Smithfield Foods Inc (SFD) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter Premium Standard Farms earnings conference call. My name is Shakira (ph) and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of the conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Steve Lightstone, Chief Financial Officer. Please proceed, sir.

Good morning, everyone, and welcome to our second-quarter conference call.

As you know, we need to inform you that today's call may include forward-looking statements within the meaning of federal Securities laws. These statements are subject to known and unknown risks, uncertainties and other factors, including those referred to in today's press release and in our filings with the SEC, that may cause actual results to be materially different than those included in the forward-looking statements.

With me on the call this morning are John Meyer, our Chief Executive Officer, and Bo Manly, our President. I will now turn it over to John Meyer.

Thanks, Steve. Good morning, everyone, and thank you for joining us today.

Following our prepared remarks regarding key company developments, we will open the call for questions.

Before we start to discuss our results, I would like to first congratulate our president, Bo Manly, for his recent election to Chairman of the AMI, or the American Meat Institute. AMI plays a vital role in advocating the common interest of the meat industry to consumers, legislators, regulators and media.

We are pleased to report solid second-quarter results. Net income for the second quarter of fiscal 2006 was 12.2 million or $0.39 per share compared to 11.9 million or $0.38 per share in the same period last year. This quarter, we really benefited from strong international demand for our products. Domestically, although still at good levels, demand was somewhat lower for our products than last year and hog prices were down from historically strong levels during the previous year. Last year, we experienced a spike in domestic demand from the Atkin's diet and we are experiencing fractionally higher supplies of pork, poultry, and beef in the U.S. market.

Additionally, we also were able to offset lower market prices by increasing our Hog Production volume by 7.5% for the second quarter and 10.4% during the first six months of the fiscal year to improving (ph) operating efficiencies and health. While hog and pork prices were lower than last year, we increased output, kept a tight rein on operational costs, reduced both our interest and tax expenses.

For the first six months of the year, net income increased almost 30% to 27.6 million or $0.88 per share compared to the same period last year. We're very pleased with our results for the first six months and hope to build upon this overall solid foundation going forward.

Before I hand the call over to Steve, I would like to spend some time discussing our outlook for the Company and industry in the near future. Given this is only our second-quarter as a public company, we wanted to make sure we're doing all we can to help investors understand our story, which had a lot of moving parts. During the fiscal -- during the second half of '06, we expect to benefit from several favorable industry trends. In the most recent hog and pig report, the USDA announced that they expect hog breeding inventories to remain relatively flat. At the same time, export demand for pork products continues to increase. Additionally, we expect to continue to benefit from reduced fee prices going forward.

In terms of our current hedging activities, we believe that we have a very sound -- we have very sound hedging positions as we enter the second half of the year. As international demand continues to increase, we believe PSF's export sales will become a more and more significant contributor to our Company's future growth. Previous industry reports noted that the pork industry exports in towns were expected to grow roughly 28% during the first half of fiscal '06. During the same time period, PSF exports have grown by 55%. Given our high-quality products as well as the new initiatives that focus on the export segment, we believe, for the foreseeable future, PSF will continue to grow at a rate faster than the industry.

On the domestic front, we have also been focused on new initiatives to differentiate our products in the marketplace and thus improve our margins in the U.S. These initiatives include the introduction of a range of case-ready products that are focused on the Hispanic consumer, as well as increased penetration of the market for antibiotic-free meat. Both of these programs meet existing demand in the marketplace for specialized pork. We are very well positioned to satisfy these markets with the control provided by our integrated system.

As we have said in the past, we will continue to grow internally and through acquisitions. As described in last quarter's call, we have an opportunity to expand Milan single shift processing capacity from 7,400 head per day to 10,000 head per day. As we think about this opportunity, we have decided to expand our analysis to include the potential to double shift that facility.

Now, I'll hand over the call to Steve, who will walk through the financials in more detail. Steve?

Thank you, John.

Sales were 213.2 million in the second quarter of fiscal 2006, a decrease of 2.6% compared to 218.8 million for the same period last year. This decline can be attributed to lower hog and pork prices equaling $20 million, which was partially offset by an increase in volume of 12.1 million combined with 2.3 million of more favorable hog future losses than last year. Hog import prices were significantly less this quarter compared with the strong levels PSF had experienced during the second quarter of fiscal 2005, causing the 20 million decline in prices. We were able to offset the majority of the declining market prices by increasing Hog Production volume by 7.5% and increasing processing volume by 3.1% year-over-year.

