Pilgrims Pride Corp (PPC) 2003 Q4 法說會逐字稿

Good morning, everyone and welcome to the Pilgrim's Pride conference call to discuss the fiscal 2003 year-end and fourth-quarter results. With us today, we have Mr. Rick Cogdill, Executive Vice President and Chief Financial Officer of Pilgrim's Pride; and Mr. O.B. Goolsby, Chief Operating Officer and President of Pilgrim's Pride.

This call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to Mr. Cogdill. Please go, sir.

Good morning. Thank you for joining us today to review Pilgrim's Pride's fourth-quarter and fiscal 2003 financial results. This morning we released our earnings and our press release, along with related financial information. On this morning's call, we will discuss in more detail our fourth-quarter results, and some factors contributing to our performance. We will also update you on the progress made at Pilgrim's Pride and the industry trends that we see impacting the company in the near term.

Before I review the financial results, O.B. Goolsby, our President and Chief Operating Officer will give a brief overview of the quarter. And following our prepared remarks, we will be happy to entertain any questions that you may have. When we reach that point in the call, you will be instructed by the operator to begin queuing up the listeners so that we may address your questions.

Before we begin, I need to remind everyone that this conference call will contain certain forward-looking statements, including our expectations of future results, sales and cost of sales information, market dynamics, etc. Actual results might differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained in yesterday's press release, as well as in our forward-looking statement disclosures contained in our Forms 10k, 10-Q and 8-K, as filed with the Securities and Exchange Commission. That being said, I will now turn it over to O.B.

Thank you, Rick. Good morning, everyone. Let me begin by saying how pleased I am with our record sales from quarter and the fiscal year. Our year-over-year quarterly performance in the fourth quarter reflects improvements in pricing and better operating efficiencies. Commodity prices for chicken parts were up substantially from the same quarter last year. Leg quarters were up 64.5 percent over the same quarter a year ago. For the year, they remained under prior-year averages by approximately 1 percent.

Whole wings were up 14.2 percent for the quarter, while year-to-date wings were off by 5.4 percent, compared to prior-year averages. Boneless, skinless breast meat was up 22.5 percent for the quarter, and up 11.1 percent for the year. On a total U.S. chicken mix basis, the averages sales price of chicken was up by 6 cents a pound, or 8.8 percent from the same quarter last year.

Our U.S. chicken operating margins of 7.9 percent was the highest quarter we have had in four years since our quarter ended September of 1999, when we announced an operating margin of 9.1 percent. For the quarter, core prepared foods chicken volume increased 8.7 percent, compared to the same quarter last year. We expect this business to continue growing in the range of 10 to 15 percent per year for the next several years.

Our acquisition of ConAgra's chicken division will significantly expand and enhance both our prepared product offerings and our distribution capabilities. As a result, we will be even better positioned to benefit from the growing demand for prepared chicken products. We believe consumers continue to prefer chicken over alternative protein sources, and that price, convenience, and a more health-conscious society may help drive this preference.

The fresh chicken business was positively affected by the decreased overall meat supply and resolution to the export restrictions that have affected our earlier-in-the-year results. We expect favorable pricing for fresh chicken will continue to benefit from the decreased meat supply in 2004. We expect this pricing environment, coupled with improved planned efficiencies, will provide solid results for us in 2004.

Although overall, Pilgrim's Pride had a very successful fourth quarter, our positive results were significantly offset by lower sales in our turkey business. Sales in our turkey division were off 7.5 percent for the quarter, and 12.2 percent for the year, compared to prior-year amounts, due to the continued effects of our October 2002 turkey deli meat recall. This resulted in an operating loss in our turkey division of $23.7 million for the fourth physical quarter, and 73.1 million for the year -- before inclusion of the 23 million in AI recoveries, which related to this business segment.

While we're disappointed by the results posted in our turkey business this quarter, getting the most profitable sections of this business back to recall sales levels remains our primary focus. And we are taking a number of steps that we believe will allow us to achieve this goal. What we have done to address the problems in our turkey business are -- we took a leadership role in June by announcing a cutback in our turkey placements. This activity will reduce our commodity volumes by 15 percent, starting in December and carry forward through the traditional weak periods of January through April. Similar cutbacks by some of our competition should also help to prevent the historical low markets that we experienced last year. Additionally, as the Russian export issues are resolved, increased demand for dark meat should help support pricing.

We have taken on a project to streamline our turkey plants, specializing their capabilities. This project, which will be accompanied by a more-simplified sales mix, will reduce cost and improve margins. We are focusing our sales efforts of turkey prepared foods behind our high-margin turkey salads and deli breast meats, sold under the Pilgrim's Pride brand. We have several tests with national retail chains currently being conducted, and as we announced earlier this month, we hired Bob Bryant (ph) to lead our turkey division.

