Pilgrims Pride Corp (PPC) 2004 Q3 法說會逐字稿

Good morning, and welcome to the Pilgrim's Pride conference call to review the Company's third quarter financial results. At the request of Pilgrim's Pride, this conference is being recorded.

The company has asked me to point out that there are slides available for downloading from the conference call link, on the website home page of www.pilgrimspride.com. These slides will be used during the call. At the end of the call, you will be instructed of the process necessary to answer questions. On this conference call will be Mr. O.B. Goolsby, President and Chief Operating Officer of Pilgrim's Pride, and Mr. Rick Cogdill, Executive Vice President and Chief Financial Officer of Pilgrim's Pride. Beginning in the conference is Mr. Richard Cogdill. Mr. Cogdill, you may begin.

Thank you. Good morning, everyone. Thank you for joining us today to review Pilgrim's Pride third quarter, and first nine months fiscal results for fiscal 2004. The press release we issued earlier this morning, contains some highlights of our third quarter and the first nine months financial performance for fiscal 2004. On today's call, we will provide you with additional details on these results. We will also discuss our views on some of the industry trends that we expect to have an impact on our company in the near term. After our prepared remarks, we will be happy to entertain any questions that you may have. When we reach that point in the call, we will instruct the operator to begin queueing up listeners, so that we may address your questions.

Before O. B. begins, I would like it remind everybody that this conference call contains certain forward-looking statements, including our expectation of future results, sales, cost of sales information, market dynamics, et cetera. Actual results may differently materially from those projected in these forward-looking statements. Additional information concerning these factors that could cause the actual results to differ materially from those forward-looking statements, is contained in today's press release, as well as in our forward-looking statements disclosures included on Forms 10-K, 10-Q, 8-K, as filed with the SEC along with the, page one of the slide presentation. That being said, I'll now turn it over to O. B..

Thank you, Rick. Good morning, everyone. It's a pleasure to be here today to discuss our third quarter results. Our outstanding quarterly performance -- we beat our prior quarter's guidance for the quarter by 19 cents per share or approximately 34% -- was driven primarily by positive industry and consumption trends, and improved company-wide efficiencies. The benefits we are realizing from the integration of the ConAgra acquisition, continue to be ahead of our expectations.

However, before I go into more detail regarding our third quarter results, let me say a few words about the recent incident occurring at our Moorefield, West Virginia, plant. First of all, let me reassure all of our stockholders, customers, employees and the public in general, that Pilgrim's Pride Corporation takes animal welfare issues very seriously, and deeply regrets the events reported at our Moorefield, West Virginia plant last week. Our formal internal policy on animal welfare, dates back several years, and is constantly being reviewed and modified with best business practices as they develop, and in conjunction with the guidelines put forth by the National Chicken Council. For this reason alone, we are extremely disappointed that the individual who made the videotape, did not report these inappropriate activities to us when they occurred, as he was trained and told to do so last September. So that we could have taken immediate actions at that time, and stopped the abuses at that time.

As we said when we first learned of this incident, we found the actions taken by those involved, to be appalling and completely counter to our established policies, training, and procedures governing the humane treatment of poultry. Immediately upon learning of these abuses, we marshalled a team of experienced professionals to conduct a detailed investigation. While the investigation is not complete, it has already resulted in the termination of 11 employees, including 3 members of management. We have worked closely with Kentucky Fried Chicken to quickly satisfy their request to increase monitoring of our live operations at the Moorefield plant, to obtain third-party auditing, and reeducate our employees about our policies. It goes without saying that we deeply regret the fact that KFC, one of our long-standing and important customers, was unjustly attacked and criticized due to the inappropriate actions by some of our employees. KFC has been unfairly identified with this unfortunate incident, and should not be caught up in the media coverage surrounding it.

Other steps we have taken include (1) forming an independent task force to assure the adequacy of our animal welfare program, including redoubling our monitoring measures and other safeguards; (2) engaging Dr.Temple Grandin, one of the world's foremost experts in the field of animal welfare, to review our animal welfare practices at the Moorefield, West Virginia, plant; and (3) sending a formal request to the group claiming to have many hours of videotape documenting the abuses at the Moorefield plant, so that we may make every effort to ensure that all relevant and available information is reviewed and considered in our investigation. And that every employee who participated in or had knowledge of these incidents is held accountable for his or her actions. To date, however, this request has not been granted by the parties in question.

