Smithfield Foods Inc (SFD) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Smithfield Foods 2016 third-quarter results conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to Keira Lombardo. Please go ahead.

Good morning and thank you for joining us today for Smithfield Foods conference call for the third quarter of 2016. This is Keira Lombardo, Senior Vice President of Corporate Affairs. Joining me on our call today is Ken Sullivan, President and Chief Executive Officer, and Glenn Nunziata, Chief Financial Officer.

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 Company's 10-K for calendar year 2015. You can access the 10-K on our website at smithfieldfoods.com.

I'll now turn the call over to Ken. Ken?

Keira, thank you. Good morning, everyone, and thank you for dialing into our third-quarter call. I'm a little bit grumpy. I'm battling some lower back pain, and any of you who have ever done that know what I'm talking about. But I'm not grumpy at all to talk about our Q3 numbers. We filed our 10-Q a few minutes ago. It contains everything you need to know about the quarter and our year-to-date performance.

Let me give you the short story. Profits are up. Operating profits are up 60% to $246 million. That compares to $154 million last year. Net income is up 73% to $144 million. That compares to $83 million last year.

The bottom line is our momentum is forward-leaning, but since we just filed a few minutes ago, I'm going to immediately turn it over to Glenn to give you a complete rundown of the numbers. That will help I think put the remainder of the call and the Q&A session into some context.

Glenn?

Great. Thanks, Ken, and good morning to all of you on the call.

As Ken mentioned, we did just filed our financial statements. It was pretty tight timing this quarter. But I'd like to remind you, especially those WH Group analysts on the call, the results I speak about this morning and the results filed with the SEC this morning are on a US GAAP basis. So, if you're looking at those WH Group financials, those are going to be reported on an IFRS basis, and there's going to be some differences.

I'm going to start by covering our consolidated results, and then we will transition into a quick discussion on segments.

Our third-quarter sales totaled $3.5 billion, and that compares to $3.4 billion last year. Our sales year-to-date totaled $10.3 billion versus $10.5 billion for the previous year. Third-quarter sales dollars are up in all segments, except for live production. The year-to-date period include sales dollars declines in hog production, as well as a very small drop in fresh pork sales dollars. International sales dollars were higher, despite a 5% negative impact from foreign currency in both periods.

Volumes improved in all segments in the third quarter. Year-to-date volumes were up over 8% in Europe, and they remain relatively flat in the other parts of the business.

Q3 operating profits, as Ken mentioned, totaled $246.3 million, and that compares to last year's $153.7 million. That's an increase of over 60% over $92 million. For the year-to-date period, our operating profit increased from $528 million in the prior year to $693.5 million this year. Our operating profit margin has also continued its upward trend. We went from a 5% margin last year to 7% this year.

Net income for Q3 totaled $143.8 million versus the $83.3 million we earned in a prior year. On a year-to-date basis, net income totaled $402.6 million compared to $284.5 million last year. These results for both the three-months and nine-month periods ending in September represent record results for Smithfield.

Turning to segment performance, fresh pork results were a huge factor for us this quarter. Operating profit improved from $14.1 million in Q3 last year to $76.7 million this year. Year-to-date operating profits are over $200 million higher, in spite of volumes remaining flat and selling prices declining.

The story here is simple. The value of meat cuts continued to significantly outpace our raw material costs.

Packaged meat results once again were solid at $136.8 million of profit for the quarter compared to $112.3 million last year. Year-to-date profits are over $55 million higher than last year. We recorded operating profits of $516.8 million in the year-to-date period.

Volume is fairly level for the nine months, but our selling prices are up approximately 4%.

Lastly, on the US front, let's talk about live production. After an $82.5 million loss in Q1, Q2 profits came in at $15.2 million, and Q3 increased again to $34.5 million. Last year's Q3 profit was $47.1 million. The decline from last year mainly reflects the lower hog prices.

On the international front, our Q3 profits totaled $28.1 million compared to $15.3 million in the previous year. That's an 84% improvement. On a year-to-date basis, our operating profit has increased from $46 million to $61.5 million this year. Higher volumes in key categories in Eastern Europe have helped push our earnings this year.

I'm going to turn over to our financial position and liquidity, and I'm going to run quickly through some of our metrics.

