Smithfield Foods Inc (SFD) 2003 Q3 法說會逐字稿

Ladies and gentlemen, good morning. Thank you for standing by. Welcome to the Smithfield Foodss Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later there will be a question-and-answer session, instructions will be given at that time. If you do need assistance during the call, please press "0" then "" and operator will assist you. As a reminder, today's conference call is being recorded and available for replay. The replay will begin today at 1:30 p.m. Eastern Time through March 4 at midnight. If you wish to contact AT&T Executive playback service, please call 1-800-475-6701, and the access code 676430. I will now turn the conference over to your host, Mr. Jerry Hostetter. Please go ahead sir.

Good morning and welcome to the conference call to discuss Smithfield Foodss fiscal year 2003 third quarter results. We would like to caution you that in today's call, there may be forward-looking statements within the meaning of Federal Securities laws. In light of the risks and uncertainties involved, we encourage you to read the forward-looking information section of the Smithfield Foodss Form 10-K for fiscal year 2002. With us today are Daniel Stevens, CFO; Richard Poulson, EVP and Senior Advisor to the Chairman; C. Larry Pope, President and the COO; and Joseph W. Luter, III, Chairman and CEO. This is Jerry Hostetter, Head of Investor Relations. Larry Pope will begin our presentation with a review of operations. Larry.

Good morning. I'm here today reporting third quarter net income for Smithfield Foodss of $5.3m or 5 cents per share compared with $54.5m or 48 cents per share in the third quarter of the prior year. Now certainly this is not the level of earnings the company would expect to report during what is traditionally the best quarter of the fiscal year. Given the existing market conditions for fresh pork and live hog prices. Management is generally satisfied with these results. As I look at the company and the results for the most recent quarter and the 9-month period, the fundamental drivers for the results are very simple. Low live hog prices and overall over supply of proteins in the marketplace. These two issues we believe will spell correct. Fundamentally, Smithfield is a very strong company and getting stronger. I take great pride in the following observations. Our raising operations are topnotch managed by the best in the industry for the raising costs and efficiencies that rival anyone in our industry. Our beef operations are strong. Rich Vesta and his management team have continued to drop costs out of their system and maintain margins even as cattle prices have risen. Our international operations now are on solid footings. Poland has recorded second straight profitable quarter and is now profitable for the year. Canada and France have always had strong management. All of this gives me comfort that our international operations are strong and they will benefit as the markets permit in those respected countries. Our processed meats business continues to grow very nicely both in pounds sold and in margin. This speaks to the overall strength of our distribution system and our brand, that we can grow volume even as we focus our margin. Our fresh and processed meats businesses have now in large part come into balance. The company is achieving strong volume growth not at one but in several meat categories in the processing area.

Three categories, raw bacon, bone and hams, and boneless hams as well as smoked sausage, traditionally thought as mature categories. The company is achieving nice volume and margin growth as well our concentration in the pre-cooked entree category, pre-cooked bacon, and in pre-cooked sausage are all growing very nicely. All of these are growing at high single digit levels and some at double-digit rates as well we are achieving market share growth in bacon, lunchmeats, and dinner sausage. Our newly formed daily group under the leadership of Rick Goodman is seeing volume growth of nearly 20% for just the first 9 months. Beyond this, I'm seeing continued growth of sales in both the retail channel as well as food service channel at the expense of sales of raw materials to other processors. All of this in my mind goes very well when these markets turn. While we are not pleased with the current result they were not unexpected. We knew in the fall the hog prices looked weak through this quarter. Fresh pork demand, however, was weaker than we anticipated and continues to be weak into the current quarter. Hog prices are improving, although currently not above breakeven and looked to be continually improving to the fourth quarter and into fiscal 2004. Cattle numbers are declining, an indication that the poultry suppliers are shrinking as well. All of this leads me to believe that the worst is over and the results certainly say generally improve in the coming quarters. When these markets return to more normal levels and they will return, we will be stronger and better positioned to reap the benefits from our base, which is broader and our leverage, which is greater. With that, I would like to turn it over to Daniel Stevens for some comments in terms of some of the financial information that you might want to be aware of as well.

