Smithfield Foods Inc (SFD) 2004 Q2 法說會逐字稿

I'd like to thank you for holding today and welcome you to your conference call being hosted by Jerry Hostetter. I would like to remind everyone at this time that your lines are in a listen-only mode. You will be given the opportunity to ask any questions that you may have after the presentation portion of the conference. Today's conference call is also being recorded and transcribed for future playback purposes. Sir, I will turn the conference over to you at this time and thank you for using Sprint.

Good morning. Welcome to a conference call to discuss Smithfield Foods' fiscal year 2004 second quarter results and review our acquisitions of Farmland Foods. 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 Foods form 10-K for fiscal year 2003.

With us today are Daniel Stevens, Chief Financial Officer, Richard Poulson, Executive Vice President and Senior Advisor to the Chairman, C. Larry Pope, President and Chief Operating Officer and Joseph W Luter III, Chairman and Chief Executive Officer. This is Jerry Hostetter, Head of Investor Relations. Larry Pope will begin our presentation with a review of operations. Larry.

Thank you, Jerry. Good morning, ladies and gentlemen. Certainly refreshing to come to you this morning reporting another very strong quarter for Smithfield Foods. As you have probably seen this morning our net income we're reporting for the quarter ended October 26, 2003 is $36.2 million or 33 cents per share compared with $4.1 million in the prior year second quarter or 4 cents a share. I as well direct you to the fact that we are now accounting for Schneider, which as many of you know we signed a definitive agreement for sale of Schneider as reported as discontinued operations.

So from continuing operations the earnings of 31.9 and 29 cents a share compared with just a small loss in the prior year second quarter or a quarter breakeven. On a year-to-date basis we are reporting $58.3 million and 52 cents and versus 15.9 and 14 cents per share in the prior year. This again is a strong quarter for the company. We have been through a long period in which the earnings were disappointing each and every quarter. It's refreshing to me that these earnings compare very favorably to the prior year. As well the fact that these earnings are up substantially from even the first quarter. No surprise to most of you, these earnings are driven in large measure by profitability in our beef operations and as well a turn around in the price of hogs in the hog production operations.

Our margins on the beef side of the business are excellent. Even as cattle prices have gone to record levels, our margins have continued to be very strong and are continuing even as of today. Our operations are very solid. We have very solid management team and Rich Best and his group and the demand for the product continues to be there which continues to deliver to us very superior results. If you look at the segment reporting information, you will see that the profits from beef are more than doubled last year. This part of the business is very, very solid and that is very similar to what other people in the beef industry have been reporting.

On the fresh pork side of the business, which is part of the pork operations that we are reporting now, our margins are okay. I would tell you that they are not great. But they are similar to the margins we were realizing last year on the fresh pork side of the business. We continue to be surprised by this big disparity between live hogs and live cattle. At this point pork has not seen the same demand and the same margin levels that the beef business is seeing and we expect over time, and we continue to expect that almost at any time, the fact that this disparity between live hogs and live cattle will return to more historical levels.

As you probably know that the $60 variance that we have got now between live cattle and live hogs is not the historical variance and this has got to come back to closer and this should be a big opportunity we believe on the fresh pork side. Our lead generation business is holding steady. We have not seen significant growth in that end of the business but it is still a very solid piece of the business. Our case ready business is off slightly and we still do not see, I know that a number of other people are reporting that particularly, Tyson is reporting big big increases in their case ready businesses.

We are really seeing a growth in one customer which is Wal-Mart, the rest of the retailers we are not seeing a big migration as we've mentioned several times in the past. At this point with the addition of the Farmland operations we are in a position to have eight fresh pork plants that we can do our own benchmarking against and we believe that there is a tremendous opportunity to maximize the value of the animals going in the back of the plant as compared with the meat going out the front of the plant. That there is a tremendous opportunity in our operations now to compare these and to benchmark these operations and get the very most out of these plants as is possible. Our management teams are focused on looking at best practices across all of those eight fresh meat plants. We are looking at equipment that we are using in the individual plants. We're concentrating on yield variances between the plants. We're looking at line layouts.

We are looking at mannings at the individual plants in terms of specific operations and as well we are analyzing sales strategies to ensure that we get the very best out of our market position and the animals we have got in the back of these plants and the management talent that we now have across this company which is very, very, very significant and I think that holds an awful lot of promise for us on the fresh meat side of the business. On the processed meat side of the business, things continue to be exceptionally good. We have got a 7% volume increase this quarter. That is following a 6% volume increase the first quarter. And if you remember back to last year, we had an 8% volume increase in processed meats last fiscal year so we are tracking right over those numbers. [audio out] solid growth in processed meats this year.

I remind those of you who are not familiar that the company has a 1.6 billion pound processed meats domestic business, so this 7% increase equates to 100 million pounds this year in increased processed meats business and that is very, very very encouraging to me because it is an area of the business that we have been focusing on for the last two years and it is bearing significant fruit. Also rewarding in that is the fact that the growth is occurring in multiple different directions. It's not just one issue. Our traditional business whether that be the bacon or the boneless hams or hot dogs or 4x6 luncheon meats or the dry sausage business, those are all seeing very nice increases.

Beyond that the prepared foods end of the business is again seeing very significant growth whether that be precooked bacon or precooked sausage or precooked ribs for the delis and the meat case and precooked entrees. If you may remember, we purchased an operation down in Texas about two years ago, Quick-To-Fix, and we have struggled with that. We bought that out of bankruptcy, we've struggled with that and I can tell you that that plant now today is struggling to meet the demand of the sales. We have filled that plant up and in fact it is struggling to make all of the deliveries because of the increased sales and we have as well some significant sales opportunity coming out of that operation in the very near future that will dramatically improve that even from where it is today.

Do what gives me an awful loy of comfort is the fact that the processed meats business, which we have concentrated on, we have been successful in growing those categories, growing it significantly, growing both our traditional business, which helps us use our raw materials internally and as well grow our importance with our customers. The other piece of that is our margins this year are not to the level they were last year. But, they are very, very acceptable. Last year we had very cheap raw material in this quarter and those raw materials translated into very nice margins. This year, raw materials have increased fairly substantially.

Hams are up 31%, bellies are up 19%, trimmings 50s are up 58% and 80s are up 75% quarter-to-quarter. So we have not maintained the same margins on a per hundred weight basis but I will tell you that the margins that we are achieving are very, very satisfactory. So the net of all that is that the benefit of growing the business and maintaining solid margins to me gives me a lot of comfort that the base of this business is growing and will stay there for sometime. Our food service continues to be up. Our deli business is flat this quarter although this comes on the back of a very substantial increase last year. So we are continuing to maintain that business and as well expect a very strong second half in the deli end of the business.