Our net debt to EBITDA ratio is below 2 times. Our debt to capital ratio is approximately 32%, and we are covering interest expense over 9 times. At quarter end, we have over $1.4 billion of global liquidity, and we've maintained these strong debt and liquidity levels even after having paid out $225 million in voluntary pension contributions and $376 million in dividend payments to our parent. And while we don't anticipate any further pension contributions this year, our cash flow plans do reflect a very small dividend payment to WH Group in the fourth quarter, and we expect to round out the full-year on dividends at $400 million.

Last week we redeemed $250 million of principle on our 2018 notes. This redemption was done simply with cash, and we will report an almost $4.5 million early debt redemption charge in Q4. And, as a result of this transaction, we are reducing our future interest expense by over $23 million through the scheduled maturity date of August 2018.

Finally, on the CapEx front, we have incurred approximately $270 million -- $274 million year-to-date. Our capital budget for 2016 is on target at approximately $350 million, and that's compared to an expected full-year depreciation expense of approximately $240 million.

And that does conclude my prepared remarks, and I'll turn it back over to Keira.

Thanks, Glenn. Operator, please open the line for questions.

(Operator Instructions). Bryan Hunt, Wells Fargo.

Thanks for your time this morning. I was wondering if you could talk about the operating cost of the closures associated with Hurricane Matthew during the fourth quarter.

I didn't hear you, Bryan. With what?

The operating costs associated with Hurricane Matthew during the fourth quarter.

I would tell you, as bad as that storm was, we actually survived it remarkably well. We did have some disruptions certainly in our plant operations. A couple of our plants, we had to go dark for a couple of days. That was more related to the idea of getting employees in and out and employee safety than it was necessarily anything else and obviously the logistics of getting hogs to the plant.

So we certainly have that disruption, and that has caused us again in a period where you are making some pretty good profits to go dark in the plant, that hurts.

From a farm standpoint, again that's sort of the good news story is that thanks in large part to the almost heroic efforts of our hog production employees, many of whom are engaged in the environmental aspects of our hog production with the lagoons, we came through that very well in terms of any damage. We didn't have any lagoons breach. We lost very few animals in the process, and overall we came out of that very well.

In terms of putting an exact number on it, Bryan, I don't have that for you today. It's a little bit of a ding, but in terms of trying to model something in terms of significant for Q4, I don't think there's anything really for you to try and figure out.

So just in context, it sounds like it's less than $10 million. Is that a fair statement?

I think that's probably right, give or take.

Okay. Moving on, feed costs continue to come down, so I guess it's been raising costs down. But I guess if I look out the futures curve and where hog prices are today, I mean our math says that we're going to generate hog losses at the 2017 as --. Do you think that's a fair assessment of this situation?

Yes. Certainly if you look at the futures curve and look at where raising costs are now, that is a fair conclusion.

The one thing I would tell you, Bryan, is, if you look at our 2016 performance, we are losing money in hogs in Q4. I've said before that 2016 is a little bit of a tale of the quarters in the sense that in Q1 and Q4 we're going to lose money sort of order of magnitude around the same amount, and in Q2 and Q3 we made money. But net for the year, we are going to lose something $6.00, $7.00 a head on the farms in 2016.

Now -- and that's $100 million range, give or take again, and our $15 million either way.

But the thing you need to bear in mind is, if you go back to this time last year and look at the futures curve, you would have seen a much higher number in terms of what the actual loss was going to be. In fairness I will tell you our hedging program I think has been extremely effective this year. Not so much in Q1 and Q2 but in Q3 and Q4, we've got some very favorable positions and have mitigated the risk in that area of the business. As I've said consistently, that is not an area of the business where we are trying to optimize or maximize profits. We run that area of the business in a way in which we try to mitigate downside risk, and that informs everything we do from a hedging strategy standpoint, and that goes from inputs to the selling prices of hogs.

And so I would tell you one of the bright spots or good news this year is just how effectively we have been able to manage that, notwithstanding some of the losses we see in the P&L. It would be much, much worse if it were not for our hedging program, and that's not a -- that's not a program that we are in and out of. We do that 365 days a year, and including looking at 2017, we've already begun to look out and do some things there.

I would tell you in terms of hog prices, though, I think we clearly need a bounce there. I think it's going to be interesting to see what happens when the new plants come on board. You got new shackle space out there and some competition for that, just what happens there, and I think that's going to be interesting to watch.