All right. Thanks, Larry. I just want to point out a couple of financial highlights that were not in the press release. Our capital expenditures for the third quarter were $38m this year, compared to depreciation of $41m that compares to capital expenditures of $42m last year in the third quarter versus depreciation expense of $37m. We are trying to control our capital expenditures in light of the current operating conditions until our EBITDA and our cash flow return to more normal levels. For the year, capital expenditures were $133m versus depreciation of $121m and for the year-to-date period last year, both capital expenditures and depreciation were about $100m. For the year-to-date period, capital expenditures reflect both the increase in due to acquisitions with the Moyer and Packerland acquisitions, as well as, some carry over spending from some of our key process meat expansion project. When you look at our EBITDA for the current year -- for the current fiscal third quarter, our EBITDA was $76m, compared to last year's third quarter of $155m. When the quarter of the EBITDA shortfall clearly just reflects the drop in earnings. For the year, our EBITDA has been $232m versus $458m in the prior year, year-to-date period. And that reflects both the earnings shortfall and higher depreciation of some $20m, which is principally due to the acquisitions and some higher capital expenditures in our prior years. Our debt-to-total capitalization at the end of our current fiscal third quarter was 55% and that compares to 52% at year end and this increase obviously reflects the significant shortfall on our earnings and an increase in our debt levels since year end. Finally, an update on our treasury stock repurchase program. For the last two quarters, we have not repurchased any treasury stock. In the first quarter, you may recall, we repurchased about $950,000 shares at a cost of about $16.6m. [First thing here] last year, we had repurchased about 4.5m shares. With the $950,000 shares that we bought in the first quarter, we have about $1.2m shares remaining under the current share repurchase authorization. With that, I give over to Jerry for questions.

We will now open the call for questions if you will kindly follow the operator's instructions.

Very good. Ladies and gentlemen, at this time, if you have a question, please press the "1" on your touchtone phone. You will hear a tone indicating, you have been placed in queue. You may remove yourself from queue at anytime by pressing the "" key. If you are on the speakerphone, please pick up the handset before pressing the numbers. If you pressed one prior to this announcement, we ask you, please do so again at this time. And our first question in queue is from Christine McCracken from Midwest Research. Please go ahead.

Good morning.

Good morning, Christine.

Wondering you had mentioned that your beef operations were actually relatively strong in the quarter. Can you talk a little bit about your outlook there? I know that placements have been a little off, and I am wondering, if you could just comment on that?

You said, Christine, prices had been off.

Placements.

Oh, placements. I mean, I guess you are alluding to the fact that beef prices are continuing decline towards record levels, that's what you are driving at?

Yeah. I guess, I am just curious, how you view the current supply of cattle relative to your outlook for margins?

You want to take it, Larry or you want me to take.

Go ahead, Joe, if you would like to.

Well, that simply I would like to that -- the everyone knows the cattle numbers will be coming down probably for the next year or two, Christine. It should not affect us as much as it affects on the other major packers because of the high hosting on numbers that we were in through our plans because the dairy numbers are not -- do not have the wide swings as the typical feared cattle market, so we will be affected, I think, the entire industry is expecting lower numbers, higher [inaudible] prices, and perhaps squeeze margins, but those squeeze margins will really depend upon the discipline that the beef industry shows in regard to chasing unprofitable stock.

And then, I was wondering if you could just comment on the current export market there? I realized that the USDA just announced, I guess, record exports of pork, and is it your expectation, I guess, that those markets will continue to be strong?

Larry, you want to take it, you want me to take?

I guess, I'll tell you Christine, we are seeing from our standpoint -- we are seeing a strong export market, you know, whether they are going to continue, I guess, that depends on where the gate price is, how Russia continues to react to the poultry issues, but at this point the market seems strong from our standpoint -- some of our Japanese business is really quite strong.

And Dan, could you just give us some guidance on tax rate for the year?

Well, as you can see Christine in this quarter we were -- we worked at lower tax rate really due to two reasons, one is, our international operations which last year were unprofitable, and we had non-tax affected losses, this year those operations are profitable; secondly, with the earnings being down so much the impact of the tax credit has a much more significant impact on your overall effective rates, so we are expecting to come in somewhere around 34 or a little bit less for the remainder of the year.

Thank you.

And your next question is from David Nelson form CSFB. Please go ahead.

Good morning.

Good morning David.

What is your CAPEX outlook, or does that really just depend on the markets turn-around?

I guess that I'd say to you David from our standpoint, we are trying to hold capital expenditures to depreciations with some leakage in the earnings, but we are trying to reign those in over the near-term. Hopefully this market is getting ready to really turn a strong way and the earnings come back where we expect them to be, but at this point we are trying to hold our CAPEX to depreciation.