On the international side, the first quarter we had a tough quarter. We lost money. This quarter we are in a situation where our operations have turned around so some degree. We are having a little bit of trouble in France continuing because of a pricing issue, the way they index pricing. But I can tell you that our Polish operations were very solidly profitable for the second quarter and look to be even more profitable going forward. So internationally I think that the business which was struggling for the last few quarters has now turned around and is moving very positively.

The turkey side of the business, which is now being reported, Dan Stevens will cover with you some of the reporting difference and you may have noted it in the press release, we are recategorising some of the areas in terms of the segment reporting,. Turkeys are now being reported as part of an other category and our turkey business has improved this quarter over last quarter although not as good as last year. So the turkey business has turned up to some degree but it's certainly not back where it was. The other big pickup was hog production. Live hog prices have moved about $10 a hundred weight this quarter versus the prior quarter and that has certainly taken us from those sizeable losses that we were realizing last year to, in fact, a profit as we are reporting on the segment reporting which is the foreign interest allocation.

I will tell you after the allocation of interest our production operations were not profitable. So even though livestock prices have rebounded they have not rebounded to the point that we are profitable at the bottom line. I guess the summary of the quarter from my stand point is that the area that we reflected this 33 cents versus 4 cents last year and I'll leave it at that although it could be the 29 versus zero which is still a 29 cents improvement. From my standpoint I see this as a quarter in which fresh pork margins were very average. They were profitable but they were very average. We had no contributions from our live production operations.

We had no contribution in total from our international operations, that excludes Schneider because that is discontinued operations. But our beef business was very strong and our processed meats business is very strong. Our margins are strong and our volume continues to be strong. Before I turn it over to Dan and give you a look to the future, let me at least address, I'm sure there are many questions about Farmland and so I thought I would take a couple of minutes and just address that to give you some more information. First and foremost we are extremely impressed with the management team of Farmland Foods.

We believe that Farmland Foods, now being out from under the burden of bank bankruptcy and the coop system, will allow this management team to shine, and I mean to shine brightly. The talent we have seen in that organization and as well some of the operating efficiencies that we have seen, give us a lot of encouragement that this operation can be very significant to Smithfield Foods and can be a strong contributor. The Farmland plants are not new but neither are our plants and neither are most of nearly all of our competitors. But their fresh pork plants are good and in fact very good and they stack up very well against our plants and as well others in the industry. So I think from an efficiency standpoint, particularly on the fresh pork side of the business, Farmland has nothing to take a step back for.

I'm sure you're all concerned about, or are questioning, are there any potential synergies in the operation as Farmland becomes part of the family. As you may know, we don't really like forecasting synergy numbers but I can tell you that I believe they to be significant. I can as well tell you that the replacement of the lost Schneider results with the Farmland results should be positive and should be significantly positive to Smithfield Foods. We do see opportunities in the areas as you could imagine in purchasing, in the insurance, in the administrative end of the business, in livestock transportation in terms of how we route livestock with our contract with Presige Stacker Farms in the midwest, rerouting of livestock to the closest plants, such things as overhead, Farmland Foods has already moved out of a relatively expensive office building they were in as part of Farmland Industries.

In this short time they have already moved into new office quarters which have dramatically reduced their overhead costs just in the administrative end of the business by nearly two- thirds. So we are continuing to migrate operations and production operations into plants where Farmland may have had outside operations, product manufactured by competitors, some of those are moving to closer plants and into the Smithfield system which provide co-packing opportunities and opportunities to better utilize our capacities versus our competitors. So there are an awful lot of things and I will tell you those things are happening very quickly. We are pursuing them every day. We are having conversation every day and I believe that they are very significant.

I would like to point out that with the addition of Farmland, and Farmland brings to us about 500 million-pounds of increased processed meats business in many categories are straight down the middle of what our business is. Right down the strike zone. So we have been back and forth in terms of being a number one in market share of bacon, I think this clearly moves us to the number one bacon slicer. And the breakfast sausage we go from 6th to 4th and in lunch meat catagory we go from 4th to 3rd so Smithfield is a very significant player in the processed meats. On our fresh meats business is going from 20-27% and that is certainly very sizable. I want you as well to understand that on the processed meat side of the business we are a very significant player in several major product categories and our customers appreciate that and see the opportunities there. I think another thing we can provide to our customers is assured supply.

These various processed plants, whether it be processing of fresh pork, given the level and the volume of the production quantities and the number of plants and locations, we can assure our customers that as they grow their business and we grow with them that they have an assured supply source both for their finished product and the raw material of our processed meats. With that being said I would like to turn it over to Dan who would like to cover some of the financial information I know many of you track and then I will come back to give you my opinion going forward. Dan.

All right, thanks, Larry. Good morning, everyone. I just want to cover a couple of the changes in the financial reporting as well as some of the numbers that aren't readily available from the information in the press release. As Larry mentioned Schneider Corp is now reported as discontinued operations. That means, for financial reporting purposes, we have restated our operating results to exclude the results of Schneider's. As you saw in the segment today we excluded Schneider and have taken the other international operations along with turkey business and created an other segment.

And in the income statement I reported sales, cost of sales, SG&A and interest expense all those line items have been restated to exclude Schneider. The net income of Schneider's is now one line as discontinued operations in the income statement. To give you an idea of the impact of Schneiders on an annualized basis, the results for the 12 months ended last April were pretax income of $22.7 million which was net income of $14.4 million or 13 cents a share. Add back depreciation and amortization and interest, the earnings before tax, interest, depreciation and amortization was 43.4 million for the 12 months ended April. From the first quarter of this year Schneider's represented pretax income of $7.1 million, a net income of 4.5 or 4 cents a share. And including depreciation and amortization and interest costs, EBITDA was $12.4 million in the first quarter.

In look at continuing operations, depreciation for the quarter was $37.7 million and capital expenditures were 33.6. For the year, depreciation has been $75.6 million and capital expenditures 63.5 as we continue to spend below depreciation levels. Including interest, EBITDA from continuing operations for the quarter was $114 million and for the year EBITDA was $207 million. Interest expense for the quarter was $25.7 million in the quarter, up from 21.9 a year-ago primarily due to higher borrowing levels and some slightly higher average interest rates following the $350 million bond issue that we did in the first quarter. Compared to to our first quarter however interest expense is down some $3.5 million primarily due to the exclusion of the Schneider interest expense and some favorable impact of interest rate swaps that we placed in the first quarter.

