Blackstone Inc (BX) 2002 Q1 法說會逐字稿

Good day and welcome to the Performance Food Group Corporation's Conference Call. Today's call is being recorded.

At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Pat Watson. Mr. Watson, please go ahead sir.

Thank you. Good morning and welcome to this Performance Food Group Conference Call to review the company's announcement earlier today of its financial results for the first quarter of 2002.

As we start, let me express that certain of the statements made in this call may be forward looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve risk and are based on current expectations. Actual results may differ, materially. These risks are more fully described in the company's SEC filings. I'll turn the call over to Michael Gray, President and Chief Executive Officer. Good morning, Michael.

Good morning and thanks for joining us. With me are Bob Sledd, Chairman, Roger Boeve, our CFO, and John Austin, our V.P. of Finance. We'll be reviewing our first quarter results and trends for the second quarter. We're very pleased with our sales growth in the first quarter. Industry trends improved and full service restaurants showed strengthening sales through the quarter. Our overall increase in sales of 38% was aided by incremental contributions for acquisitions. In previous conference calls we projected internal growth for 2002 in the high single digits, and our results in the first quarter were 10% internal growth.

Inflation was nominal, except for lettuce. We experienced the worst lettuce market in history. Operating profit margins increased 77 basis points for the quarter to 2.15%. Net earnings per share increased 71% achieving analysts' consensus of 24 cents on 21% more shares outstanding compared to 14 cents from a year earlier quarter. We are very pleased with performance of all business units and executing our strategies. Our Broadline Division had operating margin improvement of 49 basis points over the same quarter last year and sales grew to 450 million, a 25% gain for the quarter. We generated internal sales growth of 8%. We continue showing good growth in street sales, which represented better than 45% of sales. Sales of our control labels to street customers increased 23% and represented 18-1/2% of street sales, up from 17% in the fourth quarter. Our sales per delivery increased 6% for the quarter. We're excited about the addition of Quality Foods Incorporated, of Little Rock, Arkansas, to our Broadline division. We expect first year sales of over 400 million from three distribution centers. This company has been affiliated with our Pocahontas buying group for over 20 years, which will help to make this a smooth integration. We expect good contributions to our control brands and street sales. Our Customized Division completed the final phase of rolling out Ruby Tuesday's business in February. It was very successful with little interruption to our business. Sales for quarter grew to 341 million, a 14-1/2% increase over the same quarter last year. Operating margins improved 12 basis points, attributable to our focus on improving efficiencies in transportation and warehousing. In January 2002 we broke ground on a 55000 square foot dry warehouse addition to our Lebanon Tennessee facility. This addition will come on line in June and enable additional service level and productivity improvements. We're very pleased with our Fresh-Cut Division. The integration of Fresh Express is proceeding as planned and on target. Recent market conditions were a real challenge to our Fresh-Cut team and they rose to the occasion. While operating in the worst lettuce shortage ever we managed to produce operating margins very close to the first quarter of last year, even with the addition of the lower margin Fresh Express business. This gives us added confidence in our ability to use the tools available to us to mitigate the risk of negative impacts due to raw product shortages. Sales were up 212% to 205 million, aided by the addition of Fresh Express. We're excited about the prospects for Fresh-Cut for the balance of the year. The lettuce market has improved to near normal levels and we're on track for our test market of fresh fruit. We're totally committed to an integrated supply chain that drives quality and delivers freshness to consumers.

I want to say thanks to the wonderful people that make up the [PSG] teams, the commitments they have made to drive our company. Also, Americans are continuing to demonstrate that they will eat out, even in tough times. In fact, the National Restaurant Association has raised its forecast for 2002 restaurant sales to increased 3.9% for this year. I'll turn it over to Roger now for a review of financial results.

