Smithfield Foods Inc (SFD) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Premium Standard Farms first quarter fiscal 2007 Earnings Conference Call. My name is Towanda and I will be your coordinator for today. [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, CFO. Please proceed, sir.

Good morning, and welcome to our first quarter earnings call. We would like 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 risk, 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 different than those included in the forward-looking statements. Joining me on the call this morning is John Meyer, our President and Chief Executive Officer. Now, I will turn the call over the John.

Good morning, everyone, and thank you for joining us today. Before I review our operating results for the first quarter, I would like to begin by discussing some of the changes happening at PSF.

First, in early July we announced that Bo Manley had resigned as President and COO. We would like to take this opportunity to thank Bo for his contributions over the past several years and wish him well in his future endeavors. Following Bo's departure, I have assumed the role of President. Adding this role will allow me to be one step closer to our operations and will enable me to better execute our initiatives. We have taken this opportunity to implement a number of organizational changes in order to intensify our focus on operational excellence, sales, sales margin growth and business development.

In fiscal 2007, we will be implementing a process improvement program to reduce costs and take inefficiencies and redundancies out of our system. Additionally, we will continue to look for ways to drive growth in our higher margin products and augment our organic growth through strategic acquisitions.

To execute these initiatives, we have appointed Calvin Held to be Vice-President of Process Improvement and Blake Day the Vice-President of Business Development. Both Calvin and Blake have several years of industry experience and are well versed in the dynamics of this cyclical operating environment. In their new roles, Calvin will be focused on improving operational performance in all segments of our business with the goal of expanding our operating margins, while Blake will be responsible for the execution of PSF's growth strategies and business development. Based on their consistent track record at PSF and within the industry, we have the utmost confidence in their ability to improve our operations. With that said, let's move into our results.

Over the past several quarters, the operating environment within the protein industry has become increasingly difficult, which has had a significant impact on our results. However, we have been focusing our efforts on enhancing the factors of our business that we are in control.

Net sales for the first quarter were $206.2 million compared to $245.3 million in the first quarter of fiscal 2006. This decrease is attributable to lower market prices, reduced production volume and a decrease in hog hedging futures compared to last year.

Net income for the first quarter of fiscal 2007 was $7.6 million or $0.24 per share compared with $15.4 million or $0.49 per share in the same period last year. Our net income for fiscal 2006 includes a pre-tax charge of $21.7 million or $0.43 per share after tax for the early extinguishment of debt.

We did experience a reduction in both production and processing volume during the first quarter of fiscal 2007. Production volume was primarily impacted by the health challenge we experienced last year, which decreased the number of head marketed compared with the same period last year. We anticipated and budgeted for this reduction in both segments and have seen signs of improvement that we expect to be reflected in our results by the end of fiscal 2007.

For the quarter, export volume out of Milan, out of our Milan, Missouri plant, increased over the same period last year while volume declined at our Clinton, North Carolina plant resulting in a 4% decrease in total export volume. The reduction this quarter was due primarily to softer demands in a few markets at the beginning of the quarter and domestic business that provided better margin opportunities than exports.

We are continually evaluating our meat sales to determine the best margin opportunity between domestic and export sales. In addition, our performance this quarter faced a difficult comparison given the 72% increase in export volume during the same period last year.

We also experienced some operational issues at our Clinton, North Carolina plant related to upgrading the refrigeration systems. The upgrade has taken place over several months to handle the increased export volume we have been experiencing and is now complete. This provides us the export capacity to handle demand in fiscal 2007 and beyond.

For the quarter, we broke even on our hog hedging activities compared to a $15 million gain we experienced last year from hog hedges. We had some very attractive hedges during the first quarter of fiscal 2007, but with the sharp increases in lean hog futures at the tail end of the quarter, we gave back some of the gains realized in the first two months of the fiscal year.

As most of you know, higher hog and meat prices are very positive for our overall business, and we are pleased with our current positions today. While our results this quarter were not at the levels we had planned, we have already seen improvements and will continue to focus on further improving our operations going forward.