Our effective tax rate remained at 34% for the quarter and for the year and we don't see either the Schneider or the Farmland transaction having a very significant impact on the effective rate for the remainder of the year. Taking a look at some of the balance sheet changes during the quarter. Again, somewhat to the income statement the balance sheet will be restated for the impact of discontinued operations. So you will see on our balance sheet, in the 10-Q that we file next month, the assets and liabilities of Schneiders will be excluded from the individual line items on the balance sheet and one line is assets and liabilities held for sale. Also in the second quarter balance sheet you'll see that we did draw down on a $300 million bridge committment from Goldman Sachs in advance of the funding of the Farmland Foods acquisition which closed just a couple of days after the quarter end.

We will have an additional $300 million of short-term debt and $300 million of restricted cash that was done to prefund the Farmland acquisition. As you know, we intend to repay the bridge with the proceeds from the Schneider sale and we will finance the remainder of the revolving credit facility. Besides the $300 million bridge financing our debt levels from continuing operations increased by just over $100 million to $1.86 billion at the end of October. This includes the acquisition of Cumberland Gap, a premium branded sliced ham business, for about $56 million and the acquisition of some 27,000 sows in the Alliance Farms acquisition along with our normal seasonal working capital increases. Our debt to total capitalization from continuing operations and excluding the bridge commitment improved slightly to 57% from 58 at end of the quarter. Still comparatively high but improving.

We expect that the Farmland acquisition net of the sale of Schneider will slightly deleverage the balance sheet as the incremental financing required on the Farmland acquisition it will be offset by the debt assumed by the buyer in the Schneider deal. Just a couple of things I want to point out it as it relates to the Farmland and Schneider transactions. The Farmland purchase price was $367 million in cash plus an estimated working capital adjustment of $18 million plus the assumption of a pension liability. The incremental working capital adjustment reflects a seasonal buildup in inventories and will be realized in cash in the next 45 days. The pension liability was valued by the seller at $90 million. This valuation is based on the cost of purchasing annuities to defease the liability and that assumes an interest rate below 5%.

If you treat the plan as an ongoing plan and use a discount rate assumption like ours that reflects a high quality corporate bond rate, the liability is more like 50-$70 million depending on the future benefits that we provide to the Farmland employees. So for our purposes we value the acquisition at $367 million cash plus 50 - 70 million for the pension liability, or $417 - $437 million. And with the $70 million trailing 12 EBITDA the multiple is 6 to 6.2 times before you consider any synergies. On the Schneider transaction the enterprise value is $378 million with a trailing 12 EBITDA of 43 million or a 9 multiple. The net proceeds after we exclude the debt assumed by the buyer and the payment of taxes should be approximately $250 million.

In addition the buyer will be assuming the Schneider pension plan, which as of the end of last fiscal year was about $65 million underfunded. This will help our equity as we were required to record the minimum pension liability as a reduction in equity. Obviously we've had a number of changes in our financial reporting this quarter. If anyone has any more specific questions we can cover those during the Q&A. Finally I just wanted to report that during the quarter there were no further share repurchases and the current share repurchase authorization still stands at 1.2 million shares. Larry.

Thank you, Dan. In terms of looking forward into the third and fourth quarter as we enter into our third quarter this is historically a very strong time of the year for the company on the meat processing side of the business and this year looks to be no different than the past. Our holiday business has firmed up very nicely. We anticipate a strong selling season. As well margins in the fresh meat end of the business, fresh pork end of the business are generally very strong this time of year and I will tell you they are strong as we speak today. Those have come along very nicely. Live hog prices have fallen off just a bit.

Not so awful much but they have fallen off a bit of late. And finally the beef business continues to be very, very strong. As well our international business looks to have a very strong third quarter and as well fourth quarter, that's very strong. And finally, that Farmland looks to be an immediate contributor to the bottom line of Smithfield. So I am optimistic going into the third quarter, hog prices, if you believe the futures markets, hog prices will be improving as we go forward into calendar year 2004 and we will get beyond breakeven and in fact be profitable on the production side of the business. A lot of the signs going forward are very positive. As most of you know, the February/March period, January and February I guess I would say can be a little iffy but November and December are very strong and I think we've gone through the worst of the times and I believe that we have made the right decision strategically. Farmland is a tremendous addition into the family and I think our operations are very strong going forward and I'm very optimistic. At this point I would turn it over for questions. Jerry?

Glad to take questions now, please.

At this time, we'll ask any one that has a question to press star 1 on your touchtone phone. Your line will be placed into queue. After you hear you hear your name announced you may then ask your question. If someone in the queue has already asked your question and you would like to remove yourself from the queue, you may do so by pressing the pound sign on your phone. Again at this time if you do have a question please press star one. It will be just a moment for the first question.

Ladies and gentlemen, we've got a new telephone system today. Please get into the queue if you would like and we will begin the questions momentarily.

Our first question comes from Leonard Teitelbaum of Merrill Lynch. You have the floor.

Good morning. Can hear me?

We can, Lenny.

Thank you very much. Good quarter. I don't know if it's too early to talk about this or not but I know during several acquisitions in the past or discussion of them the concern had always been that the slaughter rate for hogs had been probably too much for the market to absorb on a consistent basis. Now that you have got Farmland and are in the clear leadership position do you see any change in slaughter rates, demand is high, things are good. Can we sustain it at this level given the slaughter of hogs that we're seeing out there now or does that have to really come down?

I guess, Lenny, one of the things that we have been saying for sometime. Start with the simple thing, every hog raised is going to get processed. So we have to start with that fundamental statement. The issue is not necessarily slaughter levels as much as it is live production levels and I think we have demonstrated and shown on more than one occasion that when we get up to the 100 million hogs on an annual basis it is difficult for anybody to make money whether it be the processor or it be the producer and if we can move this production down 6, 7, 8% into the low 90s everybody makes money both the producer makes money and the packer makes money. Without a significant, more than significant without a big export business we simply can't sustain these very high levels. And everybody make decent returns on both sides of the business. So, I guess I would tell you that there it is has to be a production decline, which there has been, except that we got these Canadian hogs coming in which are replacing the hogs that are not being raised in the U.S. Does that help with the question in. You probably knew every one.