Good morning. As Michael indicated, sales for the quarter increased 38% to 996.9 million with internal growth of 10%, and 28% of the increase coming from acquisitions. Gross profit increased 63.8% and gross profit margins increased 244 basis points to 15.38%. The increase in gross margin is due, primarily to the inclusion of Fresh Express. Our Broadline business also had a 50 basis point improvement in gross margin. Operating expenses increased 168 basis points from prior year to 13.23% on sales. The increase is due, primarily, to the inclusion of Fresh Express, which has a higher expense level than our Distribution businesses. Broadline expense levels were flat for the quarter, while our Customized business showed expense reductions accounting for the operating profit improvement of 12 basis points for the quarter. Operating expenses for the 2002 quarter benefited by $1,400,000 of goodwill amortization, resulting from the adoption of statement #142. This goodwill amortization was divided equally, 700,000 to Broadline and 700,000 to Fresh-Cut. Operating profit increased 114% to 21.4 million, or a 77 basis point improvement from the first quarter of last year. The Broadline business operating margin improved 49 basis points from prior year to 1.86%. Customized business operating margin improved 12 basis points to 1.01% and the Fresh-Cut Operating [technical difficulty] declined only 6 basis points with 6.26%. When we acquired Fresh Express last year we stated that the Fresh Express margins were lower than our Ready-Cut margins and that we expected lower Fresh-Cut margins for 2002. Despite a very difficult lettuce market in the first quarter, the Fresh-Cut Fresh Express team did an outstanding job. Interest expense, including the loss on sale of receivables, increased to 4.7 million in the first quarter due to the issuance of $201 million of convertible notes in October of last year and the sale of $78 million of accounts receivable. Other income included interest income on short-term investments of about 200,000 and gains on sale of excess assets of about $300,000. Our income tax rate for the quarter amounted to 37-1/2% and will remain, we believe, at that rate for the remainder of the year. Net earnings increased 107% to 10.8 million and earnings per share diluted increased 71% to 24 cents per share versus 14 cents per share last year. As a result of our equity offering last October, shares-outstanding increased 21%. Turning our attention to the balance sheet, Days Sales Outstanding, or DSO in accounts receivable amounted to 22 days versus 21 days in the first quarter of last year. Inventory turnover amounted to 19 times versus 20 times last year. Vendor float amounted to 137% versus 138% last year. Total debt amounted to 272 million with a debt capital ratio of 30%, not included $90 million of cash on our balance sheet. Depreciation for the quarter amounted to 8.3 million and amortization of intangible assets of 1.8 million. We expect depreciation and amortization for 2002 will amount to approximately $45 million. Capital expenditures in the quarter amounted to 11.7 million and we expect Cap Ex to total 70 million for the year.

With that, Cynthia, we can take some questions.

And we'll take our first question from Bill Reach [phonetic] with Bank of America.

Good morning everyone. I have a couple of questions. The internal sales quoted, was it 8% or 10%? I hear two different numbers.

It was 10% Bill.

The 8% was Broadline.

8% Broadline. And does the 8% include 2% pricing?

Two percent's in total, Bill. The 10% total; that includes 2% from inflation. Probably Broadline inflation was more around 1% or slightly less than 1%.

So your Broadline volume was up about 7% internally?

Right.

And, Roger, I had my notes that you expected to have 52 million shares this year. What did I miss here? You have much bigger shares than I expected.

Sure, Bill, that relates to the convertible notes. When you look at the earnings per share calculation converting those notes, if it's anti-dilutive, you did not convert them. And, when you do that calculation add back the interest net of tax, the share then actually becomes anti-dilutive.

The difference is about 6.2 million shares, Bill.

So, how many shares outstanding should we use this year?

So we'll be over 50 million shares.

So, you protected what, 52 million you said?

Yes, I had my notes, 52.1; I think was your guidance at the year-end?

Right. Those are right numbers.

On that basis, what would interest expense be for the year, do you think, to take out the convert?

On the convertible notes for the year, should be at about 12 million, it's 5-1/2% coupon on 201 million.

indiscernible] million. Interest expense [multiple speakers] you add some fees in there. So, about 12 million for the year.

Twelve million excluding the convert?

That is the interest on the convertible note.

What do you expect interest to be for the corporation?

We expect about 20 million for the year.

And that excludes the convert?

That includes the convert.

That includes? But for modeling purposes that we have 52 million shares, don't we take out the interest expense on the convert?

Yes, that's right.

So, what would that number be then?

Eight million.

Eight million. Okay.

And that's barring any acquisitions and things like that.

Right. And then lastly, Michael, could you run through the lettuce market for us. I know the price went way up and went way down. How does Fresh Express operate under those circumstances and is there any danger of kind of a produce surprise in this business given that volatility?

I'm going to pass that one to Bob since he's focused on that division.

Bill, our guys did a great job of managing it which is one of the things that we looked at when we acquired the company, was that we wanted to make sure that there wasn't going to be volatility. Because, as a public company we can't stand volatility in earnings on a quarter-to-quarter basis. So, you know, they told us they could manage it and we were actually extremely pleased that they were able to manage it. And they did it through a number of vehicles.