Now, turning to our third quarter results, which are on slides 3 and 4, some of the industry factors that contributed to our strong performance in the quarter, included the continued growth in the consumer demand for lean protein products, low levels of inventory in the distribution channels resulting from our industry's rationalization of chicken production last year in the U.S., which together helped to create a very favorable domestic pricing environment for all chicken product lines this quarter. On a total U.S. chicken basis, the average sales price of our U.S. chicken was up by 15 cents per pound, or 21.6%, when compared with the same quarter last year, resulting from both the improvements in chicken prices and the product mix improvements. During the past quarter, prices in domestic chicken markets improved significantly as a result of reduced total meat production, which is being driven by biological constraints and some industry rationalization of production.

In the third quarter of 2004, the USDA has projected that the total meat production will shrink by 1/10 of 1% from the same quarter a year ago. The stabilization of supply, coupled with projections that per person consumption of chicken in the U.S. will reach 100 pounds by 2010, means that Pilgrim's Pride and others in the chicken industry can anticipate more stability in our operating leverage, provided these trends continue. Poult placement, which is the primary driver for increases or decreases in production level, are expected to be 3% higher in 2004, after declining slightly in 2003. However, in 2005, the USDA is currently projecting that poult placements are expected to increase by only 8/10 of 1% over 2004 levels. It is important to point out that, due to the time period required for poults to reach productive maturity, changes in poult placements do not affect market quantities for approximately 3/4 of a year.

Inventory levels in the distribution channels are another important indicator of future market prices. Recently, the inventory levels have been quite low and are expected to remain low through the end of the year, with some seasonal building of inventories for higher export demands, which occur during the fall and winter months. June, 2004, ratios of ending inventory were 22.7%, or 7 days of production, versus a high of 32.8% in June of 2002, which was 10 days of production. On slide slide 6, commodity prices for chicken parts were up substantially when compared to the markets for the third quarter and, the first 9 months of the prior fiscal year. Leg quarters were up 58.7%, averaging 34 cents a pound for the quarter, and up 66.6%, averaging 32 cents per pound for the first 9 months. Whole wings were up 61.8%, averaging $1.12 per pound for the quarter, and up 74.1%, averaging $1.06 per pound for the first 9 months. Boneless, skinless breast meat was up 48.4%, averaging $2.38 cents per pound for the quarter, and up 34.5%, averaging $1.92 per pound for the first 9 months.

During our third fiscal quarter, whole broilers, breast meat items, and chicken wings set 10-year plus spot market price records, and currently remain at levels above the prior year. Accordingly, per pound revenue generated by spot market chicken sales, are at an all-time high,and more than offset the higher feed costs experienced, versus the same periods of the prior year. Further, certain industry information points toward exports volumes being higher than projected 2004 levels. We anticipate that the continuation of these favorable developments, along with improved plan efficiencies, will continue to positively impact our earnings through the remainder of fiscal 2004. While it is our intention to continue to expand market lines and production to fully take advantage of these market conditions for years to come, we will continue to do so in a responsible manner, and at a measured rate with changes in product demand.

While higher grain and soy-based commodity prices negatively impacted this quarter, as it has our results year to date, the current outlook for both corn and soybean meal looks encouraging, and the anticipated net decrease in these costs should have a positive impact on our margins for the remainder of 2004, and into 2005, even if chicken selling prices are to moderate. We believe that the market prices for soybean, meal and corn, the two main ingredients in chicken feed, will both move in favorable directions in the 2004-2005 seasons. The USDA is projecting a 27% decline in soybean meal price, averaging from $1 -- $185 to $215 per ton, versus the $270 per ton in the current crop year. Every $1 per ton change in average annual price for soybean meal, results in an approximate $2 million savings, or cost, to the company annually. The expected decline in soybean meal prices is due primarily to favorable crop growing conditions in the U.S. and greater planted acreage.

For corn, while currently the USDA is projecting the 2004-2005 corn price in the range of $2.30 to $2.70 per bushel, compared to the $2.40 to $2.45 average for the current season, this leaves open a range where next year's crop may be cheaper than the current crop year. Every one cent change in the average corn price results in an operating benefit or cost, of approximately 2 million to Pilgrim's Pride annually.

At this time, the company is somewhat more optimistic than most recent USDA corn outlook, due to the combination of the following factors, any of which may apply pressure to soften current market conditions: reduced export demand due to Avian Influenza in the Pacific Rim, also increased acreage planted, plus higher than expected yields. I am very pleased that the recent product and process innovations, and enhanced operation, distribution, and customer service capabilities we achieved through the ConAgra acquisition, are allowing us to take full advantage of the favorable industry conditions described above. In the third fiscal quarter of 2004, our prepared foods chicken volume increased by 17.4%, compared to the same quarter last year on a pro forma basis. As we have stated in the past, we have been able to grow our core prepared foods business over the past few years by 10 to 15% per year. And we expect to be able to maintain this very solid growth rate for the foreseeable future.

