Pilgrims Pride Corp (PPC) 2004 Q1 法說會逐字稿

(OPERATOR INSTRUCTIONS). I would now like to turn the call over to Mr. Cogdill. Please go ahead.

Good morning everybody. Thank you for joining us today to review our Pilgrim's Pride first quarter financial results for fiscal year 2004.

This morning we released our earnings and press release, along with the related financial information. On today's call we will discuss in more detail our first quarter and some of the factors that contributed to our performance. We will also update you on the progress made at Pilgrim's Pride and industry trends that we see impacting the Company in the near term.

Before I review the financial results, O.B. Goolsby, our President and COO, 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, the operator will come back on and ask for listeners to begin queuing up their 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 today's press release, as well as in our forward-looking statement disclosures contained in our forms 10-K, 10-Q, and 8-K, as filed with the Securities and Exchange Commission.

That being said, I will now turn the call over to O.B. Goolsby.

Thank you, Rick. Good morning everyone. Let me begin by saying how pleased I am with the record sales for the quarter. Our year-over-year quarterly performance reflects the November 23rd acquisition of the ConAgra chicken division, an improvement in U.S. pricing, and better operating efficiencies. Commodity prices for chicken parts were up substantially from the same quarter a year ago.

For example, when compared to the prior year's first fiscal quarter, leg quarters are up 64.7 percent, whole wings are up 93 percent, and boneless skinless breast is up 21.4 percent. The fresh chicken business was positively affected by the decreased overall meat supply and the resolution of export restrictions that affected prior year results. We expect that favorable pricing for fresh chicken will continue to benefit from the decreased meat supplies in 2004. We expect this pricing environment, coupled with improved plant efficiencies, will provide us with solid results for physical 2004.

For the first fiscal quarter, our core, pre-acquisition affected prepared foods chicken volume increased 23.1 percent compared to the same quarter last year. As we have said in the past, we expect this business will continue to grow in the range of 10 to 15 percent per year for the next few years.

Additionally, our acquisition of ConAgra's chicken division has significantly expanded and enhanced both our prepared product offering and our fresh chicken distribution capabilities. As a result, we believe we are even better positioned to benefit from the growing demand for prepared chicken products as consumers continue to prefer chicken over alternative meat sources, due to the price, convenience, and health advantages chicken has over competing meat proteins.

On a total U.S. chicken mix basis, the average sales (indiscernible) U.S. chicken was up by 13 cents a pound, or 19.5 percent, when compared with the same quarter last year, driven by both the improvement in commodity chicken prices and mix improvements.

Although Pilgrim's Pride had a very successful first quarter overall, our positive results were offset by continuing losses in our turkey business and increases in energy costs. Our turkey division reported a first quarter operating loss of 15.8 million. While this loss is in line with our expectations, it is still unacceptable. Our total energy costs in the first quarter of 2004 were up approximately 18.9 percent, or 4.7 million, compared to the same quarter in 2003. Electricity and natural gas accounted for the majority of this increase.

While we are disappointed by the results posted by our turkey business this quarter, getting the most profitable sections of the business back to pre-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.

We continue to rationalize our turkey volume, as well as our product mix. Our previously announced cutback began hitting the plants in mid-December. Additionally, we will be reducing our turkey production volumes further, which should began hitting our plants starting in June. Both of these cutbacks were implemented to reduce the products subject to commodity sales markets.

By the summer of 2004, we will have reduced our live turkey production by a total of approximately 30 percent from the 2002 plan, decreasing our projected live pounds to an annual run rate of just under 400 million pounds from approximately 565 million pounds in 2001. These cutbacks will reduce both commodity sales and operating expenses. We are hopeful that these cutbacks, along with reductions by some of our competition, will help to correct the historically low markets that we have experienced this past year by reducing the meat supply on the commodity markets.

We are also focusing our sales of turkey prepared foods behind our higher margin turkey salads and (indiscernible) breast sold under the Pilgrim's Pride brand. We are launching a Pilgrim's signature line for next year, focusing on butter basted whole birds, bone-in breast, and ready-to-cook varieties. The central theme of these new products will focus on presenting Pilgrim's as a premium brand in the marketplace.