One is just managing, in the fields, their acquisition of lettuce and where they got it and when they got it and they did a real fine job of that. But more importantly was how they managed it on the customer side. Where we had some product options we were able to shift customers to more profitable products, different blends, versus just straight iceberg lettuce and items that we were making more money on the customer was making more money on. So, actually, it ended up being kind of a win-win for both of us where we were able to absorb most of the increase in the price of the lettuce on the retail side and then where we had customers where we didn't have any product options, we just had straight price increases. And that covered the cost there. So, as a result of that we were very, very close to what we had budgeted for the quarter in terms of overall profitability.

And, as we mentioned going into this year, we expected a slight decrease in operating margins in the Fresh-Cut Division because Fresh Express was lower margins than our overall margins. So taking that into consideration, we were right on where we expected to be.

And with lettuce prices plummeting back down, does that help you out for the second quarter, or does it not make any difference?

Well, the way we manage it, our product is contracted anyway, so it really should have very little impact on us. We're very comfortable with our ability to manage it the second quarter. I would say it's not going to have an affect on us, one way or the other, because of the way we contract with growers.

What kind of volume growth do they have? Indiscernible] last year, but if you looked at it on an apples-to-apples basis, can you tell me how their sales would have looked?

You're talking about Fresh Express? Fresh Express, at the retail level, they were up about 11%, 12%, you know the low double digits.

We'll take our next question from Jack Murphy with Credit Suisse First Boston.

Good morning. First question is a follow up on that first one there. You know, given the lettuce yields being so light, how much did you have to use in spot market and is that something that you're going to have to do in the second quarter? And does that make a difference to this concern about volatility?

About 20% of what we bought was bought on a spot market. The rest of it was we were just able to stretch the lettuce we had and use it and then shift to other products, as I mentioned, such as romaine and other, radicchio and other products. I'm sorry. We were interrupted a little bit. What was the second part of your question?

Looking into the second quarter, is that going to shrink? In other words, are you going to be able to use the spot market less?

Oh, we're not going to use the spot market at all for the second quarter. In fact, we actually increased demand on blends, which, again, are more profitable for us and more profitable for our customers. So, there is some chance that more people will continue to buy those blends. We're certainly hoping they do because those are more profitable for us than just straight iceberg lettuce products, and more profitable to the customer, for that matter.

Okay. Just a couple of questions then. For Roger; in terms of the 200 or so thousand in income on investments, could you give us a little more sense of what that is and then, also, what the gains were on assets, in terms of what that related to.

Jack, the 200,000 was the interest income on the $90 million of cash in our balance sheet. Obviously [inaudible] return. And then, the 300,000 was just some miscellaneous excess property. I think we sold some land here and there and had some gains on [inaudible].

And that was just about 300?

Right.

Okay.

Let me back up, just one other thing. There is one other, and an important part I forgot to mention, in terms of managing the lettuce, and that was that we didn't really promote during that period of time. We normally do quite a bit of promotion, and we didn't promote, so that also helped us reduce the sale of the iceberg.

And, Jack, one other thing I guess I failed to mention is that we also accrued $500,000 of expenses relating to the special inquiry we had on the accounting error. That's in these numbers as well.

Five hundred?

Five hundred, yes.

Okay. And, then, the other question, if you could give us a little walk-through on the loss on sales of accounts receivable, whether that was receivables sold in the current quarter or if that has to do with recourse on receivables that you've already sold?

As you know, Jack, that's just a normal receivables securitization. We sell new receivables into that vehicle in the normal course and there was really no change there. That's' just a continual program.

So that was all current quarter losses? That's got nothing to do with recourse?

Correct.

Okay. Thanks.

We will take our next question from Mark Husson [phonetic] with Merrill Lynch.

MONNIE COGAL [phonetic]: Hi. This is Monnie Cogal for Mark. First of all, what is the internal sales growth in the Fresh-Cut business if you exclude Fresh Express? And then, what are you doing in terms of integrating the businesses? What progress are you making? And then, the second question was just on the Broadline EBIT margins; what's driving that?

Okay, I'll take the first part. If you exclude Fresh Express in the retail, on the food service side it was up a little bit, but most of that was inflation. If you take inflation out, it was probably [flap] it down a couple of points in Fresh-Cut. And a couple of reasons for that is, as we mentioned last year, when we acquired Ready Cut, we had some customers that we expected to lose. We actually retained a lot of that business, but we have recently lost a couple of them just for competitive reasons, so we're working to [indiscernible] that business, and so that will probably be with us, unfortunately, for the balance of the year. That's just the lingering effects of the Ready Cut acquisition that we made a year ago.

