Pilgrims Pride Corp (PPC) 2002 Q2 法說會逐字稿

Good morning, I welcome to the Pilgrim's Pride conference call to review its fiscal second quarter and annual 2002 results. At the request of Pilgrim's Pride, the conference is being recorded. In general, participants will be able to listen-only to the call. However at the end of the management presentations, participants will be able to ask questions. At that time, you will be instructed by the operator of the process necessary to let him know that you would like to ask questions. On this conference call, will be Mr. David Van Hoose, CEO, COO and President and Mr. Richard A Cogdill, Executive Vice President and Chief Financial Officer. Beginning the conference is Mr. Cogdill. Mr. Cogdill, you may begin.

Thank you very much. Last night, we released our results for second fiscal quarter. This call we will cover those results in more detail and as it was mentioned have an opportunity for questions and answers. After I go over the results, David Van Hoose will come on and cover the pertinent issues for the operations for the quarter we just completed. Before I go on I would like to remind everybody that this conference call will contain some forward-looking statements, including the expectations of our future results, sales and costs information, market dynamics etc. Any of these statements that we make should be considered in conjunction with the precautionary statements included in the press release, as well as the forward-looking statement disclosures that we have intimated in our public filings on Forms 10K, 10Q, and 8K with the SEC. That being said and moving on, I will cover the financial quarter. If we start at the bottom on earnings per share, last night we reported that we did have a profit for the quarter of $0.03 per share, compared to a loss in the prior year of $0.24. Now included in this profit was a one-time non-cash tax benefit of approximately $9.7 million or approximately $0.24 a share, and this related to recording of the changes in the income-tax laws in Mexico, that were passed in January of this year. If we adjust for this effect, the results for the quarter would have been a loss of approximately $0.21, comparing to the $0.24 loss in the prior year. For the six months ended, we earned $0.35 and again on an adjusted basis that would be $0.14, compared to a $0.07 profit for the same period last year. Turning to the income statement, sales for the quarter were $600.8 million, up from $541.6 million in the same period last year. This increase was primarily attributable to two factors, one is that, this quarter included full three months, of the WLR or the form of WLR operations, whereas last year we only had that operation for two months and also the growth in our prepared food business of approximately 9.7% during the quarter. For the six months, sales were $1.256 billion compared to $927.6 million last year, and again the reasons for the increase are basically the same as for the quarter, for inclusion of WLR for the six months as opposed to only two month last year, and the prepared food business growing 12.9%. We had an operating loss for the quarter of approximately $4.4 million compared to a loss last year of $5.3 million. For the six months, we had an income ... operating income of $19 million, compared to $17.9 million for the same period last year. Our interest expense for the quarter was up slightly to $7.3 million compared to $7.1 million for the same period last year, and this was due primarily to the higher average level of debt outstanding during the quarter, even though the actual ending the quarter debt was lower than the same period last year. However last year, we borrowed $239.5 million to fund the WLR acquisition, and that was only outstanding for two months during the period. As a percentage of sales, the interest expense fell to 1.2% from 1.3% last year, on a six month basis interest still was up $15.8 million versus $11.2 million, the reasons being the higher overall level of debt outstanding for the whole six months, again because of the shorter period in which approximately $240 million was the outstanding related to the WLR acquisition. As a percentage of sales, the interest expense for the six months was 1.5% compared to 1.2% last year. If we turn to the income tax benefit for the quarter, as mentioned previously, we did record a $9.7 million one-time benefit related to the change in the Mexican tax laws, and the overall tax benefit for the quarter was $13.4 million. So adjusted for this one-time effect, the benefit would have been $3.7 million. At the $3.7 million rate, that would have been a benefit rate of approximately 30.5%, on losses before taxes of $12.1 million. That compares to the prior year benefit of $2.3 million or 19.1% on basically the same amount of income, $12.1 million, again that is $12.1 million loss. For the six months, the overall benefit was $10.7 million or adjusted down to $1 million after the execution of the one-time Mexican tax law change on a net income before tax of $3.5 million that compared to the prior year, expense of $4 million on a net income before tax of $7 million. These New Mexican tax law was enacted as, I mentioned previously on January 2002, and it repealed the favorable tax regime in Mexico that was referred to as a regimen [simplificato] in its place, obviously enough, we still had a beneficial tax rate structure in Mexico relative to general corporation, and that again is called in Mexico regimen [simplificato]. However, the new tax regime in Mexico is a 50% benefit related to the general corporations, so our effective tax rate instead of being 35% as is typical in Mexico would be 17.5%. When you look at the different book tax adjustments and permanent differences that you tend to have, our effective rate on a going forward basis, is projected to be approximately 20% on Mexico pretax earnings. Now to effect this change in tax law, what we had to do is to record deferred tax benefits that related to cumulative book tax basis differences between our financial books and our tax books. And again that benefit resulted in $9.7 million decrease to tax expenses or increase to earnings during the quarter. Turning to the balance sheet, our assets grew $42.1 million, up form $1.153 billion at the end of the prior quarter to $1.196 billion. This increase was primarily due to the increase in inventories, and I will comment more on that a little bit later. Our debt also increased to $68.6 million primarily to fund these increases in inventories and totalled $470.8 million at the end of the quarter, up from $402.1 million at the end of the prior period. At the end of March, our debt make up encompassed $410.6 million in long-term debt, $5.1 million of current maturities on long-term debt, and $55 million in notes payable to banks, which we classified as current on our balance sheet even though a portion of that could be classified as long-term if we did not anticipate that, that would be a working line in our day-to-day cash flow activities. The weighted average interest rate for the debt outstanding for the quarter was 6.96% compared to 7.38% at the end of the prior quarter. Net shareholders equity increased $2 million to $393.6 million and our equity is reduced currently by comprehensive income of approximately $0.6 million, actually it has become a comprehensive loss that relates to deferred losses on feed ingredient and hedging activity during the period. This is down from the prior period amount of $1.6 million. As of the end of the quarter and talking about the feed ingredient and hedging, we have approximately 10% of our total feeding ingredients booked through the end of this fiscal year. All of that is matched against fixed price sales contracts that we have with our some of our major customers. Turning to the statement of cash flows, our depreciation and amortization for the quarter was up $3.1 million to $17.6 million, compared to $12.2 million last year, and for the six months ended, it was $35 million compared to $20.8 million for the same period. Capital expenditures were down this quarter, down $12.9 million to $14.9 million for the quarter ended March 30th compared to last year where we had spent $27.8 million, in the same quarter. For the six months, capital expenditures were down $28.2 million to $32.2 million, compared to $60.4 millions for the six months ended last year. And again those capex numbers for last year exclude the effects of the WLR acquisition in those comparative numbers. Our current quarter capex was incurred primarily for completion of construction on a consolidation distribution center outside of Pittsburgh, Texas, completion work on one of our expansions in Nacogdoches, Texas to our prepared food facilities, various improvements in our Eastern chicken division and in other normal recurring capital expenditure needs. If we look at the statement of cash flow other than these items, the primary items affecting cash flow were the increases in inventories due primarily to three factors, one is the increased prepared foods inventories as we build inventories during the lower demand first quarter of the year, replenishment of turkey inventories coming out of the high sales season in the thanksgiving quarter, and then seasonal purchases of live inventories from our major stockholders. And then the only other item was already mentioned, net increase in financing activities to $68.6 million, on the debt side of the balance sheet. I do hear profound information that's available, if anybody is interested, it's not as significant this quarter was covered basically a year ago, but let me know if you have interest in that. What I would do at this point is turn it over to David who will get on to the specifics of the quarter and I will come back later. David?