And that's actually my next question. I've got a couple more after that and I'll be done.

There are several facilities coming online (inaudible) is going to add 6% to capacity and mystery overall. Where are those products going in your opinion? I think one of them is solely dedicated to export markets, but how do you foresee that impacting the profitability and the packing space in late 2017?

Well, that is -- your question is a very good one in that it is the $64,000 question in terms of just what the impact is going to be. I would tell you the short answer is the same answer it's been for the last 25 years in the US pork industry, which is the export market have to absorb some of this additional meat that we're going to generate. 2016 we've seen an increase -- a pretty good increase in exports, certainly we have at Smithfield, and I think the short story is that meat is going to go somewhere. The export markets I think will absorb it in some form or fashion. Just how profitably that will be done remains to be seen. And I certainly don't have the crystal ball to look into accurately forecast exactly what that's going to look like.

I can tell you I do take some comfort in the idea that the US pork industry has consistently over the last 15 years been able to grow exports and absorb these sorts of movements, but we will see. Obviously we are an integrated company.

And so we've got some natural hedge here in terms of what's likely to happen, and we will see exactly in which part of the value chain it plays out. The big question will be have producers expanded enough to meet that shackle space, and what's likely to happen to hog prices at that point.

I would tell you as a general proposition, pork protein has been on very solid footing, in particular in the food services space. And I think others business is probably similar to ours in that our food services business has been quite good in 2016.

Great. And then my last question is an attribution to the good results you all produced, you got an agency upgrade during the quarter. Can you talk about whether that was driven by a meeting, or was it just completely unexpected because it didn't look like they had you on positive outlook? And ultimately is the goal for the Company to be investment-grade?

I'll give you my short answer, and then Glenn can add any color he wants to. The bottom line is we are in constant contact with the rating agencies, and that's a -- as I used the term earlier (technical difficulty) 365-day effort. We are literally talking to them on a very consistent basis. And so was it a shock or surprise? No, it wasn't a shock or surprise.

Got you. And are you -- is that the ultimate goal is to be at IG?

It's better than the alternative, I suppose. Certainly lowering our financing cost is a positive thing. We've been able to do that, and it has contributed nicely actually to earnings.

Very good. I will hand it off to somebody else. Thank you.

Hale Holden, Barclays.

Good morning. Thanks for taking the call. Ken, I'm sorry about your back. There's really nothing worse than that.

Can we talk about the packaged meats business a little bit? In the 10-Q, it notes that you have seen good pricing and volume increases kind of, and that's on the face of a generally deflationary food environment. So I'm just wondering if you could talk about which lines are getting good pricing increases? Is it new products that you are innovating out of that you are able to charge a little bit more on what some of the drivers are there?

I mean I think it is a little bit of everything. The bottom line is the third quarter. This is a bit of a seasonal business as well. And our third-quarter profits, which I think were $137 million, that was a record for us in the quarter, and was certainly stronger $25 million I think stronger than last year.

If you look below the details, our Smithfield brand volume was up 6.9%. Our Smithfield bacon ACV achieved a record high 76%. Our Eckrich brand was up, I think, 5% in the quarter. Smoked sausage ACV was over the 80% mark. Nathan's was its highest ever, ACV, which for those of the uninitiated is sort of a measure of distribution, if you will, at 95%. And that continues to be our number one -- or the number one premium hot dog brand with something like an 18% or 19% share.

Armour, our volume was up there pretty nicely, and that was largely driven by LunchMakers, as well as some new launches from our Armour sliders and meatballs with sauce. I can go on and on down the list, and I mentioned also that our food service business has been up very nicely this year. Our deli business is up, so -- and that puts strength across all the product category.

On food service, sort of your impression that you are gaining share because it does sound like your growth is ahead of what we are hearing others in the industry are.

You know, that's a bit more difficult to measure just in terms of the data that's available. But I would just repeat what I said without commenting on what others are doing. I think our food service business is strong and better positioned than it ever has been. I will tell you that things we have done behind the scenes in terms of One Smithfield, that is beginning to take hold across all sales channels.

And then the last question I have was the balance sheet is in great shape. Any thoughts on what an M&A pipeline might look like or how active you think you might be over the next 12 months?