With regards to outlook, let's spend some time discussing what we expect for the second quarter and the remainder of fiscal 2007. The expected protein glut that had caused concern during April and May did not materialize in a way that many in the industry had anticipated. Instead, during the later half of the first quarter and into the second quarter, forecasts of total protein supplies have been decreasing. This change in supply levels has positively impacted live hog and meat prices, which began climbing at the end of the quarter from the low levels experienced in April and May. However, we continue to believe that for the remainder of the year, hog prices will track with historical averages of the past five years.

As I previously noted, our export volume was lower than the levels we had experienced in previous quarters, particularly when compared to the first quarter of fiscal 2006. However, this softness was primarily felt in April and May and has showed a marked improvement in June. Although we do not expect to return to growth levels experienced in fiscal 2006, we do anticipate solid export growth for the remainder of the year.

Domestically, demand was steady over the last three months which is expected to continue throughout the remainder of the year. As we have noted over the last several quarters, food service growth has been an important initiative for us. As a result, we are pleased to announce food service sales were up 25% for the quarter with growth in our targeted chain account segments. We are seeing growth with fresh pork as well as processed meats in the food service area. Additionally, in the food service organization, we have attracted a number of high caliber people, including a food service director and several chain account representatives. Going forward, we believe that the addition of these key hires will help us make the food service segment a continued growth area for PSF.

In our value added segment, we experienced growth both in processed meats and marinated fresh pork. Sales of marinated pork increased 100% for the quarter, albeit from a small base. This is a new initiative for us and one that we are encouraged by. Processed meat volume was up 24% for the quarter, which was primarily the result of retail sliced bacon and precooked bacon sales.

Last, I would like to update everyone on the Milan, Missouri expansion project. We are pleased to report that we continue to remain on track and on budget and are confident that we will be fully operational in the spring of calendar 2007. As a reminder, this expansion will take the daily maximum processing capacity to 10,000 head per day and enhance the plant's capacity by 35% and total Company capacity by 15%. With that, I would like to hand the call over to Steve, who will walk through the financials in more detail. Steve?

Thanks, John. Sales were $206 million in the first quarter of fiscal 2007 compared to $245 million for the same period last year. In the first quarter of 2007, we experienced a 9.6% decline in live hog prices, as well as a 4.6% decline in meat prices when compared to the same period last year. These market price declines, coupled with a reduction in volume in both the processing and production segment and a $15 million decrease in results related to lean hog hedges were the primary drivers for decline in sales during the quarter. Net income for the quarter was $7.6 million or $0.24 per share versus $15.4 million or $0.49 per share last year.

Last year also included a $21.7 million charge for the early extinguishment of debt representing an after tax charge of $0.43 per share. During the quarter, we recorded a loss of $100,000 as a result of our hog hedging activities. This is compared to a gain of $15 million during the first quarter of fiscal 2006. In the processing segment, sales decreased to $190 million in the first quarter compared to $209 million in the same period last year. The decrease in our processing sales is the result of a 4.6% decline in meat prices compounded by a 4.4% reduction in volume compared to last year. The decline in processing volume is primarily attributable to the overall hog production decline that we experienced.

For the first quarter of fiscal 2007, operating income for the processing segment increased $1.2 million to $4.8 million from $3.6 million earned in the first quarter last year. This increase can be attributed to an 8.3% decrease in the cost to purchase market hogs. However, these lower hog costs were partially offset by the 4.6% decrease in meat prices and an increase in other processing costs, largely labor and packaging costs, attributable to increased volume of value added products at our Clinton, North Carolina plant.

For the production segment, sales decreased for the quarter to $131 million compared to $171 million last year, primarily due to 9.6% lower hog prices for the quarter combined with a 7% decrease in production volume across the segment. The $15 million reduction in results related to lean hog futures in the first quarter of 2007 reduced sales by that amount compared to last year. As a result, operating income of $12.8 million for the quarter was $39.6 million lower than the $52.3 million of operating income we reported last year.

Grain prices did increase in the first quarter of fiscal 2007, compared to last year, and as of late, corn future prices have been primarily impacted by the additional discussions regarding the use of ethanol as an alternative fuel. While we do believe that in the long term, ethanol will be a central topic in the agricultural markets, in the near term we do not feel this is a significant concern given the outlook for this year's crop.