I am pleased that the acquisition of the ConAgra Chicken Division continues to be accretive to our earnings. Since the acquisition was effective in late November, we have achieved an estimated $27 million in synergies, which puts us over the half-way point of what we initially expected to achieve within the first 3 years after closing this transaction. This is an outstanding accomplishment, and a testament to the teams we have established within our company to concentrate and focus on capturing the synergies identified during our due diligence. At this time, we are fully expected to realize the entire 50 million of synergies by the end of the first quarter of 2005.

If you'll turn to slide 17 and 18, last quarter we announced plans to restructure our turkey business, in order to significantly reduce production of commodity turkey meat and strengthen our focus on the value-added turkey products. Turkey restructuring, and other related charges, negatively impacted our earnings by 52.2 million and 11.7 million, respectively, for the quarter. And our turkey segment well continue to show losses of approximately 15 million in the fourth fiscal quarter, while this restructuring continues, and its effects are fully reflected in our operating results.

While efforts are being made to sell the Virginia turkey operation as an ongoing business, as we previously stated, if this does not occur, we will cease operations at the Hinton, Virginia location around the first of October this year. We are pleased to have partially achieved this goal through the sale of the Hinton, Virginia hatchery this month. That sale takes us out of the turkey breeding and hatching operations in Virginia, leaving live grow-out and slaughter operations, yet to be sold or discontinued. As we stated last quarter, the turkey restructuring will significantly reduce our production of commodity turkey meat, and strengthen our focus on value added products. Our resulting turkey product mix will consist of 2/3 value added, and 1/3 branded fresh and frozen products, consistent with our broader strategies for both turkey and chicken.

I want to conclude my remarks today by saying that we are very encouraged by the favorable industry conditions we are seeing, as well as projections for the continued increase in demand for the kind of healthy, convenient poultry products that make up the Pilgrim's Pride family of brands. While much has been made about the Atkins diet and the effects it is having in the food consumption area, we like to emphasize that poultry products are right for virtually any dietary program, and the health and convenience attributes of poultry have made it the ideal proceed for many years of health conscious consumers. As a leading supplier of premium, value-added poultry added products, we are well positioned to capitalize on the exciting growth opportunities ahead for poultry, and continue to create value for our shareholders and employees. With that, I'd like now to turn the call over to Rick to discuss our third quarter financial results in more detail.

Thank you, O. B.. Before I get started on the financial discussions, a few general comments. First , I'd like to remind everyone that I will be referring to several numbers, and at times providing, net amounts. As I've mentioned in the pas ,when I refer to these net amounts, it includes the necessary adjustments for related tax and variable employee incentive plan and retirement accrual amounts, which are dependent upon profitability. However, for simplicity sake, I will simply refer to these adjustments collectively in the net amount.

Secondly, the third quarter of fiscal 2004, is the second full quarter which includes the results of the former ConAgra Chicken Division, which was acquired on November 23rd, 2003. Accordingly, it should be noted that, for the most part, I will be discussing the results of operations compared to a pro forma amounts for the prior year periods, which includes the full effects of that acquisition, as if it had been included in our actual results for the entire periods. Comparisons of the current period amounts to the prior period actual results, will at times also be discussed. However, if they are not done in the presentation, they are available on the slides on our website, and as separately filed with the SEC today.

Slide 10 shows our earnings per share computations, and as we reported this morning, we realized earnings per share of 15 cents per share for the quarter ended July 3rd, 2004. This compares to a pro forma net income of 8 cents per share for the same period last year, or to a 42 cents per share on an actual basis. In making the per share computations for the third fiscal quarter, we had 66,555,733 average daily number of shares outstanding, versus 41,112,679 shares in the same quarter of the prior year. Included in the third quarter and the first 9 months ended results for fiscal 2004 and 2003, are a number of nonrecurring and other adjusting items, and slides 12 and 13 of the presentation outline and summarize these items. Slide 12 shows that's included in the third quarter of this fiscal year, 2 such items. First, is the $52 million, 32.4 million net, or 49 cents per share, restructuring charge related to the previously announced sale or closure of the company's Hinton, Virginia, turkey operation.