During the quarter, we reported a charge of 2.8 million as a result of our hog hedging activities compared to a charge of 5.1 million last year. As we said on last quarter's conference call, we do not talk specifically about our hedging positions. However, we will take into consideration any prudent hedging opportunities that may arise.

Net income for the quarter was 12.2 million, or $0.39 per share, versus 11.9 million or $0.38 per share in the second quarter of fiscal 2005. During the second quarter, PSF benefited from an interest expense reduction of 3.3 million and a reduction in our effective tax rate.

Net sales for the first half of fiscal 2006 increased 6.4% to 458.5 million from 430.9 million in the same period last year.

Net income increased 29.7% during the first six months of fiscal 2006 to 27.6 million or $0.88 per share, compared with 21.3 million or $0.69 per share in the first half of fiscal

2005. The results for the first six months include a 21.7 million charge from the early extinguishment of debt, representing an after-tax charge of $0.43 per share. As you will remember, we paid off 173 million of the previously outstanding 9.25% senior notes with cash and a combination of a new 125 million tenure 5.9% bank term and then revolving loans.

Because our business is sensitive to short-term market price movements, we believe it is important for our investors to view our performance over longer periods of time rather than on a quarter-to-quarter basis. In today's case, if you look at the first six months, you will get a better view of our business than just looking at this quarter alone. We believe we have the ability to grow the business profitably, but we will continue to have cyclical periods where market prices decline, as they had during the first half of the year, especially during the second quarter. Our long-term strategy is to continue to add new streams of earnings from the processing segment that will reduce the effects of market price movements in the future, but it will take us some time to make the transition.

For our business segments, Hog Production sales decreased by 2.5% for the quarter to 144.9 million compared to 148.6 million last year. This resulted from a 10.7% decrease in hog sales prices, but we offset that somewhat by an increase of 7.5% in our production volume. Through improved productivity, and lower grain prices, we lowered our Hog Production costs by 10.5% during the quarter. As a result, operating income of 23.4 million for the quarter was slightly higher than the 22.5 million of operating income last year, which we think was good, considering the large decline in market prices for the quarter.

In the Processing segment, sales decreased 4.8% to 195.2 million in the second quarter compared to 205 million in the same period last year. Both the industry and PSF experienced lower-priced meat prices compared to last year when both domestic and export demand were extremely strong. Combined with higher freight and labor costs during the quarter, operating income for this segment was 2.3 million compared to 6.3 million earned last year.

Our strategy to restructure the balance sheet in conjunction with the IPO is paying dividends. Our revolving credit is fully paid off today and interest costs for the first half of fiscal 2006 were 5.3 million versus 11 million last year, less than half of 2005 cost. We produced 38.7 million of operating cash flow in the first half of 2006 and our total debt at the end of the quarter was 140 million, 36.5 million lower than the beginning of the year. Our net capital spending in the second quarter was 16 million, which is in line with our full-year plan to spend about 41 million of net capital.

With that, I will now turn the call over to Bo Manly, our President.

Good morning. Thank you, Steve.

I'm looking forward to my upcoming term with the AMI. AMI's first priority is continued emphasis on reducing trade barriers by replacing politics with sound science. This will be beneficial to the pork complex as well as all other livestock and meat processing industries.

On a sidenote, the consensus on both sides of the Pacific is that Japan will open up to U.S. beef in the first quarter of 2006. However, this is unlikely to have a significant impact on the Company's exports to Japan, primarily because of the very small segment of U.S. beef that will qualify for export as well as the Company's premium positioning to meet the demand for fresh-killed pork in Japan.

In review of our processing operations, our fresh meat slaughter unit volume was up 3% for the second quarter and 5% for the first six months with heavier carcass weights. Fresh meat operations were down due in part to compressed margins, higher energy charges, which are reflected in freight cost and plant expenses, and fractionally higher labor costs. Further processed meat volume and margins were both up compared to a year ago.

PSF continued to improve the customer base in North Carolina by adding higher-margin new customers and moving higher value-added products to existing customers. During our roadshow in May, we outlined our mission to increase the percentage of exports and further process in value added components in our sales mix. We remain focused and have made strides towards these goals during the last six months. Export volume, for example, increased 41% in the second quarter and 55% for the full six months compared to a year ago. This compares favorably to the industry's export growth of 28%. The percentage of PSF export sales dollars increased from 10% of total sales in fiscal 2005 to 14% of sales dollars in fiscal -- first six months of fiscal 2006 with continued strong growth to Japan and Mexico.