Our effective income tax rate was 30.8% in the first quarter of fiscal 2007 compared to 38.9% in the comparable period last year, which was primarily related to a discreet state tax event which was reported in the first quarter of this year. The decrease was also attributable to qualified production activities provided by the American Jobs Creation Act of 2004. Going forward, the effective income tax rate for the remainder of fiscal 2007 is expected to be approximately 36%.

Our net capital spending in the first quarter was $9.9 million, which is in line with our projection of $65 to $70 million for the year, as we are ramping up spending for the Milan expansion. And with that, I will turn the call back over to John.

Thanks, Steve. As we have said in previous calls, our business is sensitive to short term price movements due to the cyclicality of the industry. As a result, we feel it is very important for our investors and stakeholders to view our performance over longer periods of time rather than on a quarter-to-quarter basis. As we move further into fiscal 2007, we remain committed to operational excellence, sales and sales margin growth and business development. We have created a number of key positions that will be responsible for executing on these goals over the next several months. We expect to see additional process improvements in our operations and further growth in our higher margin businesses that include food service and processed meats.

With that, Operator, we would like to open the calls for questions.

[OPERATOR INSTRUCTIONS]. Your first question comes from the line of John McMillin with Prudential Securities. Please proceed.

Good morning, everybody.

Good morning, John.

Good morning.

It wasn't too long ago, I guess May 31, we had your last conference call, and I guess I just came to the conclusion that the problems from the circo virus and the production issues were kind of past. The flu season was over and so forth, but that doesn't appear to be the case. And maybe I got things wrong, but did you give your production volumes in the quarter?

I said that production volumes were down 7% for the quarter.

And was that the feeling when you spoke on May 31? Did I get that wrong or did you see this coming, this down 7?

Based on the experiences that we had in the latter part of last year, we had shown ourselves coming down in this quarter, yes.

And, John, the rest of it is that some of the virus that we experienced happens in the finishers. And so you don't always see that until the very end of the cycle, of the hog cycle, production cycle because it happens typically in the last month and a half of their life.

After you've had to feed them their whole life.

Yes.

So in terms of these results being lower than you planned, the reasons for that, quickly, are?

Repeat your question one more time.

Well, in terms of, I think you can kind of acknowledged that these first quarter numbers are below your expectations. If you had to give kind of simple reasons why, both external reasons and internal reasons, what would you say?

The big external reason were hog prices and meat prices primarily in the first two months of the year.

Yes.

And then sales margins -- we fell short of our sales margins for the quarter of where we planned to be. Those are the two big factors on the production volume, that was in line with what we were expecting for this quarter.

But internally, you didn't achieve your sales target.

Yes, internally we talked about actually doing well on the processed meats and on the food service. We did experience some pricing lag throughout the quarter, so as that market ran up hard, John, from early May into June, given that we price out front to some degree, there was a lag effect, and we were continually trying to catch up to what the market had done throughout the quarter. So that was part of it as well.

If you look at what prices did, CME prices in that period from the first part of June to the latter part of June, prices shot up from a level in the kind of lower $60's, $63-ish per hundred weight range, to a level of $76, $77 per hundred weight, in a very short time.

Now, when you made the management changes on July 7, there wawith a -- at least the suggestion that I got, that it was not because of kind of any operational shortfalls. Did you -- is that, and I don't mean to pin this on Bo, I'm just trying to understand what you knew then and what you know now.

No, John, what we told you then and is consistent with what we are telling the group now is Bo chose to resign. And that is the story there.

Okay. Thanks a lot.

You bet, John.

Your next question comes from the line of Christine McCracken with Cleveland Research. Please proceed.

Good morning.

Good morning, Christine.

Just to go back to this circo virus discussion to get a better feel for where you're going to be going forward. How much of the 7% drop in volume was, in your view, attributable to the disease issues, and how much of it was tied to some conception issues late last summer?

Yes, that's a good question. It's certainly not all attributable to disease. And when we say circo, I want to be careful because it would be a misstatement to say that it is all due to circo as well. I mean, circo is certainly a factor, but there are other complications that go along with that. But to get the root of your question, we did experience some fall off late last summer with the extreme heat with regards to reproductivity on the breeding side of the operations. And of course, those would the pigs that would have affected this quarter as well. So there was some of that. So there, it was a combination of the two things for sure.