And secondly, there is 11.7 million, or 7.3 million net, or 11 cents per share of other charges also related to the sale or closure of this Hinton, Virginia, operation. These charges primarily related to the carrying value of inventory items and the accrual of anticipated costs related to the restructuring. If we look at last year's third quarter results, there's also 2 such items. First, there's a $17.7 million, or 10.3 million net, for 25 cents a share gain, attributable to partial settlements of the vitamin and methionine anti-trust lawsuits. Secondly, this slide also shows the estimate of the negative effects related to the October, 2002, turkey meat recall of $15 million, or $8.5 million net, or 20 cents per share.

If we turn back to slide 10, again, for the 9 months ended July 3rd, 2004, we earned 86 cents a share, compared to 75 cents per share for the same period last year. On a pro forma basis, we would have earned $1 per share for the 9 months ended July 3rd, 2004, compared to a loss of 2 cents per share for the same period last year. For the 9 month period, in making the per share computations, the daily average number of shares outstanding for fiscal 2004, was 61,376,254 shares, compared to the same number from the prior year quarter of 41,112, 679.

Slide 13 shows the nonrecurring items for the 9 months of the current year, and they include 3 items. First, the same 63.9 million, or 39.7 million net, or 65 cent per share of charges related to the turkey restructuring, and other related charges as I mentioned in the quarter. Secondly, nonrecurring recoveries from the vitamin and methionine anti-trust lawsuits totaling $1 million, or 1 cents per share. And third, this slide also shows the Company's estimate of the negative effects related to the October 2002 turkey meat recall, of $20 million, which was 11.2 million net, or 18 cents a share.

If we look at last year's 9 months results, there were 4 such unusual items. The first were payments received from the federal government to turkey producers for the Avian Influenza losses of 16.1 million, which was 10.1 million net, or 24 cents per share. Second, there was approximately 7.3 million, for 4.6 million net, or 11 cents per share of negative effects related to the March, 2002, Avian Influenza outbreak in our eastern turkey division. And third, there was nonrecurring recoveries from the vitamin and methionine lawsuits totaling 55.2 million , 33 million net, or 82 cents a share. And finally, this slide also shows the Company's estimate of the negative effects related to the October, 2002, turkey meat recall of $22 .5 million, 12.6 million net, or 30 cents a share.

Moving on to the income statement, slide 14, shows that our sales for the third fiscal quarter were 1,448 million, compared to pro forma sales of 1,251.2 million , for the same period last year. This is an increase of 196.8 million, or 15.7%. And the increase for this quarter was primarily attributable to a 22.5% higher average sales price for chicken in the United States. Some of the specifics of the sales increases are as follows. Pro forma U.S. chicken sales were up 24. 8 %, with U.S. chicken pounds produced only being 1.9%.

Turkey sales were down 8.3% to 16.8 -- due to a 16.8% decrease in volume and partially offset by a 10.2% increase in revenue per pound. And our sales in our Mexico operation were up 2.4%, on 8.1% more chicken pounds produced. As shown on slide 15, sales for the 9 months ended July 3rd, 2004, were 3,877.3 million, compared to 1,909.9 million for the same period last year. Again, on a pro forma basis, sales increased 687.3 million, or 18.8%, to 4,338.1 million from 3,650.7 million. The increases for this period was primarily attributable to a 21.8% higher average sales price for chicken in the U.S.

Some of the specifics of the 9 month period as follows. Pro forma chicken sales were up 27.6% on 4.8% increase in pounds produced. Turkey sales, again, were down 6.7%, due to an 11.3% decrease in volume, partially offset by a 5.2 increase in revenue per pound. Sales in our Mexico operation were essentially flat, on approximately 8% increase in pounds produced.

Slides 16 through 19 summarize our operating income, along with other information. If we look at slide 16, operating income for the quarter ended July 3rd, 2004, was up $11 million to 37.1 million, compared to operating income of 26.1 million in the same period last year. Excluding the effects of the turkey restructuring, and other related charges, operating income increased 74.9 million to $101 million. Slide 19 shows that on a pro forma basis, our third quarter operating income was 18 -- up 18.2 million from the prior year's 18.9 million, to a total of 37.1 million for the quarter ended July 3rd, 2004. Again, excluding the effects of this quarter's turkey structuring, and other related charges, pro forma operating income increased 82.1 million to $101 million.