I think it does. My only comment would be that if the processors reduce their demand then I think the hog breeders would do the same. The second question I would have is that you have been very candid that this was a good quarter and everything wasn't working right. What do you see as a big improvement in this coming quarter and maybe even into '04? Are we going to see a pickup in case ready or what is going to be the prime driver or is it going to be just really Farmland coming on and the synergies that you will get from that?

Lenny, from our standpoint I do not believe that we are going to see the case ready business explode. We've talked about that. I realize the some of our competitors are making some of the opposite statements. I do not thing that our case ready business is going to explode. With that being said, Farmland has a very nice case ready business, has a very solid case ready business and in fact has two sizeable plants. And Wal-Mart is a big customer of this, very big customer of theirs. But that is not what is going to drive the numbers. I think we have got ourselves in a position which I think is a very strong position where we have got the opportunity now to look across our midwest operations and our east coast operations and really learn from each other in a very serious way. We have had manufacturing differences and we have the opportunity now to be, and these are silly words so I understand they sound like a consultant, to be a best in breed but we have the ability to go out and see how they trim loins and how the east coast trims loins and John Marelle trims loins and Farmland has the opportunity to do the reverse and the synergies associated with that are significant and as well realigning our production operation, contract deliveries in the midwest, we have an opportunity there. So I guess I would say to you I think as well I believe we we will be more disciplined. We will continue to be more disciplined in the way we process hogs. We're going to make good decisions about when to go on Saturdays and when not to go on Saturdays and I know that goes back to your earlier question. So I don't think it is going to jump off the page. Lenny, we continue to be moving towards this processed meat side of the business, which is continuing to migrate the right direction with the right products. So I think that migration is going to continue there but I think on the fresh meat side we're going to see the improvement, what I call inside the plant.

Final question, have you seen any increased competition from Oscar Mayer on price. Or are your prices holding pretty well in the marketplace on the deli meat section especially.

They're not big deli players.

The packaged meat I call deli meat, I mean the processed meat that Oscar -

I think Oscar Mayer has gotten more competitive but they've still got a price point well above Smithfield Foods. And our competition I would tell you day in and day out is not Oscar Mayer and Kraft. They've got that piece of the market that they're going to maintain and they can get their prices down when they want to, when they are doing features, but everybody does that when they are doing programs with features but I don't think that I'm concerned about Oscar Mayer taking Smithfield's business at all.

This is Joe Luter, Leonard, just to add. We do plan to add capacity on the processed meat side to fully utilize our hams and bellies into further processed meats and this is something that we have said before. But there is a significant opportunity there and we are looking that very, very hard and we want to be in the position eventually to where we do not sell green hams and green bellies on the open market. We concentrated on bellies at the Smithfield plant the last couple of years and now we are in fact net buyers of pork bellies at the Smithfield plant and we expect to do the same thing in the midwest.

Thank you very much, Joe.

Our next question comes from John McMillian with Prudential Equity. You have the floor.

Good morning, everybody.

Good morning, John.

When you talk about best in breed you're talking about Lenny, I guess. Just a couple of questions for Dan and then one for Joe. Dan, as we look to '05 with Farmland in and Schneider out, can you just kind of run us through some D&A cap spending and interest rate assumptions? Some rough numbers?

All right, let's start with D&A. John, I guess Schneider as I mentioned for the last year they had $15 million in depreciation and we expect Farmland's number to be close to that 23 that we have in the Farmland fact sheet on the website. Interest should not change dramatically for between the additional financing for Farmland and replacing the Schneider debt, it is about $120 million of debt one replaces the other, slightly lower cost debt with Farmland. Capital expenditures will be a little bit higher. I think we will probably have to spend up 25 or $30 million for Farmland just to realize some of the cost saving opportunities that are there, that is probably 7 or $8 million higher than what we would spend for Schneider.

That might be up to around $200 million.

I think that is a little bit heavy but.

And just.

Around 90 probably.

Just in terms of Farmland's hog procurement contracts, I mean I guess with a rising hog market even though it hasn't gone up as much as we hoped, procurements not bad but can you just describe what they have?

I'll take that one. John, they have got several different things. I think you know that they have got their own production operations and we have talked about the fact that all of that is contracted. They do not own the farms themselves. They only own a contract for the raising of the animals. And all of those contracts, that equates to about 900,000 hogs a year that are coming to the plants under those contracts. And we are honoring all of them. We have said over time that those contracts are more expensive than our contracts.

How long do they go for?

Excuse me in.

How long do they go for?

They go out several years, three or four or five years. I believe the average is like four years.

Larry?

Yes.

That is what I was told but I just want to make sure we are not putting in any misleading information. I did talk to Jeff Lugman yesterday and he said he had a sizeable number of them that was less than a year and I asked him to verify that and get back to me today on it. So.

I think, Joe, he is talking about supply agreements beyond just owned hogs, if you follow.

Okay, I do, I do . Okay.

So we do have supply agreements where we have formula based purchases that we have gone out and in terms of going forward and those are not nearly as far as. Joe is making comment, that is where I was headed, we have got some supply agreements that are not our hogs. There are somebody else's hogs. We have an agreement to buy them.

Fine, thank you, Larry. John, net net net we do know that these costs are higher than what our current costs are. At the same time, that end of the business with Farmland will be less profitable on a per hundred weight basis but we do believe we're going into a high enough markets to where the next two or three years it will be profitable but not as profitable as our hog raising operation, John. That is sort of bottom line as we look to value those operations, that is the approach that we took.

And Joe, can you just update me on the latest on this country of origin labeling where they are in the conferences and?

I think it is going to conference. I assume that some of you know, if not all of you know, that the Senate did uphold country of origin labeling in a vote, oh I guess it has been ten days ago now and it will be going to conference, what is going to come out of conference is somewhat unpredictable. My guess is right now the country of origin labeling will survive but there is certainly no certainty in it. There is no question fundamentally we are against government regulation and we're all for free trade. Having been very big in the hog growing business, there is no question that if country of origin labeling survives it should be a very, very good for Smithfield because at a minimum it's going to put Canadian hogs at a disadvantage, vis-a-vis American hogs, because I'm confident that the American packers are not going to pay the same price because they have got additional costs that will come along with Canadian purchases. From very narrow self-interest I think it will be very good for Smithfield, even though philosophically I don't believe in trade barriers. Having said that Canada has had country of origin labeling for years and it has been an unlevel playing field and I think if the United States does away with it then I think they out to require Canada to do the same. But this is a hot political issue. I can say to some of these numbers that are being thrown around on the cost of country and origin labeling are grossly inflated in my mind and it will be very little added cost for us because we maintain such good records any way in regard to the flow of hogs through our system.