In our Mexico operations, we had a first fiscal quarter operating loss of 5.4 million compared to an operating profit of 6.2 million in the prior year. This year's results were significantly impacted by lower chicken pricing caused by increased levels of production in Mexico and the liquidation of frozen inventories by other processors during the traditionally lucrative Christmas season. While we anticipate that our Mexico operations will improve over the remainder of the year, their results for the year will continue to be below our prior year results.

As we mentioned in this morning's press release, we are extremely pleased with the progress we are making in the integration of our newly acquired chicken division from ConAgra. We are proceeding according to our schedule, and in light of the current industry environment and projected market trends, the timing of this acquisition could not have been better. Since completing the acquisition we have received very positive feedback from our expanded base of customers and employees, who are excited about the benefits of our improved distribution capabilities, expanded prepared foods product mix, and superior operational and customer service capabilities. We will continue working towards a smooth and successful completion of the integration process, and look forward to providing additional updates about how our improved market position and larger size are driving growth and enhancing value for our shareholders.

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 the overall industry profitability. The U.S. chicken industry exports are rebounding from last year's declines. There is a potential opportunity for additional export demand as more Pacific Rim nations' poultry is banned from export. Just this past week, Thailand, the world's fourth largest exporter of chicken, announced they have confirmed an outbreak of highly pathogenic avian (ph) influenza, resulting in an immediate ban by the European Union, China, Japan, and Russia. Additionally, last week Russia banned poultry imports from Vietnam, Japan, and Korea for the same reason. Accordingly, where U.S. chicken exports declined 4/10 of a percent in 2003 from the 2002 levels, they are projected to increase approximately 5.1 percent this year, according to the National Chicken Council. And this number could grow with these viral outbreaks in the Far East.

Specifically, as an industry, we have been making good progress with our export business into Russia. The lifting of the Russian poultry ban provided an outlet for export pounds lost last year. This, coupled with the restrain in domestic production, is projected to result in a 1 percent increase in total pounds of chicken consumed domestically in 2004. This, combined with favorable overall total meat supply number, is the driving force behind the improvements in price.

On the cost of input side, our commodity grain prices are currently and projected to continue to be higher this year versus 2003. The USDA January 14 feed outlook projected the 2003 to 2004 corn prices to be in the range of $2.15 to $2.45 a bushel, compared to $2.32 for the previous year. While the current future prices are higher than those levels today, we are hopeful that a downward correction in grains will occur. Every 1 cent per bushel change in the average corn price results in an annualized benefit, or cost, of approximately $2.1 million To Pilgrim's Pride.

The USDA January 14 feed outlook projected soybean meal pricing to be $2.25 -- $225 to $245 a ton; this compares to $181.60 a ton for the previous year. Like corn, current future prices are higher than those levels today. However, unlike our optimism on corn prices, we are more skeptical about soybean meal. Declining acreage and yields, coupled with a strong seasonal demand, are contributing to the rise in soybean prices. Every $1 per ton change in the average soybean meal price results in an annualized benefit or cost of approximately 2.1 million to Pilgrim's Pride.

As I mentioned earlier, the demand for chicken in the U.S. remains solid. This demand highly favors the white meat components of the chicken. However, the dark meat sector is doing extremely well due to the export conditions mentioned previously. The USDA estimates that chicken per capita consumption in the U.S. will increase to 38 percent of the total per capita consumption of total red meat and poultry in 2004, a slight increase from 37.3 percent in 2003.

The USDA projects a 3 percent increase in the production of chicken and a 3.4 percent decline in beef production in 2004. Total red meat and poultry can poultry production is expected to decline 1/10 of 1 percent. According to USDA, beef supplies will continue to remain very tight; however, due to the two recent cases of BSE diseases in the U.S., demand for beef is uncertain.

Before I turn the call over to Rick to discuss the first quarter results in more detail, I want to emphasize that Pilgrim's Pride is well positioned in 2004. As we plan for the future, our objectives remain consistent -- 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 continue to remain focused on delivering improved growth and driving shareholder value.

With that, I would like to turn the call over to Rick Cogdill.

Thank you, O.B. Before I get started on the financial discussion, I would like to again remind you that I will be referring to several numbers\ and at times providing net amounts. As I have done in the past, I want to caution you to note that these net amounts include adjustments from a computational aspect related to both taxes and the resulting employee incentive plan accruals that are also dependent on profitability just like taxes. But for simplicity, instead of expanding every time, I will simply refer to the items as net.