Okay.

Hello David, this is Joe. I would add though that we are continuing to spend money on capital expenditure or projects when we see a return that is attractive, and you know, anything under a 1-year return, we don't have any [hedge] to say at all of spending the moneys on.

That is correct.

And all we have done is, we have sort of some of the projects that if we have a record earnings we might go, and where that is 2-2.5 year pay back, we might be spending those moneys. What we have done is just sort of cut back on those marginal projects, but we are continuing to spend money when we see the opportunities. So I mean, it would be a -- someone came to us, the way we operate, someone came to us tomorrow and showed us a project, where there was a pay back in 9 months, and it meant spending $10m over depreciation, we would probably go ahead, and do it, David.

I [forget if you ask], this came up down at Kagney(ph) last week, but is there any update on farmland?

No, it is really nothing, there is nothing new to report more than what I say that the Kagney conference, David.

And I forget which was that you had bought up some of the debt?

We followed very, very closely, and then, we have a strong interest.

Okay, great thank you.

And you next question is from Craig Albert from [inaudible], please go ahead.

Hi, good morning guys.

Good morning.

I had 2 questions. One was on share repurchase in the balance sheet, just asking why you are not repurchasing shares at these low prices, does it have something to do with the credit rating and if so if you could elaborate just on your thoughts on capital allocation, as far as, the balance sheet versus share repurchase?

Well the main reason is, we have some capital projects that we are spending money on, with pay backs of a year or even less, and we'd rather put the money in those projects then share repurchases, and we don't want to -- in regard to the credit rating, we don't want to get too aggressive in that area at this time. I can tell you that right now, we don't have any plans to repurchase shares, but certainly as we see that when the earnings come back and they will come back, there is absolutely no question that they will come back in the live stock area, what we will do, we will look at where the stock is priced, and we will look at what capital projects that we can spend money on, and we will decide which approaches the best interest of our shareholders and move in that direction that has just been the philosophy of the company for many years. We don't have a five or ten year plan. We take opportunities as they present themselves.

What is your target -- you are feeling what the right credit rating for your business should be, and your expected outcome of the standard employers review?

Larry, you or Dan, address that if you will.

You want to take that, Dan.

All right. Craig, we feel fairly comfortable with our ratings where it is, where the ratings are right now with S&P, which is investment grade. We have had conversation with Moody's to try to get an upgrade. With S&P's recent release, we've been trying to coordinate schedules to meet with them, but we have met with them in November, and the conclusion of the meeting was very cordial, but they were clearly concerned about our earnings levels and having to amend our bank agreement. We expect that we will able be to when we do have our meeting with them. We expect that we will be able to share with them better outlook for the fiscal '04. That should happen in early March.

Great, great. And my other question was, if you could just give us your view on why it seems to be taking longer for the hog markets to turnaround then we had originally expected?

I -- this is Joseph Luter, the hogs dipped down in the August, they ran down to the $22 level and then they rebounded in the fall, and actually in November and December the hogs were at little higher price than what we expected. I think the hogs stayed very, very cheap through the late fall, you would see a very severe drop in sale numbers. We are seeing a drop in sales numbers, and we are seeing in the industry a drop in productivity numbers. You put the two together, we are having -- we are expecting just making little higher than what some people expecting, but I think we expected 4.5-5% reduction in total numbers in the next year, and that should hold well for all our hog market in the half orders, and perhaps even hit the low 50s, this summer. The futures markets are, like indicated, the hog market in June and July would be around 46-47, it moves daily. And if that happens then, we'll be in the position to be making, you know, $24 to $25 a head, you know, within the next 4 or 5 months.

Have you done anything?

But here again, I don't know of anyone that has the ability to project hog prices. I have never seen hog prices in August higher than they were in October, November but that happens this year. What you have to remember is that there is fairly very large percent of the hog growing industry that has caused substantially higher than Smith yield, and these people do not have deep pockets to stake large losses for a [spit] sustained period of time. And, when you get the hog numbers down 5-6%, you see dramatic increases in prices. I saw that we saw hog markets four years ago get down to roughly $10 a hundredweight and rebounded in the low 50s. So, it didn't take but a small percentage decrease in hog numbers to dramatically affect this supply demand cycles. And so, we fully expect the hog prices to return to historic levels in the next two -- you know, it has already begin, and we will see it improving this summer into fall and the next two or three years. This is the 4-year hog cycle that has been around for 100 years and that I keep referring to over and over in our presentations. All that you have to look at Smith you'll, really in four-year segments and if you look at us in four-year segments we have a very strong, steady, upward trend; but we do have up and downs in a four year cycle, and we just to have to be in it at this time. But I don't think it will last a whole lot longer than that we [inaudible] originally expected.