Bob has over 20 years of experience in the industry. His management skills and proven ability to deliver results in areas such as profitability and operational effectiveness make him a very welcome addition to our team. Under Bob's leadership, we will continue to realign our turkey product mix in favor of higher-value-added further processed foods and enhanced customer support and service capabilities. We believe that Pilgrim's Pride will become a strong brand name in the turkey business, like it is in the chicken business. And we are optimistic conditions in the industry will continue to improve in 2004.

Going forward, we expect sales of our prepared foods turkey business to reach previously-held market levels by mid-fiscal 2004. Of course, we also continue to be excited about the many strategic benefits we will realize from our acquisition of ConAgra's chicken division, which we expect to close this month. Since announcing our intention to purchase ConAgra's chicken division in June, we have established a transition team, made up of senior representatives from both Pilgrim's Pride and ConAgra, that is working hard to insure a smooth and successful integration. We are confident that once the transaction is finalized, that we will have a management team that represents some of our industry's most extensive expertise.

I would like to conclude by touching briefly on some of the industry trends that are likely to affect our performance and the overall profitability of the poultry industry in the coming year. First, we believe the U.S. chicken industry is positioned to take advantage of several factors that should continue to increase market prices and overall industry profitability. The U.S. chicken industry exports are rebounding from last year's declines. Where chicken exports declined approximately 14 percent in 2002 from the 2001 levels, they are projected to finish up approximately 5 percent this year. Looking ahead to 2004, the USDA is projecting exports to continue to increase approximately 8 percent, bringing the total projected export pounds back to approximately 2001 levels.

Specifically, as an industry, we have been making good progress with our export business into Russia and our booking orders. Several U.S. processing plants have been approved for exports and products are moving. The quota-by-country system, while less than total volume that we were exporting in 2001, does remain in place and favors U.S. suppliers -- which have a 74.4 percent share of the total. The return of these export pounds lost last year, coupled with the restrain in the domestic production, has resulted in only one-half of 1 percent increase in total pounds of chicken required to be consumed domestically in 2003. And only a projected 1 percent increase for 2004. This, coupled with favorable overall meat supply numbers, are the driving force behind the improvements we are currently seeing.

Commodity grain prices are a mixed bag. We expect to be positively impacted by falling corn prices, and negatively impacted by higher soybean meal costs. The USDA's October report projected the 2003 to 2004 corn prices to be in the range of $1.90 to $2.30 a bushel, compared to $2.32 for the previous year. While the current future prices are higher than these levels today, we believe a downward correction will occur in grains. Every one set per bushel change in the average corn price results in an annualized benefit, or cost, of approximately $1.2 million to Pilgrim's Pride.

The USDA's October report projected soybean meal pricing to be $185 to $215 a ton, compared to $181.60 for the previous year. Like corn, corn current future prices are higher than these levels today; however, unlike our optimism on grain prices, we're more skeptical about the soybean meal. The surge in the been complex has been driven by recent aggressive purchasing of beans by China. As of mid-October, China's purchases of beans has equaled last year's purchases by the mid-December. Or, stated in another way, China has purchased approximately 200 percent of its prior-year purchases, as of this time last year. Everyone one dollar-per-ton change in the average soybean meal price results in an annualized benefit, or cost, of approximately 1.2 million to Pilgrim's Pride.

As I mentioned earlier, the demand for U.S. chicken in the U.S. remains solid. This demand highly favors the white meat components of the chicken. The USDA estimates that chicken per capita consumption of the U.S. will increase to 37.7 percent of the total per capita consumption of total red meat and poultry in 2004 -- a slight increase from the 37 percent in 2003. The USDA projects a 2.1 percent increase in production of chicken, along with a 4.6 percent decline in beef production in 2004. Total red meat and poultry production is expected to decline by half a percent. According to the USDA, these supplies will continue to remain very tight over the next couple of years, as it is not biologically possible to increase supplies until at least 2006. These supply-and-demand factors are already reflected in our chicken prices, and we expect this trend to continue to create a positive pricing environment.

Before I turn the call over Rick to discuss the fourth-quarter results in more detail, I want to emphasize that Pilgrim's Pride is well-positioned heading into fiscal 2004. As we plan for the future, our objectives remain constant to increase sales of our higher-margin prepared foods products, and to improve fresh chicken and turkey profit margins, as the industry dynamics improve. Our commitment to providing our valued customers with the highest quality poultry products has never been stronger, and we will continue to remain focused on delivering improved growth and driving shareholder value. With that, I would like to turn the call over to Rick.