Thank you.

Our next question comes from David Nelson with CSFB. You have the floor.

Good morning.

Good morning, Dave.

Your beef profitability is obviously very high. How sustainable do you think these levels are and how do you see things looking out over the next year, please?

Joe, do you want to take that one?

I will take that. I think if history is a judge, David, you ought to expect the beef earnings to go down, particularly in the fed cattle side. I guess it will go back to how much discipline is in the industry as you're having a fewer numbers of cattle being marketed, you're going to have plants that are not operating at full utilization which is always reduced earnings. I think you have to keep in mind that a big part of our beef business and here again I'm relying on what Rich [inaudible] told me, but generally with the dairy cattle, the Holstein cattle, that's a big part of our business, is not as effective because we do not get to reduct, the numbers of dairy cattle do not go up and down as radically as fed cattle. And that historically he has done better in times when you have shortages of fed cattle. We do have some fed cattle in our Moyer operation. But I think to answer your question the bottom line there, I think it's going to depend upon how much discipline the packers have and how hard they chase these cattle. But what has happened this time, which makes it different than the past, is there just seems to be a tremendous demand for beef right now, whether it is the Atkins diet or what but the demand is, I think, surprised everybody. How the demand has held up despite cattle going from $70 a hundred weight to above a dollar a hundred weight.

What is your percentage of fed versus nonfed?

I'm going to, Larry, if you have the number, but I would say that fed is probably around 20%.

Right.

And here again, David, don't hold me to that percentage. We'll get back to you and give you the exact on percentage.

We'll get you that, David. I don't have that report laying in front of me.

I don't either but it would vary week to week.

Um-h'm.

So, because we do have plants that go both ways when fed cattle are.

Right, right.

So whatever percentage we give you would have to be on an annualized basis but will vary from week to week.

David, one more comment I would make to you that our program grades a lot higher choice versus select and some may know that follow in the industry know that there is a shortage of choice and prime as well so we are benefiting from that side of the business, the fact that the Holstein grade out so much higher choice versus select.

Your nonfed animals grade much more highly choice? That is interesting. I didn't think that would be the case.

That is the case.

Okay.

David, one thing, if I have a crystal ball, what I expect to see is I do expect over the next 6 - 9, months, a year, even maybe on out to two years out I would expect the beef earnings to decline and I would expect the pork earnings to increase. I just don't believe that this spread between live hogs and live cattle that we have experienced, I don't think it going to hold and I think that it has held for a few weeks but over time I just don't think the spread is going to hold. And I think you are going to see some shift. And keep in mind it doesn't take but 2 or 3% shift to have dramatic impacts upon beef and pork. But do I expect over time to see this shift simply because the vast number of American consumers do have to watch their pennys. Great.

If I could ask one other question? On prepared foods you talked about that being quite strong, particularly precooked. Could you talk about the margin progression there and how higher those margins typically relative to fresh? Is most of that coming from food service versus retail and I guess another one in that basket is do you think you're keeping up with the competition there?

Well, first of all, it is in retail and food service. I will have to say that at food service that is where we see the biggest increase, number 1 and the margins are substantially better. We are expanding Carroll Lee's which is our largest precooked business, I believe, out there today. It might not be after Quick-To-Fix , after these new volumes there. But the bottom line is that I'm trying to remember, Larry, what was the number that we agreed to spend on the Carol Lee's plant? The expansion.

I think it is about $15 million.

Yeah, that is the number that sticks in my mind but I wasn't sure. But we are expanding the Carol Lee's operation and that has historically been our largest cook plant. But Quick-To-Fix will probably see the greatest volume increases simply because those plants have been under utilized since we bought them well under a year-ago.

Great, thank you.

Our next question comes from Pen Jones. You have the floor.

Thank you. Good morning. I just wanted to follow up quickly on Lenny's first question and wanted to get your expectation for industry hog production next year. Production is expected to be down domestically but again we have this influx of Canadian hogs. Do you expect industry production to be flat next year, down, up? Any sort of outlook there?

I think that you are going to see it slightly down. I think there is a wide variety of opinions out there, as you correctly stated. It is really going to depend upon what happens in Canada and that is still an open question.

Um-h'm.

If cool does go through, as I said, I do expect Canadian hogs to sell for substantially below U.S. hogs and over the next two or three years that will certainly have a strong chilling effect on Canadian production. I don't think there is any question about that. The kill levels right now are a lot higher than we expected them to be just a few months ago and here again most of that is because of added Canadian hogs. But what is in the mind of Canadian producers or what they're going to do going forward quite frankly I don't know.

Okay, thank you.

I will say this, and this is very, very, I think very, very key. The longer you have an over supply situation the bigger the correction and the bigger the profitability is down the road. You're seeing that in cattle. We have had an over supply of cattle for demand in the last two or three years. And you have had the cattle market down in the low 70s. And people that were feeding cattle lost money for two or three years and now they're making profits beyond their wildest imaginations. And the same thing has always been true in the hog business that the longer it stays bad and the longer the industry experiences losses usually the greater the correction and the greater the profitability when it turns. And that has been true my entire career which spans 40 years.

Right. Do you anticipate the inflection point will be the reopening of the Canadian border to beef, therefore?

I think that will help some. But I think the bottom line is you're going to have a lot less beef in the marketplace for the next several years. I don't think there is any debate about that point. There seems to be some reductions on the poultry side and there seems to be more discipline and so as a pork consumption per capita I think will replace some of that beef and poultry business. And so you have to look at all three proteins. People are, in my opinion, are going to eat the same amount of meat. But they will vary 3 or 4% what species they eat. And so I think that the pork industry will be better able to absorb the bigger numbers going forward simply because the amount of available beef to buy will be down sharply for the next couple of years. That is just my judgment. As Larry has said, I mean every cow in this country and every pig in this country and every chicken is basically consumed but you do have shifts of 2 or 3 or 4% back and forth between the species but you put it all together, we see less meat protein out there for the next couple of years rather than more and that is encouraging.

Okay.

But keep in mind this is a business that is never totally predictable because you have external factors such as export demand that can have a dramatic impact upon prices and profitability.