PSF increased its processed meats tonnage by 5% during the first six months of fiscal 2006. Precooked bacon and raw sliced bacon categories were growth leaders. We are also pleased with the initial introduction of Premium Farms brand of no nitrite antibiotic-free sliced bacon as a processed meat line extension to our ABF fresh pork line. We have achieved a successful launch of this new bacon product with one of our largest retail customers.

In the Swine Production segment, our hog raising costs were down from last year's level due to lower feed costs and improved productivity. All three pod locations demonstrated increased marketings in both the first and second quarters compared to the prior year. Hog Production volume in the second quarter increased 8% and 10% for the first six months.

We continue to be extremely excited regarding the fresh meat expansion opportunities for the Milan plant. The engineering for increasing the daily capacity from 7,400 to 10,000 heads is nearly complete. Based upon this effort and optimism of future market opportunities, we are broadening the feasibility and engineering analysis to include possible consideration of a full second shift, bringing Milan's capacity to 16,000 heads per day.

At this point, I would like to turn the discussion back over to John. Thanks very much.

Thanks Bo.

As we have said, this was a solid quarter and an excellent first half of 2006. Despite somewhat unfavorable market conditions during the second quarter, we feel that we were able to report a strong first half as a result of our cost-reducing efforts and increased hog production. We are excited about the potential for the second half of the year.

We will now open the call up for questions.

(OPERATOR INSTRUCTIONS). John McMillin with Prudential.

When you talk about the 2.8 million charge, or hedging charge, that's just basically marking to market existing contracts. Is that correct?

That is correct. Yes.

Okay.

Then, as I kind of look out -- because I know you've probably hedged a lot of your business into the third and fourth quarter. I guess you don't know how these charges are going to be marked to market at the end of the quarter. I know you don't give specific earnings guidance, but would you expect, given the fact that a lot of your business is hedged, that roughly this level of earnings -- $0.39 operating -- can be continued into the second half, excluding any impact of marking to market hedges at the end of the quarter?

John, as you know, we -- because of the nature of our business, we have made the decision not to give guidance, so I can go where you're going as far as saying what the third quarter could look like.

You said you are excited. Can you give us an idea how excited you are? When I hear excited, I think of some type of acceleration of business trends.

John, where really saying there is that we're just coming off one of the best crops -- I think it's the second best crop in the history of the country. So feed prices look very favorable coming at us here in the foreseeable future. That demand hangs right in there. Export demand is strong. Domestic demand is hanging right in there and that, according to the USDA and as we talk to folks like genetic suppliers and construction companies, we just don't see much going on on the expansion front of our business. So when we talk about being excited, we're really looking at the industry fundamentals and talking about that and what that means for our business.

Okay. Just my final question just deals with this lockout provision. I guess there was a six-month lockout provision that was -- I guess you let out -- some people got let out early. Just in terms of -- can you talk about why that lockout provision was loosened? Basically what is ContiGroup's expectations in terms of I guess their lock-in for nine months? Nobody is going to let them out early are they?

John, I'll take the first part of that and John will take the second part about Conti. But the first part, the reason that the four executives had the early lockout provision was that they had options that were going to expire at the end of the year. If you had been in the original lockout for the 180-day lockout, everybody would have lost their options. These are options going back, I think, seven years. So what we basically agreed to with the underwriters, and it's stated this way in the prospectus, is that those executives were allowed to exercise those options before they expired, but all they can do is sell enough shares to pay taxes and that is the plan. The reason we announced that is just remind everybody that it was stated that way in the prospectus during the IPO.

With regards to the second part of requesting, John, the lockout with Conti continues to hold and ContiGroup has always been a strategic investor. We won't begin to speculate as to when they will begin to reduce their position or if they will or anything else.

Okay, that's fair enough. Good, thank you.

David Nelson with Credit Suisse.

I guess my first question might be for Steve. Your tax rate is down. What should we -- why is down I guess. Then what should we think about your tax rates being going forward?

It's really down on a permanent basis. I don't know if you're aware of the American Jobs Creation Act --.

Yes.