Turning back again for a minute to slide 16, operating income for the 9 months ended July 3rd, 2004, was up $91.6 million, to 129.5 million, compared to 37.9 million for the same period last year. Excluding the effects of this quarter's turkey restructuring and other related charges, operating income for the first 9 months increased to 155.5 million, to 193.4 million. On a pro forma basis, again on slide 19, it shows that operating income for the 9 months ended July 3rd, 2004, was up 140.4 million to 153.1 million, compared to 12.7 million for the same period last year. And again, excluding the effects of this quarter's turkey restructuring and other related charges, pro forma operating income increased 204.3 million, to $217 million. Between those 2 slides, on slide 17 and 18, is a presentation which shows the detail behind the turkey restructuring and other related charges, and how they impacted our income statements for the third quarter and the 9 months ended July 3rd, 2004.

Moving on to interest expense for the quarter ended July 3rd, it increased $14.7 million, compared to 9.4 million last year. Excuse me, increased to 14.7 compared to 9.4. And this is due primarily to higher average outstanding debt during the quarter. However, as a percentage of sales, interest expense decreased to 1% from 1.4% last year. On a pro forma basis, interest expense for the quarter was down 3.6 million, versus the prior year amount of 18.3 million.

For the 9 month period ended July 3, 2004, interest expense was up 11.9 million to 40.7 million, from the 28.8 million in the same period last year, again, due to the higher average level of debt outstanding during the 9 months. And again, as a percentage of sales, interest expense decreased to 1% from 1.5% last year. The pro forma interest expense numbers for the 9 months ended July 3rd, 2004, decreased 8.5 million to 45 million, from the 53.5 million in the same period last year and again, as a percentage of pro forma sales, it would have been down to 1% compared to 1.5% in the last year.

Our income tax expense for the quarter ended July 3rd, was 12.3 million, on net income before tax taxes of 22.1 million. This compares to income tax expense of 7.7 million, on net income before tax, it's 25.2 million for the same period of the prior year. On a pro forma basis, income tax expense for the prior year's quarter, ended June 28th, 2003, was 3.4 million, on pro forma net income of 9.1 million. Income tax expense for the 9 months ended July 3rd, 2004, was 34.2 million, on net income before tax of 87.2 million, and this compared to 15.3 million tax expense on net income before tax of 46.3 million in the same period of the prior year . The pro forma income tax expenses for the nine months ended July 3rd, 2004, was 42.4 million, on pro forma net income before tax of 108.7. That compared to a benefit of $800,000 on pro forma net loss before taxes, of $2 million in the prior year.

Turning to the balance sheet, the total debt decreased $52.1 million during the quarter, from 599.5 million -- excuse me, to 599.5 -- from the 651.6 million at the end of the prior fiscal quarter. At July 3rd, 2004, our total outstanding debt was made up of 8.2 million in current maturities on long-term debt, and 591.3 million in long-term debt. We current maintain 180 million in revolving credit facilities, 30 million of which relates to our Mexico operation, and 500 million in secured revolving term facility.

The debt side of our capital structure has changed significantly as a result of the ConAgra Chicken Division acquisition, and various debt amendments and extensions completed throughout the year. Slides 24 and 25 show a comparison of our current debt agreements compared to those existing at the end of the prior fiscal year.

As of the end of the fiscal quarter, we had approximately 417.1 million available under our secured term borrowing facility, and 131.5 million of capacity under our revolving facilities, for a total availability of approximately $548.6 million. Adding that to the reported cash of $36.8 million, our total liquidity at the end of the quarter was approximately $585.4 million. This is up from the amount we had before the ConAgra acquisition, which was 474.5 million at the end of our prior fiscal year.

The weighted average interest rate on our debt outstanding at the end of the quarter, was 7.9%, compared to 7.5% for the previous quarter. And at the end of this quarter, 79.7% of the this debt is on a fixed rate basis, with the remainder on floating instruments.

Our net worth increased 9.7 million during the quarter, and 403.2 million from the end of fiscal 2003, to $849.9 million. This was due to the results of operation, and the issuance of equity in connection with the ConAgra Chicken Division acquisition.

Our statement of cash flows, some highlights from that, on slides 21 through 24. There's various amounts of detail, but depreciation and amortization for the quarter ended July 3rd, 2004, increased $9 million to $27.9 million. This compared to 18.9 million for the same period last year, and for the 9 months ended July 3rd, 2004, depreciation and amortization was 86.9 million, compared to 54.3 million in the same period. On a pro forma basis, depreciation and amortization would have decreased $8 million for the quarter ended July 3rd, 2004, from 35.9 million, to pro forma depreciation in the same period last year. For the 9 months ended July 3rd, 2004, pro forma depreciation and amortization was 95.4 million, compared to 102 million for the same period in the prior year.

Slide 26 shows a comparative on capital expenditures which increased 8.8 million to 9 -- 19.9 million for the quarter, compared to 11.11 million in the same period last year. And for the 9 months ended July 3rd, 2004, our capital expenditures were up 23.8 million, to 59.9 million, compared to 36.1 million for the same period last year.

