Pilgrims Pride Corp (PPC) 2009 Q4 法說會逐字稿

Good morning and welcome to the Pilgrim's Pride conference call to review the Company's financial results for the quarter ended December 7, 2009. At the Company's request, today's conference is being recorded. Please note that the slides referenced during today's call are available for downloading from the Investor Relations section of the Company's website at www.pilgrimspride.com.

Beginning today's call with be Gary Rhodes, Vice President of Corporate Communications and Investor Relations for Pilgrim's Pride.

Good morning, and thank you for joining us today as we review our financial results for the quarter ended December 27th, 2009.

We're referring to this as a transition quarter because we have changed our fiscal year-end from the Saturday nearest September 30th of each year to the last Sunday in December of each year. This change aligns our reporting cycle with JBS USA's fiscal calendar. So, we are now operating on a 52, 53 week fiscal year that ends on the Sunday falling on or before December 31st.

Earlier today, we issued a press release that provides an overview of our financial performance for the period. If you have not already seen this release, a copy is available on our website along with other downloadable financial data. You can also find the slides that we refer to during the call. These slides contain reconciliations of non-GAAP financial measures to their corresponding GAAP-based measures.

Joining me on today's call are Don Jackson, President and Chief Executive Officer, and Gary Tucker, Principal Financial Officer. On today's call, we'll review our financial results for the quarter and the key factors affecting our performance. For those of you who are new to Pilgrim's Pride, we will also outline some of the significant changes made during our 13-month reorganization. Gary will provide an update on our financial position and capital structure post-emergence. After our prepared remarks, we will be happy to take any questions that you may have.

Before I turn the call over to Don, I'll remind everyone that today's call contains certain forward-looking statements. These include our expectations of future results, sales and cost of sales information, and market dynamics. 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 and risk factor disclosures contained in our forms 10-K, 10-Q, and 8-K as filed with the SEC.

I will now turn the call over to Don to begin our prepared remarks.

Thanks, Gary, and good morning, everyone. It is a pleasure to welcome everyone today to our first conference call as the new Pilgrim's Pride. Over the past 14 months, we have made significant improvements across our organization aimed at positioning Pilgrim's Pride to respond to the needs of the market.

Those changes have touched every aspect of our business from supply chain and operations to sales and marketing. Thanks to the commitment and support of our 41,000 employees and 4,500 growers, Pilgrim's Pride today is a stronger, leaner Company with a growing customer base, improved capital structure, and a culture built on results and accountability.

Let's begin with a quick overview of the changes. Today, Pilgrim's Pride has a new management team, an improved product mix with less exposure to commodity chicken, growing volume in our core retail and food service businesses, improved operational efficiency from labor, yield, and throughput, lower SG&A as a result of reduced headcount, outside services, and other administrative expenses, and a much stronger financial position and improved balance sheet.

Today, our business strategy is clear. We are squarely focused on being a market driven Company that produces to the needs of the market and our customers. We have reduced our production of commodity chicken, and are targeting higher margin products. Our core retail and food service demand is driving supply. Our supply chain is focused on optimizing production, while our operations group is aimed at driving performance through safety, quality, and productivity.

All of this represents a fundamental shift in the way Pilgrim's Pride operates. Customer demand now drives all of our production planning rather than the other way around. The sales team established the forecasted demand, working closely with operations and supply chain, to produce what our customers want in the most effective manner.

While I am pleased with the progress we have made, we recognize that there is much more work to be done in positioning Pilgrim's Pride for sustained, profitable growth. We will continue to focus on opportunities for improving our product mix, expanding our customer base, and operating more efficiently.

I'll give you an example. Our sales team has earned back nearly all of the national account and industrial prepared foods business that we lost just prior to or after we entered bankruptcy. In fact, by the end of this quarter I believe we will exceed our goal and regain more than we had lost during that time.

The ability to recapture all of this business has been a critical step in reshaping the Company. It is a testament to the hard work and commitment of everyone in our organization, from our sales team to the operations group to the folks who work in our plants.

And we are just getting started. We intend to grow our volume and share in every channel as we capitalize on our strategic advantages and strong financial position. Today, we are focused on selling the whole bird and improving what I would call the mix within the mix, or moving products up the value chain.

One result of our shift to being a market driven company is that we have been adjusting production capacity primarily in commodity chicken. The three plants that we closed last May, El Dorado, Arkansas, Douglas, Georgia, and Farmerville, Louisiana, represented cut of roughly 10%.