I think I'm certainly not -- I appreciate the question, Hale, but I'm not necessarily going to forecast what those activities might be. I would tell you I agree with you in terms of your assessment. Our balance sheet is strong. We clearly would like to pursue some -- the right opportunities in the right parts of the value chain, and we will look for opportunities to do that.

Beyond that, I really am a little bit reluctant to comment specifically on that. I would tell you this. Again, growth is a focus for us. I think we've recently gone through some internal planning exercises, and we've got what we think to be 30 different type of growth opportunities, whether that's expanding into adjacencies or expanding capacity in higher margin categories.

So we've got a mix of internal opportunities that's both on the operational cost side, on the organic sales growth side, and obviously from an external point of view, we are looking to see what's out there.

Great. Thank you very much for the time. I appreciate it.

Carla Casella, JPMorgan.

Hi. Most mine have been answered, but did you give what the restricted payment basket is?

Yes. As of the end of the quarter, our most restrictive basket is $480 million.

This is Ken. I think Glenn mentioned to me before the call, but I think the most remarkable fact about that is we've made some dividend payments over $350 million or $375 million this year, and still the restricted payment basket has grown, notwithstanding those payments. So I think that's a little bit of a remarkable note.

No, it's great. We love to see when you actually use it, when you are earning it as well. You deserve it.

So your 2017 notes you commented in the 10-Q are now marked in current. Can you just talk about your thoughts balancing refinancing versus just paying those off and then also just thoughts towards further calling volumes? Are comfortable where you are from an interest perspective, or are you still focused on reducing interest costs and leverage?

I'll start out and Ken can add on. So, with respect to the 2017, we have tremendous liquidity today. There's plenty of liquidity in our market. Someone mentioned earlier, maybe it was Bryan, about the investment-grade credit assignment by S&P. We have tremendous opportunity here, and it's all good.

We are working through our plans now. Obviously we are always on a mission to reduce our debt carry costs, and you're right. Our interest expense is nice and (inaudible), but we would like to improve that even more.

So we're going to take a good look at it, see what kind of pricing is out there in the market. But we're going to do it in a measured form and make sure we take advantage of the pricing opportunity.

And I would just say from a treasury standpoint, again I think I couldn't be really more happy with what we have done over the last couple of years in terms of the overall debt reduction, in terms of pension contributions that we've made, and by the way we've made $125 million contribution I think in the third quarter.

January was $125 million. September was $100 million.

So, in total, $225 million for the year. We obviously just did a call and called in surrounding the numbers a [2.25] type of thing. And so we are in a very good standpoint, we are actively, as Glenn said, looking at it, and we are going to have a plan pretty soon.

Great. And then just given movement in the various commodity -- or I'm sorry, protein prices, are retailers approaching proteins as a category overall differently as we come near this holiday season in terms of their promotions or what they are focused on? Are you seeing any real change in their view?

I don't think so. A lot of that is done forward. And so some of those decisions were made months ago. So I think to say that it's changing or reacting at this point I think is probably not fair for me to say.

We feel pretty good going into the fourth quarter being seasonally one of the quarters in which things like holiday hams make a difference. And we've not had good margins on holiday hams in past years, and that's something that for our business we've got to have better return against our assets in terms of those parts of the businesses.

It is a little bit tricky because you do have to forward-sell that business, and you've got to call markets, and some of the volatility, if you will, that we've seen in meat prices in raw materials, that can get tricky.

So the short answer is no. I don't see anything of note that I can sort of in any intelligent way comment on.

Okay. And exports have been a big focus for you, actually for the industry overall. Would you say you are taking more than your fair share in that export market?

Yes, I think that's fair. I think certainly if you look at the data, you can -- we certainly know what our numbers are. We can interpolate that we are taking more of our fair share. But Carla, volume is one thing, and mix is another, and you've got to constantly work on that.

The truth is, I'm not so proprietary over export channels. I think -- it's good for the US pork industry. It's good for Smithfield. It's good for everybody when we have more pork disappearing from the United States. So that's something that yes, I think it's fair to say that our volume share is greater than others, but that inures to the benefit, frankly, of everybody.

One last one. You talked a bit about food service doing well. How much of the business today is food service versus retail?