On a pro forma basis, CapEx was down 3.6 million for the quarter, from 23.5 million in the same period last year. And for the 9 months ended July 3rd, 2004, capital expenditures were up 1.2 million to 63.9 million, compared to the 62.7 million incurred in the same period last year.

During fiscal year 2004, we have collected 12.3 million from our insurance company against receivables that we had recorded in October 2002's product recall claim. And as of July 3rd, 2004, the remaining insurance receivable balance on our books remains at $10.2 million.

The last slide on our -- the last slide on the website, shows a summary of our credit ratios, and certain other information. This is slide 27. Pointing out a few items on the ratio page, we show that our EBITDA interest coverage improved to 4.24 times in the third quarter of fiscal '04, and to 5.2 times for the first 9 months of the fiscal year. Again, if we were to exclude the effects of this quarter's turkey restructuring and other related charges, however, the EBITDA interest coverage improved to 7.39 times in the third quarter of fiscal '04, and to 6.34 times for the first 9 months of the fiscal year. Our total debt divided by our pro forma LTM EBITDA, now stands at 1.29 times, and our total debt to capitalization is down to 41.4%.

I'll now turn to our fiscal 2004 forecast, updating our fourth quarter earnings forecast. We are pleased that ConAgra Chicken Division acquisition continues to be accretive to earnings for the third quarter of fiscal 2004, and as we announced this morning, the strength continues to be observed in the U.S. chicken business, and the rapid realization of the synergies connected with the acquisition, is causing our financial performance to be stronger than what we had previously projected. Accordingly, we are pleased to, again this quarter, increase our projection for our fourth fiscal quarter earnings, to a range of 70 cents to 80 cents per share. This will bring our full 2004 year earnings to $1.60 to $.171 per share, on a weighted average number of shares projected outstanding of 62,646,692. This is an improvement over our prior quarter's expected 2004 earnings of 96 cents to $1.16.

If we were to exclude the effect of the turkey division restructuring, estimated at $63.9 million in fiscal 2004, we project our full year earnings for fiscal 2004 to now be $2.23 to $2.34, up from our prior quarter's projection and guidance of $1.65 to $1.85. Some of the details making up that projection, are there are sales are predicted to increase this year in the U.S. to approximately $5 billion. Mexico will be in the 370 to 380 million range. Therefore, total projected sales will be between 5.3 and 5.4 billion. Our U.S. chicken volumes are projected to be in the range of 5.9 to 5 billion pounds. That would equate to a 5.3 to 5.4 billion pound basis on a pro forma basis. And Mexico pounds are projected to be approximately 635 to 650 million pounds.

Our cost of sales will be in the range of 88% to 90% of sales. SG&A will be approximately 5.1% of net sales. This will leave us a projected operating margin in the range of 3.4 to 4.2%. Interest expense is projected to be down in the fourth fiscal quarter, in the range of approximately $1 million per week total. And our projected effective tax rate for the year, will be in the 30 to 35% range. Our capital expenditures are again being lowered -- projected capital expenditures are again being lowered this quarter. We're lowering it by another $20 million, for a total for the year in the range of 85 to $95 million. Depreciation expense is currently running approximately $2.2 million per week, and I think with all those various pieces, that should give you the components necessary to analyze the cash flow on the operations for the fourth fiscal quarter, and for the projection for the entire fiscal year.

That concludes the prepared remarks portion of this conference call. We'll now be happy to answer any specific questions you may have. And we ask that the operator come back on and begin queueing up calls.

At this time, I would like to remind everyone, if you would like it ask a question, please press star, then the number 1, on your telephone keypad. If I would like to withdraw your question, press star, then the number 2 on your telephone keypad. We will pause for a moment to compile the Q and A roster. Your first question comes from David Nelson with Credit Suisse First Boston.

Good morning, David.

On -- you reminded us of your sensitivity to corn prices. Could you remind me again of soybean meal?

Yeah, both soybean meal and per bushel costs are -- they're very similar, $1 per ton change in soybean meal, is approximately $2 million annualized. And 1 cent per bushel on corn is about the same.

Right.

A billion dollars.

And then on -- why is CapEx coming down?

You know, our CapEx plan that we had put together at the beginning of the year, and then aggregating that with the ConAgra projected CapEx needs, is how we initially came up with our numbers. Obviously, we've been heads down, concentrating on integrating the businesses, and being very careful on the CapEx projects that we're approving, making sure that we're not spending money in one area, that we could avoid through our synergies, in our integration efforts around the company. So CapEx projects in general, are really just slower developing than what we had originally forecast, and most of those projects will still be on the the table and will be moved into the subsequent fiscal year.

