Pilgrims Pride Corp (PPC) 2010 Q1 法說會逐字稿

(Operator Instructions). Good morning. Welcome to the Pilgrim's Pride financial call to review the Company's financial results for the first quarter ended March 28th, 2010. At the Company's request this conference call is being recorded. (Operator Instructions) Beginning's today call will be Gary Rhodes, Vice-President of Corporate Communications for Pilgrim's Pride. Mr. Rhodes, please go ahead, sir.

Good morning. Thank you for joining us today as we review our financial results for the first quarter. Earlier today we issued a press release that provides an overview of our financial performance for this period. If you've not already seen this release a copy is available on our website, along with other downloadable information. You can also find the slides that we refer to during this call. These slides may contain reconciliations of non-GAAP financial measures to their corresponding GAAP-based measures. Joining me on today's call are Don Jackson, President and CEO, and Gary Tucker, our Principal Financial Officer.

On today's call we'll review our financial results for the quarter and the key factors affecting our performance. Gary will provide an update on our financial position and capital structure. 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, 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'll turn the call over to Don to begin our prepared remarks.

Thanks, Gary. Good morning, everyone. While I'm encouraged by the progress we've made in several areas of our business, our overall performance in the first quarter of fiscal 2010 was obviously below our expectations. For the quarter, we reported a loss of $45.5 million, or $0.21 per diluted share on sales of $1.6 billion. That compares to a net loss of $59 million, or $0.79 per share on sales of $1.7 billion for the same period a year ago. Several factors contributed to the loss for the quarter. They include restructuring and reorganization charges that together totaled over $56 million pre-tax, a loss of approximately $11 million related to grain hedges of which approximately $6 million was market-to-market on open positions. A delay in the addition of new further process volume from several customers, which forced us to sell commodity meat at lower prices, and lower than anticipated market prices for dark meat in the quarter. Gary will explain more about the hedging in a few minutes.

Stripping out the restructuring and reorganization charges are adjusted EBITDA was a positive $59.5 million for the quarter. Pricing is a key issue for us. Simply put, we need fundamental improvement in our pricing primarily through better product mix, but absolute pricing must also improve. I believe our single largest opportunity to create value is improved product mix. For example, in both retail and food service we are overrepresented at the lower end of the value change in terms of mix. In retail, we have too much low margin, deli, and raw IQF business and not enough case-ready and further processed volume. We have too much low margin sales coming out of our small bird fast-food plants, and our prepared food business there's poor balance in breast meat product mix creating excess trim and commodity sales.

On our last quarterly call I said by the end of the first quarter we expected to regain all of the further processed volume we had lost prior to bankruptcy. We're about three months behind that schedule. The commitments from our customers are there, but it's just taking a bit longer for them to complete the transition away from other suppliers than we first anticipated. All of that volume should be on board before the end of June, so we will begin to see the impact of that new business in the third quarter. We must continue to focus on operating more efficiently and being the preferred supplier to our customers. Our senior management team spent the entire month of March and the first week of April visiting every one our processing and prepared food plants. The visits included facility tours and in-depth meetings with managers and employees at each site to review productivity, performance, product mix, capital spending, safety and quality.

We identified a number of opportunities for improvement, particularly in plant efficiency, product mix, and plant-to-plant coordination. A plan to capture these opportunities has been developed for each plant. As I've said before, we intend to grow our volume and every channel as we capitalize on our strategic advantages and strong financial position. We're making good progress. We had positive results in March, and I'm confident that our financial results in the second quarter will show a significant improvement. Based on preliminary results, we were profitable for the month of April. From a broader perspective, we're generally bullish on prospects with the US chicken industry this summer, although excess are up about 1.2% year-to-date, supplies remain fairly tight and well back before the precut (inaudible) 2008 and 2009. Feed cost appear to have stabilized, a growing sign that the economy is improving.