Included in this year's first quarter, one thing to note is it included six weeks of operations and it also included the recently acquired ConAgra chicken division for those six weeks. This one extra week of operations on an ongoing basis results in approximately 7.9 percent effect on sales and volumes.

Included in the first year quarter of last year was a payment from the federal government to turkey producers for avian influenza losses of 14.3 million, or 8.9 million net. Also included was an estimated $3 million, or 1.8 million net, negative effects related to that avian influenza outbreak in our turkey division. And finally, included last year in the first quarter was a 1.4 million, or 0.9 million net gain attributable to a partial settlement of (indiscernible) trust lawsuits filed by the former (indiscernible) Foods, Inc.

When we file our first fiscal quarter Form 10-Q later this month, we will include certain pro forma comparative information reflecting the results of the operations for the quarter ended January 3rd, 2004, as if we had owned ConAgra's chicken division for the entire period.

Let me start now by going into the earnings per share numbers for the first quarter. As we reported this morning, we realized earnings per share of 20 cents for the quarter. This compares to a net income of 7 cents for the same period last year. For this quarter we had approximately 51.7 million shares of average outstanding common stock. On the income statement, our sales for the first fiscal quarter were 1 billion 44.4 million, compared to 627.4 million for the same period last year. This was an increase of 416.9 million, or 66.5 percent. The increase for this quarter was primarily attributable to the November 23rd acquisition of ConAgra's chicken division, and higher sales prices in the U.S., both for our prepared foods business and our fresh chicken products.

This was offset partially by lower sales prices in our turkey division, as well as our Mexico operation. Some specifics on the sales are that U.S. chicken sales were up 90.8 percent, again due primarily to the November 23rd acquisition of the ConAgra chicken division, and a 19.5 percent increase in average sales price per pound. Sales in our Mexico operation were down just under 1 percent, on 17.8 percent higher volume; however, revenue per pound was down 14.2 percent.

Operating income for the quarter was up 20.5 million to 30.8 million, compared to operating income of 10.3 million in the same period last year. Interest expense for the quarter ended January 3rd increased to 12.4 million from 9.5 million last year. This was due primarily to higher average level of outstanding debt during the quarter, and specifically, higher levels of our 9 5/8 senior unsecured notes outstanding versus the prior year, and the issuance of our 9 1/4 percent senior subordinated notes during the period. We sold an incremental $100 million of both of these facilities in contemplation of our financing for the ConAgra foods acquisition.

As a percentage of sales, however, our interest expense decreased to 1.2 percent of sales from 1.5 percent for the same period last year. Our income tax expense for the quarter was 8.3 million on net income of 18.6 million, compared to income tax expense of 0.2 million for the same period last year. We did not include the entire balance sheet in our press release; that will be filed with our 10-Q later this month, as well.

Some highlights from the balance sheet are our total debt increased slightly over $308 million to $725.7 million, from 418.6 million at the same period last year. As of January 3rd, our total debt was made up of 11.4 million in current maturities on long-term debt and 714.3 million in long-term debt.

At the end of this quarter -- we had issued during this quarter 25,443,054 shares of common shock to ConAgra Foods in connection with the acquisition previously mentioned. The balance sheet will record this at an issue price of approximately 14.05 per share before issue costs or $357.5 million.

On our statement of cash flow, some highlights from that would be depreciation and amortization for the quarter increasing 8.4 million to 25.9 million, compared to 17.5 million for the same period last year. And our capital expenditures were up 2.8 million to 20.3 million for the quarter, compared to 17.5 million in the same period last year.

I will now turn to our fiscal 2004 forecast. In our last conference call, we issued our initial forecast for fiscal 2004, on our pre-ConAgra chicken division acquisition. That forecast was for 90 to $1.10 per share on the then outstanding stock of 41.1 million shares. Today, when you add the additional 25.4 million shares of common stock we issued to ConAgra, our total outstanding stock is now 66.6 million shares. We previously announced that we expect that the ConAgra chicken division to be dilutive to earnings in the first 12 months after the acquisition, and then become accretive.