But it basically provides credits for pure manufactures in the U.S. and we are one of those. I think it amounted to about 1%. That actually grows over time, so, over time, it will actually improve and get better. So it's with us until Congress changes the Act.

Okay. Bo, you were talking about going to a -- possibly going to a full second shift at Milan. If you did so, would you be able to source all of those internally?

David, the short answer is no. We look at three possible sources. The first would be the enhanced production that we're currently experiencing and we believe is a permanent facet of our business in North Missouri. This past quarter, we've actually processed pigs in North Carolina because we've run at full capacity in Milan, so we had additional hogs from our Missouri complex. Second would be independent operators in Missouri and that would function much the same way that we have operated in North Carolina with about 25% of our Clinton volume coming from long-term process-verified contract producers. We've proven that that model works very well and we think that that can work as well in Milan. The third source could possibly be pigs from our Texas operation as well.

There's enough hogs in Missouri even though Triumph starting up?

Triumph has relations with several hog production -- actually owners. Most of those, frankly, are outside of the -- (multiple speakers) -- a vast majority are outside of the state of Missouri.

David, this is John. We may also reach up into southern Iowa. As you know, the Milan plant is very close to the Iowa border. The thing that gives us confidence about this whole process, or one of the things, is that, in North Carolina, we've proven to ourselves that if we get the relationships right and the agreements right with the process verification from outside sources, that we can do a -- take a cookie-cutter approach just like they were our own. That will be plan here going forward at Milan.

Okay. I guess, lastly, maybe kind of fishing like John was, you know, John, I think you use the word 'sound' in terms of describing your hedging positions. Obviously hogs futures have been all over the place the last two to three months. Does your use of the word 'sound' imply that you locked in hog prices near the peaks?

David, I'm not going to go there and comment on that.

Look, we're all struggling here. You've got -- you added a $0.39 quarter and the standard deviation around your potential results is enormous.

Yes, and I don't want to be cute with regards to playing games; I just can't go there and it's not in our best interest to reveal what our positions are. We --.

But if you made them, maybe you to give more earnings guidance, right? If you have locked-in, would that give you a greater ability to provide a little guidance for the back half?

David, we've made the decision about the fact that our business is cyclical. We don't believe it's wise for us to give guidance at this stage in our evolution. We apologize for that but that is part of longer-term and look at us longer-term, as I mentioned in my comments. I think that is the best way to look at us over time.

Very good. Thank you very much.

David Adelman with Morgan Stanley.

First, a question about Pork Processing -- I'm surprised the profitability of that business isn't stronger, given the sequential and the year-over-year decline in the hog input costs. Can you address that issue? Profitability was down versus a year ago and sequentially in that business.

Well it was -- profitability in the Hog Production segment was about equal with that.

No, I said in Processing.

Oh, processing? I am sorry. I missed that. Primarily, it's just -- it's two big pieces, as I talked about. We in the industry had more margin pressure on that side, just prices versus last year were lower. Then also, in our Processing segment, we had higher freight costs and higher operating costs during the period, but I think, if you look, most people had pressure on the margin side during this period.

Steve, can you reconcile -- the earnings are up in the half, but your operating cash flow versus last year's fiscal first half was down. What are the major deltas there, in other words, for the discrepancy?

Let me look at that while we're talking here.

Okay, I have a couple of other questions. Can you help us understand? If everything goes well with these engineering studies and so forth and you decide to increase the throughput in the facility, when would that start to materialize?

We're looking probably in the (indiscernible) level probably in the 12 to 18 month range, David.

That's when you'd start to see an impact and it would ramp from there, Bo?

That's correct. Obviously, we've got a complete engineering analysis. We've -- (multiple speakers) -- to do a bid and then begin construction. At the same time, we do not anticipate -- part of the process has been to organize it such that it would have little to note impact on our existing operations while we are under construction.

The increase in hog raising throughput, although it was up versus year ago in the second quarter, it wasn't up to the same degree as the first quarter. I'm just curious. What is that attributable to? Is it a comparative issue? Is there a health issue on the margin from Q1 to Q2 of this year?

It's seasonality. We have more opportunities in terms of better breeding activities in the earlier -- or later. In the prior year actually, all of the breeding that took place that we've seen in terms of the market took place in our last fiscal year, so it's a matter of seasonality.