Thank you O.B. Before I get started on the financial numbers, I will be referring to several numbers, and at times, provide net amounts. As I have done in the past, I want to caution you that these net amounts include adjustments, from a computational aspect, relating to the employee incentive plan and retirement accrual computations that are also dependent on profitability, just like taxes. For simplicity, instead of explaining that every time, I will simply refer to these items as net.

Let's start with earnings per share for the fourth fiscal quarter. As we reported this morning, we realized earnings per share of 61 cents for the quarter ended September 27, 2003. This compares to a net loss of 8 cents per share for the same period last year. Included in this year's fourth quarter is an $11.2 million gain, or 6.3 million net, or 15 cents a share, which is attributable to the recoveries from prior year's avian influenza and partial payments from settlements of vitamin and methionine antitrust lawsuits -- and a onetime noncash tax benefit of 16.9 million, or 41 cents per share, resulting from the reversal valuation allowance on net operating losses in our Mexico operations.

Included in last year's fourth quarter is an estimated 5.3 million, or 3 million net, or 7 cents per share, of negative effects related to the March 2002 avian influenza outbreak in our turkey division; a $1.1 million gain, or 6.6 million net, or 1 cent per share, which is attributable to the partial payments from settlements of vitamin and (indiscernible) antitrust lawsuits and a noncash benefit of 2.2 million, or 5 cents per share, associated with tax law changes in Mexico.

For fiscal 2003 in ,total we earned $1.36 per share, compared to 35 cents per share for the same period last year. Again, included in the fiscal year results are very special charges and recoveries related to the avian influenza, vitamin and methionine antitrust lawsuits, and changes in the Mexican income tax laws. Let me cover some of these amounts by category.

Included in fiscal 2003 results are proceeds from the federal government to reimburse poultry producers for losses incurred due to the avian influenza, amounting to approximately 26.6 million, which is 15 million net, or 36 cents per share. An estimated 7.3 million of negative effects related to the avian influenza outbreak, which affected our first two quarters of fiscal 2003. This amount, on a net basis, was approximately 4.1 million, or 10 cents per share. Accordingly, on a combined basis, these two avian influenza effects for fiscal year 2003 would be estimated at a positive 10.9 million net, or 26 cents per share.

We also had recoveries from vitamin and methionine lawsuits of 56 million, or 31.6 million net, or 77 cents per share; and a onetime noncash benefit of 16.9 million, or 41 cents per share -- again, resulting from a valuation allowance reversal on net operating losses in our Mexican operation.

Included in fiscal 2002 results, our negative effects from the avian influenza outbreak of an estimated 26 million on a net basis -- this was approximately 14.7 million, or 36 cents per share. Accordingly, all-in-all, the cumulative avian influenza effect on our bottom line for fiscals 2002 in 2003 combined was an estimated negative $6.7 million, or 3.8 net, or 10 cents a share. Recoveries from vitamin and methionine lawsuits of 10.4 million were also included in the 2002 results, or 5.9 million net, or 14 cents per share; and a tax benefit of 11.9 million, or 29 cents per share, that arose from a change in Mexican tax laws in 2002.

Turning to the income statement, our sales for the fourth quarter were 709.5 million, compared to 639.8 million for the same period last year. This is an increase of 69.7 million, or 10.9 percent. The increase for this quarter was primarily attributable to increased production volumes and higher sales prices in the U.S., for both our prepared foods and fresh chicken products -- offset partially by lower sales prices in our turkey segment.

U.S. chicken sales were up 17.4 percent. This was due to an 8.8 percent increase in revenue per pound, and to a 7.9 percent increase in pounds produced. Turkey sales were down 7.5 percent, due to a 7.2 percent decrease in revenue per pound, and less than a 1 percent decrease in total pounds produced. Specifically, sales of our turkey prepared foods products from our plant in Franconia, Pennsylvania, which had recall last October, remained off 11.9 million, or 26.6 percent in total sales dollars; and 12.5 percent on a per-pound basis, and 16.1 percent in volume.

Sales in our Mexican operations were almost unchanged at 86.8 million, or 18.8 percent higher volume, primarily offset by a 14.5 percent decrease in revenue per pound. For the year ended September 2003, sales were 2 billion 619.3 million, compared to 2 billion 533.7 million for the same period last year. This is an increase of 85.6 million, or 3.4 percent. Again, our core prepared foods chicken division was the primary factor resulting in this sales increase. It increased 10.7 percent in volume and 10.3 percent in dollars.