Okay, Joe, if I am reading you correctly to say that you don't have any plans to cut back on your sales, your production, you are going to take your low cost position and ride it?

Absolutely, but we don't have any plans and have not had any plans for the past 12 months of expanding [inaudible]. The only place we are expanding today are in Mexico and in Poland and Brazil.

Great I appreciate it guys. Thank you very much.

Next question is from Andrew Wolf from BB&T capital Market. Please go ahead.

Hi, good morning. Could you just clarify on that last line of questioning? Joe, you said 4.5-5% reduction; is that in your forecast for the pig crop going forward for the next 12 months?

Yeah, I think so. And it's a little bit higher than what most people are expecting, but the reason I have come to that, Andy, is that we are seeing some productivity problems. We are seeing some [inaudible], which affects productivity, you know perhaps 1%, 2%, 3%, 4%. We had a very high productivity in the last year and a half, higher than it was 2.5-3 years ago. But we see that leveling off. And we just had ideal conditions last year, and we got an extra 1% or 2% and now we are losing that 1-2% in productivity. But quite frankly, even though the productivity is down, that 1% or 2% down in numbers will result in much higher levels of profitability, although it will mean a few -- a low 1-2% less hogs marketed, but the hogs at our market will have a much larger profitable impact than 1-2%. I hope that is a clear.

That's great I appreciate it.

I know that is a little bit higher but we have factored in and we have talked to some other people that are in the business, I think everybody's productivity is a little bit lower than it was last year this time and their [sale] number is down. So that should solve the problem with additional [less]. As Larry mentioned earlier less beef and pork will come in to market in the next year. All of that should help these markets.

And that will get us further down stream on the packing margin, which also sort of rolled back over recently. What's' your corporate view on when the packing margin for pork might begin to expand?

Fresh pork or processed?

Fresh pork.

We just have a glut. We have a glut of all three proteins on the market right now and as you all know supply and demand that you learned in the first year economics 101, and so we -- with less pork coming in to market there is no question that it will allow the packers have more price integrity because they are not pushing the product through the system as vigorously as we have been doing in the last 6 months.

Great and one last question. It's on your expense control was pretty excellent this quarter. It was the lowest SG&A ratio in a couple of years here. Is this something that can continue or is there anything with this quarter that was you really hit it right -- I mean you have been talking about expense control and hiring people from outside for logistics and things. Is this a trend where we might see the expense ratio in the near 7% or even below, like it was this quarter?

Well, in the past year and a half up until 6 months ago we have been on a very rapid expansion. We brought up, I think, about 10 companies in about 14-15 months period and that has come to an end temporarily, and so we are out there I will say a little bit less today in many areas that we were in a year and a half ago, but Larry you and Dan may want to get into--

I will let Dan respond to this Joe.

Andy, let me temper down the enthusiasm a little bit. There was -- there's a note at the bottom of the press release that we had a reclassification. There was about $8m of previously reported SG&A expense that was reclassified [GAAP] back up into cost of sales. So, part of that reduction in the current quarters really due to a re-class of one of our plants from the Packerland acquisition was actually reporting some what we considered to be cost of sales in their SG&A category. So that was reclassified in the current quarter to fix that.

But, Dan, on the press release the comparable number to look at where we've got 137 for SG&A, the comparable looks will be 145--

145, that's correct.

That's still down; I want to pull that out still down. This is of course a small reclassification.

So Dan, the year-ago comparisons instead of I think got 165 or something should be 145? I didn't understand, can you just give us what the comparable this quarters SG&A as versus last years?

Yeah. That's the 145 that Larry just mentioned. It's 145 versus 151.

That is the appropriate comparison.

So we are down about $6m.

Great. So, can you comment on the sustainability of that kind of tight expense control going forward? I guess Joe alluded to it, [pertaining] with some of these acquisitions. I guess you would be variable till I get the core business in control expenses and get synergies, does that what you are talking about there?

