business will be approximately $80 million. Of course, there could be incremental project capital to on top of this, but that would have returns attached to it.

Moving on to Slide 13. In the second quarter, the company recorded $20 million in restructuring costs on our income statement.

Of which, approximately $13 million relates to future cash costs and $7 million to non-cash costs such as accelerated depreciation. This included $11.1 million of restructuring charges related to prepared meats network transition that is primarily employee retention and severance costs and accelerated depreciation for facilities that we expect to close this year.

In addition, there was $8.9 million in severance costs related to SG&A rightsizing that was executed during the quarter. For the remainder of 2014, we anticipate an additional $25 million in cash restructuring to flow through the income statement.

And with that, I will now turn the call back to Michael.

Thank you very much, Debbie. Before turning to the summary slide, I would like to make a brief commentary on the capital structure of the company.

As we said in the last quarterly discussion, the Board has had preliminary discussions on how to properly deploy capital or return the capital on the balance sheet today. The first priority is clearly completing the task of job number one, and there will be unlikely any action taken prior to that occurring, which is the prudent course of action.

The second consideration is to fully access the growth prospects for the business and the opportunities that they present, which is work that is underway. And the third consideration is determination of the appropriate capital structure once the business is stabilized and the growth path identified.

All I can tell you is that this is work-in-process with nothing further to report other than there is no immediate action. Turning to Slide #14, in summary, we are currently experiencing what is broadly recognized as unprecedented market conditions from the PED virus.

We have taken aggressive pricing action in the market to respond to these rising raw material costs in order to restore our margins which we have done predictably this led to short-term slumps in volume right after the price increase occurred, but those volumes have been improving steadily since then. Network transition is proceeding but startup risk continued to exist.

We are expecting positive trends in the second half of 2014 as we benefit from the recent pricing, the recovery in volumes and we are able to close our four older plants near the end of the fourth quarter. The building blocks to our 2010 – 2015 10% EBITDA margin targets are in place and we have very specific and action plans to deliver on them.

We are now just months away from completing the transition of our prepared meat supply chain that will dramatically transform the cost structure in the business, our competitiveness in the marketplace and the profitability for shareholders. We believe the finish line is insight.

With that, I will now turn the call over for your questions. Nicholas?

Hi, good afternoon.

Hi, Michael.

First question has to do with the working capital. I guess understand your explanation for the most part, but so just to understand what do you view as an appropriate level for working capital for the protein business, is there some kind of formula that you use in terms of receivables, inventories and payables in terms of the ratio that you are looking for?

We don’t have a set formula or ratio Michael but I think where we are now is where we would expect to be. There is a little bit of – so it’s a little bit on the high side just because of the price increase impact, but that’s not significant.

And there is a little bit of seasonality between first half and second half but again no real significance there.

So you mentioned that the end of Q2 you did see a move up because of the upward pressure on the commodity prices. So that was fully in there at the end of Q2 and if commodity prices start to come down then we should see a little bit of relief there?

Correct.

Okay. Thank on that for that.

So on another topic we are hearing a lot about the hog shortages in Manitoba and labor shortages. How much of a problem is this in terms of being able to source adequate volume of hogs and pork.

And how do you see a resolution to this?

So it is a problem, there is – there are two issues in Western Canada Michael and it really comes down to pigs and people. The people issue is related to the impact of the changes in the temporary farm worker program on our industry and I think the industry is in – the entire industry is in very constructive dialogue with the government to consider ways to find workable solutions for our industry.

I would remind you that we have been very positive in constructive users of that program but it hasn’t been so much a temporary worker program as much it has been past to permanent residency for those people in Manitoba. And we are very proud of how that’s been deployed with the support of both the community and the unions in that area.

So we are cautiously optimistic that will get resolved. With respect to the hog supply, certainly, that’s problematical.

We – the full effect of that hog supply is felt in the second quarter. So, we don’t see it getting any worse than what we experienced in the second quarter and potentially some better through normal growth, but much like we are working on the people availability issues, we are also working collaboratively with the government of Manitoba to find ways and paths forward for responsible growth in the industry there, but that will take some time.

The key question that you ask is the materiality of that. In total, we do not believe that those two issues will stand in the way of our ability to achieve our targets.

Are there problems and obstacles? Yes.