Then a question -- I understand your reticence to talk about hedging going forward, but can we look at it going backwards for a moment? I realize that, in the first quarter, you had an abnormally large hedging gain, but there weren't any real -- there weren't any spikes in hog prices. They've been volatile, but there's been a trend there. Normally, when there's a fairly moderate trend, someone that's hedging wouldn't see huge quarter-to-quarter fluctuations. I'm just curious. What is it from Q1 to Q2 in the positions that you took caused such a sequential variance? Or maybe stated another way, why was the first-quarter hedging gain so large?

There were some spikes in the first quarter on the futures that we were involved in. Also, if you remember from the last quarter's call, that realized gain that we had was a combination of marked to market, and we actually exercised some of those positions. (multiple speakers) -- so there's real -- real dollars realized in the first quarter as well as some marked to market, whereas, in the second quarter, it's mostly the marked to market.

Okay. Then, Steve, do have an answer on the --?

I do. It's basically -- what happened in the period last year was that we had operating loss carryforwards, and so we were able to get the cash benefits from those NOLs and our NOLs are all gone now.

Okay. Then one last thing -- you mentioned, in your prepared remarks, you've talked about, in the past, the generic interest in looking at M&A and sort of now that you have an equity currency, can you just give us a generic update on how your efforts on acquisitions have evolved? Do you happen to have a formal program? Are there assets that you have or are currently evaluating for purchase?

David, this is John. Yes, we are actively out there identifying companies that we are interested in and in some cases, making some contact, but what I want to emphasize on this whole discussion is that, as we look at these acquisition targets, if we can -- first of all, they need to fit with regards to our strategy and where we want to take this company, but we don't feel like we have to do only acquisitions in order to get the growth that we need; we can also look at it organically as well. In other words, we're not going to pay any price or overpay or make a bad decision on an acquisition for the sake of supplying the processing growth. We think, at the same time, we can continue to grow our processing side of the business organically. Ultimately, we'd like to do both, but we're not going to make a bad decision on the acquisition front or overpay in order to get that done.

No, and I'm not trying to advocate M&A. I'm just -- the market is going to pay more for organic growth anyway. Okay. Thank you.

Eric Larson with Piper Jaffray.

I'm going to go down the slippery slope of hedging with you one more time. Not on hogs, but are you actually engaging in hedging your feed costs? Have you done any of that or are you anticipating doing any of that?

Eric, this is John. On the -- as I mentioned earlier, we're looking at a very good crop. While I'm not going to reveal our hedging position, what I will tell you is that we will continue to be opportunistic hedgers on the feed side as well as the hog side. The best thing I can tell you right now is that we are looking at some very reasonable feed costs going forward and again, we will be opportunistic.

Okay, good. Then just for the record here, do you -- I don't have the date right at my hands. What is the date of -- when does the lockup come off on Conti next year?

It was 270 days, so it would be sometime around the end of March of next year.

Bill Costel (ph) with Dean (ph) and Company.

This question is about your volume trends. I'm just trying to understand what looks like a decline in volume in this quarter compared to the last couple of quarters. I'm trying to take that from some of the -- I guess you count it in terms of revenue changes year-over-year quarter. It looks like you have been up 20 of 30 million for Q4 and then Q1 and this quarter seems to be up only 12. What's causing that kind of an issue?

Bill, just as we mentioned, there's a large difference in market prices, hog prices and pork prices this quarter versus last year. What you had going on in fiscal 2005 was one of the higher periods with the pent-up demand on the domestic side from Atkins and everything else and a strong export demand. This year, you've still got strong export demand. The domestic demand has lowered somewhat as the boom has been taken off of the Atkins and some of the other things. So you have got a large difference in market prices and that is the reason we talk about our businesses moves (sic) around with market prices. So we had pressure, large pressure from market prices going down, but we tried to emphasize that we offset a good deal of that with increased volume on our production side and some increased volume on our processing side.

Hopefully, that answers your question.

Was last quarter (indiscernible) high? Basically, the numbers we've seen -- usually Q3 is a relatively high quarter and the other quarters are relatively flat or even lower.

In our business?

Yes.

Yes, I can't relate to that entirely, but the key is, if you want to follow us closer, you really need to watch the USDA numbers and CME numbers and cut-out numbers. You can see where those moves.

Okay. We're will still look at those. Thanks.

(OPERATOR INSTRUCTIONS). Steve Ranier (ph) with Franklin Advisory.