U.S. chicken sales were up 5.4 percent for the year. This was due to a 2 percent increase in revenue per pound, and to 3.3 percent increase in total pounds produced. Turkey sales were down 12.2 percent, due to a 10.6 percent decrease in revenue per pound, and a 1.8 percent decrease in total pounds produced. Again, specifically, sales of turkey prepared foods products from our plant in Franconia, Pennsylvania -- again, which had the recall in October 2002, remained off $70.9 million, or 36.9 percent in total sales; and 19.7 percent on a per-pound basis, and 21.4 percent in volume. Sales in our Mexico operations for the year were up 7.9 percent in sales. This was due to a 3.7 percent decrease in revenue per pound, offset by a 12 percent increase in volume.

Our operating income for the quarter ended September 2003 was up 28.8 million to 25.7 million, compared to an operating loss of 3.3 million in the same period last year. For the year, operating income was up 112.8 percent to 63.6 million, compared to 29.9 million in the same period last year.

Our interest expense for the quarter ended September 2003 increased to 9.1 million, compared to 7.1 million last year. This is due primarily to higher average levels of outstanding debt during the quarter, and specifically higher levels of outstanding 9 and 5/8 Senior Notes, versus the prior year. We sold an incremental $100 million of these notes on August 13th, 2003 as we began aligning our capital structure for the pending ConAgra chicken division acquisition.

As a percentage of sales, our interest expense rose slightly to 1.3 percent of sales from 1.1 percent last year. For the year, interest expense was up $6 million to $38 million. Again, this is due to higher average level of outstanding debt during the period. And as a percentage of sales, interest expense grew to 1.5 percent from 1.3 percent last year.

Our income tax expense for the quarter ended September 2003 was a benefit of 8.1 million, or 8.8 million expense when excluding the onetime noncash tax benefit of 16.9 million on net income before income taxes of 16.9 million. This compares to an income tax benefit of 5 million, or a benefit of 3.8 million when excluding last year's nonrecurring benefit of 2.2 million on a net loss of 8.1 million for the prior year.

For the year ended September 2003, our income tax expense was 7.2 million, or 24.1 million. Again, when excluding the onetime noncash benefit of 16.9 million on net income before tax of 63.2 million, for an effective rate of 38.1 percent. This compares to the tax benefit of 12.4 million, or .5 million when excluding last year's nonrecurring benefit of 11.9 million on net income before taxes of 1.9 million for the prior year.

Let's turn to the balance sheet. If we look at our total assets, they remain relatively stable at 1 billion 257.5 million, versus the previous quarter -- and up slightly from 1 billion 227.9 million at the end of the prior year. Our total debt decreased $64.1 million during the quarter, and $35 million for the year, to 418.6 million from 482.8 million at the end of the prior quarter and 453.6 million at the end of the prior year.

On September 27th, 2003, our total debt was made up of 2.6 million in current maturities on long-term debt and 416 million of long-term debt. At the end of this quarter, we had approximately 345 million in available borrowing capacity under our secured term borrowing facility, and 112.9 million in capacity under our revolving credit facilities, for a total of approximately 457.9 million of financing availability. If you add that to our reported cash of 20.2 million, our total balance sheet liquidity is approximately 458.8 million. The weighted average interest rate on our debt outstanding at the end of September was 8.28 percent, up from the 6.89 (ph) percent the previous year. At the end of this quarter, 87 percent of our debt was fixed, with the remainder on a floating rate basis.

Our shareholders' equity increased $24.5 million from the prior quarter, and 52.4 million from the prior year-end to $430.2 million.

Looking at the statement of cash flows -- if we start with depreciation and amortization -- for the quarter ended September 2003, it was relatively stable, but up 1.8 million to 19.9 million, compared to 18.1 million for the same period last year. And for the year ended September, it was up 3.2 million to 74.2 million, compared to 71 million last year.

Our capital expenditures for the quarter were down 27.5 percent to 17.4 million, compared to 24 million in the same period last year. And for the 12 months ended September 2003, capital expenditures were down 33 percent to 53.6 million, compared to 80.4 million in the same period last year. These reductions reflect aggressive management of our capital expenditures this year, and also the completion of several capital projects that were in progress during 2002 and completed in the early parts of 2003.

Other changes on the statement of cash flow for the year ended September 2003, included increases in inventories by 14.1 million, or 4.3 percent -- basically, to support the 3.4 percent increase in net sales. For the fourth quarter, however, inventories actually decreased 17.4 million, or 4.7 percent.

Receivables increased 41.8 million to $127 million. The bulk of this -- 22.5 million -- is related to increases in receivables from our insurance company, related to the turkey meat recall of October 2002.

Our accounts payable and accrued expenses were up 27.1 million for the year, or 10.2 percent. As of September 27th, 2003 we had recorded 22.5 million of these receivables on our balance sheet, related to the recall. Again, that is made up of 27 million gross receivables, less advances from our insurance provider of 4 million, less our deductible of a half million dollars.