A growing number of restaurant chains are reporting increased customer traffic and higher same store sales. In addition, many retailers and food service operators are planning to feature chicken in the months ahead. We expect chicken prices to continue strengthening as we head into Memorial Day and more importantly we expect prices to hold beyond the 4th of July and into the fall. That is a big change from what has happened the past two years. Given the timing of the beef cycle it doesn't appear that the beef industry will be in a position to increase production within the next few years, so chicken should benefit from that. As I explained on our last call in February we will match our production to forecasted demand. We fully believe that with the strengthening economy, and improving fundamentals, consumer demand for chicken is increasing.

We are seeing it in our own sales forecasts. As a result, we plan to reopen our plant in Douglas, Georgia, by January 2011. We also plan to reopen two other idle facilities. One by mid 2011 and the other by the spring of 2012. The reopening of these three plants will result in a production increase of 10% or approximately 3.5 million birds per week. By reopening these facilities, Pilgrim's Pride will be positioned to fulfill our customers' needs. Moving now to exports, we continue to see good demand from many of the roughly 90 markets we ship. Russia and China of course are the two exceptions, given the ongoing issues in each country. I'm not going to speculate on when a resolution with Russia might be reached, but like the rest of the industry we hope it is soon. We're managing our leg quarter inventories to levels about where they stood before the Russia ban began.

We've begun to grow ourselves in other markets and prices are at or above current market quotes. With regards to China, we continue to cooperate with Chinese authorities on the anti-dumping case. We're developing other export markets and prices have remained relatively stable. Now I'll turn the call over to Gary to discuss our financial performance and capital structure.

Good morning, everyone. As Don said, it's clear we have more work to do in order to return to sustained profitability. As shown on slide four, we reported a net loss of $45.5 million or $0.21 per diluted share on net sales of $1.6 billion for the quarter. This compares to a net loss of $58.8 million, or $0.79 per share on sales of nearly $1.7 billion for the same quarter a year ago. Remember, we now have approximately 214 million shares outstanding compared to 74 million for the year ago period. There are several one-time items that affected our results. These include pre-tax, nonrecurring administrative restructuring charges of $35.8 million and pre-tax net charges of $20.7 million related to the Company's reorganization efforts.

We have recognized a net loss of $11.4 million for changes in fair value of derivatives, specifically exchanged trade and futures and options that we began purchasing in mid-January in an attempt to mitigate some of the price risk related to our use of commodities such as corn, soybean meal, and natural gas. Remember, about $6 million of that loss was mark-to-market on open positions. During the quarter we also recognized an earnings of previously unrealized gain totaling $4.1 million on a derivative designated as a cash flow hedge that was associated with the unsecured notes that were extinguished on December 28th. This gain is included in the line item, reorganization items in the consolidated statements of operation. Also, during the quarter, we re-recorded an income tax benefit of $33.3 million, which is a 42.3% effective tax rate. The income tax benefit is primarily the result of a tax benefit recorded on our year-to-date loss, which is expected to be realized during the year, as well as the recognition of previously unrecognized tax benefits. I'll give you an update of our NOL in a few minutes.

As shown on slide five, net sales for the first quarter declined 3.2% or $55 million from the same period a year earlier. Breaking that down, our US sales declined 5.5%. US volume was down 11.6% primarily due to production cutbacks, however net revenue per pound sold rose 4% from the prior year. Mexico sales for the quarter increased 27%, and volume rose 33% because of increased demand. Net revenue per pound sold decreased 4.4% from the prior year, primarily because of current unfavorable economic conditions in Mexico. In an effort to increase demand, the industry lowered prices. As shown in slide six, with the exception of Georgia Dock, commodity chicken prices were generally higher during the quarter versus the same time a year ago. Year-over-year breast meat increased 5.5% to an average of $1.40 per pound. Wings were up nearly 14% to an average price of $1.62 per pound, and leg quarters rounded out the quarter at $0.35 per pound, a 4% increase. Georgia Dock averaged just above $0.83 per pound, down 4% year-over-year, but current spot prices have inched closer to year ago levels.