Thank you Rich. This was one of the most challenging quarters that I have experienced in the chicken business. We ended the first physical quarter with plenty of challenges ahead to improve our product mix in our fresh chicken business throughout the east, coupled with the challenge to continue honing the recent expansions in our prepared foods division. And that has gone well, the prepared foods division. Yet those known challenges we entered the quarter facing turned out to be minor in comparison to the new challenges brought on during the last month of the quarter. On March 10th our industry was informed that Russia would impose a ban on U.S poultry products and Russia imports 40% of all U.S. exports and roughly, that equates to 10% of the U.S. production. That was resented on April 10th, but functionally, it still has not been resented in that they discontinued giving input from mix to local companies, however that is being resolved and today forward, we expect product to be moving into Russia. Two day's later, on March 12th an outbreak of a low-pathogenic [Asian] influenza was discovered in Virginia, and that posed a significant threat to our Eastern division. Today that threat hopefully is passing. We have two flocks infected in the field today. Those will be taken out of the field this weekend. At the peak of a break, we had 20 flocks infected at one time. As those two events unfolded, they took away the possibility of profitability for this quarter, and that would have been the case had it not been for the tax law change that Rich reported. On the bright side, our prepared food business as Rich indicated, continues to grow at 9.7% in volume, 13% in sales, Mexico showing improvement of $4.7 million in operating income over last year, and sales on a propound basis were up by 13.9%. In our eastern chicken division, we initiated a plant consolidation with three processing plants within 60 miles of each other. We are closing one of those plants down, consolidating that volume into the other two, and the impact of that would be roughly at $1 million monthly, improvement in a bottom line, and that was start to be felt in the fourth quarter of this fiscal year. Also we have made progress in the mix. As I indicated initially, we had challenges to do. And you would be seeing the effects of that somewhat in the third quarter, but possibly in the fourth quarter this year and beginning the first quarter of next year, the impact of that should be close to $1 million a month ... may more as well. Problems, as far as the quarter we just passed, we continued to have commodities mixed opportunities in our Eastern division, the interruption in our exports to Russia, but also to Japan we had a 60-day export ban on products going into Japan, which significantly affected two of our operations in the East. Like quarters went down from 24.65 a pound by quarter in February to 17, and it was just coming down to 13's. Today the late quarter quote is $0.18. The [Asian] influenza impact, we took a $5.5 billion charge this quarter. It affected 35% of our breeder egg volume and roughly 17% of our growing out poultry. Plus, we had a significant distraction in operating the business. While several of the commodity prices for chicken parts showed gains for the year, a good numbers, they were likewise off substantially from the September quarter. Like quarters averaged 22.68 during the quarter compared to 19.75 last year or up 14.8%, and March closed $0.70. _____] were up 1.9%, up from $61.71 to $62.88, holdings were down averaging 76.03 versus 87 last year, and closed the quarter at 61. _____] decreased 5.6% to $1.22 of pound, versus a year ago $1.29 a pound. What also is going on in Mexico, the economy is recovering. Inflation this year is projected to be 4.5%, economy is projected to grow 1.5% to 2%, and our business in Mexico was doing well. The Mexican peso closed at 9.25 yesterday, which was stronger than where it was a year ago at this time at 9.37. Our Mexico results came in with less loss than a year ago for the second quarter with operating losses decreasing, from $5.2 million to $0.5 million on higher prices over last year's second quarter. In the chicken business this quarter some factors to note are, absence our acquisition of WLR, a U.S production of dressed chicken was up approximately 4.4%, versus the same quarter last year, and that came from expansion providing product for prepared food and Nacogdoches operation. Overall, ProForma production was up about the same, 4.3%. Our Mexican volume was down 7%, versus the same quarter last year, and in part that was a reaction to take volumes down to try to improve pricing. Our central division prepared foods business grew at the 9.7% as reported, versus the prior year selling 125.1 million pounds. With the addition of recently expanded facilities, in Nacogdoches and Waco Texas, we look for this business to continue to grow in the 10% to 15% range. When you look at our prepared food numbers including our Eastern division, our prepared food numbers for the quarter, as discussed above, occupy a significant portion of our total company sales. 52.5% of total year's chicken sales are in prepared foods category versus 51.3% in the same quarter last year. 74.7% of total turkey sales were in this prepared foods category and that gave us a combined, chicken and turkey, 55.6% of total U.S poultry sales in the prepared foods category versus 53.3% last year. As far as our grain, our grain has been down. Cost of feeding ingredients has been down this year versus last year. Year-to-date we are down 3.2% in the U.S and 11.5% in Mexico. What has helped our Mexico division? As we started using unit trains in the Mexico, first of October, additionally we switched from Milo to cracked corn, which has helped our costing. This past quarter, our costs were down going into the inventory, 4.7% in the U.S, 17.5% in Mexico, and that trend being down from last year, it looks as though it will continue through the next quarter. Total meat supply is projected to be up only about 2%, with chicken roughly 2.5% and turkey 1.8%. Overall outlook? We still have some integration work to complete, and they are all believed to be completed during this fiscal year. Mexico looks good for year 2002, but we still are being cautious as we approach the free trade provisions of NAFTA. By 2003 we will have more distribution business in Mexico in order to take the advantage of the ability to distribute our U.S products into Mexico. Rich, would you come back on and give us over your projection?