Due to the recall, we estimate that sales at Franconia plant were negatively affected by approximately $13 million, and $82 million for the quarter and for the year-to-date. And our operating margins were negatively affected by approximately 19 to $20 million for the quarter, and 65 to $70 million for the 12 months ended September 27th. The recall-related lawsuits in the fourth fiscal quarter of 2003 were higher than previously projected, due primarily to a decision by the company to liquidate frozen turkey breast meat in the commodity and school lunch markets. This meat was originally being stored for use in our turkey prepared products; however, as sales at Franconia continued to lag behind expectations, prospects of utilizing this meat for its intended purposes diminished, and it was necessary to liquidate this meat in the commodity markets in order to mitigate the losses that otherwise would materialize.

As of the end of fiscal 2003, however, the company did not have any additional amounts of excess turkey breast meat inventories on hand. As a result of these losses, the company has filed an interim claim in August of 2003 for the 9 months period -- October 2002 through June 2003 -- for 47 million of business interruption losses. The company is in the process of updating this claim through October 11, 2003, which is the one-year anniversary of the recall, and the period covered by the business interruption provisions of this policy. This expected updated claim will result in a total business interruption claim of approximately $71 million. If we aggregate the direct recall amounts previously mentioned with this business interruption cost, we expect our total claim, as of October 11, 2003, to be approximately $100 million, although its policy limits is only 50 million -- 4 million of which we have are ready received. Therefore, the continuing effects of the recall on our business after this period will not be covered by the insurance and will have a negative impact on our operations. This impact is estimated to continue until sales of prepared food turkey products from our Franconia plant have been re-established in the market to pre-recall levels, which is currently projected to be in the second half of 2004. This amount is estimated to be 20 to $25 million for the first 6 months of 2004.

Let's turn to our forecast for 2004. Our forecast for 2004 will not include any of the effects of the pending acquisition of the ConAgra chicken division. That being said, for the first quarter, specifically, we're going to give a projection range of 15 cents to 25 cents per share. And for the fiscal 2004, our earnings per share projection will be from 90 cents to $1.10.

We expect sales will increase 4 to 8 percent in the U.S. to 2 billion 350 to 2 billion 450; and 3 to 6 percent in Mexico to 380 to $390 million. Therefore, total sales are projected to be up 4 to 8 percent to 2 billion 730 to 2 billion 840.

Chicken volumes are projected to be up approximately 4 percent in the U.S. to approximately 2.55 billion pounds. Mexico pounds are projected to be up approximately 7 to 10 percent to approximately 650 to 665 million pounds. Our turkey volumes are projected to be down, as a result of our cutbacks -- approximately 11 percent to approximately 370 million pounds.

Cost of goods sold are projected to be in the 91 to 92 percent of sales range. Our SG&A is projected to remain relatively flat in the 5.2 to 5.4 percent of sales range. This will give us a projected operating margin in the 3 to 4 percent range. The component perspective -- if interest expenses continue to remain in the 700 to $800,000 per week range for the year and for the first fiscal quarter. And our projected effective income tax rate will range between 30 and 35 percent.

Our capital expenditures for fiscal 2004 is projected to be in the 80 to $100 million range at this time. With these projection amounts, this should give you all the necessary components to analyze the first fiscal quarter and the fiscal 2004 -- at least at this point.

A few words about ConAgra -- as was mentioned previously, we're not able to give guidance on ConAgra chicken division, which will be included in our results, beginning in December 2003. We will give updated guidance with these operations in our fiscal 2004 first-quarter conference call, which will be scheduled for mid-January 2004. As was noted in our proxy material that was filed on Monday, based on the formula contained in our stock purchase agreement with ConAgra Foods, and using an estimated adjusted net book value of 525.6 million from ConAgra's chicken division's August 24th, 2003 financial statements, we would issue 25,358,860 shares of common stock, using the adjusted volume weighted average price of the Class A common stock of $9, 32.67 cents from June 10th through October 24th, 2003. Based on these numbers, the number of shares being issued is down approximately 36 percent from the number of shares discussed when the deal was announced on June 9th, which was 39.4 million shares.

As we had previously announced, we expect to realize annual cost savings in excess of $50 million, resulting from this acquisition -- 30 to 40 percent of this in year one; 40 to 80 percent in year two; and 100 percent in the final year, three. These are complete years following the acquisition. These cost savings are expected to be achieved through the optimization of production and distribution facilities, the implementation of this best practices between Pilgrim's Pride and ConAgra's chicken business, including purchasing areas, production, and logistics.