Well, let me make it clear that Pilgrim's Pride is finished cutting production. There are no plans to close any additional plants. And, in fact, we have made some modest production increases over the past few months in line with the additional business we have won. So, we will match our production to demand in the year ahead. We are currently short supply relative to demand and, as such, we are considering reopening one of the idle facilities before year-end and, again, driven by forecasted demand.

From a broader perspective, the US chicken industry appears poised for improvement in 2010. We're coming off the first year-over-year decline in broiler production since the early 1970s. In any other year, a 4% reduction in supply of chicken would have led to a significant increase in market pricing. But, for the most part of 2009, we just didn't see any real impact on pricing because of the weak economy and competition from beef and pork.

Although we have seen a slight increase in egg sets and chick placements over the past two months, overall supply continues to be well below the pre-cutback levels of 2008 and '09. For the quarter, corn averaged $3.86 per bushel while soybean meal averaged $306.00 per ton. Our total US feed ingredient costs in the quarter declined approximately $120 million, or 20%, when compared to the same period a year ago. Our live costs are among the best in the industry, but we need to continue focusing on best practices to achieve the best possible live performance from our flocks and increase efficiencies in our plants.

On the export front, demand remained relatively strong throughout 2009. For the quarter ended December, industry exports are expected to average approximately 1.7 billion pounds, down about 5% from 2008.

As all of you know, Russia is one of the largest export markets for US chicken. There has been a lot of concern recently about Russia's decision to ban US chicken due to chlorine issues. We are monitoring the situation and remain cautiously optimistic that a resolution can be reached in the near term. We did a good job of reducing our inventories towards the end of calendar 2009, and today our export inventories are at manageable levels.

But, we will not let our success be solely dependent on the grain prices and chicken prices in the markets. We intend to compete no matter the market conditions.

With that, I'll turn the call over to Gary to discuss our financial performance and capital structure.

Good morning, everyone. As Don said, our financial results have shown dramatic improvement over the past year thanks to the changes we have made. But, we will have work to do.

As shown on slide five, we reported a net profit of $33.6 million, or $0.44 per diluted share, on net sales of $1.6 billion for the quarter. This compares to a net loss of $229 million, or $3.09 per diluted share, on sales of nearly $1.9 billion in the same quarter a year earlier.

I want to remind everyone that these per share amounts were calculated using 77.1 million weighted average diluted shares for the quarter which ended December 27th. That was the day before we emerged from bankruptcy, cancelled the old shares, and issued 214.3 million new shares. So, beginning with the next quarterly report, we will be basing our per share amounts on 214.3 million shares.

Going back to the transition quarter, there were several one-time items that affected our results. These include an income tax benefit of $102.4 million, or $1.33 per diluted share, related primarily to net operating losses which we were able to carry back under recently enacted tax legislation, and nonrecurring expenses of $32.7 million, or $0.42 per diluted share, related to the Company's reorganization.

The income tax benefit primarily reflects the Company's release of its valuation allowance associated with the US federal net operating losses that we were able to carry back under H.R.3548. I'll provide additional detail on the NOLs later.

As shown on slide six, net sales for the transition quarter declined 14.6%, or $274 million, from the same period a year earlier. Breaking that down, our US chicken sales declined 15.9%, volume was down 16.5% primarily due to production cutbacks, however net revenue per pound sold rose 0.7%.

Mexico chicken sales for the quarter dropped 6.2%, although the volume was up 3.9% because of increased demand during this winter holiday season over the previous year. Net revenue per pound sold decreased 9.8% from the prior year primarily because of current unfavorable economic conditions in Mexico. In an effort to increase demand, the industry lowered prices.

Industry production cuts and strength in exports helped to keep US chicken supplies relatively tight during the quarter. Pricing continues to be a mixed bag during this quarter. Breast meat rose 8% and wings soared by 37% versus the same period a year earlier. Leg quarters, on the other hand, decline 10% and Georgia Dock fell about 5%.

But, overall pricing has strengthened since the end of December. Breast meat has climbed $0.14 to $1.38 per pound, wings have risen $0.07 to $1.69 per pound, leg quarters have held steady at $0.35, and Georgia Dock has edged up slightly to $0.83.25 cents.

Slide eight shows that EBITDA, when adjusted for reorganization and restructuring items, was $65.3 million for the quarter. Net interest expense rose approximately $4 million to $44.2 million primarily as a result of required interest payments related to our bankruptcy.