Right, okay. Thank you. If I could ask one additional question. With regard to Farmland and its pork processing margins I know you have been encouraged by the efficiency of the operations that you have seen so far but can you talk about Farmland's fresh and processed margins compared to Smithfield's current margins and how long before Farmland's margins kind of reach parity with Smithfield's corporate average? Larry?

I would tell you Farmland's fresh pork margins are there currently and they have got some very good business in some of their all natural programs they have got out there. They have done an awfully good job on that end of the business. Their processing margins for light categories are about the same as Smithfield. We have the opportunity to expand some of the categories but I think so far we have been impressed with the sales end of the business.

There are places where they do better, there're places where we do better but the key thing to remember is that, I will repeat Larry's statement, we have now established benchmarks that we're going to compare. We have always had two benchmarks but now we've got three benchmarks I say three, that is Smithfield, Moyer and Farmland. And we will have those three operations. They will know fully what the other people are doing and they don't want to be embarrassed by sub par performance. We find one of the big advantages why we haven't merged into just one big sales force is that we like to have the internal benchmarks so we can have three internal companies competing against themselves and so we eliminate the reasons and the excuses why certain things happened. That has been the philosophy of Smithfield. I know it is different from some other companies, but as long as we continue to do better we believe then most of our competitors we don't plan to change that.

Okay, great. Thank you very much for your time.

Ladies and gentlemen, we normally limit this call to one hour but since we took quite a bit of time to talk about Farmland this morning we will continue to take a few more questions.

Our next question comes from Andrew Wolf with BB&T. You have the floor.

Thank you. Larry, it's good to hear some encouraging guidance I guess on the Christmas and this current selling season for pork. And with the raw material costs coming down a little bit into further processor can we model, what type of profitability do you think we should be modeling here for the current quarter for further processed pork? Do you think it could be up or is it still going to be down?

I think, Andy, I don't know what already in your current models. We've got 33 cents for this quarter and I think you guys have us for 43 or 44 cents for the third quarter so it appears to me you've already modeled 10 cents in. I guess your question is should you model more than that. Is that the basic question you're asking?

More basically, your press release said that your further processed margins were down and that is in my model in the current quarter.

Yes, that's right?

And I've actually got them down in the next quarter, which is why I'm a little below consensus, in the quarter we're now in. So in the quarter you reported they were down because of some raw materials costs, though cutout was good, right? Now the cutout is coming down a little so I'm wondering if it's coming down a little enough, and plus you're saying demand is good for hams and other meats that perhaps that profitability will be stronger than I'm expecting.

This is Joe Luter. You know hogs, for instance, they broke yesterday, the bottom line that obviously means we are making less money in our hog production side of our business. At the same time we've got sizeable amounts of processed meats sold that we haven't even produced yet for the Christmas business. So if hogs go down and if hams follow then we will have cheaper green hams to put into our processed meat side and we'll make up that loss on the processed meat sides. Generally speaking the cheaper the raw material the higher the processed meats and the higher the raw material the lower the profitability in processed meats. But do they offset each other a hundred percent? Sometimes they offset each other positively 150% and sometimes only 50%. That is just the vagaries of the marketplace that is characteristic of the industry. I'll repeat one more time this is not a business that you can model and come up with very precise answers or results. It is just not the nature of this business because there is just an awful lot of factors out there that can and do change. Be it food safety issue or be it exports or be it some guy writing a book. But, I think generally speaking, the reason I think that Larry and I both are pretty enthusiastic is that we are putting the kind of numbers on the board despite the fact that bottom line we are still not making money in hogs. And as I said earlier when that changes, and it will change because the vast majority of the people that are in this hog raising industry do not have deep pockets and can't sustain losses over an extended period of time like you can on the meat processing side. When it does change, and we start making some big numbers on the hog production side, and we can maintain the margins on the processed meat side and the fresh meat side, we should put some giant numbers on the board. Now when that's going to happen, is it going to happen in the next quarter, probably not. Is it going to happen over time in the next year, there is no question in my mind that that is on the horizon. But if, as I said earlier, the longer you have unsatisfactory results in hog production, the bigger the correction and the bigger the correction the higher the prices on livestock.

Thank you. Just one last question. Just on a pro forma basis, combined with Farmland, what is your further processed tonnage and what is your annualized hog crop?

We will be raising about 14 million hogs and our processed meat should be 2 billion to 2.1, 2.2, some where in there. I'm going to use 2.1. That is domestic U.S.

Thank you, Dan..

We're around 15 million hogs, I think, total including the international operations.

Yes, including international.

Thank you.

Our next question comes from Christine McCracken with Midwest Research. You have the floor.

Thank you. Just a followup on a couple of the earlier lines of questioning. Particularly on recent slaughter trends relative to USDA expectations. You've explained part of this with imports from Canada but if you look at those numbers relative to slaughter rates it appears that only explains part of the problem. It seems like productivity actually recently has really picked up and I'm wondering are you seeing those same productivity increases and what would you attribute that to?

We have had some pickup because we did have purs that struck the herds nationally a year-ago. But the productivity recently has come from just ideal growing conditions. And these hogs have put on weight a little it faster than normal because you just haven't had the severe weather in the midwest. But here again, what that really means is that you will have a few less hogs in the next couple of months but we have seen ideal growing conditions for sometime and that has helped.

So it would be your.

And some of that is livability, Christine, which does affect the number of hogs. But a lot of it is the hogs are putting on weight very, very fast and so they are coming to market a few days early because there've been ideal growing conditions. So it's a mixture of the both. And then in addition to that the government numbers historically have always been off one or two points. And although they are some what accurate they never have been totally accurate.

So looking at the herd in Canada it looks like they continue to expand, really no signs that they are cutting back there.

No, what I'm hearing, Christine, and I'm not up in Canada counting pigs but I'm hearing that the expansion has slowed down, if not stopped. I really think that in light of the open question on COOL, I mean they would have to be mad at money to be expanding their herds right now with the uncertainty that's in the marketplace.

Looking at COOL and when that would come in in October, assuming that if in fact by some chance it did get through, you would have to start making production decisions here pretty shortly. Do you see the market reacting to that or are they just putting it off anticipating no real implementation?

I could say that we haven't made any plans other than exercising our minds what we would do. I think the only way that we could buy Canadian hogs would be to dedicate one plant to Canadian hogs which will mean that perhaps a lot of the Canadian hogs would not be going to the closest plant. And also as I said earlier I just think that there will be a lot of added costs for the packer and the packer he is going to buy his hogs net net net bottom line if he has added costs he is going to discount the Canadian hogs and I am 100% sure that you will see Canadian hogs discounted substantially vis-a-vis American hogs and if that doesn't put a chilling effect upon the Canadians I don't know what would.