Well, it varies whether you're talking fresh and packaged. But, as a general proposition, our food service businesses -- it is certainly less than the retail where it's more of a 75/25 split. In fresh it's more heavily weighted towards food service. How you balance those, it's probably overall -- call it, 35% to 40% of our total business.

Okay. Great. Thank you.

Lincoln Kong, Goldman Sachs.

Hi, management. A few questions. First of all, on the packaged meats business, I think in the third quarter the packaging margin was sequentially slightly weaker. I just want to know, is there any reason or how do we see the competition as we discount between the peers? And as we look at the first quarter, what should we expect for the margin?

And just one question related to that is I mean on previous calls we mentioned when we target another 50 to 100 basis point margin expansion for next year, are they still the target, or are we still on track on that? That's the first one.

You're trying to squeeze in a lot of questions?

No, just two or three.

You've stayed up late for this, so we are happy to answer it.

Lincoln, the question about packaged meats margin sequentially being down is not at all a surprise or unusual to us. The fact is, again, there is a seasonal element. It's not as pronounced as other parts of the business, but there is a seasonal element to packaged meats. And particularly as it relates to volume again in holiday periods, fourth quarter being the best example if you think of it in those terms.

We sell a whole lot of holiday hams, and hams weigh a lot, and volume numbers go up dramatically in the fourth quarter. And it's just a -- the margin being down sequentially from Q2 to Q3 is not indicative of a trend or a fundamental shift in anything. It is nothing more than the natural ebb and flow of packaged meats margins that the reality is people like to think that we are making widgets, but we are not.

We are making products that have a variable cost in terms of the meat block, which is a very high percentage in the US of our cost component for our packaged meats. Remember, our product portfolio in the US is low temperature product. It's all refrigerated product, and the meat content is very high. Meat values fluctuate through the year, and pricing mechanisms tend to have a lagging feature to them. And so there is a natural waxing and waning of meat margins or packaged meats margins. That's why historically we've consistently talked about packaged meats margins in a range. It's sort of inaccurate and unfair to think about packaged meats margins as linear. They are not. I think even from quarter to quarter they are not, and even from year to year they are not. It's a question of trend within a range, and that's always been our objective at Smithfield is to try to migrate up that trend curve.

I can't remember the last part of your question. It was about the 100 basis point Improvement. (multiple speakers) I think what you are referring to is I have consistently talked about our One Smithfield initiative as being worth 100 to 200 basis points in terms of overall margin improvement for Smithfield. I think I have admitted and acknowledged that I think it is closer to 200 than it is 100. I think clearly we have obtained 100 or more of that improvement if you just compare 2015 to 2014, which is where we saw the leading edge of One Smithfield where we combined our sales efforts and consolidated our brand management. That's where we took the giant step forward in 2015. That was worth every bit of 100 to 150 basis points, frankly. We've continued that, as you've seen, into 2016, and we've built on it through the lagging half of One Smithfield, which is our manufacturing platform and our sales and distribution -- sorry, our distribution and logistics part of the equation, which, frankly, we have seen benefit from this year both in our fresh operations and our packaged operations. But I would tell you I think I'm expecting more of that to come in 2017 and 2018 as we implement our One Smithfield ERP system or our SAP system. Again, I've said this before -- if you don't know it, you should know it -- that Smithfield is an SAP company, but we've got different instances of SAP. Behind the scenes we have a Herculean effort going on here, and if I could take the opportunity if there's any employees listening who are engaged in that project, a big shout out to people who are really designing the future of Smithfield through our One SAP project. We are consolidating our ERP system. That will be the gateway or the catalyst for us to achieve some of the backend savings on One Smithfield again in the manufacturing and transportation and logistics areas. Again, I'm expecting that benefit really to come more in 2017, even though we've recognized some of it here in 2016, and even into 2018, depending on the exact (inaudible) schedule of SAP. That will kind of dictate how soon and how quickly we can get to some of those.

Okay. Thanks. Just have a question about a fresh pork business. Given the industry -- I'm assuming the industry strong packer margins had an increase of hog processed. I don't know is there something when we have backing on margin in the fresh pork business this quarter? Because as we look for the first-quarter industry margin continuing to improve, so how should we think about the margin performance for the fresh pork business for the first quarter?