In terms, well it's awfully hot now. I'm just wondering, is that something you expect to recur next year. Is it too early to tell on that? What are your views on that?

It's still a little early to tell on it. Obviously, heat does have impacts. You try to stay ahead of it, do the best you can, but it's a little early to tell what kind of impact that will have on the industry or us at this point.

It does look like weights have been a little light-side to that, maybe leading to slightly higher hog prices, is that fair?

I would say that there is no doubt that the lighter weights, certainly there is some cause and effect there with the hot weather. The animals just don't grow as fast or consume as much in the very hot weather.

So maybe a little better pricing to this quarter. In any case, on circo, as I understand it, there's two new vaccines that are coming out, some in test. I believe you guys are kind of midway through part of one of those tests. Can you give us some idea of whether or not that would be effective in controlling some of these circo-related viruses?

Well, we are making some decent progress on the circo issue within our operations, and you're right, we are trying a number of different things to include some vaccines. And I wouldn't say that any of this was a silver bullet in and of itself. It's a combination of things that we're doing to include flows and a number of things, but we have found some success with at least one of the vaccine programs. And -- but it's in combination with some other things we're doing.

All right. So, it does seem like, at least, as you rebuild, maybe, part of these herds, that would be less of a factor in terms of lower volume going forward.

That's certainly our plan. We're working hard on that.

All right. And just on exports, you guys mentioned maybe down from very, very high levels last year, but it does seem if you break out the export data, that exports to Japan have actually been a little weaker through the first part of the year. Mexico has been pretty strong. I'm wondering, is there any chance that Mexico, given it's relationship with Japan, is actually shipping US product through Mexico?

We sure don't see signs of that, Christine. Yes, I'm not seeing that.

All right. Well, I have heard though that at least right now, the market expects better shipment to Japan later this year. Is that kind of your outlook as well?

Yes, we're optimistic and continue to be optimistic about the Japan business. If you look at the quarter that we just experienced, I mean, the loin business in Japan was strong throughout the quarter -- matter of fact, it grew. But some of the other business, or the other primals, weren't as strong as previously.

Any reason for that?

Oh, sure. There's a number of reasons. Some of it was about just some better pricing opportunities elsewhere, other than Japan. I'm just speaking now about our business, and some it was that we filled some of the channels up with regards to some primals in the previous quarter.

Okay. But not really tied to this new testing or residue issue.

No. No, we didn't see any of that.

Just finally, on the Milan expansion. Together I guess now with a second shift being added to Triumph this fall it seems like there's pretty good demand pull in place for some expansion in the hog industry and, as you mentioned, the outlooks for corn a little better now, are you worried at all that the industry is -- the production --the producers are going to start to expand into this, given I think a record number of months of profitability here? Or how do you expect these plants to get filled up?

That's a good question. Good question and one that we don't necessarily have the answer to. Obviously we pay a lot of attention to the match up between supply and demand between the hog production and the processing sectors. Obviously, there's a few chapters to be written on that, how that's going to work. I don't have all the answers to that. At this point, we are very focused on what we're doing and not as much on how it all shakes out in the rest of the industry, but yes, that's - we just don't know. But what I can tell you is we are not seeing or hearing about much expansion in the hog production sector in this country, and as we look at what's going on in Canada and read those statistics, I mean, that's flat, from what we read. And so, so far, so good with regard to any kind of overexpansion.

But in your view, with this new slaughter capacity coming on, you could, in fact, have maybe a little higher hog prices associated with some of this lumpiness in production until the, kind of the herd size rightsizes with the slaughter capacity?

Yes, it will just depend upon the match up, Christine, of processing capacity and the animals available. Will some plants shut down? I don't know. Just have to wait and see how the industry deals with it.

In your view, though, does the industry need more capacity?

Oh, I can only speak for our operation. We see a good opportunity for that Milan expansion. We think that works well with regard to our customer base and our opportunities. I can't speak for other companies, what they see with regards to their opportunities, but from our standpoint, yes, we see opportunity for -- good opportunity for that expansion at Milan.