Yes, I guess what we would like to do is update the projections we gave earlier for the year in light of the circumstances that we have been faced with, this last quarter. Our original guidance is for the $1.25 to the $1.35 per share and we will be nurturing that back to between the $1, $1.5 per share. Broken up between the next couple of quarters, something like this, say $0.27 to $0.32, for the third quarter and $0.33 to $0.38 for the fourth quarter, that's our best range projection today. Now, all these numbers assume, that as David mentioned the [Asian] influenza outbreak in Virginia, is really at a state of containment as opposed to state of expansion. Should that influenza break further into the turkey division as well as possibly crossing over to the broiler division, then this numbers would all have to be revised accordingly as they would have potential impact, just like we saw in the last quarter. You know, the break out of those numbers to get the sales for the U.S, are coming down, or ruptured to come down, again their impart to this avian influenza outbreak to approximately, say $2.085 billion, Mexico around $335 million. The volumes will be fairly consistent with what we said in the past with chicken about 2.325 billion pounds, turkey 415 million pounds in the U.S., and then Mexican chicken volumes somewhere 550 to 560 million gross pounds. SG&A is however in the range of where it is in the 5.2%, 5.3% range. Interest expense will continue to average in 550 to 600 range ... we don't see that for a week. We don't see a lot of movement in that area because we tend to agree with clean span that there is not a lot of pressure on horizon immediately to push the interest rate up, but we did benefit from relatively low interest rates today. As mentioned earlier, the projected income tax rate is still going to be about the 30% range consistent, with where we were for the quarter with net income before tax being spread, somewhere between 70% and 75% U.S and 25% to 30% from Mexico, and those numbers have shifted from our prior estimates, as we have basically taken down our earnings expectations from the U.S. due to the recent difficulties. If you add all that together, you should end up with an additional incrementally with EBITDA for our bond analysts' of somewhere between $85 million and $90 million, over the next 2 quarters, and when you add that to the first six months of approximately $55 million that would project EBITDA in $140 million to $145 million range for the entire year. I think that's probably enough information from the prepared text standpoint, I know there's probably a fair interest in some questions out there, so I will turn it back to the operator and David and I are available to answer your any question that may be we had not covered, so can, the operator can back on please?

Very good, this is the operator. At this time, we will be taking questions from our participants and if you would like to ask a question please press 1 on your telephone keypad, if you need to withdraw a question, you can press the pound sign, but once again to ask your question please press 1. The first question comes from David Nelson with Credit Suisse, please go ahead.

First of all question, on the flu, you have still got it in a couple of houses, but does the $5.5 million write-off you took, does that account for anything any further expenses you anticipate? What we expect, a little bit of charge next quarter.

Its included in Rich's projections, it's going to affect volumes about 12 million pounds per quarter for the rest of the fiscal year, and so is about $10 million a quarter.

Okay.

We can't be certain, that it is 100% contained and in fact it probably isn't, but for sure, hopefully the peak has passed.

Okay, on the Russian ban, which has been lifted and I have seen newswires saying that there are now orders for 30,000 tons, what is your sense of, how far and how fast shipments will resume here?