It's safe to say that wing prices have probably peaked now that March madness is behind us, but we are hopeful that we will continue to see further price improvements in the other cuts, particularly breast meat and leg quarters. Breast markets have been boosted by the reduction of US chicken supplies and stronger pricing in competing meat such as beef and pork. Leg quarters have held up remarkably well in light of the Russian situation. For the quarter, corn averaged $3.71 per bushel, slightly higher than a year ago. Soybean meal, on the other hand, averaged $278 per ton, roughly 5% lower than a year ago. At the end of March, the USDA released the prospective planning report, which gave us the first glimpse of planning intentions for 2010. Farmers are expected to dedicate approximately 89 million acres to corn and approximately 78 million acres to soybeans this season. Last year the corn planting was behind due to wet weather in April and May, but this year everything appears to be on track. An early start to planning is not necessarily an indicator of a record crop, but certainly helps the levels of anxiety to keep them in check.

Slide seven shows that EBITDA when readjusted for reorganization and restructuring items was a positive $59.5 million for the quarter. We reported an operating loss of $32.4 million, a decline of almost $53 million from a year ago. Included in this number is a one-time restructuring charge of $35.8 million. On an ongoing basis, we would have reported a net profit of $3.4 million. Our US business reported an operating loss of about $44.2 million, or a loss of $8.4 million on an adjusted basis while Mexico reported an operating profit of $11.8 million. Total gross profit was $52 million. SG&A totaled $48.6 million. I want to point out that SG&A declined by $10 million, or 17%, as we continue to benefit from expense reduction efforts. SG&A as a percentage of sales declined 40 basis points from 3.4% to 3%. Total debt at the end of the first quarter was just over $1.2 billion, and we have $48 million in cash and equivalents. Capital expenditures were $31 million compared to $19 million a year ago. For the full fiscal year, we expect CapEx to be in the $150 million range. Interest expense for the first quarter decreased 38.8% to $28.4 million, primarily due to lower average borrowings and lower weighted interest rates. Interest expense for the full year should be in the $110 million to $120 million range.

We are making good progress with our synergies from the ongoing integration with JBS USA. We have achieved significant cost savings in several areas, including transportation, packaging, insurance, and IT. There was very little impact in our first quarter results as most of these cost savings were just getting underway as we negotiated with suppliers. We expect to see the impact from these gradually ramp up as we move through the year. As you know, we are in the process of closing our world headquarters building in east Texas and relocating most corporate functions to Greeley, Colorado, where JBS USA is based. That relocation will be completed by next month. In all, approximately 450 corporate positions have been eliminated.

A quick update on our NOLs. As we said back in February, we carried back approximately $548 million of US federal NOLs in 2009 under the Expanded Carryback provisions of HR 3548. We filed a refund claim of just under $170 million with the IRS in accordance with the new provisions. As a result in 2009, the company released valuation allowances which had been recorded on our US federal NOLs in the amount of $109.3 million. As of March 28th, a remaining valuation allowances was $57.4 million of which $27.5 million were related to US state operating losses and credit carry-forwards, and $29.9 million related to Mexico operations. The remaining US federal NOLs of approximately $315 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 final comments before we open for questions.

Thank you, Gary. I'm optimistic about the industry fundamentals heading into the summer. Over the past 15 months, we've worked hard to instill a culture of performance and accountability across the Company. Now it's time to execute the business strategy we have laid out and begin to deliver the results that our employees, customers and shareholders expect.

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

(Operator Instructions). We'll take our first question from Ken Zaslow with BMO Capital Markets.

Good morning. No one going to ever accuse you guys of promoting your stock price, I'll tell you that. In terms of the production increases over the next couple years, you know, what gives you the confidence to be able to do that, particularly, you know, when, for example, Sanderson Farms increases production, they're usually profitable. Like what is your expectation as to why you could come up out this early in terms of production increases in 2012?