Okay. What I would tell you about the fresh pork business is clearly, from a Smithfield standpoint, we're enjoying some improved results that's really started in the back half of 2015 and has continued into 2016. It would be disingenuous of me if I didn't recognize that there is a market element to that. Fundamentally the spread between hog prices and meat values has widened a bit over historical levels, and so there's -- there is a market element of it.

But I'd also be equally sort of unfair if I recognize the efforts of our fresh pork team to focus on our operational initiatives and improve our business there, which I believe we have done, and we are seeing the benefit of it in improved results for Smithfield.

So I would tell you it is a mix of market, and it is a mix of the operational improvements that we've made in fresh pork.

You asked about fourth quarter, margins are good right now. I would call them strong to very strong. Here in the fourth quarter today in particular, I don't know if it will remain for the balance of the quarter or not, but today we are seeing some very strong margins.

(technical difficulty)

Yes.

And just one last question about our exports. Because we think the China and the US price gap, hog price gap is still pretty large. It seems (inaudible) exports to China has been choppy for the whole industry. I don't know if you have any view on why is that, or how do we see that going forward?

Again, you can't think of exports as necessarily a fire hose that continues at the same rate and same intensity 365 days a year. There are markets to arbitrage here. You have to understand price levels in China versus US.

You are right. Earlier in the year, price levels in China were very high, and now they have come off some. And so that price differential is different than it was three months ago and six months ago. But, again, that's not suggesting that somehow there is a fundamental shift in the trade between China and the US. That's just not the case. Our markets fluctuate, and things will, to use the term I used earlier, wax and wane. And it is an ebb and flow type of business, and I don't expect it to be any different next year than it was the year before or the previous 10 years prior to that in terms of export flows.

Okay. Thank you.

Paul Young, [CICC].

Good morning, Ken. I have two questions for you. The first question is about pork price. Why the third-quarter (inaudible) pork prices (inaudible)? It seems breaking the traditional seasonality of up in the third quarter and down in the fourth quarter. So I would like to know is the supply or demand driven behind, and what's your view for the price movement fourth quarter next year, please?

I'm not sure I got all of that. I think the question was pork prices: why is it that pork prices are lower. And if that was your question, it is certainly true that in Q4 you tend to see lower price levels, and that is a long time cycle in the United States in terms of that has a lot more to do with braiding cycles for the pig industry, where you tend to get more pork in the fourth quarter, and price levels do tend to come off. But for pricing in our business is a complicated thing and subject to dozens of variables that impact the supply and demand curve. I would just tell you I'm not surprised that prices are lower. In particular, hog prices are lower in the fourth quarter. That's not at all an unusual phenomenon.

Okay. So usually (technical difficulty)

I'm sorry. I'm getting a little bit of static here. Ask the question again?

(technical difficulty) will be like that kind of (technical difficulty) cycle?

I'm sorry. We're still not getting it. It must be a bad connection or something. We are having a hard time (multiple speakers)

Are there problems -- let me carry to the second question for you. Since you guys have again again a modern record this year, and also I remember the One Smithfield integration also bring back margins significantly during the past two years. So from here looking into like 2017, so what's the driver you might expect to keep up your US earnings growth (inaudible) at a very attractive level, or is there earning downside which you would be happy to touch upon now?

I'll take a shot at that, recognizing that, again, there are parts of that question that I just can't hear. I think you're really asking us about 2017 and what is our outlook for 2017. I would answer it this way. Our packaged meats business, which has been the shining star of Smithfield and continues to -- we continue to have a positive outlook for our packaged meats business. We are a vertically integrated company, so fresh meat and live production is a bit of a natural hedge there. We are heading into some -- a little bit of uncharted territory in 2017 in terms of several new pork plants coming online in the US, and there are questions out there in the industry about just how much expansion is occurring to meet the new shackle space and whether that expansion will materialize, particularly in an environment now where hog producers are losing money.

And so I really can't give you a forecast or an outlook for that. I can tell you in general terms we remain optimistic about the possibilities we have in front of us, both from a growth standpoint and managing our business in some of the One Smithfield initiatives that we have underway. But I'm going to tell you predicting markets in the US is a difficult thing to do, and we are just not going to do that.

Okay. Thanks a lot. (technical difficulty)

Thank you.

And at this time, there are no questions in queue. Please continue.

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