As we announced this morning, given the up improvements we have seen in the U.S. chicken business, the substantial synergies that we are identifying, and the reduced number of shares issued to ConAgra under the purchase agreement, we have now upgraded our outlook for the effects of this acquisition to accretive to earnings in fiscal 2004. In fact, for the first fiscal quarter we estimate that the former ConAgra chicken division was accretive to earnings by approximately 5 to 7 cents per share. Accordingly, for the year as a whole, we are now projecting our earnings will be up to $1.05 to $1.25 per share, on a weighted average number shares outstanding for the year of 62.647 million shares. And for the second quarter specifically, we are projecting the range of earnings to be between 15 cents and 25 cents on the current outstanding shares of 66.6 million shares.

Some of the income statement components in our projection include sales for the year in the U.S. to be from 4.6 to 4.8 billion. In Mexico, 365 to 380 million, with total sales projected to be between 5 and $5.2 billion. Our U.S. chicken volumes are projected to be approximately 4.6 billion pounds for 2004, with an annual run rate of slightly over 5 billion pounds. Mexico pounds are projected to be approximately 640 to 650 million 50 pounds, and our turkey volumes this year are projected to be right at 400 million pounds.

Our costs of sales will be in the 90 to 92 percent of net sales. As projected. Our SG&A is projected to be up on a whole dollar basis, but down on a percentage basis, in a range of 4.5 to 5.5 percent of sales, giving us a projected operating margin of 3 to 4 percent. From a component perspective, we are projecting interest expense to now be approximately 1.2 to $1.3 million per week, and our projected effective income tax rate is between 30 and 35 percent. On the statement of cash flows, our projected capital expenditures remains unchanged at 140 to $160 million, and depreciation expense is now projected to average 2.5 to 2.6 million per week.

That should give all the necessary components to analyze the quarter from a projection standpoint, and that does conclude the prepared remarks portion of our presentation. We will now turn it over to the operator to queue up questions.

(OPERATOR INSTRUCTIONS). Diane Geisler (ph), Merrill Lynch.

Just for clarification purposes, the extra week in the quarter was roughly 50 million?

Are you talking about sales?

And revenue, yes.

The revenue -- we only had six weeks of operations from ConAgra, so you (technical difficulty) can't just take the 7.9 percent times the total topline sales.

Right.

So it would be slightly less than that.

And I wanted to ask about the turkey division. I realize you have already reduced your quantities once, and now you've announced a further reduction. I guess just from a strategic point of view, it's obviously been negative, a negative drag to earnings, since basically you acquired it. And I'm just wondering why would you decide to stay with the business? What is attractive about the turkey market if it has been causing so many problems, I guess, is the question?

We believe that turkey still has a good future. We are still suffering from the effects of the recall, and certainly the market conditions of turkey in the past year have been detrimental to us. We have reduced our volume that primarily was going into the commodity channel, and we continue to focus on building the value-added side of that turkey business -- we believe it does have a strong tie-in with our chicken value-added products, and a good future. And we believe that these cutbacks will improve the bottom line along with the tight meat supply going forward.

Okay. Every indication that you have given us for fiscal '04 is that turkey will still be in a loss position. Would you expect that -- I mean, obviously you expect the initiatives that you have made that will take effect in June or bring it into profitability. But is it going to be profitable in fiscal '05?

We have not put together an outlook for fiscal '05 yet, and like we've said in the past, our projections this year are still in line with (technical difficulty) .

I'm sorry; I can hear --

Our projections for '04 are in line with what we have previously put forth.

I guess my last question, and then I think Glen had some questions -- he is on the line as well. Obviously the chicken business is much better than when we spoke the last time. And I guess the one question mark -- there are many -- but the biggest one that is standing out in my mind is grain. And from the Tyson earlier today I got the impression that high cost of grain is keeping some discipline in the industry. What is your take on grain? What is your position, I guess? And, I guess, is that enough to keep discipline in the industry, given that we have some reason to believe that, obviously, Thailand is going to be out of the market for a while. And if consumption moves from beef to chicken, what is to keep the industry from going crazy and increasing (indiscernible), etc., down the line?

Well, certainly the grain costs are a concern to us going forward. We do believe that these levels that we are anticipating for the next year should continue to keep people restrained from increasing. There are still a lot unknowns about the impact of Thailand and the impact of conversion from consumption of beef to chicken, and these higher feed costs should keep restraint within our industry.

I think with the consolidation that, obviously, we have been a participant in recently -- Tysons', I think, stated philosophy now is being short of chickens instead of long of chickens. So I think you have more concentration of the industry in responsible hands -- I guess, if you will -- that the growth should be well restrained.