The second part of that is that the customer base, a lot of the quick service is just flat right now. And we weren't doing much in the way of promoting in the first quarter because of the tightness of product, so hopefully that will improve as the year goes along.

We're not sure at this point in time, but we are working to pick up new business. We're continuing with sliced tomatoes, that continues to track at about the same rate it was tracking last year, I mean, excuse me, last quarter. But we are in test with a major new customer. We've got a few small customers that we're working with on that product. So, we're optimistic that we'll continue to roll that out.

And then, secondly, Dominoes is doing a salad promotion, or excuse me, a salad test with us. And if that goes well, we'll be rolling that out. So that test is going to take place over the next few months and so we've got some exciting things going on and we'll just see how it goes, but we feel good about it.

From an integration standpoint, the integration with Fresh Express has really gone extremely well. We've identified a number of areas that we can reduce cost and improve quality and service to customers. And we're working on that, and it's gone real well. And, as Michael mentioned, we're working on innovative new products, such as the fresh fruit. And that test has continued to be on track to be started later in the year.

technical difficulty] margin improvement in Broadline, that's being driven by several things. First of all, increased sales of our own controlled brands -- we increased that 23% to street customers in the first quarter. Further account penetration, as our drop site has continued to improve, and strengthening of our sales to street accounts, a major focus on that.

Okay. At this time, can you quantify any synergies with Fresh Express?

Quantify in dollars and cents? I don't know that we really -- there's a lot of them, about a dozen of them that we're working diligently on, and we've already quantified those as it relates to the increasement we expected for the year.

We'll go next to Jeff Amohandro [phonetic] with Wachovia.

Good morning. A couple of questions. First of all, I wonder if you could just remind us where you stand, again, on technology, given the growth of your company? Just where your platforms are, how comfortable you are and what upgrades you think might be coming. And then second, the thing is you were able to manage this produce volatility in the quarter, I'm wondering, given the mood toward fruit programs, what do you think your ability would be to manage inherent underline commodity volatility in that segment might be.

From a technology standpoint, all of our Broadline operating companies, with the exception of last year's acquisitions are on our current version of the Food Star platform and we will be converting SFC and North Center this year to that platform. But customized division is already on a very centralized platform on a similar system to the Food Star, but customized for that division and we're proceeding along very quickly for a single platform for the Fresh Cut Division adopting the system that was in place with Fresh Express.

As it relates to the fruit, Jeff, I mean, again, that's one of our primary goals to make sure there's not volatility. We're contracting with growers on the same bases as we're contracting in our other business and we would manage it on the end-user side, on the customer side the same way. So, you know, we think that we can manage that very well.

We will take our next question from George Dahlman [phonetic] with U.S. Bank Piper Jaffray.

Yes, Good morning. I wonder if you could talk a little bit more about that 8% organic growth. What kinds of numbers are you using internally going forward in that regards? That's very impressive, and how long is that sustainable?

Well, in Broadline we spoke about this year being in the upper single digits, internal, and we're happy we were able to achieve that in first quarter. With restaurant sales ramping up, but ramping up very slowly, we still expect this year will be in the upper single digits. But long-term, we think we can get Broadline back to 11% top line internal growth.

We will go next to Greg Batashkania [phonetic] with Salomon Smith Barney.

Just two questions; one just related to your internally generated revenue growth, I guess it was 10% this quarter, real growth of 8% when you exclude inflation. Last quarter, sequentially, in the fourth quarter, I think it was, was it 8% real growth also because you didn't have any inflation, or could you help me out with that number?

Yes, the last quarter, fourth quarter of '01, the internal growth was 7-1/2% and 1-1/2% inflation. So real growth was 6%.

Okay. Good. And then with respect to your Customized business, could you just help us out with the timing, in terms of, I guess you have last piece of business from Ruby's coming in from February, what's that in terms of the roll-out there? I guess you'll [lap] it in February, but is there a larger amount coming over the next quarter or two? And also, in terms of accretion on that, I know there's some set up cost, typically, and would you expect the accretion to accelerate over the next few quarters from that new business?

Well, we started rolling that in the fourth quarter of last year. So, we'll [lap] part of it in the fourth quarter and [lap] the other part in first quarter of next year. And any accretion that we're seeing from that is already factored into our projections for Customized for the year and is our total company.

Okay. So it's modeled into your forecast. When is it -- is it, typically, about six months before it becomes accreted? Or what's the rule of thumb on that?