And in terms of wieners, you have not seem them U.S. growers, basically, stopping importation of small baby pigs.

Oh, no, no, they have no. You said U.S. guards.

Sorry, U.S. producers basically bringing in.

I think the feeder pigs are still coming across the border and at what levels I'm not sure. Recently, Larry, you may know.

I don't. But let's remember that the country of origin labeling doesn't take effect until next September so many of those animals that are coming across, Christine, are going to be processed well before September. The only thing people are thinking about now is the potential freezer products and such in terms of what that product would go freezer with or such but it is still a little early and I think the people are waiting. Got a wait and see attitude here.

The reaction is going to come when Congress adjourns, here in the next 30 days, we will know whether we are going to have country of origin labeling or not and I think then you will see the hard decisions made after Congress adjourns.

And in terms of the exchange rate it seems like it might be slowing down Canadian imports. Is that anything you're seeing or expect over the next couple months?

Well, obviously on the Canadian dollar getting a little bit stronger, vis-a-vis the American dollar it puts an added burden upon the Canadian producer. And all of that will have somewhat of a chilling effect. I mean anytime your costs go up, your demand goes down.

In terms of, sorry to interrupt, but in terms of your feed costs obviously you have seen soy meal going up here and it looks like the spring might be a really tough time for the industry. How do you feel about your feed cost outlook relative to the recent spike in prices?

Well, we have said that we don't want to get into the details of our strategy on feed costs. I will tell you that we're not concerned about it.

That is reassuring. And I guess this one last.

Short term. We are not concerned about it in the next nine months. But, obviously higher feed costs down the road could have an adverse effect. And you are all aware I'm sure of this crazy ethanol program that is out there today. And that obviously will tend to push corn prices higher if it appears that that program is going to increase.

Right. And one last question. There have been some criticism lately of pork that you haven't seen the big pickup maybe in demand relative to beef tied to these protein diets tied to some taste changes in pork. What would your response be to that? Do you think it was just that beef prices at the retail level had not increased and therefore people didn't change their buying habits or do you think there has been a real consumption change?

I think there has been a consumption change, I don't see any question about that. Number one. There is always a lag effect when you have a lot of people that had bought beef way out in front, a lot of restaurants buy way out in front particularly the fast food people and as it's full impact hit the American consumer of the dramatically higher cattle prices the answer is no, Christine, the full impact has not hit but it will be hitting in the next several months and we think that will have a very positive impact upon the demand for pork. As I said earlier I think that people are going to eat the same amount of meat. And they are going to eat what is out there. As I say we don't raise any of these animals for pets in this country and if you produced 1% more hogs you will have 1% more pork that's going to be consumed. If you're going to produce 4 or 5% less beef then that is going to be 4 or 5% less consumed unless the export markets trigger in but the export markets never do completely fill those differences. So, the bottom line is no question in my mind that pork demand is going to pick up and the spreads between live cattle and live hogs and the finished product is going to narrow in the next 12 months. No question in my mind about it.

Great, thanks.

Our next question comes from Ray (inaudible). You have floor.

Good morning.

Good morning, Raymond.

On the beef margins, EBIT margin improved 230 basis points in this most recent quarter. Is that the type of improvement you would expect an EBIT margin for the beef segment in the third quarter and fourth quarter?

Reed Za, I think we just discussed that a couple of times. These margins are very, very strong. And I don't know that we can predict through the third quarter where these beef margins are going to be. I can tell you that we continue to see very strong margin today and don't see that letting up. But for us to go forward and predict that we are going to be these kinds of levels in the third quarter. Joe, you may have an opinion. I'm not ready to say that.

No, everyone is tired of hearing my opinion on that subject. There is a certain amount of unpredictability in this industry over the short-term. But over the long term it is pretty predictable. But predicting margins quarter to quarter, I don't think there is a person in the country that is small enough to do it.

So far in the quarter you were still tracking with these kinds of margin.

I think, Reed Za, the other thing -

The answer is yes.

Yes, that's right. And the other thing I would direct you to, Reed Za, is to quite honestly read publications like Cattle Buyers Weekly, or something, as this complex is changing and then change your sights as you see the industry changing.

I see. On the hog production side, how much of an impact are you going to be seeing in your cost structure with the increase in soy meal costs?

Joe, do you want to take that one again?

I mean obviously soybeans are about 27% of the diet and the question and I think I have addressed it earlier, we are not to concerned about it and you can read in between the line.

Okay.

But as I've stated many times I just don't want to tell the world what our hedging position is. The bottom line is we are not concerned about it.

Okay, I understand that. And then one question for Dan. How much cash did you have on the balance sheet at the end of the quarter.

Sorry, Reed Za, the question was how much cash?

Yes.

We actually don't keep

Available cash.

Available cash. We had restricted cash because of the funding of the bridge commitment.

Right.

So you will see $300 million of restricted cash which shows up as other assets.

Right.

Noncurrent in the balance sheet and then we've got our regular float which this quarter will probably be some where in the neighborhood of 60-$70 million.

Okay, that's enough. Thank you very much and I will try to read between the lines.

Thank you.

Our next question comes from Jonathan Feeney with Wachovia. You have the floor.

Thank you, good morning, good quarter guys. I have a couple of questions for Joe and then one for Larry. Joe, just a followup on Pen's line of reasoning. You say the harder prices fall the higher they rise in the crest and for obvious economic reasons. If you look at like 7 or 8, depending on how you want to look at it, hog cycles we have seen since the early 70s, obviously we have seen some substantial price crests well well above what we have seen recently. Does this look like any of the cycles you have seen before as far as the bottoming effect?

Let's say you had your cycles in '94, '98 and '02. We have basically a four year cycle. Let's look at '98. Hogs got very, very cheap in '98 and down to $10 a hundred weight and then by the fall of '99 they got back to about a breakeven. And then it was very profitable for the year 2000 and 2001. That is what happened in the previous four year cycle and if you look at what is taking place right now hogs bottomed out last year, four years later in 2002, they are around a breakeven point. Make a little money, lose a little money. Right now in 2003 and by these hogs not being profitable as we speak I do expect the same thing to happen that happened in 2000 and 2001 to repeat itself in 2004 and 2005.