Ken, it's purely based on demand. The signs that we're seeing within our business, the signs that the industry is seeing in total, and given the amount of supply that came out of the marketplace over the course of the last 18 months, which -- half of which was our ours. And again, given the position of the other competing proteins, consistent with what I've said for the last year, we're going to grow our business as demand dictates, and we believe those increases are consistent with what we see by way of demand over the next couple years.

Are you fearful at all that, you know, your increasing production is going to put the chicken industry back where it was two years ago? I mean, what confidence do you have in that? I guess I think that's what the fear factor is out there.

You know, our belief is that, again, with strengthening economy, and obviously everyone on this call knows the economy surely has not totally recovered by any means, but we believe that the economy is strengthening and will over the course of this two-year period that we're talking about for the increases, and we believe that the strength of the economy and the growing demand for chicken, higher prices for competing proteins, will keep the industry and Pilgrim's Pride profitable.

And just on the cost side of it, I guess my question is, how do you guys put yourself relative to the industry, where your ability to compete is in terms of cost structure? Where are you guys relative to the industry, and how long will it be that you get to whatever your stated goal is? Can you give us some parameters to kind of assess that?

Well, if you look at our cost structure relative to the industry, we are better than the industry on average as it relates to live costs. Our more further processed, if you will, product mix gives us on an absolute basis a higher plant-related cost. If you look within our company, at how we compete in different segments of the industry, again, big bird deboning, fast-food prepared foods, we compete very effectively across all of those segments.

But you guys generated a loss of like $8 billion this quarter. I think the industry is probably profitable.

Most of that associated, Ken, is really just our inability to capture pricing that the industry enjoyed over the first quarter. A lot of it is strictly related to price. A lot of the price is related to mix. So granted, the industry, I think, I guess perhaps -- I don't have the information that you might have, but I would agree that the industry is probably outperforming us on average in this first quarter. You know, we didn't enjoy the price increase that the industry did. Part of that was mix and part of it was absolute pricing.

So when will you be back -- I'll leave it at this. When will you guys be back enjoying what the industry is enjoying, at least being on par with them? Let's start there.

Again, our results that we would see today, what we are seeing today, we're profitable today. I think we said that in our comments. When we'll be on par? You know, this year is a year on which we expect to be on a run rate basis on par. When will that specifically occur? I'm not going to predict that.

Okay. Great. I appreciate it.

Thank you.

We'll go next to Christina McGlone with Deutsche Bank.

Good morning.

Good morning.

Following up on Ken's question, Don, if the industry earned we calculated say about 3% in the quarter, excluding your hedging loss, if you lost half a cent, you're saying that's all because of the price, not because of an inefficiency in the pipeline, or sourcing, being sort of product, it's all the pricing?

No, no. I don't want to mislead anyone to think it is all pricing. I mean, we have opportunity across the board. Pricing, I think, is our number one opportunity. Pricing and mix. Again, I want to make sure that you understand that some of what I say about pricing is related to mix. Okay? But no, by no means do I want to limit it to say that pricing is all of the issue. We do have opportunity both in terms of the efficiency of our operations at the plant level that we intend to bring a lot to our profitability going forward. Also the synergies that we expect to gain with JBS, although those are in the works. Obviously we've not realized those at this point. So there's -- a lot more to it than price. But I still would identify price as the biggest single opportunity for us.

And just to understand the price issue more, is that -- is that because -- I know you're relating it to mix. Is that because you're contracted more than the industry, so when we see these increases in commodity prices it's not flowing through to you like it is to the industry? If you could explain that more.

I think in the short run, companies that have more of a commodity mix have enjoyed probably the price increases more so than perhaps we have. At the same time we have some level of fixed-pricing that also does not benefit from, you know, commodity price increases, but at the same time we enjoy commodity price increases in some segment of our business as does the industry.

And as you move your mix, you're going to be able to be -- it will change for you?

As we move our mix, we'll just -- again, as an example, if we move mix away from frozen IQF product to fresh case-ready product, that's a mix change, but it also represents a net improvement in price. That's our primary shift in price. But on an absolute basis as well we need to improve pricing. So selling the same items we sell today, we need to continue to -- move price upward.