It really depends on the customer and I'm not sure there is a strict rule of thumb. Obviously you have some expense with starting it up. It gets more profitable as the year goes along. In terms of additional business, we're working on several things and we hope to add another piece of new business this year, but we're not to a stage where we can announce anything.

We will take our next question from Bob Cummins {phonetic] with Shields & Company.

Thanks very much. Good morning everybody. I have just two or three very brief questions. We talked a lot here about internal growth. I'm wondering, in the Customized Division, can you tell us what the growth would have been just based on existing customers for the quarter?

No, I don't have that number handy.

[multiple speakers] we don't really pull out the customers - new customers internal growth.

Also, Bob, the customers don't like us to disclose our revenue numbers.

Okay. Secondly, I had a question on the Quality Foods acquisition. It looks like a very significant move in view of the size and location and your 20-year relationship with the company. I'm just curious to know how it fits into your plan. In other words, are there margins equal to your margins? Or are there opportunities to improve? And, also, how does it integrate with your own Broadline operations in that region?

Okay. In terms of their locations for their distribution centers, they fit like a glove. It's like we've been saving that slot for them. It's an area that was void for us and they cover a large swath of geography there. We do know the team there, quite well, through the Pocahontas organization and they already sell a lot of our control brands and have adopted a lot of our procedures and policies along the way, their values, the way they approach their business, is very similar to ours. So, everything is positive from that point of view. Their operating margins are slightly lower than ours. They have focused very heavily on sales growth and last year they folded out a new distribution center in the northern Mississippi, taking business out of their existing Southern Mississippi division center and their Little Rock distribution center, so they had quite a bit of one-time expenses related to that fold-out.

With [lapping] that and the synergies and disciplines that we could put into the business, we think there is a pretty good upside for that operation.

Okay, great. The final question, I apologize for bringing up an old issue, but going back to your accounting questions that arose a while back, has there been any further reverberations involved there, and has the SEC raised any issues with you that they're questioning or is that totally put to bed?

Bob, we are, as you know, we've self-reported to the SEC. We are working with them providing any information they request and intend to fully cooperate with anything that they might continue to question. So, we're working through that.

Okay. Thanks very much. Oh, one final question, if I could. In your release I didn't see any updates on your earnings guidance for the year. Could you repeat what your guidance is currently?

Bob, we don't intend to repeat that each quarter. I think the earlier guidance we gave is still in place. Whatever the street estimate, that range is, I'd say we're still comfortable with.

Hi. Good morning. My question is. could we possibly just talk a little bit more specifics about gross and operating margins for the retail bagged lettuce business? How did it come in relative to budget?

What do you want to know specifically?

I mean, were you -- how much were you behind on budget, relative to where you came in?

From a profit standpoint, just within a few hundred thousand dollars. I mean it was just a very small amount we were under budget.

We will go next to Ann Gerkin with Davenport & Company.

Good morning. Both of my questions were answered, I just was wondering if you could give us any kind of flavor on your acquisition type line, what areas you're looking in? Any kind of update there?

Well, there are more opportunities for acquisitions than we've seen in quite a while. And we're, as always, focused on contiguous geography, if at all possible. But, at the same time, we wouldn't pass up opportunities for a wonderful growth company that wasn't exactly contiguous. But things look good right now and there's a lot of activity out there.

Okay. And how is the test of Fresh Express fruit going?

It doesn't start till later in the year.

Oh it doesn't? The fall, is that the plan?

MICHAEL GRAY. Yes.

We will take our next question from Andrew Wolfe with BB&T Capital.

Hi. Good morning. Back to the 8% Broadline internal growth; can you give us a sense of how much of that is increased penetration with your existing customers versus new customers? And can you just comment on new customers, you know, is there more coming from, let's say, sort of the account loss from [Aholds] two recent mega-mergers where you have a lot of overlap, or is it more coming out of independents?

Our sales per delivery were up 6% in the first quarter. So, we continue to -- that's a measure of [inaudible] and we continue to have good growth there. We ran a national new account promotion in the first quarter and that was extremely successful. I don't have the exact number because I don't think we've reported it yet, but we had a lot of qualified new customers during the first quarter. Our control brand sales were up considerably at 23% [technical difficulty] so that tells us that we did a wonderful job of selling more to the customer we already had. We have had opportunities come to us as a result of the merger, and have continued to look at additional sales people when the opportunities present themselves, of course keeping in mind any non-compete agreements that they may have with their companies, which we always honor. But we're taking advantage of every opportunity that we can.