Okay.

And that has been true as long as I have been in the industry. It's always worked that way. The only mitigating factor now is that we're having a higher percentage of hogs that are being raised in fixed facilities where you have fixed overhead and that does reduce the dramatic increases and decreases that you see in hog populations simply because people sometimes manage their business as a contribution overhead once they have a lot of money tied up in fixed facilities. But generally speaking go back, that this is an industry when it ceases to be profitable people exit and if you have higher priced corn it normally means that pig productions go down. Because then they can make enough money on their corn whether it goes into ethanol or export is what we call the hog corn ratio and generally speaking it is one factor always, the higher the price of corn, the higher the reduction in the number of pigs raised the next year. That is just another truth that is out there. That has been out there for a hundred years.

Right.

And have I explained myself.

Absolutely. By that measure, by the hog corn ratio, the downturn in late 2002 was actually extraordinarily severe in historical terms, right?

Severe? No. Well we had corn last year that I would say middle of the road. We didn't have $3 corn but didn't have $2 corn. It was in the middle of the road. Corn going forward, here again, corn and soybeans both have had a pretty nice rally here but did sell off substantially yesterday, whether that selloff continues today and tomorrow, here again I don't know. But this is just what makes this business so interesting. I mean it is just not a predictable business and but what gives us comfort and I know this is old soup to all of you that have listened to me over the years that you have to look at this industry in cycles and if you look at us in four year cycles it is a very very attractive industry to invest in because there is strong positive lines but there are ups and downs in the four years and the business remains to some degree unpredictable but in the short term it's a very predictable business and I don't know of an industry that has consistent profitability. It seems to be in the food business, although there are ups and downs. But it is not a high risk factor if you're in it for the long pull.

Thanks. My second question is if you just look at fresh pork commodity slaughters out there and we've clearly seen some improvement in your fresh pork commodity margins. Are there still processors who are struggling financially in --

You have not seen improvements in the fresh pork margin.

I mean off the absolute worst they were?

Oh, I mean they are better than they have been in the worst they were in the past.

Yes, that's what I was referring to.

But fresh pork margins, we are actually disappointed in them but here again this goes up and down as I've said many times.

Are there smaller processors who are financially struggling out there.

Are you talking about hard producers or processors of meat?

Processors of meat.

Processors of meat. There are always a certain number of smaller people that are struggling. I mean you're continuing to see more and more consolidation. We bought what four or five companies just in the last year or two, smaller people. I think it is struggling plus I think it is fear and uncertainty because of food safety issues plus the whole world is moving to more and more consolidation. And there is less of a place out there, I believe, for smaller processors than there have been historically.

And that leads me to the last question for both you and Larry, whoever wants to take it. Acquisition outlook, without giving any of your bond holders indigestion. Do you see any acquisitions out there over the next year, year and a half that you think could have a Farmland type fit?

It is possible. I still believe there will be some further consolidation. We have a 27 - 28% market share and I think we could probably take it into the low 30s and we would still not be higher than what you currently have on the beef and the poultry side today. I can tell you that we are not going to take on any more debt to give our bond holders indigestion, if we did something we would probably issue some equity depending upon what the price of the stock was at any given point in time and we make all those decisions based on what is going to be accretive to earnings and what is not going to be accretive to earnings. And I mean if our stock is too cheap and there is a major acquisition opportunity but I don't want to issue equity I'm going to let the opportunity pass. If I have a stock that I think is fairly priced and I might issue some additional equity. But this is just the way we have run the business now for 28 years. We just don't have a five year plan. We take opportunities as they present themselves.

Joe, I think the other thing that we have been fairly staunch about in our position is that we have been doing acquisitions that we thought were immediately accretive so if we have done equity or if we've gone on the balance sheet we have done acquisitions Farmland being one example here where we believe this is going to be immediately accretive and immediately contributing to the profitability.

That's right. And we've done some smaller ones that have turned out that they weren't but we've corrected most of those. But the major acquisitions I would say with the exception of the Animex and Poland but now we have gotten that turned around to a great degree. I think the key thing to remember on Farmland is we sold a business that was half the size of Farmland, we sold it at a 9 EBITDA and we believe that after we put in the savings and synergies that we think we bought the company under 5 EBITDA what we expect to make next year so any time you can sell one asset at a nine EBITDA and then buy a company twice as large in sales at say a 5, obviously it is very accretive to earnings. We made that decision to sell the company simply because I didn't want to go out and sell a lot of $20 stock which is where the stock was when we had to pull the trigger on Farmland. So, we will make decisions based on what is in the best interest of our shareholders. If it means a smaller company or larger company, doesn't matter to us. As I say, with Farmland we had three choices, to issue additional debt which we could have done but we would put too much leverage on the balance sheet. We were going to do that. Additional equity. With a $20 stock we were not going to do that so we made the next decision and that was to sell an asset that we had that we thought was fully priced and we thought it would be worth more to Maple Leaf than it is to us and that they would pay more than we thought it was worth to ourselves and that is the reason we sold it. Just straightaway common sense thinking. Nothing magical about this.

Excellent. Well, thanks so much for your time.

We've gone an hour and a half, everyone. And we know you have got other calls to take today. Joe, would you like to make some closing remarks?

No, I think the thing that gives me the most hope if you want to look at this business optimistically which I think we always try to do is that we are still bottom line unprofitable on a big segment of our business and when that segment changes, and it will change, it takes us to a whole level that we have never been to before because we are doing so much better on the processed meat side than we have ever done. And that area of the business continues to grow as Larry has mentioned pretty dramatically in a flat market so to speak. So I remain very, very optimistic about our future. But here again there is no model that is going to totally predict what exact month things are going to start getting dramatically better but all I can tell you is I'm convinced one year from the day that our numbers will be substantially better than they are today. But we may go through a tough January and February which we do three out of five years. But I think that is the final point. And of course Larry and I, if you have any additional questions, we're always available. You can contact Jerry and we can try to answer any additional questions if there are some questions that did not get asked today. Larry, have you got any closing comments?

I don't. Joe has said as well I as well am very optimistic about the processed meat side of the business. That we have been concentrated on and I'm very satisfied with that and I believe we have an opportunity on the fresh meat side with Farmland as well to take that to a level we have not been to before. And finally the Farmland acquisition I think is very, very good for Smithfield Foods both at the Farmland level and at the larger level and so I'm very optimistic.

Thanks, Larry, thanks, Joe, and thanks everyone for joining us today.