As we have previously stated, we expect the transaction to be accretive when including the anticipated synergy effects in the second full year after completion of the transaction. As we announced this morning, we've mailed our proxy statement, calling for the stockholders' meeting to vote on both the combination of our Class A and Class B common stock into a single class of common stock. And to issue new shares in connection with the acquisition of the ConAgra Foods chicken division. We'll be holding this special meeting of our stockholders on Thursday, November 20, 2003 at our corporate offices in Pittsburgh, TX, at 9:00 AM Central Time. That being said, this concludes the prepared remarks section of the conference call.

I will now be happy to answer any specific questions that you may have. Operator, if you will come back on and start queuing up the calls.

(OPERATOR INSTRUCTIONS) Diane Dicler.

Rick, I think I missed the synergy -- what percentage of the synergies do you expect to book in the first year?

Again, it was 30 to 40 percent of the $50 million in that range.

I guess I'm a little curious, given that you do expect synergy savings starting in the first year. And, given what you have said about how the business has improved in the U.S., I understand turkey continues to be negative. Why you're projections show that the business is not accretive until the second full year? Could you maybe talk about that a little bit.

Well, again Diane, we are not updating any specific projection information on ConAgra, and we are really unable to give you any forward-looking information on ConAgra's specific performance. But, if you take a look at the 8-Ks that have been filed, you can see that the number of shares, just by itself, is quite dilutive in the first year. And while we do see a turnaround in the poultry markets, we don't believe, at this time, that would overcome the decretive nature in the first 12 months.

Should we be looking -- I know you have given us a full year tax rate based on your business. But, should we be looking at a higher tax rate, once the ConAgra assets are included, given that is a U.S. business?

I really don't think so. I think the 30 to 35 percent range will encompass both our business and ConAgra's. You are correct in that our Mexico operation has a lower effective tax rate, and has helped make our tax rate less, sometimes, than what it would otherwise would be. But, I think overall, we'll still coming in, in that range.

Could you talk little bit about what happened in Mexico? Why that was a negative this quarter? I had been looking for a profit. If you could just --

There was actually some unusual inter-company charges that we booked to our Mexican operation -- approximately $4 million -- having to do with prior-year services on systems conversions. And we went back and inter-company billed Mexico for that. So, there is really a $4 million out-of-period movement, if you will, that took place this quarter because of inter-company billings.

So, excluding that, you would have had a profit of about 1.4 million?

Yes, that is correct, on an operating basis.

I guess the other thing I wanted to know about was -- for next year, obviously the insurance -- you'll start receiving payments. Are there any other, sort of, USDA or the vitamin -- is there any other extraordinary item that we should think about coming in at 2004?

We do not anticipate any additional significant recoveries. There are still some amounts of recoveries that we do expect to receive in the vitamin methionine lawsuits, but nowhere near the material nature that we have seen this year. From the avian influenza perspective, none of that is projected to occur next year. The only thing that really remains outstanding on avian influenza would basically be (indiscernible) compensation. If they wanted to fund the industry and make up the shortfall between what the federal government did and the actual losses. But given the nature of the state budget problems, we don't foresee that occurring next year, if ever.

As it relates to the insurance reimbursements, you are correct. We would expect to receive some -- the final settlement of the insurance claim from the recall. Those insurance amounts are not included in the forward-looking statements that we gave, regarding the earnings per share. Approximately $24 million of the total policy limits would be eligible to be recorded as margin improvement in our operations, when it is received. So where we said we had a $71 million business interruption claim, we have got, again, the $50 million policy, which we received 4 million already, leaving the $46 million left to be received. When you take out the balance sheet recorded amounts, that leaves the balance to come in through operating margin improvement, or enhancement, to offset the losses realized this year.

Refresh my memory -- what is the balance sheet figure?

The balance sheet was, again, at 22.5 million, I believe. Let me turn to that real quick here -- 22.5 million is the net receivable balance that we have got recorded.

One final question on the timing -- your shareholders' meeting is the 20th -- what are the regulations regarding the time that must pass between the shareholder meeting and the time you issue the new shares and close the deal?

There are no requirements on that. Our anticipated timing, if everything goes as planned, will be to have the shareholder meeting on the 20th at the close of business on Friday; go through the legal exchange, if you will, of the stock -- the Class A, Class B -- for the new stock, the PPC ticker stock, and begin trading under the PPC symbol first thing in the morning on Monday, the 24th. And again, that all assumes things go as planned, and the planning is to be able to close the ConAgra acquisition over that weekend, so that on the 24th, we will begin both trading under the new ticker symbol, and also begin operating the ConAgra poultry division.

Resiva Hoffina, Lehman Brothers.

You mentioned this, Rick -- the turkey losses for the first half of fiscal '04 -- you mentioned 20 million or 22 million?