We are clean on inventory, I think there is a couple of major companies that probably has inventory and people believe that the shipments will begin, like I have indicated, this week almost or next week, it will take six weeks to launch the backlog of inventory probably.

Okay, on the interest expense. When you released a release couple of weeks ago you expected that time a loss of $0.13 to $0.17 a quarter. Was that 13 to 17 related to the 21 and things got worse or is it 3 and things got better in the last couple of weeks?

That was a earnings release guide that freezed the effect of Mexican tax law changes, related to the 21 and things actually got a little worse. We ended up with more effect in the [Asian] influenza than we had originally anticipated. That was basically a difference of $0.17 and the $0.21.

EBITDA account, when you are talking about the inventories, any major shareholder should [_____] was buying some inventories? I didn't understand that.

That's actually during the quarter. It is actually that we buy the inventories back from him. If you look at the proxy disclosures you will see that he has a fairly substantial growing operation and he does most of his buying on his side in the fourth quarter of our calendar year and we actually show a liquidation of inventories as we increase our sales during that period to him, as those flocks mature and we bring them in and process them we buy them back from him So it is really a quarter cut-off issue.

Okay, and may be everybody else has got it, but on the Mexican tax situation in terms of what impact that will have on you going forward, could you run that by again please?

Yeah, the effective tax rate that we will, rather to say, the statutory tax rate is going to be 17.5% of taxable income in Mexico.

You know and it was?

It was basically 0, where you only paid taxes even if you made a distribution of earnings. So as long as you kept your earnings actively invested in the Mexico companies, there is no current period income tax.

Okay.

Now its ir-regardless of whether or not the earnings are retained in Mexico, and what we did Mexico, is come like it is in United States where we pay our statutory rate. The only benefit I referred to was that because we are an agricultural company in Mexico, they still want the incentives of the production of food to help feed the people in Mexico and so we get a 50% tax break relative to whether or whatever the statutory rate is. So statutory rate in Mexico is 35% and we pay 17.5%. There is also in the tax law, I believe it's over the next three years, a 1% reduction in the statutory rates schedule. So next calendar year 2003 it will drop down to 34%, instead of 33%. In each of those cases our effective rate will be 50% of that and I mentioned, 20% effective on our book, Mexico, taxable earnings because just like in United States you get certain items that are not allowed for taxes, that are allowed, you know, charges that the government is not likely to deduct and has the effect of pushing up the effective rate. And so that's why statutory rate looks like it will be 35%, 50% benefit, it gets you down to 17.5%, and our effective rate will be likely be above 20. Okay?

Okay, great, Thank You.

You bet.

Gentlemen good morning.

Good morning, John.

I have got a million questions, but I will not ask that many. The AI charge of $5.5 million, where did that show up in your income statement please?

It is in cost of goods sold.

Okay, where was your inventory actual number at the end of March quarter, Rich?

Consolidated inventory?

Yes please.

321.6 million.

Okay, thank you and then David, you mentioned, your inventories were clean at the end of the quarter, so I know that you are not a big exporter of leg so, I mean, we can assume that there was not a stock piling done during March because of the deterioration in price?

We did not have extra inventories at the end of the quarter. I understand some other companies did have and that is the reason it is going to take a while to clear out.

Right, but that's not true in your company's case?

We may have moved into retail and also we moved additional volumes in the Mexico during that time.

Okay, very good. I believe do you have any further comments as to the durability of the Mexican economic environment with the Argentine deterioration feeling [_____]?

My impression, John, is pretty well insulated from Argentinian difficulty when it first hit, even Mexico took somewhat of a shock, but it's a general feeling here that the economy is on a rebound and we will follow closely with U.S. recovery.

Right, I am sure currently it's doing okay. But have you changed at all capex outlook for the year in light of AI issue on the East coast?

We had already cut it back and we intend to keep it very close to depreciation levels.

Okay, and just to refresh my memory Rich, that will be in the neighborhood of what for 2002?

We originally that we will be around 60 to 65. It will probably push up closer to 65-70 in that range.