Did you have anything to say publicly about your hedging position or strategy, given what we're seeing in terms of --?

Our hedging strategy remains the same as we continue to review the market and take positions as we feel warranted. Right now we are open on the market, so we are not hedging.

Lenny, are you on the line?

Yes, I am. If I could just pick up where Diane left off. I think the real concern I have is having seen this industry over the last 30 years all of a sudden see an opportunity, or they think there's one, and the supply chain winds up being longer than the demand curve. And I am going to presume that, like you said, between you and Tyson you've got a big share of this market. And hopefully that's enough to keep it controlled. But I will suggest that from an analytical point of view, I know I'm concerned about it. Diane had your earnings right on, so she obviously has got her fingers around this thing. But I want to make darn sure that at least the point gets out. Let me ask just a couple of thing, and it relates more to the marketing side of this. Are you going to abandon the Country Pride label and go just with the Pilgrim's Pride label?

No. We plan on keep being the Country Pride label, along with all the other brands that we purchased. How we utilize those in the marketplace will depend upon some of our marketing strategy with key accounts that have had a history with that brand. But we do plan on keeping that brand active.

When you said you are going to expand -- I think Tyson went through this and found it to their advantage, like a lot of other (indiscernible) food companies, that if they have a quality omnibus brand they should use it. I just want to get a feel for that, because there is obviously expense involved.

Yes.

And we are just trying, as I look down the road, what the SG&A expense might be. If you go to a unitary marketing program, what whether you save money or it costs you money. I'm not sure I'm smart enough to figure that out yet. Second, what is going to cause us to get more constructive on Mexico? What has to happen down there for this thing to turn? I guess the presumption is Brazil is going to step up and take care of the Asian expansion -- or, sorry -- lack of exports. And Brazil will step up for the expansion. Mexico gets -- basically plays no role in this, and therefore opens the market to you a little bit, or not?

From an export perspective, Mexico is generally not an exporter of product, though -- yes, I think in terms of the dynamics of the worldwide supply of poultry, that the problems you see happening in the Far East would result in more export opportunities for other countries. And what portion of that comes from Brazil or other countries would still free up opportunities as the products move around the globe for U.S. chicken to go into other sources or countries where, say, Brazil would not be going into.

You would think it is a perfect circle.

Yes.

If somebody is out of it, somebody has got to fill the void.

That's right.

Or prices move up dramatically, which is what, obviously, we would like to see.

Well, we would like to see that as well.

One final question. Have you set a schedule for your debt pay down?

No. Our position on our balance sheet remains as it has been in the past; we will use our excessive cash -- excess cash flow to pay down debt as rapidly as we can. I think if we look at our debt to cap, at last quarter was down below 50 percent, around 47.5 percent, and this quarter will be at or about the same range. So we are going to make good progress on our debt to cap, especially with the markets that we are currently seeing.

I guess the point I'm leading up to, obviously, is that I know we have got an agreement with ConAgra that says after a certain amount of time you will either buy back their stock or offer it on the market, or somehow monetize their part of the equation here. And I was just wondering, from your standpoint, it was my impression -- and this is what would like your comment on -- that if the price of the stock does well, ConAgra may -- Ken, I don't know if there's a penalty involved, I guess I could get all the papers and read it -- but is there a penalty involved if they want to come earlier? Do you extract anything from them, or that's 100 percent their call? And who pays the cost of the offering?

A couple of things in your question; let me clarify. First, there is no contemplation in the agreement that we would purchase back the stock issued to ConAgra. We have agreed to register the stock, and we have agreed to help them market the stock as they desire that that is what they want to do. The restrictions in the first 12 months are that they can't sell any stock without our consent. After that, they are restricted to 1/3 of the number of shares in each of the following three years. Did I touch on all the points of your question?

I think so, Rick. I guess what I'm trying to say is, look, the stock has done well since you issued it. And obviously the way your earnings are coming through, hopefully it may do better. And I'm just saying if this stock goes up, there is a window there. You know, it would probably be in everybody's best interest to take advantage of it. I just wonder what the options would be.

The options right now for the next 11 months would be that, obviously, (indiscernible) would have to get registered which is not registered yet. But they would have to approach us an ask us to sell some stock early, and we would take that under consideration with our advisors and whether or not we felt that was in the best interest of the shareholders, and make a determination. But we will evaluate it as the opportunity comes up.