Are there material obstacles to our target – achievement of our target? No.

Okay, thank you. So, that did answer my part B question.

And then last question for now is just as you looked out at that futures curve for hog prices coming down even though they stay above the 5-year average or so trending downwards over the next 18 months or so? Should it actually pan out that way?

What happens to the price increases that you implemented in May, do those start getting retracted to some degree, do you promote more or offer more trade support? What do you do with that?

Well, that’s a very complicated question and the answer is we do a mixture of things. First of all, it depends on which cuts and which timing.

It depends on what the changes are relative to expectations, because we keep good portion of our pricing stable for an entire year with the expectation that there is highs and lows during the year. So, how do those changes relate to our expectations for the decline?

We had expected some of those declines when we built into our pricing. It depends on how do we handle the inflation and other factors, because we have ongoing inflation in many parts of our business, where we would normally take price increases on at least once a year regardless of market movements.

So, there is a very complex set of calculations that go into that. At a minimum, our goal would be obviously as we would retain our margins, our strategic margins as those raw material markets declined.

But to say what specific action we would take would depend on too many variables really to predict.

Alright, thank you Michael.

Thanks and good afternoon everyone. Michael, just thinking through the evolution of the transition costs since the first quarter of last year, clearly we see some uptick following Q1 and Q2.

How should we be thinking about Q3 and Q4 presumably, a key piece will be getting the four plants closed in Q4?

I think Debbie will add some color coming to it, but I think the answer is you should think about them as being flat to that number for the balance of this year.

Yes, you are absolutely right, Irene. So, the critical part of it is getting those four plants closed.

If we run to schedule, which we hope to do, the first one closes late October, early November, but the balance of them is late in towards the end of the year.

Thank you. That’s very, very helpful.

And then Michael just going back to your closing remarks, if I understood you clearly, what you were trying to signal is the decisions around any kind of return on capital will be deferred until you have some very good visibility on the actual closing of the plants and the transition of the volume. Is that correct?

Yes. I believe that would be a very accurate takeaway.

I believe that’s consistent with the expectations that we have articulated to-date. And I think that, that’s a prudent response and direction of the board.

So, yes all of the above.

That’s great. Thank you for that.

And then just clearly you are seeing some consumer reaction to the price increases, wondering just overall the tone of the conversation you’ve been having with the retailers given all the discussions that we’re hearing about retailers trying to push back on the support?

I think virtually all of our retail and food service customers understand the underlying issues here. I don’t think there is any degree of push back to the extent that we’re dealing with a commodity market that was affected by a virus in U.S.

hardware. So, there is no – there is – really is such a widely understood, widely communicated documented covered in the media factor and what’s driving those commodity increases is so widely known, Irene, that everybody broadly excepts that piece of it.

I think we’re working collaboratively with our retail customers, partners, and food service customers to basically find ways to mitigate that volume and the marketplace – volume impact in the marketplace. Internally, we view as the cold arms of how to generate excitement without change your price.

And one of the factors, which we described in my remarks was pulling forward some of our advertising and promotional spending into the second quarter as a way to soften that transition. As the new pricing levels become visualized and in the marketplace and accepted as new value propositions in the market then you start to see the glide slope upwards of a volume recovery and we are seeing that.

So, we’re optimistic that will continue, but it obviously is a risk factor because it depends on a lot of conditions being true. But generally speaking, we’ve been aligned with your question, aligned with our retail partners that this is an unavoidable factor in the industry and we have to work together to trying to find a solution that transitions us to higher pricing levels.

As in the side, Irene, I would tell you that this condition exist not just in the pork industry, I think most retailers would say the same as kind of inflation broadly in beef, in poultry and many sea food items and indeed in some of the produce. So, it’s been broadly impacting the entire fresh component of the food space.

Absolutely. And then just one final question if I may, Michael, innovation has been an important part again and something very important for Maple Leaf Foods and certainly if we going back to previous investor days and presentation, innovation is the key factor in terms of long-term volume and how you grow.

Just wondering how you balance that innovation piece with what is – this is a very, very extensive manufacturing charge?

Balance what way, Irene, can you help me with your question a little more, I’m not..

I guess more around do you take a bit of a step back on innovation, new product introduction as you go through this extensive production facility transition or is it continues to phase?