Okay. Are you guys showing your characteristic conservatism in your first quarter outlook for this year? And with all the things you have got going on especially you talked about mixed changes, the old WLR and getting rid of [_____] thank goodness, those could be pretty powerful catalysts, did those not kick in at all in the first quarter?

We got a lot of trade issues and there was negative pressure relative to the quality of U.S. products. We tried to redo that, but that takes time. The issue with Japan, anyway there is potential out there for continued difficulty in the export front and there we certainly hope that the [Asian] influenza, there was contained.

If we look in terms of, I think, in the fourth quarter guys, you have talked about sort of your market price expectations for the various parts of markets, I am assuming that there is real deterioration on leg side for the second half of the year?

Yeah, that is correct.

Would you be willing to show what your expectation is now on legs for the balance of the year?

We are little a bit more optimistic when we estimate because we believe that there will be more and there is more featuring on that product. Like quarters we got it being projected at $0.25, $0.26 range last quarter and $0.20 for this quarter. Okay?

Okay, I may be come back. Thank you.

Thank John.

This is the operator. Once again, if you would like to ask a question please press 1 and to cancel a question you can press the pound sign. One moment please. The next question we have comes from [Rhese Vehad] with Lehman Brothers, please go ahead.

Hi [Rhese]. Rhese] are you there?

RHESE VEHAD]: Yeah hi, good morning. A couple of questions. Some of them are housekeeping items, but the first item ... you mentioned that feeding ingredients cost was down in the neighborhood of 10% in the second quarter?

Yes and Mexico was 4.7 US ...

RHESE VEHAD]: 4.7 US with 10% mix?

17.5 actually in Mexico.

RHESE VEHAD]: The core was 10% and so your gross margin benefitted somewhat from that core ingredient costs.

That is correct.

RHESE VEHAD]: Then ...

These are costs going into the field and not coming out of inventory. So you may have more ...

RHESE VEHAD]: Okay. You mentioned also 10% of your feeding ingredients cost is hedged for the balance of the year?

That is correct. Yeah.

RHESE VEHAD]: Any reason why, you know, it could not be more than that or would you be considering hedging more?

We will look going forward at hedging more. The only negative to it as you realize is their securing cost in the market.

RHESE VEHAD]: Unfortunately yes.

All right and we are being advised that there is more potential for downward movement in the market then there is upward at this point.

RHESE VEHAD]: Okay, but at some point in time, is it possible that program would be hedging if the ingredients costs were more than it is in the past?

We will be as we lock in contracts upfront. We will in the future be locking in more of the grain at the same time.

RHESE VEHAD]: Okay, and your general outlook for ingredients costs for the balance of the year or for the cost that will hit your P&L is for a flat cost environment or lower cost environment?

No it is flat.

RHESE VEHAD]: Okay.

We have some more questions. The next question is from [Al Alimer with Senator Capital]. Please go ahead.

AL ALIMER]: Yeah, I was wondering if with the drop in chicken prices, if you are seeing any correction in supply in the market?

Al] there was an increase earlier in the fiscal year of about 3 and 3.5% and that has dropped back to sharply under 2. So I think there has been some moderation in supply.

AL ALIMER]: Okay, thank you.

You are welcome.

The next question comes from [Sheila Fredricks] with Advisory. Please go ahead.

SHEILA FREDRICKS]: Hi, David and Rich. I was wondering with [Asian] influenza I presume that some of your competitors were also hit and what will that do to Turkey supply for the rest of the year?

Thanks for your question. Actually, [_____] was probably hit as hard as we were. I would think that there would be some impact on the supply and therefore pricing upfront, but that is yet to be shown. There is also a potential for some impact on the broiler side because there has been ten broiler breeder folks that have been involved.

SHEILA FREDRICKS]: Are they your folks or from elsewhere?

Two of them were ours. The rest of them were others. I am not saying that, that will impact, but there is a potential for that.

SHEILA FREDRICKS]: Right. Okay thanks very much.

Thank you.

It looks like the last question we have in queue at this time ... we have another question from [Rhese Vehad] with Lehman Brothers, please go ahead.