And along that line, Andy, when we hire salespeople from competition, typically it's several months before we see any real benefit to that. So, this quarter, even though we hired those people, we probably didn't get much benefit from that. I would guess that most of the benefit from that sort of thing will happen later in the year.

Okay. Just last question, also on Broadline; can you update us on the purchasing initiative, the purchasing synergies and where you're at in terms of the infrastructure you need to realize and what the time table looks like? And also, just what you think the numbers look like in terms of total synergies that you could realize in Broadline purchasing?

Yes. Our data warehouse is up and functioning and we had our single item code cross-referenced to the point where we're able to use that as we look at new product lines and adding new items to our control brand stable. Commodity category, manager-wise, we have plans to add three more category managers this year, in the latter part of the year. But we're very much on target. That is, we are seeing good potential gains being realized and we think that long-term, three to five years, there's about a hundred basis points to be made in to cost of goods sold.

Not to be nit-picky, but does that suggest -- are you trying to say it doesn't start for another two years or so, or will it start sooner than that?

Starting now, I just can't quantify a basis point improvement for you, currently. We are capturing that information and beginning to measure it but that's what we feel it is, long term. But, we started ramping it up last year.

Do you realize in a cost savings now it's sort of a gradual ramp?

You're seeing some of that dropping down in the Broadline EBIT margin improvement.

Hi. Roger, can you hear me? Roger, it looked like inventories were up only about 3%. Is that due to Fresh Express coming in last quarter? Or is there something else going on?

No, there's nothing else going on There's a little bit of inventory brought in at the Ruby Tuesday business. That's obviously a factor. And, of course, Fresh Express does add some inventory.

The contracts on [inaudible] and so forth.

We will take our next question from Mitchell Spizer [phonetic] with Lehman Brothers.

Thanks very much. Good morning. A few questions. First on category growth of Fresh-Cut lettuce in supermarkets, do you have any [IRI] data out there for the first quarter? And, in terms of Fresh Express, have you been able to cross-market sales into casual dining yet, perhaps some of the limitations of that with that going forward.

Second, on the fruit category, isn't cold storage process similar to Fresh-Cut lettuce? I mean, could you put the fruit in the same trucks as the lettuce? And, thirdly, the Fresh Express acquisition, I believe, is supposedly going to be 10 cents accretive, just would like to know if you're on track with that accretion? Thank you.

: ROGER BOEVE: Well, your last question first. Yes, we're on track for that accretion and are very comfortable with that for the year. Your first question, let me see. What was your first question again?

Sorry about that. I know I threw a lot of them at you. The first question is category growth on Fresh-Cut salad to supermarkets?

Yes, the category continues to grow. We don't have that, specifically, in front of us. We did pick up market share from the same period last year. The category's continuing to have growth but I don't have those numbers in front of me.

The question about transportation. Can we put that - I mean we have our own separate contract with trucks, and so, those are refrigerated trucks, not necessarily frozen trucks.

Fruit can ship with lettuce.

Oh yes. Fruit can ship with lettuce. That's no problem.

And going to the same customers would be a good opportunity for us to leverage our salad business by using the fruit.

Yes. The second part of the first question was leveraging the Fresh-Cut lettuce business into casual dining. Have any accounts being taking the Fresh=Cut lettuce? And what are the limitations, do you think, to developing Fresh-Cut lettuce into casual dining accounts?

We don't really think there are any limitations. It's just a matter of penetrating that market. It's a market that, historically, for the most part, has not been Fresh-Cut, but we're seeing some customers go in that direction and we're pursuing those customers. Right now, though, that's a very small part of our business. I mean it's less than -- it's just a few percentage points of our sales. So, we think that's a lot of opportunity. There's no limitation. The product mixes that we now have available to us through Fresh Express; we've got to be able to make those more at the food service level. That just means putting it in bigger bags, but we've certainly got that capability, so that is an area that we are pursuing.

Gentlemen, it appears that there are no further questions at this time. I will turn the call back over to Mr. Gray for closing comments.

Thank you. In closing, the first quarter results marked our 29th consecutive quarter of earnings gains versus same quarter last year. The gains generated in the first quarter reinforce our confidence about extending our long-term record of growth in 2002. We're especially pleased that the growth represented significant internal gains, as well as positive contributions from acquisitions. The increase in earnings is also noteworthy because of our success in increasing margins through improved operating efficiencies and higher economies of scale.

Thank you for joining us and for your continued support and have a great day.