Slide nine shows the improvements in our operating results from a year earlier. We reported an operating profit of $7.6 million, an improvement of $185.8 million from a year ago. Breaking that down, our US business reported an operating profit of about $11.1 million while Mexico reported an operating loss of approximately $2 million. Restructuring charges accounted for the difference.

Our overall operating income was driven by higher gross profit and a $16 million reduction, or a nearly 17% drop, in SG&A in our US operations as we continue to benefit from expense reduction efforts. SG&A as a percent of sales declined 10 basis points to 4.8%. Gross profit as a percentage of sales improved from a negative 4.4% in the year ago period to a positive 5.1% in the most recent quarter.

The transition quarter ended December 27th, and the next day we emerged from bankruptcy. As a result, our capital structure today is very different from that shown on the balance sheet for the quarter. We came out of bankruptcy with a credit facility at $1.75 billion. That facility includes a three-year Term A loan of $375 million, a five-year Term B loan of $775 million, and a three-year revolver of $600 million. We drew down $1.25 billion when we exited bankruptcy. And at this point, our total debt is around $1.2 billion.

As I mentioned, our total shares outstanding is now approximately 214.3 million shares. JBS USA purchased approximately 137 million of those shares, or 64%, for $800 million. The remainder went to those who held shares immediately prior to the effective date of our emergence.

We've had a number of questions over the past month about our NOLs. During the transition quarter, we carried back approximately $548 million of US federal NOLs under the expanded carry back provisions of H.R.3548. We filed a refund claim of just under $170 million with the IRS in accordance with the new provisions.

As a result, the Company released valuation allowances which had been recorded on our US federal NOLs in the amount of $109.3 million. As of December 27, our remaining valuation allowance was $59.8 million, of which $27.5 million related to US federal and state net operating losses and credit carry forwards, and $32.3 million related to our Mexico operations.

The remaining US federal NOLs of approximately $300 million can be carried forward for about 18 to 20 years. However, due to the JBS USA acquisition of 64% of the Company, the annual utilization of the NOLs may be limited.

I will now turn the call back to Don for a few comments before we open it up for questions.

Thank you, Gary. I want to take a moment to personally thank our employees, contract growers, suppliers, and customers for their tremendous support. When I look back at everything we have accomplished over the past 14 months, I am struck by how resilient everyone has been in the face of the challenges laid before us.

There has been a true sense of shared commitment as we work through some very difficult and painful decisions regarding the future of this Company. None of it was easy. By working together, we were able to achieve an incredibly rare feat for a company in Chapter 11 -- paying back creditors in full while preserving significant value for our shareholders.

While we are pleased with the progress we have made, it's clear that we still have a lot of work ahead of us in positioning Pilgrim's Pride for sustained, profitable growth. We will continue to focus on opportunities to improve our product mix, expand our customer base, and operate more efficiently.

We have a great team in place and we're excited about the strategic opportunities available with JBS as our majority shareholder. Going forward, we intend to deliver the results that all of our shareholders expect. As the team here has heard from me constantly over the last 12 months, only the results matter.

This concludes our prepared remarks. Operator, please open the call for questions.

(Operator instructions.) And let's first go to Carla Casella with JPMorgan.

Hi. I'm wondering if you could give us the breakout of what percentage of your sales are retail now versus food service.

Based on our volume in terms of pounds, approximately 42% is retail and 30% is food service. The remainder is split between exports and commodity.

And do you see that staying relatively the same, or should that change over the next year or two?

It'll continue to change as we, again, shift more and more of our volume away from commodity sales and into our core, again, retail, food service.

Okay. And then, when you look at the performance in the quarter, can you talk about the performance of retail versus food service for, say -- for US chicken? The decline in sales, was it still mostly food service driven?

If you look at our results, and I'm speaking generally over the last several months including the quarter, our retail sales have been stronger than our food service sales, although both have shown improvement over that period of time.

Okay. And then, one last question. You're gaining some nice share back, it sounds like. I'm wondering if you have a -- is there one competitor you're specifically gaining share from or a specific region, or is it across the board?

It's across the board.

Okay, great. Thank you.

Thank you.

And our next question comes from Christine McCracken with Cleveland Research.

Good morning.

Good morning.