Great. Thank you very much.

You bet.

Your next question comes from Reza Vahabzadeh with Lehman Brothers.

Good morning, O. B. and Rick.

Good morning.

O. B. talked about poult placements, and it seems like the pace is increasing the balance of this calendar year, but then slowing down in calendar '05. I mean, is -- how reliable has this data historically been, and does the USDA or anybody else actually have, you know, high degree of confidence on poult placements that far out in calendar '05?

Reza, I can't comment to the past accuracy of that. If we look back to 2003, it was relatively accurate, compared to what they had projected. If you look at current placements, we are still, the month of June was at 97% of the year ago. Then you if go back, the last 3 prior to that, we still have placement numbers that support rationalization within our industry. So I feel like it, certainly for the next 6 months, we have a good handle on supply based on these placements. Past that, it is an educated guess.

Right. Do you have much visibility on your competitor's expansion plans, if any?

Only those that have been announced publicly.

Okay.

And, you know, they appear to be somewhat moderate and, you know, just do not see the industry overreacting to these margins.

Right. Now, in the prepared foods business, the volume, I think you said, was up 17%. That seems a little higher than the normalized rate. Is that accurate, or are we at a higher rate of growth now?

Well, certainly we have been able, due to the demand, take advantage of that increased demand, and we had the capacity to be able to convert some products from commodity, into value added, so yes, I think that is accurate and consistent with what we've seen for years, you know, as far as demand for these products go.

All right.

We also, just to jump in here, we also had on our plans some, you know, longer-terms expansion needs in our prepared foods arena, and, you know, one of the things we've been able to do with the ConAgra acquisition is reshuffle products between plants and increase our through-put of the total prepared capacity.

Right. Which actually gets into my next question, Rick, which is, do have you an early read on your CapEx for fiscal '04?

You know, I think that we're still going to probably stay with the range that we put out previously, but we are in the capital budgeting program right now, as we speak. But I would say it's in the 150 to 175 million range, which I think, is in the same general range that we put forward --

Right --

-- usually, is about where we'll stay.

And your capacity restraints, is that on the prepared side, primarily, as opposed to the live chicken side?

The restraints are primarily on the live chicken side.

Okay.

We continue to look for ways to increase through-put and expand our further processing capabilities.

Got it. Thank you, both.

Thanks, Reza.

As a reminder, if you would like to ask a question, please press star, then the number 1, on your telephone keypad. To withdraw your question, press star, then the number 2. Your next question comes from Diane Geissler with Merrill Lynch.

Good morning.

Good morning, Diane.

I have a question for you about -- you talked about the sensitivity to the grain side, and I'm assuming that this quarter, you were unhedged on grain, is that correct?

That is correct, yes.

What is the sensitivity on the pricing side? Because we've seen pricing come off in the last few weeks. Maybe you could talk a little bit about the dynamic, you know, what's going on in the fresh commodity market and why, if supply remains so tight, why are we seeing pricing come down, and then also just on your P&L, what's the sensitivity to pricing?

Well, certainly if you look at the projections from USDA, the acreage, the yield, all indicate favorable conditions.

I'm really talking on poultry pricing. Why has poultry pricing come down, in the last few weeks, if supply is as tight as you say it is?

Well, we have had over the last several months, a big run up in prices, certainly has been very strong demand. There were several fast food chains that were planning promotions, and many of the suppliers to that was heavily involved in securing product and building those inventories. Generally, after the Fourth of July, you see a small slow down in consumption, and we think that this is just an adjusting, back to a more normalized position, not a long-term trend of reduction in demand. Demand seems to have picked back up in the last few days.

Okay. And what's the sensitivity, Rick? Maybe you could -- I know you've given that number before, but just with the ConAgra assets.

Actually, we don't tend to give that number. You know, I mean, if you just looked at commodity prices, it would depend on which of those products were floating on market prices, as opposed to under contract. And as we've talked in the past, most of our prepared food business for example, is under fixed price contracts. So, I don't know. O. B. would probably have somewhere -- 30 to 40% of our total product mix, at most, that would be floating based on commodity prices. And again, in terms -- that's volume as opposed to sales dollars, because leg quarters, for example, would be the major component that we would have that would totally float with market on a more readily basis that any other product.