All right. I'll leave it there. Thanks.

Thanks, Christine.

Your next question comes from the line of Eric Larson with Piper Jaffrey. Please proceed.

Yes. Good morning, John and Steve.

Good morning, Eric.

Good morning, Eric.

Maybe -- I had to dial off for just a second, maybe you did not touch base on this. The 7% production volume reduction in the quarter, how do you -- how should we look at the full year? Do we look at it being -- and what I'm trying to figure out here is if you were to ex-out the Milan expansion, how do you expect production numbers to kind of look? Would you be able to cover some of that 7% in Q2? Will it come over the course of the next three quarters? I mean how should we kind of take a look at that?

Well, Eric, as you know, we don't give projections, but as we stated earlier and as we stated in our press release, we are seeing signs of improvement in the health area on our farms. So as we look at the full year, we feel good about what can happen by the end of the year in that area. But also part of that is that in the fourth quarter of last year was really the first quarter that we had this impact, so we'll be up against an easier number in the fourth quarter of last year.

Okay, and the Milan capacity is expected to come on when?

April.

April.

April, got you.

This really comes on, Eric, after this fiscal year.

Right.

It comes on the first of next fiscal year.

Right, so it's something we should be looking at for next year, not this and -- okay. And then, John, just strategically, there's been obviously a lot of activity of meat assets being bought and sold in the industry. I'm supposing and I'm sure that you took a look at some of those assets. Could you just talk to us a little bit about how, whether those, with those assets, it made a strategic sense, when you look at it going into further processing, maybe even branding at some point, how would some of those have fit into the strategic thinking of PSF?

I'll speak to a couple of them and then if you want to talk about others, you can tee them up. Two that come to mind is, there is the Sara Lee European assets. And from our standpoint that would have made no strategic sense with regards to how we look at our business and our strengths. Then moving on to the ConAgra assets that recently were announced, the sale was announced, we have a pretty good sense of who we are and who we are not. And we're a very good integrated high quality producer. We are not a nationally branded kind of company. That's not necessarily our strategy going forward. We are far more oriented to the business-to-business and carving out the kind of customers that need to differentiate themselves in the marketplace, and that's going to continue to be our strategy. So the short answer to your question is the ConAgra assets really were not a fit for the direction that we want to take our business.

Okay. Good, gentleman. I'll follow up with any later on. Thank you.

John Meyer. Okay. Thanks.

Your next question comes from the line of [Lowell Lindstrum with Validez and Reno]. Please proceed.

Yes, good morning. I've listened to the whole thing and watching the tape and seeing the stocks come in by the thousands of shares -- I don't know about thousands, but a lot of stock coming in and I question your wisdom, basic wisdom, in coming to the public and making a report like this. As bad as this is, why would you want to bring it out to the public like this? You haven't said anything good about the stock at all, really, in my opinion, that's really solidly good. I mean, it's things you believe and this sort of thing, but nothing good's been said. Nothing positive's been said. So you didn't have any kind of a story to tell that's worth a crap, so I don't know why. I think you bring it out here and tear the market up, so I think there's a very misjudgment. You don't never come out with bad news, you come out with good news, unless you have to come out with bad news. You just come out with good news and you don't come out on the tape and things like this, so I think there's a big, a major mistake. You don't need to comment back. I mean, whatever I've said, you can believe, it's going to be very true. That's a bum mistake. That's all.

Yes, I -- obviously, we don't agree. We think there are some very good things happening with our business. We very much believe in the strategy and where we're taking this business. As I said in my comments, when you look at our business, you have to look at the long pole, not just quarter to quarter. And that's - I'll just leave it at that.

I'll just add, we make a practice of open communications, and there are two market factors this quarter versus last year. There's a large hegde gain in there which is very explainable. Last year, prices at the beginning of the fiscal quarter started at a high number and, like in the high 70's, ended up in the low 60s at the end of the quarter. We realized some very large hog hedging gains. This year, hog prices started at $63, stayed that level, at lower levels throughout most of the quarter, shot up at the end of the quarter, and we didn't realize any hog hedging gains this quarter. But we're pleased with our hedging positions as they sit today. Additionally, hog prices changed to the tune of 10% for the quarter, versus last year. Those are market factors in our business that impact this Company. So those are worth close to $0.56 a share, $0.60 a share, a big swing -- unavoidable.