Don, you mentioned that you're increasing production in line with demand and that you're considering reopening one of those idle facilities. Is there something that makes you more hopeful about the recovery in food service relative to what we're seeing maybe today? And is it -- maybe you can give us an idea of what you're expecting on an industry-wide basis for growth, or if it's just maybe Pilgrim specific.

Well, in terms of growth, I think we've all seen the numbers in terms of supply increasing approximately 1% in the most recent months. I would expect the industry, by and large, will continue to grow at a relatively modest pace in line with that in the coming months. For us as a Company, we are -- we will grow at a greater pace than does the industry in the next 12 months.

All right. And then, you said that you are recovering a lot of the business you lost maybe post-bankruptcy. Wondering if you could talk about how your sales teams were able to reach that business. Was it that they were -- they had to give concessions to your former customers, or is there something that you've been able to offer them in the new environment?

Well, I think -- in fact, I'd have to admit surprising to me when I came to Pilgrim's is that the customer relationships that Pilgrim's had were not so damaged during the course of the last 12 months as I would have expected. So, I would think one aspect of our recovery has just been that we've maintained very strong customer relationships based on quality and service.

At the same time, we have had to compete in the competitive environment. But, again, we have not found that we had to buy business back, and I think that's maybe a little bit of the tone of your question. But, I think the customer community recognized the need for Pilgrim's to not only survive but to, again, succeed in the environment. And so, I think we've been very welcomed by the customer base.

Has there been any change in your -- the way you have to write the contracts? Are they writing shorter contracts with you or the terms to kind of give them some protection at all or -- maybe from a food service perspective?

Obviously, our emergence from bankruptcy was a very critical sign for us to gain a lot of this business back. And most customers, once we filed our plan of reorganization, that was evidence to them that we were in a stable position and they were willing to move forward.

We have, in fact, entered into longer term contracts than was generally talked about in the industry over the last 12 months. And by that, I mean that most of the contracts that we've entered have returned back to annual type contracts.

Has it been helpful to work with JBS or maybe offer that as kind of some enticement to get customers back as a new company, as a kind of multi-protein company, or are you operating completely independent?

We're operating completely independently, and have made it very clear to our customers that we will, as Pilgrim's Pride, be selling chicken and we're not presenting ourselves as a multi-protein alternative as such.

I'll leave it there. Thanks.

Let's now go to Ken Zaslow with BMO Capital Markets.

Hey, good morning.

Good morning.

Can you help us understand the cost reduction program pre-out of bankruptcy into -- right after bankruptcy, and then when you -- and finally everything works out with JBS. I mean, how does the progression work and how much are you up to? Can you just lay out some of the plans for the cost reduction pre and post bankruptcy?

Well, again, I can't speak as well to pre-bankruptcy. Obviously, I wasn't here. But, I mean, generally speaking Pilgrim's, prior to bankruptcy, had reduced production, made some SG&A headcount reductions in November prior to filing for bankruptcy. Post-bankruptcy, again, we have closed -- in total, both pre and post, we've closed 10 plants. Some of that closures represented decreases in production and others represented consolidation of production at other nearby facilities.

Over the course both -- again, immediately prior to, during, and then post-bankruptcy, our SG&A headcount reduction is something in excess of 800 people. Now, at the same time, we've had a lot of labor reductions at the plant level associated not with production cuts but with improvements in throughputs and efficiencies as it relates to labor.

We continue, by our aligning our operations more closely, such that we can have shared services at the operations level. Again, that creates a lot of efficiencies. We do have a team within the Company that is moving, if you will, from plant to plant and focusing specifically on plant operations as it relates to labor, yield, and throughputs. We are well over a year into that process.

How much money have you saved and what's your run rate?

Say that again, please?

What -- how much cost savings, what's the actual quantity? Is it up to $50 million, $100? Like, what's your run rate up to now and what do you expect it to get to?

If you look at our SG&A reduction, I believe it's $75 million over the course of the year. If you look at what we've done most recently, again, this is post-emerging, we had a headcount reduction that accounts for about a $16 million improvement at that time.

During the course of the bankruptcy, our changes there, and again, Gary, correct me if I'm wrong, accounted to about $195 million, I believe, of improvement that was undertaken during the course of the bankruptcy, although given when it occurred in that 12 month period, it all was not realized in the past 12 months.

And then, your chicken margin for the quarter, it seemed a little -- I mean, it was about -- less than 1%. I'm assuming -- can you talk about what that represents? I'm assuming that's not representative of what you think the margins are going forward. Can you just talk a little bit about why they were a little lower than probably industry margins?