Well, very good. We wish you very good luck in the future with your marketing programs. Thank you.

John Bierbusse, A.G. Edwards.

O.B., with respect to the turkey division, to what extent did Franconia (ph) issues and costs effect that performance in the first quarter? And came you give me an update as to how that all stands and fits together?

Certainly the recall impact was huge to the Franconia facility, and we had -- our plan on the cutbacks is to remove the commodity surplus turkey meat that we were having to market as opposed to running that through Franconia. We have reduced Franconia's operations to one shift to better fit our current demand. These cutbacks will reduce our surplus of turkey meat, which have been a drag on earnings for the past year, and feel like that these plans will benefit Franconia in the coming months as we build the business back. We have changed some of our marketing strategy and are making progress in securing the value-added sales of the turkey division, which is the key to profitability.

The 10-K, of course, mentions the projected negative impact of 20 to 25 million in the first six months. Is that still an accurate piece of information, and was roughly half of that incurred in the first quarter?

That is still an accurate piece of information. And regarding the spread, we still are sticking with that number, 20 to 25 million. And that is the effects of the recall on the profitability, not necessarily what the total profitability of that operation is.

I understand.

Yes.

But again, one might assume that roughly half that was incurred in the December quarter?

You could assume that.

Okay, fair enough. And then lastly, with respect to Mexico, to what extent does any sort of tariff changes affect that business' outlook for the rest of the fiscal year?

I think it has been a positive, you know, stabilizing factor for the Mexican import, I guess, arena. They now have a more assured structure of the meat that will be coming into that country. And right now, as I mentioned, they are already in an over-supply situation of meat. John, as you know, in following Mexico with Pilgrim's Pride over the past ten years, things change in Mexico very rapidly. And hopefully those export duties will allow that to happen in this case as well. So I think it has been a good thing for Mexico. It gives them more time to plan on what is going to happen in 2008 when those duties are gone.

Resiva Habsida (ph), Lehman Brothers.

O.B., I was wondering if you could just provide a little bit more information and detail on the integration and how you are progressing on it? You did touch on it and indicated things are progressing well. Could you give us a little but more color?

Certainly we have been extremely busy prior to the closing of the acquisition, plus the last several weeks, both identifying and implementing the synergies that we have identified. We identified a number of synergies going in in our projections, and continue to build upon those almost on a daily/weekly basis. We have had good acceptance from our customer base of the positive impact of these two companies coming together, and also had extremely good success with people issues related to the integration. And we continue to find benefits of these two companies. We have been moving raw materials around, even prior to closing, to reduce cost and to continue to look at different ways to utilize these facilities relative to customer locations and basic supplies of raw materials. And it's continued to be a very positive process thus far.

What about systems integration and sales force integration?

From a sales force standpoint, the 2 sales forces complemented one another extremely well; where we were lacking in certain market channels, they had their strengths. So we were able to basically take the 2 sales groups as a whole, merge them together, assign responsibilities, and hit the ground running in terms of our continued marketing approach into all the major channels. Systems -- I will let Rick touch on that.

The systems, obviously, is an active part of the integration, and we are actively involved in -- with our various teams and business units in putting together the execution strategy. The current plan right now is to have the divisions integrated by the end of our fiscal year. That is our current plan.

Rick, on the FY '04 forecast, are you anticipating and/or including in your forecast any types of gains -- vitamin, insurance, anything else?

The forecast that we gave is exclusive of anything like that that might come. As you know, there's still recall insurance claims outstanding, and when those are realized we will record those, and those will be incremental to these numbers.

I see. And as far as the CapEx number is concerned, it is obviously higher than last year. Any reason why the number has grown so much?

Primarily that is just the incremental addition for ConAgra.

Okay. And then lastly, revolver availability?

The revolver is basically unutilized today, except for outstanding -- letters of credit that are outstanding. I think we have about 112 million outstanding on the revolver. I don't have that final number on the turn revolver, but it's -- we have 145 million outstanding on that facility, and that's a facility of 400 million. So that's 255 million on that.

Just one last question. Are the ConAgra chicken operations benefiting from the rebound in chicken industry fundamentals just as much as (indiscernible) are, or is one rebounding faster than the other one?

No. They are being impacted positively, also, by these markets, and probably about to the same extent that the old Pilgrim's Pride operations are.