Okay. And then in the commentary it sounded like you were happy that dark meat retained -- or leg quarters retained the value given what's going on with Russia, but then in the press release it says lower than anticipated market prices for dark meat. Could you reconcile that?

One was based on our plan of reorganization. The prices that were recognized in that plan were actually higher than what -- than what we experienced in the first quarter -- higher than what the industry experienced in the first quarter.

Okay. And then I guess last question, going back to Ken's line of questioning about the industry additions, so we have you putting back the three plants. We have Sanderson putting on two plants, I think Mount Erin announced an expansion, I think there is two other smaller players that announced expansion. What's the risk that the industry then gets ahead of itself and ends up in oversupply sometime in 2011?

Well, again, I go back to what I said earlier. We believe that the demand is there. If you look at all of those increases, ours as well as the rest of the industry, I still believe these increases are consistent with what we and the industry obviously are seeing by way of demand.

Ok. Great. Thank you.

Thank you.

We'll go next to Akshay Jagdale with KeyBanc.

Good morning, Don.

Good morning.

Just wanted to ask you about a comment you made in your prepared remarks regarding prices for chicken holding up through May 31st, and actually beyond that going into the fall. Can you just talk a little bit more specifically about demand and what makes you confident that -- you know, in terms of just looking forward that much. I mean, I don't think we've had that kind of predictability in the past, so what makes you comfortable with that view that prices are going to hold up in the back half?

The comment really is drawn from two things. One is that we're seeing, again, increasing demand in our own business. I think the industry is seeing that as well. And that was not the case over the course of the last two years. That led to a lot of price decline after the 4th of July. And at the same time -- and again, the people on this call are probably more expert than me perhaps on the economy, but again, my general belief, what I see in terms of the economy, is that the economy is going to begin to strengthen, and I think that will, again, help maintain demand and price going forward, which we have not seen in the past two years after the 4th of July.

Okay. And just what is your current capacity and utilization?

Our current utilization is about 94%. And our capacity is basically 34.5 million birds a week.

Okay. And just one last one, when you say your production increases of about 10% are in line with what you think demand's going to be, I mean does that assume share gains? I'm assuming it does, but --

Well, if you look at absolute demand -- if you look at the 6% that the industry, again, took out of the supply, the opportunity to grow our business, that -- 10% increase for us represents approximately a 1% increase in the industry supply, spread out over the course, really, of the next two years. And if you look at the industry regaining that 6% decline, theoretically we would not have to gain share per se as much as just be a part of the regaining of that 6% decline that occurred over the last 18 months, two years.

Okay. Great. I'll pass it on. Thanks, Don.

Thank you.

(Operator Instructions) We'll go next to Robert Moskow with Credit Suisse.

Hi. Thank you. Can you tell me the specifics you've laid out for your capacity expansion over the next couple of years, is it any different from what you thought you were going to do in January or is this pretty much not new?

You know, even going back to the time that I first arrived at Pilgrim's some 15 months ago or so, I made the comment that based on market conditions that we intended to reopen our idle facilities. And so our actions are really no different than they were stated to be 15 months ago.

Okay, so no different. I always thought of you as planning to grow production maybe 3% a year. It seems a little bit higher, though, maybe closer to 5% and 5%, if we're getting up to 10% next year. Am I looking at that wrong?

If you look at the plan -- again, that was submitted in the reorganization -- I think you're correct. Those plans showed a more modest increase, but only in the sense that the time frame was different than what we're talking about today. So faster than what was submitted in the plan, yes, but no different in absolute terms in what we've planned to do, again, from day one.

Okay. And then just to make sure I get it here on pricing, are you saying that you didn't get the price increases that the industry got -- when you say that, is that something that happened, like, in the fall of last year, and therefore your margins are a little lower than the industry right now?