20 to 25 million. We project that to be the losses resulting from the effects of the recall. That is not necessarily indicative of what the operating income number will be. But, that will be our projected difference between what operating income would be otherwise, had that recall effects not still been going on.

The other position for actual turkey losses going forward?

We have not specifically broken that out in our guidance, but what we have said in the past remains our outlook, which is -- we expect our turkey losses, in total next year, to be at the operating level; to be about 50 percent of what they were in 2003.

And you are on track with that? Because this quarter's numbers would have suggested to me that you're actually not on track with that; that you're behind that.

Well, we believe at this point, we are on track with that, yes.

Okay. I see.

Again, we had some key business decisions that were taken during this quarter to liquidate some inventories, and again, get things in basically a cleaned-up state going into the next year. Once the turkey prepared food businesses didn't come on as planned -- so, we do think we are on track.

But the turkey supply/demand -- I think O.B. mentioned that you're seeing somewhat of encouraging trends there. I don't see much? What are you pointing to, in particular, that I am missing?

Resiva, our cutback certainly is going to improve our position, because it eliminates our surplus of breast meat, which has been sold on the commodity market well below cost. Also, even though we have not seen the reported numbers, word on the street is that our competitors are also cutting back.

But you haven't seen these numbers in USDA, because I have not seen them either.

Have not, as of yet.

The most recent USDA numbers, I believe, are still showing a slight increase projected for next year -- slightly under population growth. But, no, we have not seen that coming through the numbers yet.

The CapEx number -- it seems to be a meaningful increase from recent numbers. Can you explain that?

There is a combination of things in our CapEx number. Obviously, we have our recurring CapEx, which is in our U.S. operation maintenance level, if you will, in the 40 to $50 million range. And beyond that, we do have some incremental special CapEx related to upsizing our infrastructure for the ConAgra acquisition.

But, this does not include this 8,200? If it does not include ConAgra's own CapEx, or your CapEx for the ConAgra plants?

It does not. It only includes CapEx that we have budgeted for our existing operations, and that we know that we will be incurring relative to the ConAgra acquisition.

I have not been able to forecast your Mexico business in the December quarter, historically. Can you give us any feel for what is going on there right now, as far as pricing supply demands?

Pricing in Mexico -- even when you just for the $4 million that I mentioned to Diane previously -- has been under pressure in Mexico. They have had supply growth there causing pricing pressure as well, and that has continued into the early parts of the quarter. And we do expect the quarter to be somewhat impacted by those pricing pressures. It is uncertain at this time, exactly, to what extent that will materialize, relative to the prior year numbers. But, I guess our expectation, at this time, would be that the quarter for Mexico will not be any better than the quarter was last year.

And the supply growth is caused by -- ?

It is caused by, just in general, industry growth. You saw that our numbers for the quarter were up 18.5 percent. But, a lot of our growth is performance improvements. We have made some management changes in Mexico, where we have really improved our operating performance of our live production operation. And so, we are not placing additional product, but we are getting better livability, better feed conversion, and just better execution on the weight gain, allowing us to take a larger, more-consistent product to market -- of higher quality. And that's where a lot of our gains are coming from.

Last question -- as you come up to the end of the year on renegotiation of your food service contracts, do you expect better progress as far as reflecting current prices into your contracts? Last year was not a particularly good year, as far as food service contracts, as I understand.

That is correct. And we do anticipate having strong pricing support, due to reduced total overall meat supply, and the improvement in the export markets will put us in a position to improve pricing in most, if not all, of our market channels.

(OPERATOR INSTRUCTIONS) Ken Zaslow (ph), Morgan Stanley.

How concerned are you with the relatively-weak performance at ConAgra's chicken operation? And do you think there are things that need to be worked out? And what do you think needs to be changed? Or, what will you change, I guess?

Well, certainly we anticipate being able to take advantage of the synergies that we have projected. We also anticipate that, once we get involved in better understanding areas of opportunity, that the expertise between the two companies will be able to make improvements, certainly adopting best manufacturing practices throughout the organization -- we will be able to impact that.

Why do you think they had such weak performance?

Without having access to all of the information, it's hard, at this point, to determine why. We have identified the areas that need improvement, but as to why they were underperforming, we are not in a position to answer that question.

In the turkey division, how do your capacity utilization rates come in, in the Franconia division? Are we moving up the scale, or are we -- where are we?

Repeat that question, again. I'm sorry.

The capacity utilization -- I think there was a target, I think, by mid-next year that you would be at 80 percent pre-recall levels.