Well, if you look at how that compared to what the projections prior to that had been, we experienced during this quarter higher than expected corn and soy cost, lower pricing kind of across the board, Georgia Dock prices, boneless-skinless breast prices, leg quarter prices.

On the cost side of the business, again, our costs were lower both in terms of processing and feed conversion associated cost, as we expected. So, again, we had higher input cost, lower pricing during that period of time.

Okay. And then, my last question is how much cash do you have on the new balance sheet? You said debt, but you didn't say cash.

I'll let Gary -- I'll have Gary --.

Most currently, probably about $20 million.

Okay, a little. Okay. Great. Thank you very much.

Next let's go to Christina McGlone with Deutsche Bank.

Good morning.

Good morning.

Don, I just want to go back to your comments on share. So, are you roughly at -- where are you in relation to your market share now versus before you went into bankruptcy?

I think as a Company we're approximately at 20% share. And that's a reduction from a peak, perhaps, and this would have been prior to bankruptcy, of approximately 24%.

Okay. So, if you recaptured a lot of the market share, and you talked about gaining business back, how do you grow faster than the market, going back to Christine's line of questioning, over the next 12 months?

Obviously, we'll take share from the industry.

But, based on what? I'm just curious if it's value added, if it's -- I mean, typically when that happens, it's because of price. So, I just want to understand better how does that occur.

Well, our biggest gains to date have been on the retail side. Given the annual cycle, if you will, on the food service side we are just beginning to enjoy those benefits. Those will be, if you will, come full circle by the end of this quarter.

Again, how did we gain the share? Again, we got to the table with our customers and have recaptured share. How was that done? Obviously, price was a factor. But, again, what we had to offer by way of products and services was a factor. And as I said earlier, obviously customer relationships played a key role.

Okay. No, that's helpful. And the -- and I'm just curious with the need for maybe opening another plant. What is your utilization level now?

Based on 100% utilization, it's about 90 -- something slightly in excess of 92%.

Okay. Thank you very much.

Thank you.

Let's now to go KeyBanc, Akshay Jagdale.

Hey, good morning. Thanks for taking the question. Don, I just wanted to ask a little bit more about the utilization. You just said it went to 92%. I believe at the end of last year it was at 84%, but your production went down and I don't think you closed a plant over the last quarter. I'm just trying to reconcile. So, what volume are you assuming for 100% utilization when you say 92%?

Okay, let me try to maybe put that in perspective. That 92% is as a percent of the plants that are currently operating.

Okay.

Okay? So, it is not based on any facility that may be idle today.

So, in other words, and you wouldn't open another plant unless you are closer to 100% obviously, right? So, you're projecting going from 92% closer to 100%, and then opening even another plant.

Again, generally plants won't operate at 100% capacity, but, I mean, they will approximate 100%. So, there's some slight difference, if you will, in that regard.

At the same time, we would consider opening another plant. And realize the pipeline in the chicken business is 18 months long now. But, if you look at reopening another plant, we would simultaneously also begin to plan to take production up at our operating facilities as well.

Okay. And can you just talk -- I think Carla had asked you a question about your mix, your business mix. So, I wanted to ask it to you in a different way, because obviously when we look at some of the market data for pricing, it doesn't really correlate with yours because of the fixed prices that you alluded to. Can you talk about how much of your revenues are really fixed price contracts versus others that are not?

If you look at the commodity and export volumes, obviously those are not fixed pricing arrangements.

And that's how much, roughly?

Well, again, currently on pounds, it's about 28% of our sales.

And everything else would be food service? Everything else is fixed price?

Everything else is food service and retail. No, it is not fixed price. Something that would be 40% to 50% of the remainder would be -- might approach fixed price contracts.

And you said you were starting to get a better sense of it, or you may be even done with contracting for that piece, that 40% to 50%, by the end of this quarter. I mean, can you just give us some insights into what kind of prices you're -- and price levels or any color into those negotiations?

I'm not going to comment on price. But, you're correct in the sense that this contracting period -- and I'm really referring to in the food service channel. This contracting period, the business will be -- has been awarded over the course of the last couple of months. Some of that will be awarded through the end of this quarter.

Okay. That's very helpful. Thank you. I'll pass it along.

Thank you.

And it looks like we have a follow up question. Let's go to Carla Casella again.

Hi. Just given the increase in the fixed price contracts and the length of some of the contracts, you mentioned up to a year, how are you planning your hedging strategy?