Well, and I'll just tie it up, and then we're going to move on. I mean, the thing that we feel strongly about is you're going to continue to hear from this management team on the entire aspect of our business. So what's going on good, you're going to hear about. What's things that we're working on to improve, you're going to hear about. We are just not going to export only the great things that are going on. As investors and analysts, you need to know the whole story. Go ahead.

[OPERATOR INSTRUCTIONS]. Your next question comes from the line of David Adelman with Morgan Stanley. Please proceed.

Good morning, everyone.

Good morning.

Good morning, David.

A couple of things I wanted to ask you. First of all, when do you think we'll see the crossing point on your production volumes year-on-year. When do you think you'll, basically, have the animal health issues behind you?

Well, we are -- as we talked about, David, I'm not going to be able to pinpoint the exact month that that will occur. We are making progress on it and, as Steve indicated earlier, we are certainly hopeful that this thing continues to improve and by the, certainly, by the end of the fiscal year that the improvements will be in line.

Okay. And then, secondly, John, not so much this quarter but if you look, whether it's this quarter or the last six months, the last nine months, in an environment where there have been declining input costs, you have not had substantial growth in your processing profitability. Can you comment as to why that's been the case because normally you would have had, I would have thought, much more of a cushion on the production side from that side of the biz.

Yes, on the last quarter, and I'll talk more than just the quarter, but on the last quarter, you know, some of the pressure came from the quick ramp up of the pricing and just playing some catch up there with that lag. But I'd have to tell you that generally with the protein markets where they are, it's been very competitive. And that's why we continue to try and find ways to, whether it's through processed meats or through the food service channels or other opportunities, to find ways to increase that margin, and that's also why we're moving forward on this process improvement and sales and sales margin initiative, just to find ways to continue to widen that gap or improve that margin.

Where do you think -- I know it's early days and not accurate, but where do you think the biggest buckets of opportunity are likely to be?

You're right, it is early. We are just starting down that road, but I believe just in the preliminary look, we've got areas of improvement that we can -- across our integrated model. That's what this process does is it looks at every aspect of your business, and then you prioritize from there where the biggest opportunities are. But I don't think there's any one particular area, at least that I'm seeing more than another, that the big dollars are going to lie. I think there is opportunities in a number of areas across the business, and I don't want to prejudge it. I want to keep an open mind and see what the analysis shows us, and then go after it.

Okay. And then, Steve, if I could ask you one financially-oriented question. In most of the buckets, working capital was a negative variance this first quarter versus the year ago, whether it's inventory, receivables, payables. Could you comment on why that's the case?

You've got mostly on the inventory, which is the big area, you've got feed costs going up, so your input cost to the animals is the primary reason.

Okay. Thank you very much.

Yes, David. Thanks.

Your next question comes from the line of Steve Raineri with Franklin Advisory. Please proceed.

Good morning.

Good morning.

I apologize if you've already covered this, but could you perhaps quantify the softness in the export business and also the improvement, I guess, that you said you're starting to see?

Can you be a little -- can you repeat the question and be a little bit more specific, please?

Yes. Can you quantify the softness in your export business compared to last year, numerically? And you said you are starting to see an improvement, so I'm wondering how you can also quantify that as well?

What we saw were the first two months were softer for the reasons that John talked about on the call, which is a combination of some categories of product in Japan were lower this period. We made some shifts in between export for domestic just because the domestic opportunities in those particular categories provided better margins, and then, what we saw in June, was a pretty nice ramp up in June, back to normal levels.

Okay, but can you give me a percentage change in your export business?

For the quarter?

Yes.

Yes, it was -- and we did that in the call. It was down 4% for the quarter.

Okay and this improvement that you're talking about, can you also quantify that as well? Compared to the prior year?

We really don't get into monthly export numbers, so we'll just stick with the quarterly.

But we can tell you that June was a good month that way. Got it back on track pretty well.