Right. We're currently at about 60 percent of pre-recall levels. And we have made good progress in upgrading the sales out of that area, and are looking for additional distribution throughout the United States. We have several new accounts onboard, several major accounts that we're working. And like Rick mentioned, we have several market tests going at this point in time. So, we are -- even though we are disappointed that we're not further along than we are -- we anticipate a positive return. We think the addition of Bob Bryant and his expertise and experience will help drive that even faster.

My final question is -- when you look at the turkey division, the prices that more-significantly impact your rebound would be the whole birds, rather than the legs and the wings? Is that fair, just because your mix is still concentrated in whole birds? Or is that not --

That is true. We're probably more dependent upon the whole birds markets than we were prior to the recall, since a larger percent of our business, at that time, was into the prepared foods items. The white meat market is still a factor, but whole birds are probably more of a factor. The inventory level that we have been able to reduce, that has been causing some of the problems, certainly will be a positive going forward. The reduction in live birds in the field is a very big positive, and that does reduce some of our pressure on the whole birds.

John Lattanzio (ph), Lattanzio Equity Partners.

Resiva asked my question on the turkey, thank you.

Diane Dicler, Merrill Lynch.

It's actually Lenny Teitelbaum. The operation was a success; I used to be Diane Dicler. The question I have is twofold. Have you not passed the large demand cycle for turkey? Didn't that end? In terms of your shipments?

In terms of frozen, that is correct. However, this year we were able to convert more of our birds into the fresh market than ever before. So, the impact of the fresh markets have not been felt in that the fresh markets are up considerably, versus last year. And they are also considerably higher than the frozen markets, so we do anticipate positive impact to the P&L, because of the increase in the amount of fresh we're able to sell this year.

That answers that. Second, I know you read the USDA prognostication for grain. Could you give me yours? Soybeans? Corn?

Well, as stated, we do feel that there is some more-downward movement in the corn market.

When you say downward, you mean below what the government is looking for? Did I interpret -- ?

Below current levels. I think, if you look at that $1.90 to 2.30, that is a -- we believe -- realistic number. But, we do still anticipate that the number will shakeout lower than 2003.

The impact that you gave on the dollar basis, that was pre-ConAgra? Or did that include ConAgra?

That is correct. That is pre-ConAgra.

How much would the impact be, plus or minus, with ConAgra?

Plus or minus, it would be in the 2 million to double range. So, somewhere between that 2 million and 2.4 million.

Of a negative hit on -- that was corn, correct?

They're both the same. Corn is on a bushel basis -- (multiple speakers)

Any other is on a tonnage. But, you are saying the two will pretty well offset each other? Is what you are trying to tell us?

There is such an unknown in that meal complex. We still believe there's some downward movement, but it could be close to a wash.

I think on the meal, especially, Lenny, once you get into better visibility of the harvest coming out of Brazil, we would anticipate some movement at that time. And right now, that is still an unknown.

Well, it's just going in the ground.

In the ground, that's right.

One final point -- let's assume that ConAgra closes when we now anticipate it will in November. Rick, at what time will you be able to at least financially quantify all of the charges associated with that consolidation? Always, you get the cost that you never can anticipate and all of that. Can you tell me when we ought to be looking at earnings that will probably be more transparent than right now? Meaning, earnings impact, etc. Are you talking at the end of the March quarter, June quarter?

I'm trying to understand, specifically, your question.

I know once you get this asset in, you're going to have to start to go work on it. O. B. has already said that, and you have said that in previous conferences. What I am trying to figure out here is that when we get your earnings statement -- thank God Diane is smart, because this thing looks like a CPA practical with all of the adjustments we make to try and get to your operating earnings. And what I want to do is to figure out when will we be able to take a number from you that we can look at without a dozen adjustments. And I know it's not going to be in the first quarter of next year, but I'm just wondering how soon after that would that come about?

It's really too early at this time to say. But, I think sometime during the first fiscal year, we ought to be able to get the clarity that you're asking for.

I would hope so too.

We would be able to give you estimates, like we said. We will give you our best estimates in our first fiscal quarter conference call. But, are there going to be items that come up that are going to be plusses or minus that we will say "this was because of the ConAgra acquisition?" I don't know what I don't know. And I do expect some of those, and when the last one occurs, we hope it is not more than the first half of the year into ConAgra. But, there will be those items that come up just because they always do.

The final share count has been completed. Do you know what the shares are there. (multiple speakers) There will be no more adjustments to that is there?

It does. It continues to change to 5 days prior to closing. So, if we close as anticipated over that weekend, then basically the Friday before the 14th would be the cutoff kind of a date.

Okay, well thank you very much.

Excuse me, this is the operator. Gentleman, we have no further questions.

Okay. Well, we appreciate everybody for dialing in, and we look forward to talking to you all later. Thank you.