Good morning. I was wondering if you could expand a little bit more on your expert growth. You certainly are growing roughly two times the industry. Other than saying the quality of your products and new initiatives, could you kind of go into a little bit more detail as to why you should be able to grow that fast and how long that can continue and what costs you may need to incur to possibly expand your exports going forward?

Steve, certainly. As we mentioned back probably over the past six months, we have achieved very good growth over the years from our Milan facility and have set some very high expectations, frankly, for being able to grow our export business out of our Clinton, North Carolina plant to the same level and perhaps, even as far as tonnage is concerned, to higher level because of higher capacity opportunities in North Carolina. We're approximately half the volume in North Carolina that we are in our Missouri facility, so that's been -- one of the bigger engines for growth has been bringing the North Carolina facility up into the export market. We still have significant amounts of additional capacity to satisfy new growth opportunities and have worked very hard over the past two years to try to develop a broader market base in Japan outside of a court room (ph) of traditional customers that we have dealt with. We feel very good that there is traditional growth there within the premium shield arena, as well as looking at other nontraditional (indiscernible) items going into Japan as well as China and think that we have achieved the quality level with our export customers in Mexico that speaks to further potential growth there as well as other Central America and Caribbean markets as well as far as exports.

Steve, one of the other things I want to point out is that the reason that we are as optimistic and have done as well as we have, especially in markets like Japan, again comes back to the integrated model and the consistency and the quality that we are able to produce with that model. Again, the Japanese know that model as story (ph) pork and they only become more and more sensitive to traceability and just knowing exactly where the product came from and how it was raised, etc. So we don't see that going away. As a matter of fact, we see that as becoming more important than ever and we're going to continue to work that side of the business.

So do you see it as your competitors dropping the ball on this or they are just not focused on this?

I'm not so sure about what the competitors are doing. I just know that there are some competitors out there that are integrated and some are not. I just know what's worked for us and that is absolutely what's worked for us, especially in markets like Japan, is to not lose sight and don't let up on telling that story about the integrated model, what it's able to produce, but most importantly, I mean, the proof is in the pudding. When they get the product and they see the consistency and the quality there every load, that speaks volumes.

Can you talk about then are you gaining more accounts or is this increased volume through your existing accounts?

We're gaining more accounts.

Okay. Anyway to quantify that at all? What that may mean to you in the coming quarters?

I would rather not say.

Other than to go back to say that we think we can continue to outgrow the market.

What about your existing accounts now? Is there some sort of same-store growth you can talk about?

The opportunities there are really to move into additional new items for those existing customers much the same way as we do here in the United States. We have not only the brain (indiscernible) new customers on, but then trying different products, additional products that we can sell to our traditional customers. We have celebrated, this last year, a ten-year anniversary with (indiscernible) Bainey (ph) as our trade partner for our Milan facility and they continue to be very excited and find new avenues for them to grow as traders and distributors as well in the Japanese market. But we think we still have a considerable amount of growth that's capable of taking place there. The costs to fuel that growth are not very substantial at all.

Okay. If I could just ask you one more? You cited Atkins as part of the reason why perhaps there could be a sort of sales slowdown in the industry. I was just wondering. Maybe it's a little bit difficult to say what industry -- ultimate industry demand will be post that and where the bottom is and therefore, we're talking about keeping industry capacity relatively stable, but perhaps maybe it should drop in the U.S.. What do you think about that?

This is John. The Atkins thing obviously was a -- we describe it as a spike, and that's what we really saw last year, but we're also seeing, Steve, is that, as a result of the low carb -- not just Atkins but the focus whole focus on low carb is that the U.S. consumer in particular seems to have been given the permission to come back to include protein in their diet. And so we think that is sustainable. Will it be what it was last year with regards to the spike that we saw in the Atkins some would say craze? No, we don't think so, but we think that demand overall has benefited and protein as a result of that whole change of thought process with regards to diet.

So do you think the industry should be flat or do you think they should cut?

Say again? I am sorry.

Do you think industry capacity should stay where it is? Do you think it's adequate or do you think there should be a cut?

No, we think the demand -- we think it matches up pretty well right now actually, supply and demand, especially when you work in the export numbers. We think it's a pretty good place to be.

Okay, great. Thanks a lot, guys.

There are no more questions in the queue at this time. I would like to turn the presentation over to Mr. John Meyer.

Okay, everyone, we appreciate the time and the interest and thank you for your participation.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.