Yeah, we experienced, you know, again, some than market condition prices going into the fourth quarter of calendar year 2009, and we continue to do that this year. Realize that some of this business that we did not regain in the first quarter, which we had planned to, even though we have commitments from our customers that coming on board did not occur in the first quarter as we had intended, and is more likely to be on board at the end of the second quarter. That in itself is a price disadvantage, because what we might have sold in the first quarter as prepared foods to a quick service restaurant customer we now had to put back on the commodity market in an unsold form. So again, we didn't even achieve commodity market prices because we were selling on a spot basis what we had intended to sell as a prepared foods item.

Okay. And does that explain the sequential decline in gross margin also from the December quarter to the March quarter?

It does.

Okay. Okay, thank you very much.

We'll go next to Farha Aslam with Stephens Inc.

Hi, good morning.

Good morning.

Don, could you explain the agreements with your food service customers that didn't come through, can you explain to us kind of how those agreements work and what was the cause of that volume not coming in the first quarter?

Most of it is just plant approvals, the process of matching product items, getting those approved by the customers, R&D, and then getting the QA approvals of the plant has taken longer than anticipated. Typically in those agreements it is a transition at the discretion of the customer as to where the current suppliers' inventories are. Most customers will allow the current supplier to deplete their inventories and then, at the same time, then you have to go through the plant approval process. That's really the extent of why the delay.

And so they started to come online in May?

Most started to come on, you know, after the first of the year, but there still was, you know, a portion of that new business that is still not totally on board, and won't be completed until probably June.

Okay. And then back to the pricing question, when you went out and tried to regain the volume back in the fall and earlier this year, did you sort of price out your -- and put in a lot of fixed-price contracts in anticipation of dark meat pricing increasing, and then when it didn't increase your net pricing that you realized was much lower than anticipated? Am I understanding that correctly?

Yeah, it's fair to say that we anticipated higher than we're experiencing prices for dark meat. That is true. And at the same time I don't think inconsistent with the industry, you know, some of our new business is fixed price business, but I don't think we pushed fixed-pricing as some kind of tactic in gaining that business. I think that was at the table for all customers.

And these fixed price contracts, are they about a year long are or are they multi-year contracts?

I say this, and I don't have Jerry Wilson with me this morning. If we have contracts beyond one year, they would be very rare. Most of these contracts are in fact a year.

Okay. And then you're saying that you're going to produce to demand. And of course as you increase your pricing, which needs to be done, that demand is going to weaken. Do you think you can increase production and have the demand at the prices to sell your product for?

Again, I think market conditions overall will allow price strengthening by us and by the industry.

Okay. And my final question is, once you've committed to these production increases, is there flexibility in terms of how the market plays out and how you bring those plants online?

Sure.

How much flexibility is there?

Sure. There's always the possibility that, you know, economic conditions could change things, but, you know, we're committed to the schedule that we announced this morning, and, you know, barring some unforeseen change in the -- in the world, we're going to stay on that schedule.

Okay. Thank you very much.

Thank you.

We'll go next to Ken Zaslow with BMO Capital Markets.

Just a quick question. How much are you shifting the big bird deboning? And when? How does that play out? Where are you now and where will you be, if you can give us a timeline?

Ken, I don't want to totally reveal all of our product mix plans with these expansions, but, yes, you will see more of a shift to both heavier weights and some of that, specifically, big bird deboning going forward. Some of that will be existing facilities and some of that will be in these reopen facilities.

Can you give us where you are now with big bone and where you will be, or kind of some broad parameters?

We will reopen Douglas as a big bird deboning plant, and we have two -- three other plants today involved in big bird deboning.

And then when you use -- when you do -- when you sell your big bird breasts, do you sell them to yourself and use that as operational efficiencies or do you sell that right to the market.

Ken, we're doing some of both. Some of that big bird deboning meat feeds are prepared foods operation and some of that is sold as is into the market.

So part of the shift to the big bone is actually operating efficiencies for your prepared meat rather than changing your product mix to the market, is that fair?

No. I think you'd have to say that we are in fact changing our product mix to the market.