Yeah. We are just [inaudible] on it. We are not on an aggressive over an acquisition mode, as we were last year and you know that, that requires a lot of travel, a lot of -- all kinds of legal and accounting expenses that you don't normally have. That kind of had some impact. But we've been a company that's always tried to look very, very hard at all of our expenses. I was asked this question at Kagney and my response was, while we are looking at it hard we are not in a strong cost cutting mood that we would be in if, if we felt like to the Company was under pressure. We just still have a whole lot of expenses that we can cut substantially with that affecting the way the business that we do. We just still have a whole lot of fat to be cut; like a some of the other company's have.

Thank you very much.

Andy, just a few couple of specifics on that. We did have -- we did conclude our advertising campaign that we've last year on lean generation in the Northeast, which that saves us a little bit of advertising dollars. The other thing is that and obviously we don't want this to continue but variable compensation [inaudible] a bit. So that's some of the SG&A is a result of the [arms] being down.

Okay.

Next question please.

Next question is from Jeff Kanter from Prudential Securities. Please go ahead.

Thank you very much. Good morning gentlemen. Should we use this 34% tax rate going forward, I know this is in fourth quarter, if I am not misunderstood you, but what about for 2004 as well?

Yeah, Jeff that's probably a good number to use, but might even be a little bit on the higher side. As we -- as earnings begin to come back, we should see levels at 34%, because our international operations are profitable now. So we get the tax -- there is no longer those non-tax affected losses. This, as long as earnings are down, that will be below 34% because the impact of tax credits obviously have a much bigger impact when you are on a lower earnings base.

Okay. Fair enough. And you said you concluded lean generation on advertising, when you expect that to ramp up again? And also what were case ready volumes in the quarter?

I guess Jeff; I will tell you that we are looking at whole new program in terms of how do we follow-up on the Northeast program as we speak, we are going to that evaluation right now. What type of program do we come back with? So I guess that answers that question? In terms of case ready volumes are down for the quarter.

Slightly or it is like more than 10% -- or can you --?

It is less than sort of 8%. That what the number is 8% from the [inaudible].

Okay. Fair enough. And when I look at your hog production groups' income. If live prices were down, average down $4 a hundred weight, that is about $10 a head, give or take, you experienced a loss of about $19 a head. Can you just, you know, can you bridge that $10 to the $19 as it is just hedges coming off from higher grain prices or do you have, you know, kind of higher overhead costs associated with grain or housing management administration -- what have you?

Jeff we got the higher grain cultures virtually all of that different. And there were a period now where those grain prices are being sort of fully fed into these animals if you follow what I'm saying.

Yes.

Same is began to come out from, but that's really not having an impact today. What we are really seeing today is the full impact of the grain prices that were higher this fall.

So, your hedges have come off a little bit. Is that fair to say or no?

Yes.

Okay.

But from usage.

Correct. Are you hedged in going forward for grain?

Here again I think we have -- Jeff if you would ask this every 90 days, we don't -- we are just not going to get into details about what our hedge position is in every quarter.

That's right, fair enough.

I just don't want to do that. I would tell you that that this year the -- you know some years we will make additional profits because of the hedging on grain. This year we have not because little bit prices of grain when we took the position on was pretty close, but I just don't want to get a lot of detail on our hedge positions because it will adversely affect the company when that becomes public knowledge.

Fair enough.

All I would tell you is that we do hedge and -- but it is not having a major, major impact one-way or the other.

Okay, but your overhead costs with the hog reduction group are not ruling higher either.

Oh no.

No they are not. I would tell you that they are not.

Wonderful. Okay. Thank you very much then.

Thanks Jeff.

Next question is from Ann Gurkin from Davenport. Please go ahead.

Good morning.

Hi Ann.

I was wondering if you could give us the actual cut out value numbers -- this year versus last year?

No, I'll tell you Ann is that to cut out -- as everybody calculates a little bit different is that the cut out from this year to last year. We probably cannot schedule -- is also about a dollars [inaudible] How about that.

No more detail on that?

No, I'll give you that. I guess from the point I'll make as an important here and may be you've already picked up. When we saw this hog prices, this kind of level, we would have traditionally thought that that cut out would be out. With hog prices going down year-to-year we would have expected fresh cost cut out to have improved. In fact the opposite of that occurred which quite honestly is outsized the historical norm and that's one major comment about the fact of the third quarter earnings plus fourth was weaker than we expected. We would have expected fresh quota have been strong than in the third quarter particularly as hog prices went down and that did not happen this year. Much to our surprise, if the over supply of beef and poultry in the market, which have kept a lid on the retail prices.