All right. Okay. And on the turkey wind down, et cetera, I had heard, or had read somewhere, that there was the possibility of actually selling -- I know you sold your hatcheries, but the actual selling the slaughter facilities -- is that --

That is -- I mean, that is true. We do have an active marketing of that operation that's underway, you know, currently, and has been underway since we announced the restructuring last quarter. And they've talked -- they have talked, and are talking to various parties, regarding the potential sale of that facility. So, we're working on 2 different developments right now, in terms of, one, a potential sale and two, the winding down and ceasing operations at the end of September. So, we're on a dual path right now, as we speak.

Should we expect any charges in the fourth quarter, with regard to the turkey ops?

There will be -- there will be more of the unfavorable events rolling through the operations, but not specifically in terms of the restructuring charges. We believe we've captured all of those this quarter. The number O. B. mentioned, does include some winding down of the inventories and disposition of inventories, you know, that were affected by that Hinton operation. I think he mentioned $15 million projected losses in the turkey division next year and -- or next quarter, excuse me, and as you recall, we projected our total to be in the range of $75 million in terms of restructuring, and other charges related to that wind down.

Right.

Basically, those numbers are still in alignment, and some of that goes through operations as inventory is disposed of, and others we were able to take as one-time charge, as we showed in today's press release. That's why you had the bifurcation in the financial statement presentation today. Where you had the 52.2 million shown as a restructuring charge, but then embedded in cost of goods sold was the $11 million number, also related to that winding down activity.

So the 15 million, we're going to see in the cost of goods, sold rather than as a separate?

Yeah that, should be in the cost of goods sold. That will be a combination of the ongoing operations from New Oxford and Franconia, but then also the remaining portions of the winding down activity of the Hinton operation.

On the -- can you just clarify on the shelf registration, I know you and I spoke after the document was filed, that you don't have any current plans to phase that or issue equity, and have you not heard specifically from ConAgra that they want to go early on their shares, is this --

Well, we --

Is this the best understanding we should make of the shelf?

Yeah, I mean, obviously we don't make any statements regarding our intentions until there's something to announce to the market. And as it pertains to ConAgra, -- with them regarding, you know, winding up some of the purchase commitments, and items that were identified in our purchase agreement and, you know, once we get past those issues, you know, we'll talk about what the plans are, and what's in the best interest of our stockholders regarding the monetization of the number of shares that they hold.

And as you saw in that shelf we filed, we not only replenished our shelf that we had maintained in the past, but we also registered their shares, so that we got that obligation out of the way. As you recall, in our purchase obligation with ConAgra, we had one year from the date of acquisition to get those shares registered.

Right. But as of today, they haven't come to you and said, we want to -- we want to market our shares early?

You know, again, we talked to them. There's nothing -- there's nothing to report to the market at this point. And when and if that happens, we'll be sure to do it.

Okay. I think Len, are you on the line?

Yeah. Good morning. Just two very quick questions. If nothing comes back from ConAgra, 8 million shares should hit the market in November, is that correct? Don't --

Again, I can't speak to ConAgra. It is true that, you know, somewhere around 8.5 million shares could be available to be sold in the market at the end of November.

Okay.

And whether their intent it is to hold on to those shares, or to dispose of those shares, went we get to that point, you know, that's really a ConAgra issue, and we'll be talking to them. Like we said, because we want to make sure that they're effectively monitized in a responsible manner into the market, and we've committed, in our purchase agreement, to help them do that.

And it's also my understanding, if they came to you and said, we want to go with the full load, you probably -- you would not object to that, is that correct, is that a fair characterization? You would rather take it one big swipe, than bleed it out over 3 times?

That is not a fair characterization. We will review the entire desires and again, we'll take a look at what the projected market impact would be, and whether or not the market could absorb that kind of load, without it hurting our other shareholders.

All right. Just in terms of -- then I got to jump here, but just in terms of margins, I mean, you've painted a very constructive picture between now and the end of the year-end, if I'm not mistaken, said into '05, that you see discipline in the market and lower grain prices. I mean, I got Sanderson Farms has got a new plant coming on. You don't see that as an impact until '06, I'm going to presume, in order to make that statement. Is that correct?

That's correct.

And, all right. I'll follow up off line with the rest of mine. Thank you very much.

You bet.

At this time there are no further questions. Gentlemen, are there any closing remarks?

No, we'll just -- we appreciate everybody's attention, and we're very pleased with this quarter, that it -- as O. B. mentioned, was able to come out so strong and ahead of our previous issued guidance. And we look forward to talking to you all at the end of our fiscal year. Thank you.

Thank you. This concludes today's Pilgrim's Pride conference call. You may now disconnect.