Relative to hedging, and again, as a Company, we have not been able to take hedging positions until such time that we did emerge. We are in a position to do that today. Basically in terms of hedging, we are hedging whereby we do have a margin that we can protect. So, we're not taking speculative positions as such, but we are willing to take what amounts to a hedge whereby we can offset that with a finished sale and, as you might expect, with a fixed price type contract.

Okay. And if you look at the fixed price contracts, are -- do you have a breakout as to how much would be three months versus six months versus a year? Or, even if it's just a generalization, are they mostly one-year type contracts?

They're mostly one-year contracts.

Okay. And as I understood it, pre-bankruptcy, I think everyone was really trying to move down towards three-month contracts. Is that correct? You were working your way down in terms of --?

That's true.

Okay. So, this is a -- it is a change. Are you seeing competitors do the same?

Again, I think in -- whether you're talking about price or the term of the contract, obviously in the competitive environment, we were not alone, obviously, in our willingness to sign longer term contracts that may have been more the -- shorter term contracts may have been the practice 12 months ago or 18 months ago. But, I don't think the competitive environment is perhaps as open to that today.

Okay. Great. Thank you.

Let's do another follow up. Let's go to Ken Zaslow.

Hey, the production levels for next year, I guess calendar year-over-year, it sounds like it's going to be up between 5% and 6%. Is that a fair number? Is that what you're -- is that the --?

Realize that, again, given the lead time relative to increasing production, our increases this year will be relatively modest and not out of line with the industry. A lot of the increases beyond that really will be at the end of this year and into 2011.

Okay. And then, in terms of Russia, can you give a little bit more color than what you said in the commentary? How long do you think it'll take to reestablish relationships? Are you finding other markets? How much supply shortage do they have? How do we look? Could you just give a little flavor to how you're seeing leg prices moving over the next couple months?

Well, for one, I expect the Russian issue to be resolved. Again, it was positive news, I think, this last day or so from the Russian authorities. So, I do expect it to be resolved in the near term, and I would like to think it's going to be resolved in the next few weeks, if you will. I can't predict that, but that's my sense of it today.

I think prices for leg quarters, as it relates to Russia, I think have actually -- leg quarter prices have been stronger than they have historically when there's been this kind of disruption, and I think that's in anticipation of it being resolved. Prior to this disruption, the anticipation was leg quarter pricing at much higher levels, and I would expect it to achieve that over the next few months assuming this is resolved.

As a Company, again, I think I said in my comments we had brought our export inventories to basically as close to zero as we could at the end of the calendar year. And I would like to tell you that was absolutely strategically planned, but it was more just an opportunity for us to move the inventory. But, it did leave us in a very good position at the time that this disruption in Russian exports occurred.

Great. Thank you very much.

Thank you.

We have a question from Adam Ritzer with CRT Capital.

Hi. Thanks for taking my call. Just a couple quick things. The refund you mentioned from your taxes, is that going to -- has that already occurred, or is that to occur after the year-end?

No, we received that right after year-end. It's not reflected as cash in the 10-Q, but we did receive it after year-end and we actually used the funds to repay the $100 million we had borrowed against our revolver coming out of bankruptcy.

Okay, got you. And what is the average rate you think you're paying on your total credit lines right now?

Probably close to 6%.

Okay. Can you give me an idea of what your CapEx is going to be in 2010?

We have a -- for one, you mentioned the capital structure, we do have some limits on CapEx. They are not onerous at all. I believe this year our approvals are for $225 million in CapEx relatively to our credit facility. It is unlikely that we would actually spend at that level. In fact, we would be well back of that this year.

Okay. If I look at Q4 and what you spent, is it fair to annualize that, or is it going to be much variance from that? Maybe you'd give me some direction.

No, it would not be a predictor of capital expenditure to annualize that.

Okay. But --.

I would expect on the CapEx in this coming 12 months that we would be more on the order of $150 million or less.

Perfect. Appreciate that. And if you look at the seasonality of your business, could you give me some idea of if Q4 -- what percentage that may be of your annual business? I would assume it's somewhat better in the summertime, barbeques, people cooking chicken. I'm just trying to figure out where things stand on a seasonal basis.

I'm not sure I can give you a good number. But, obviously, seasonally you do have some changes in volume, and the fourth quarter is a lower quarter relative to volume. But, also the quarters are going to move as well with price oftentimes more so than with volume.