Let me add to that Larry, if I may. Looking back over the last 4 or 5 months, we expected hog prices to be actually cheaper than what they turned out to be, but the cut out profits we expected to be greater than what they turned out to be. The question is why did that happen and in my opinion that happened because we still have some valid major play offs in the industry that continues to operate that plans at 6 days a week when the cut outs are read. And there is just a total lack of discipline by some people in the industry and that is what affected the cut outs in my judgment this past quarter. It kept the prices of the hogs higher than what they otherwise would have been, but if you pressed on the price of the cuts, there's still is a lack of discipline in the industry in this regard?

Okay, thanks very much.

Next question is form Jonathan Feeney (ph.) from Sun Trust Robinson Humphrey. Please go ahead.

Hi guys. Just one follow up question. In terms of the live hog price recovery that has already taken place and I suppose it's mainly in the current quarter. So just tell me what you can, but are you seeing any problem passing those prices through on, particularly in the commodities pork but also on the further process side? I guess, I am trying to figure is there anything unusual about the pass through this time around rising Hog prices to the wholesale side?

No I don't think there's anything unusual. Larry, you may have a little keener inside than I. But I don't see anything unusual from pass cycles other than the points that we've already made.

No, I think Jonathan, as these prices start to move back there's always a little bit of lag as you probably would expect. In terms of where your fresh Pork is initially and then as those, as the things became catch win and you got beef sitting there at a sort of 50 cents variance between cattle prices and pork prices. And so that's going to have some effective pulling pork up. Pork is very profitable in the retail stores today. And so there's going to be resistant, but there's no question that at overtime, as these prices move up that the cuts will simply come behind it.

Great thank you very much.

You next question is Reman Vahad (ph.) from Lehman Brothers. Please go ahead.

Good morning. Larry, I am assuming that within your processing, pork processing business, process EBIT from the process side actually rose quite heavily and then profits on the fresh pork side fell?

That's correct. Okay, [inaudible] I am not sure I followed your question, So Joe, you followed the better than that.

That's correct. I mean if you l look at the some of the earnings of some of our competitors that are vertically integrated but are not heavily in the process meat business they are actually have been losing money for the last 9 months whereas we have not.

And I am just trying to find out, if at all possible, by what rates the profits in the process side grow? Given the fact that you have improvement in your sales mixes and the volume also grew 5%. Because it seems like the decline in the Pork processing operating profits is masking the improvement in the process side.

That is -- I am mean, Rees, I would tell you that's absolutely correct. Our profits on the process meat side are up fairly dramatically and obviously you could tell that from my comments earlier.

Right.

And the answer to that is that you are looking at the fact that the pork processing operating profit was $84m last year, $78.5m this year. Is that what you are making a reference too?

Right. I am just trying to see within that $78m, I am assuming that the process side of the,-- your pork processing improved, while the fresh pork fell?

That is correct.

That's is correct.

How much did the profits on the fresh pork fall? I mean is it 10%, 20%? Is it a loss this quarter versus a gain last quarter, last year?

The fresh pork numbers are down about 10% or 12%; our process meat margins were up better then 20%.

Okay. That exactly is helping. And then the next question was, are you seeing any improvements in your packing margins today versus the average for the third quarter?

No, I would say not yet reasonable.

Let me add, normally this is what normally takes place in the fourth quarter. The fourth quarter is February, March and April. I would 9 years out of 10, February is always a very weak quarter followed by a strong march and much stronger March and much stronger April than February.

Okay, so it is too soon to necessarily see to the seasonal?

That's correct. Most of our financial people get a little concerned when they see February results. This has been going on from last 20 years like you said well February is not an indication of what March and April is.

Right.

Normally, February is much weaker then March and April results.

Right. And then on the hog production side. Are the prices that you are receiving today allowing you to break-even?

We are getting close to the break-even point.

Okay. Got it. And then Dan, I was wondering if you could give me the total debt numbers short term and long term and your cash number as well?

I don't have the short-term and long-term break down, but net balance is going to be approaching $1.7b. It will be a little bit shy at that, that's up from just about 1.5 at yearend.

Right and then your cash on hand or on the books?

Are you talking about the liquidity or just cash on the books?

And cash and then also revolver availability.

Well our availability is just over $220m at [inaudible] and that's worldwide. Cash is, that's always kind of moving target but I probably put it at the normal 75 to 80 daily, which is half of normal value.

Great. Thank you.

Okay.