No, it continues to phase. We fully expected and have built into our planning for that to continue with phase and we think that’s a really important ingredient to our transition.

We can’t back off in being the most innovative food company in the country in that regard and we’ve demonstrated that. There are – one things that one of the things that is important and some of our innovations we will try to direct to plants that are not in the transitional or transformational state.

For example, our new line of snacking items, proteins are not a product that’s produced in any one of the transformation plants. Most of the transformation activities going forward in our legacy – in our legacy categories, there are large volume legacy categories.

But even in those categories your things like the natural selections platform which has been enormously successful for us or the – what we are doing for example in our line of products that is raised without antibiotics. All of these innovations typically show up in formulation changes and packaging designs and are relatively easily culminated in our new oral manufacturing platforms.

So, we are trying to make sure that our innovations don’t really become obstacles, but we have got to continue at pace with that innovation agenda.

That’s great. Thank you.

You are welcome, Irene.

Hi, good afternoon. Mike, I was hoping you could give us an update on how two of your key export markets are doing, Japan looks like pork volumes have recovered the last couple of months.

Is that less competition from the U.S. or higher demand overall?

And then on the U.S., it looks like volumes have been a bit sluggish there, is that still a symptom of the cool?

Look, now I think the U.S. is more transactional and depending on market conditions at any moment in time.

I think the more important question that impacts our results is the Japanese market and yes, we have had – yes, I think our volume in general has been basically flattish into the Japanese marketplace. I don’t have the statistics right in front of me, but I think generally speaking, it’s been roughly flat.

The bigger story is what’s happened in our margins. As you know, that’s been a drag for the last year and we have been very explicit about what the story is around that.

The success of the quarter actually is we were able to achieve some material price advances in not just in our domestic markets, but also in the Japanese markets in the quarter. And that demonstrated a or yielded a substantial improvement in our Japanese margins into the Japanese marketplace during the quarter, although not back to all the way to where we wanted to be.

So, the Japanese market is an important strategic market for us. It’s been a huge success for many, many decades for us.

We have great relationships in that marketplace. It suffered terribly in the last year, but it’s getting better and we expect it to continue to get better and be back to where we need it to be by the time we have to achieve our strategic targets.

So, I think it’s a relatively good news story.

Okay. And the pricing action that you took in that market, you are not expecting to see a volume decline there like they take in those price increases?

Well, we did short-term in some areas, but it came back relatively quickly.

Okay, great. Thanks.

Hey, good afternoon everyone.

Hello, Ken.

So, I don’t know if you answered this, but did you talk – I didn’t get it, did you talk about the elasticity that you are actually experiencing right now? I know you kind of talked around it, but can you give us some anecdotal evidence one way or the other way what exactly is actually happening and when do you think it will kind of dive a little bit, are other competitors actually following you?

Just give a little bit more color to that.

So, our volume, I guess, it’s a moving target, Ken. Our volume for the quarter, just turn to the right page here, volume for the quarter was down just slightly over double-digits in the first instance – in the first few weeks right after the increase, but it improved actually by July actually it’s like down to low single-digits.

For the quarter, I think it was down 5% or something like that for the whole quarter. But keep in mind, there is a slope of the curve there, where it was down double-digits and then start to recover during the quarter.

I think our run-rate July and around that is like down low single-digits, which is still a big number by the way, but that’s been the demand response. So, in the first instance, the double-digit decline was a little bit shocking for us as you could imagine, but I think we have been very patient and diligent in approaching it.

The recovery is in a responsible way and it’s – and we have seen that the glide slope of improvement. I want to start to what happened in the marketplace our share change because the whole market self prepared to time.

But the share change was largely we see it a little bit of share to private label to the most part, which is our primary competitor in the marketplace we have starting to – basically the most of the brand activity is ours. So we see that the share to mostly the private label which I would highlight is absolutely the normal and expected outcome with a significant brand price increase.

Private label did follow the competitors did follow and the behavior has been largely consistent and disciplined across the marketplace, few minor exceptions but for the most part that’s been the case. But the brand private label share shift is something that we would describe as expected and normal.

And that’s the shift that will normalize as time passes.

Okay.

So is – does that give you the information you are looking for Ken.