Christine Mccracken, Midwest Research.

Just looking, I guess, with regard to your conversion of these turkey operations to value-added. Your current CapEx guidance incorporates any costs that would be associated in moving over to a higher value-added portfolio?

It's really not a conversion into the higher value; we have the higher value capacity. A lot of that of that business was impacted by our recall, so what we're really doing is downsizing our turkey production to a lower base.

Okay. So on a per unit basis, looking at your commodity operations, it seems like you would have to absorb that unused fixed cost infrastructure that is being used today for commodity chicken -- turkey? Is that right?

I mean, that's true. We are already absorbing that, though, and we are actually selling commodity turkey at a net loss relative to the fixed cost. So we think we will end up being better off.

Sure. Do you anticipate closing any capacity at all in your turkey operations on the processing side?

Yes. Right now when it comes to any capacity issues we'll advise the market at the appropriate time, but we don't forecast that information.

And on energy, it seemed to be a big issue for you in the quarter. How do you manage that historically? I don't know if you've given any guidance relative to that. And in terms of your guidance, are you anticipating basically a steady-state in terms of energy costs?

Steady-state primarily with where we are. I think we do have an outlook of petroleum costs possibly going up throughout the year. We think we'll, obviously, see some pullback on some of the natural gas and items that are a little bit higher right now. It's managed through our procurement department, procurement operations, and we look at it like we do any other of our commodities that we purchase.

In terms of your Mexican operations -- and maybe a follow-up on Len's question earlier -- relative to the ban on exports of beef, are you seeing any pick up then in your chicken operations there in terms of demand? Or is that kind of too soon, is it too soon to say?

I think the Mexico environment has improved quicker than what we otherwise would have anticipated due to that ban of beef, playing a part in that role, yes.

Kenneth Zaslow, Morgan Stanley.

In terms of BSE, while most of the beef industry players remain very firm, saying they have seen no change in beef demand, can we get your impression of if you've seen any benefit in terms of chicken, or any benefit on your side in terms of people switching from beef to chicken?

I think we see, obviously, a lot of interest in our menu items. Now whether or not that is being driven by the BSE issue (technical difficulty) is another matter.

The other question I had is, in the prepared comments, one thing that was said was your outlook for corn is more optimistic, I think, than the USDA. And you think that corn prices are likely to soften over the next year. What do you base that on?

I believe that was -- if that's the way it came across, that was incorrect. What we are saying is we believe that relative to current prices, that there is some room for optimism. And the current prices, as you know, are outside of the USDA forecast.

And what do (indiscernible) base that -- just because --?

No, we think that corn has tended to go on up with the protein side. And a lot of the proteins, we think, has been run up on speculation. And we think once this works through the markets that there will be some corrections on the grain side.

Resiva Habsida, Lehman Brothers.

On the integration of ConAgra, is there any possibility of integration charges of any type?

There will be integration costs, yes. But we have not compiled or disclosed the number related to that yet.

And when do you expect to do that?

We will do it as the numbers get reported in 10-Ks and 10-Qs.

Okay. And you obviously gave out the volume numbers for 2004 for the U.S. chicken business. Do you have an expectation built in your forecast for a change in the average selling price?

I think we gave all the components regarding that. We told you what our projected revenues were going to be.

Right.

There is expectations of selling prices in our numbers, yes.

Andrew Berg (ph), Financial Management Advisers.

It was asked and answered. Thank you.

Regina Baromeo (ph), Morgan Stanley.

I was wondering with all that is happening in Southeast Asia with the avian flu, what are the precautions that the industry is taking in the United States?

Certainly, we have had a very strong bio-security protocol in the U.S. for the last several years with -- part of this was heightened by the AI outbreaks that occurred in this country over the past couple of years. So we feel like that there are certainly safeguards in our system in the U.S. to prevent the transmittal of this disease into this country.

And I think our control of the supply chain when there is any viral issues gets addressed expeditiously, whereas that might not always occur in some of these other countries. So our government oversight and testing, I think, is second to none.

Kenneth Zaslow, Morgan Stanley.

Just a quick housekeeping question. Your guidance includes the integration costs or excludes that?

It includes it.

Okay. That's what I thought. I just wanted to make sure, because another question was asked about that.

Yes. That's included in our SG&A forecast.

That was our last question.

We thank you all for listening in.

Thank you very much.