Okay. Do you have any reason as to why the business was softer? Was there something in Japan that's changed? Is it just a one-quarter type thing?

For us, and I'll focus on Japan specifically to start with and then we can go wherever you want to go with it, but the loin part of the business in Japan was actually above a year ago, so we really didn't see a decline on that piece. Some of the other pieces like the picnics and the ground seasoned pork, we did see a decline year-over-year in those areas. And I think part of that was about the fact that in the previous quarter we had a heavy shipment quarter, and so I think we probably pulled ahead a little bit there. We changed out at least one customer on some ground pork, so that was something that impacted us. And then those would be the big items in Japan for the quarter.

You know, places like Cuba, Korea and Romania and Russia, those were all up for the quarter. So it was really a mixed bag. And the other thing that happened in the quarter, which we haven't seen this for a while now -- it's changed again, is that we actually had some better pricing opportunities domestically on certain primals than what we had had in the past and actually did some switching from the export market back to the domestic market on certain primals.

This -- I'm glad you brought that up, this notion of switching and evaluating domestic and international opportunities. I'd certainly expect you to ship to those markets where you can achieve the highest margin, but to me it sort of seems like perhaps there is a little bit of shift in your mentality that could be longer that one quarter in terms of a mix of international business versus domestic business going forward, and I was wondering if you could sort of elaborate on what you're thinking?

No, I wouldn't characterize it that way. I would say that we are going to continue to take advantage of opportunities as they present themselves, but long term we are still very, very enthusiastic about the export business. Frankly we see this as a blip and not as a long-term trend. And no, we think the mix that we've been striving to achieve is good, and we'll continue to push down that road.

Thanks for your time.

You bet.

Your next question comes from the line of [Akshay Jigali] of JP Morgan. Please proceed.

Good morning. How are you doing?

Good morning.

Good morning.

Quick question. Actually I have a couple of questions. First is, did you guys give out what your realized hog price was for this quarter and also raising costs?

We really, what we talk about is our total raising costs. Across the segment, we're in the lower 40s.

Lower 40s?

Yes.

Yes, and of course they were higher this year, in this quarter this year than they were last year for two reasons -- higher feed costs and just a lower productivity levels this quarter versus last year.

And how about the realized hog price?

That's the price that we quoted as down 9.6% from last year.

But you didn't quote the absolute price?

No, we did not.

Okay. And then, there has been a lot of discussion about how the cycle is affecting earnings. What do you guys think is a normalized EBIT per head for your company or if you want to talk in EPS terms, that's fine too. If you could just kind of help us with that?

We don't get that specific on a particular number like that, but as we have said, we believe that where the markets are going now, are moving to a range that is kind of historical average hog prices. So if you looked over the last five years at where hog prices have been and look at the CME, that CME number's in the $60 per hundred weight range.

Okay. And then last one. I know you touched on this before but in terms of your outlook for feed costs, I know you mentioned that costs are up. Can you quantify that? Obviously your raising costs are up, and you can make some inferences, but can you just quantify how much - what your expectations are in terms of grain costs for this year?

Well, the feed costs were up a couple percent for the quarter. As far as projections, we don't -- I mean, we can't make projections. We make decisions on feed but overall the crops look pretty good, and so we feel comfortable with where feed prices are going to be this year.

Yeah, if you look at where the crops are today, here we are into the first week of August, and condition reports and all would tell you that we should be in pretty good shape with regards to the corn crop produced this year, so we feel like we are over most of the risk with regards to the drought or any of those kind of things that would affect the crop in a large way.

Okay, great. Just one last one. I sure understand the sensitivity to lean hog prices and, I don't know if you've talked about this before, but can you just tell us roughly how much a dollar change in hog prices affects your EBIT on the production side?

Yes. A dollar change with regards to whether it be costs or whether it be in the market is somewhere between, roughly $10 million to us on an annualized basis.

Okay. Great. Thank you.

You bet.

There are no further question in queue. At this time I would now like to turn the call over to Mr. John Meyer for closing remarks.

Okay. I've pretty well covered the closing remarks. We appreciate everyone's participation, and we are going to sign off. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.