Next question is from Karen Altredge (ph.) from Goldman Sachs. Please go ahead.

I have two questions. First with regard to acquisition, in the near term you saw desirable acquisition. What would be your financing flexibility for it? And second on with regard to the advertising of the lean generation. Could you give us a sense of what impact I had in terms of brand awareness, sales, and product placements?

Let's go [inaudible] different questions.

Let me take the financial one.

I want you to take the financial one.

Historically we have always done larger acquisitions with some form of equity or share of equity at least. Depending on the size of the acquisition and given what balance sheet is today, we would look to issue some amount of equity to maintain our leverage ratios. Smaller acquisitions, we have the availability to do that with. Did I answer your question?

What kind of leverage ratio would you look to maintain I mean what would be pushing the envelope?

I think we are right now.

Okay.

55, this is high for us.

And the company has been as high as 60% to fall a weekly, it's something that [inaudible] accretive [inaudible] earnings between the debt level back down we have gone to 60 that is sort of stop sign level. I hope that answers that.

Great. Thank you.

And your second question was in terms of our Northeast campaign, what kind of benefits we see in terms of brand awareness. We did see awareness improvements and we did see additional both fresh pork and processed meats. I guess I’ll call it slotting and distributions into the Northeast channels as result of that.

Great. Thank you very much.

Next question is from Zwareen Jean (ph.) from JP Morgan. Please go ahead.

Yes, hi. I was wondering if you can quantify the benefit on EBITDA of an increase in retail meat prices that tends to increase in retail meat prices, what would that mean for the EBITDA?

I would tell you that is an impossible number to calculate. It depends on what the retail price reaction is to the raw material supplying that sale. That's just an impossible calculation.

Okay that's it for me.

Next question is from Eric Spell (ph.) from [inaudible] Capital. Please go ahead.

Thanks, but my question has been answered. Thank you.

Good and a follow up question from Craig Albert from [inaudible]. Please go ahead.

Hi guys. Thanks for taking my follow up call. One, first I didn't catch the number you gave for cash.

Craig I think its I don't have a balance sheet here in front of me we are probably still day away from finalizing the balance sheet. But I would guess that our cash number would probably come at $75-80m, which represents quite a day and half to float. It is basically what our cash number is. Where the price matter Craig we don't keep any cash. It's merely the deposits in France that have not yet cleared the bank from the book-keeping standpoint.

Okay, and my other question was Joe in reference said there are lot of people who are still being undisciplined in the packing business on the fresh meat side and I was wondering if you have seen any change in behavior in the former [ConAgra] group now that is being run by financial investors or whether they are behaving the same whether they used to in the past?

I haven't seen a whole lot difference that there maybe but I have not asked a question of [inaudible] like in the last 30 days, I don't think this maybe make a change but [ConAgra] was one of the -- there is really [inaudible] there is one major company out there [inaudible]. But there is just one major company out there that is aided. This shows [inaudible]. But that will bring some changes because they see the bottom line that'll make a change probably, who knows, but there is always been lack of discipline in the industry. There has always been a tendency to push production. That is just the nature based on the [differential].

Great thanks for your time again.

And once again if you have a question please press the "1" at this time.

We would like to thank everyone for joining us today Joe, do you have some closing remarks?

I do not. I'll just repeat what I have been saying for 25 years now Jerry that we are in the industry that has ups and downs and we just are going through a down, and we go through a down about very four years for the last 100 years in this industry and things go correct for one simple reason is and that when you have hog production at uncomfortable levels you always see reduction in breeding stock, which means reductions in hogs into the immediate future and that's happened this time as it has happened for the last 100 years and we feel like we take advantage of the opportunities when they present themselves in these down times. And we just [broadening] hog production company little over 20,000 [inaudible] what's have been three months ago. Larry and people would say that's -- why would you do that? Well, we did it because we brought it at a price that we thought was very attractive and the price was attractive because the industry was unprofitable at that particular point in time. But that segment of the business will always recover. Now on the meat packing side, they could remain unprofitable for the next 15-20 years because the people that are in that [inaudible] with that side of the business had deep pockets and can carry losses because they are in many other businesses. But in the hog production business, you don't have that kind of financial strength and that's why you see an immediate reaction in reducing hog numbers when prices get to unprofitable levels. So, it's nothing new here that hasn't -that we haven't being going through for a 100 years in this industry.

Thanks Joe and thanks to everyone again for joining us today. Have a good day.

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