That’s perfect actually. The elasticity is actually going at very, very sharper earlier but it’s tailing of quicker, that seems like?

Quicker. Yes, it’s tailing off I mean at the end of the day we have it’s still this will be a risk factor for the balance of the year, right because even low-single digits is still an important volume consideration.

And we have got I think the whole industry is focused on just being cautiously optimistic that the consumer and customer behavior will respond to these higher pricing levels that are necessitated by the raw material cost. But we have to be a little bit patient here.

And then just from a housekeeping issue, the sequential decline in transition costs in the back half of the year just going down from 25 to how low does it go and what are the cadence of it do you know?

I am not sure how low does it go, when?

In the third and fourth quarter like does it start going, you said I think in the first quarter of 2015 it will be sequentially much lower and then what about the third and fourth quarter does it stay at this level or does it start going down?

You are talking about 2014?

2014, I think you said in the slide 2015 first quarter falls off but what about third and fourth quarter of this year is it just seeing…

That was consistent with Irene’s question about what we expect the balance of 2014 to be. And to reiterate, we expect to third and fourth quarter to be reasonably consistent with what you saw in the second quarter.

Perfect. Understood.

Thank you.

No problem.

Hi, good afternoon. I just had a question regarding the innovation pipeline and your outlook may be contrasting in the retail channel and the food service channel for volumes over the next 6 months to 12 months and how innovation will impact those differently?

I would suggest that it will impact both of them equally. In the retail channel we tend to innovate in our own brands at our own pace and our own timeline.

In the food service channel, we tend to innovate collaboratively in partnership with our customers. And so we were actively engaged in both constantly.

So I don’t know that there is any point of distinction or difference between the two.

Okay. Thanks.

Welcome.

Thank you. On the poultry side of the business, can you explain the reasons for that unfavorable mix in the plant inefficiencies I know you had some pretty good success over the past few years in moving mix in a favorable direction, what happened this quarter?

We had – first of all we had if you look at year-to-date performance we clearly had some both mix and operational variances that were connected to weather early on in the year. But extending into the second quarter, we have had some – we have had some changes in mix with some – induced some operational variances, which quite frankly we have internally concluded that they are highly strategic and we – we are actually supportive of those short-term mixed variances in – because they support the long-term direction with several of these customers.

So, without violating the confidentiality of those relationships and activities with the customers, we think it’s a very prudent thing to accept those variances, which we have. It’s – the rationale for it is basically the long-term strategic growth in the category with those customers.

So, it certainly affects the short-term, but it’s – we are actually very positive about what the outlook will be.

You got cutoff earlier in your comment, but what was behind the short-term or the long-term direction change?

We had a mix shift with some – I am sure which part of it you caught and which part you didn’t, Michael, I am sorry about that, maybe I had a technology problem there, but to reiterate we had a – we had mix shift with some key strategic customers that we have – that came with some operational variances. We have accepted those operational variances, because they are of a very strategic nature in the relationship of those customers and will result in long-term growth of those customers.

And so it’s – it’s really one of those things where we are, got some short-term pain, but we are very happy with what – very optimistic and pleased with what the ultimate outlook will be.

Do we have to wait four quarters for you to cycle through this or is it just – or is it a shorter timeframe?

I think that’s a very good question. There is lot of variables attached to that.

I think reasonable expectation would be that we will face this for two to four more quarters. That would be a reasonable expectation.

But I am hesitating because there are enough variables attached to that, where it may not be the case exactly, but honestly this is a good news story, not a bad news story.

And is the profit impact material enough to carry off 10% at all?

No, no, no, not at all.

Okay.

Clearly, the answer is clearly no.

Okay. And just a final question, given all the moving parts with the plan, the ramp-up of the plants and the capital going in and then the four plants closing, can you give us some guidance for depreciation for next year?

Guidance on depreciation?

About $80 million, Michael – 90, sorry about $90 million.

$90 million of depreciation and does that include the unallocated $4.5 million per quarter?

That would be an all-in number.

Okay, thank you.

Well, thank you very much. I appreciate all your questions and your very intense and capable interest in our journey.

We are making very substantial progress. And as I said in my closing remarks that we can see the finish line in sight.

So, thank you very much for your support and patience and interest. And we will look forward to updating you in the next quarterly call.

So, thank you very much and have a wonderful day.