Okay. Cool. Thank you.

Thank you.

We'll go next to Akshay Jagdale with KeyBanc.

Hi. Thanks for taking the follow-up. I just wanted to make sure I have these numbers right. You say are 94% utilization, then adding about 3.5 million a week in capacity, you know, over time. Does that imply that your production will be increasing if you go to 100% utilization by 17%, right, over time?

That is correct. You are very astute picking that up.

Okay. And then the second part is -- regarding pricing, I thought Gary said that actually price per pound was up, because your volumes were down. Right?

Yes, it is up year-over-year, on an overall basis.

Right. So that would -- so price per pound is up. From what I can tell it's up more than the commodity market, you know, for the industry. So I was a bit confused about price realization and the comments you made, because to me the under performance relative to the industry seems like a volume issue, which gets me to another point, which is, what is your view on the production numbers coming out of the USDA? Because here you have the second largest company in the US with, you know, 12% -- volume's down 12%, and we're seeing production numbers from the USDA that are up. Can you comment on just -- the volume issue more so than, you know, price realization?

Well, again, a couple comments. One, relative to our current utilization at 94%, you're correct that we have the opportunity and plan to continue to push our utilization in our current operating plants to much higher-level higher levels than 94% obviously. So that, too, is a potential increase in volume for us. Our results -- and again, hopefully I'm understanding your comments correctly -- our results, yeah, are affected by volume. And volume is an opportunity to improve our financial results going forward. We recognize that.

One thing to remember about, you know, our increased pricing year-over-year is in the first quarter of last year we were selling a lot more commodity meat into the spot market.

So what you see by way of pricing -- and you're right on the surface -- it appears that our pricing in fact strengthened, but if you look again at our decline in commodity sales, and export sales, which was absolutely intended, it makes it appear that our pricing is maybe stronger than it actually is.

Right. And then just regarding volume and industry data, any comments on that? I mean, it does seem odd that your volumes are down big, and then the -- we have the industry producing more according to the USDA, which would imply everyone else is, you know, producing a lot more.

Well, again, even in our own volumes, as we go to -- as we went away from some -- the plants that were closed, they were selling in basically ready-to-cook fresh form. When you just take those pounds out, and you go back to our more -- our company mix, which includes a lot of deboning and prepared foods, that in itself is going to take the pounds down.

Okay. Great. Thank you very much. Thank you.

(Operator Instructions). We'll go next to Bill Hasson with AIG Investments.

Don, how you doing this morning?

I'm doing fine. Thank you.

Good. It looks like your utilization rates are good to me. I guess my question is it's all about the mix. Are you comfortable -- I'm sure the mix is coming. I totally understand what happens when you start adding food service customers back to the profile, it does not only take time for them to get on board, it takes time for them to ramp the volume up. I guess my question is, are you comfortable in reference to your customers, your food service customers that you have been able to resign? Is it just a matter of them ramping it up to get to the kind of volumes that you want? Obviously the plant enhancement, the opening of a couple plants, you're anticipating that, so that's my simple question.

No, I don't -- I really -- obviously we're disappointed in kind of how long it taken to get those volumes ramped up, but I have no reason to believe that the volumes are going to be there once we get the, you know, appropriate product approvals and plant approvals from the customers. And we're not having any issues in that regard. It's just been slower than we would like it to be.

Yeah. We are very slowly starting to see the food service sector come back, so I'm not surprised that it's taken a little longer than you think. I guess my perspective is, you know, you're kind of comparing yourself to the industry who is not ramping up their food service sector like you are, and it's going to take a while from my perspective.

You know, parts of that are showing really strong signs of recovery, and some particular customers and segments are kind of behind the curve in that regard. But I would say across the board, food service is strengthening, at least based on our own sales numbers.

Okay. Thanks a lot.

Thank you.

At this time there are no questions in the queue.

All right. Thank you very much for joining us today. And please feel free to call with any follow-up questions. Thank you, operator.

Thank you. That concludes today's conference. We appreciate your participation.