RHESE VEHAD]: Sorry I got cut off. You mentioned there was a swing in Mexico operating income and I did not catch exactly the swing or the operating income this year versus last year.

In the last year's operating income, we had a loss of 5.2 million. This year it was a slight loss of $0.5 million.

RHESE VEHAD]: And this is all pricing largely right? And the costs?

Yeah, the costs were down in total, but on a yearly cost basis they were actually up. We have been consistently making mixed changes in Mexico including the product mix, so the costs kind of go in line with that, but most of this is on the revenue side associated with those mixed changes and then just general pricing.

RHESE VEHAD]: Pricing per unit increased in Mexico by how much?

Relative to last year about 14% up.

RHESE VEHAD]: And some of that was mixed?

Yes exactly.

RHESE VEHAD]: And then on the two flocks that are affected by the flu, what percentage of production are they?

They are very small percentage and in total the percentage affected are the commercial meat flocks of 17%, on the egg production side, to produce the pork it was 35%.

RHESE VEHAD]: Okay and then on the Russian front, some people have conjectured that there is excess frozen chicken inventory in Russia, I don't know if that makes any sense to you or not.

I was told that the probability is that those have been liquidated.

RHESE VEHAD]: Okay, so you are not a subscriber to that view.

Our guys have the opinion that the inventories in Russia have been liquidated, right?

RHESE VEHAD]: Okay and then Rich if you can just tell us what accounts receivable and accounts payable were at the end of the quarter.

On our financial statements, accounts receivable were $82.7 million and our accounts payable $141.5 million.

RHESE VEHAD]: Okay, and you mentioned that because of the sales mix, you should be expecting a million dollar a month benefit beginning in the fourth quarter, is that right?

Now that would be beginning yes, but not the full impact felt. It should be felt, however, by the first quarter of the next fiscal year.

RHESE VEHAD]: And is that million dollars, I guess, in bottom line?

Should be, it is our projection.

RHESE VEHAD]: And I heard it right, it is a million dollars a month?

Oh well that is pretax per month.

RHESE VEHAD]: And then on the cost environment, would the consolidation of the plants in Virginia, again you are expecting a million dollar benefit per month beginning in first quarter of 2003?

Pretax, yes.

RHESE VEHAD]: Terrific, that is great. And by the way I just wanted to say that your 8-K provides a wealth of information, you have definitely from a disclosure environment standpoint, you are in excessive than other companies I have seen.

Thank you. You are welcome.

Thank you. We have a question from John Bierbusse from A.G. Edwards. Please go ahead.

Rich, can you fill me in as to your pays and projection for debt reduction done by the end of the fiscal year, where do you think that will stand?

Our payment down projection?

Right.

We should generate like I said somewhere around $90 million of cash flow. I would think our goal is to get the bulk of the notes payables that we show in our balance sheet paid down by the end of the year. We have got somewhere around $50-55 million.

Got you. Okay, all right. And David you mentioned of course the breeder egg volume ... does that mean that you will be incurring some extra costs in the second half to buy birds on the outside, to supply markets, I mean what means that for you a little bit as to how you stay constant in terms of satisfying your customers there then?

We will have to buy some product in the outside. Our costs will be higher from buying where we can additional eggs and pork's to bring the volume in, but we will also be short of volume. So, fixed costs will be higher. But Rich has got plugged that down to his forward projection.

Yeah, we will do if we get some margin compression in the Turkey division and there are certain sales that we typically would make that we would not be able to make just due to ... not as plentiful supplies heading your path.

So, your live costs will go up a bit one would think, right? I think I am thinking in the correct way ...

The live costs will go up ...

And how long will take to get you back to normal on replacing the breeder egg volume and what sort of timetable would you anticipate?

We will be close to normal for the next calendar year.

So, about 8-9 more months? Okay, thanks very much guys.

Thanks John.

Gentlemen, this is the operator. We have no further questions.

Okay. We appreciate everybody's attention and thank you very much. We will talk to you next time. David you have got any comment?

No, thanks everybody.