Okay. Well, maybe you could answer this. In your disclosure statement, you guys have projected $650 million plus of EBITDA for 2010, revenues of $7.5 billion. So, if I look at what you did in Q4, clearly that's not the pace that you're on. Can you help me understand how you get from your current run rate of maybe 250 of EBITDA to what you projected in your disclosure statement?

Well, again, I would caution you that the projection that you saw within the bankruptcy materials was based on commodity grain and commodity chicken inputs from other third parties. Informa and EMI were the two sources that were used, and that was, if you will, overlaid onto our business model.

So, generally, our performance since the time that was developed, I think in July, has tracked with those projections and has varied from it as those inputs have varied from the actual inputs.

Okay. So, I think in Q4 you said you averaged about $3.85 a bushel for corn. Do you know what those two third parties have used in their projections for corn prices for 2010?

I can't -- I don't have that information. But, again, our input costs during Q4 relative to grain were higher than what was in those projections, and our chicken pricing was lower than what was in those projections.

Got you. Is the recent pullback in corn prices a better indicator of where those projections were? How close do you think we are to the projections they were using?

The current pricing, at least especially here in the last week or so, would be favorable to the projections.

Right. Okay. Very good. I appreciate your help. Thanks very much.

Thank you.

And our next question comes from Neal Chandoke with Visium Funds.

Hey, guys. Thanks for taking my call. Hoping you can explain or just talk about the $14 million of incentive comp within the $32 million in reorg items. And secondly, you mentioned that the industry is focused on staying rational, and you said that you would match production to meet demand. So, if you were to see demand subside, will you be increasing production, then, to gain share, or how do you guys sort of view that dynamic? Thanks.

Well, the $14 million of comp was the bonus programs that were approved by the bankruptcy court and approved by all the constituents of the bankruptcy primarily to reward the total management of the Company for bringing the Company through the bankruptcy process.

Relative to your question on share, and I hope I heard you correctly. But, obviously at some point, if market conditions dictate it, yes, we would obviously consider even reductions in output. But, that is not our expectation. Our expectation in this coming year and even the next is that we will continue to increase production, and we don't envision a time from which, over that period of time, that we will retreat from that.

Okay. Thank you.

And a question now from William [Hathmon] with AIG.

Hey, guys. How's it going?

Good.

Hey, just wanted a follow up question. I know that the beginning of this year was a very important time for you guys in reference to negotiations and contracts, primarily food service. It sounds like you guys have done really well. I'm just wondering in reference to dealing with the food service guys, what are they telling you? This is kind of a big picture question. What are they telling you in reference to the recovery of the food service market? Is it going to take a year, is it going to take two years, or do they have a feel for that?

Well, I don't want to speak for our customers or food service in general.

Speak to the industry in general, then. I'm just trying to get a feel for growth, because it seems to me you're talking about growing and you're talking about capacity to maybe open some plants. It's going to have a -- to a large degree, it's going to be based on their recovery. And I'm just wondering if you can just speak big picture in reference to what you see in reference to the food service recovery.

Right. I think generally speaking, the tone is that people are anticipating some improvement beginning early this summer. Not perhaps dramatic, but some gentle recovery, if you will.

Obviously, the food service segment remains challenged. Most recently, we have seen some increase in sales in food service. But, at the same time, again, we have to be realistic. Our customers, both food service and retail, are, again, driving their business by presenting a value proposition to their consumers. And so, even though there is some sense, I think, on the food service side that there'll be some growing volume, some of that volume improvement will come through, again, offerings that are more value oriented at the consumer level for sure.

Okay. One follow up question. I know that JBS has a equity offering in place. And, of course, they made an announcement two or three weeks ago that they were going to delay that. If the conditions in Brazil do improve and they decide to go ahead and move forward that, do you think they're going to go ahead and exercise their option to remain -- to purchase the remaining stock according to the agreement that was negotiated in bankruptcy?

Well, obviously they have the right for the -- over the next two years, approximately, to exercise that. I don't have insight into when that might occur.

But, it's something that they probably are going to do if the conditions are favorable? Can you say that, or do you know?

Well, again, the agreement allows JBS to exercise that right over the course of the next two years. I have no reason to believe that they won't exercise that right.

Okay. Thank you.

And ladies and gentlemen, that is all the time we have for questions today. We do now conclude today's Pilgrim's Pride conference call, and thank you for your participation. Have a nice day.