泰森食品 (TSN) 2002 Q3 法說會逐字稿

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  • Operator

  • Welcome to Tyson's third quarter conference call. All the participants will be able to listen-only and so for the question, answer session of the call. Today's call is being recorded at the request of Tyson Foods. If anyone has any objection, you may disconnect at this time. I would now like to introduce Mr. Louis Gottsponer, Director of Investor Relations. Thank you, Sir. You may begin.

  • Louis C. Gottsponer - Director of Investor Relations and Assistant Secretary

  • Thank you. Well good morning, and thank you for joining us for the Tyson Foods third quarter conference call. With me today are John Tyson, our Chairman and CEO, Greg Lee, Co-Chief Operating Officer and Group President of Food Service and International, Rick Bond, Co-Chief Operating Officer and Group President of Fresh Meats and Retail, and Steven Hankins, our Chief Financial Officer. Before we move on to discuss the operating performance, I want to remind that some of the things we talk about today are going to include forward looking statements and that means that those statements are going to be based on our view of the world, as we know it today. So, I would advice everyone to go and read our press release for a discussion of those risks that can affect our business. So now, I'm going to turn things over to John Tyson.

  • John Tyson - Chairman, Chief Executive Officer

  • Well, good morning everybody and welcome to third quarter conference call. You'll hear a lot of details from Greg and Rick and Steve about our business. So, my comments will be very brief. I would tell you from my perspective that the execution of bringing these companies together is still on target. I'm still very pleased with that. I would tell you that in the light of the changing environment, our focus and our management team has done better than our competition, and our visible competition. Do we have a lot of challenges in front of us? Yes. That's the responsibility of this management team is to adapt and be flexible to those changing situations within our business model. I think the overall writing theme that we've shared in the past and we'll share again today, that this company is built on cash flows. Cash flows drive this company. Cash flows have been the backbone of this company. I think, as you look into the models of the company, and as you go into Q and A you'll understand the overall combination of the company continues to give us the cash flows to meet our debt obligations, to meet our business plan obligations, and to meet our business growth obligations, because in the end, we will always have an eye towards cash, and what cash can do to help to manage our business and to grow our business. With that, I'll turn it over to Steve.

  • Steven Hankins - Chief Financial Officer

  • Well, good morning everyone. This morning, of course, in our press release, we reported earnings of 30 cents a share for the quarter and as we noted these earnings include approximately 30 million dollars that resulted from a partial settlement of our ongoing battle of an anti-trust litigation. We included this 30 million dollars as an offset to cost of sales in our income statements and it is reported within the other segment, for our segment 40. This settlement primarily relates to our chicken business, but since it covers a time span of many years, we thought it was more appropriate not to include it in the chicken segment, just for purposes of ongoing comparison. And during the quarter, we also sold the assets of our Mallard's operation in California. We recognize the small loss over there, this included in the other Mallard item of our income statement and the combination of these two add-ons resulted in slightly less than a 5-cent impact to our earnings per share. These were reported earnings of 30 cents a share for the quarter and as we noted these earnings included approximately 30 million dollars that resulted from a partial settlement of our ongoing bottom and antitrust litigation. The included these 30 million as offset to the cost of sales in our income statement and is recorded within the other segment for our segment of 40. This settlement primarily relates to our chicken business that census covered the time span of many years we thought it was more appropriate not to include in the chicken segment just for purpose for ongoing comparison. During the quarter we also felt the assets of our Mallard's operation in California, we recognized the small loss over there this is included in the other Mallard of our income statement and the combination of these two add-ons resulted in slightly there 5 cent impact for earnings per share. So you could give earnings of ongoing operations of approximately 25 cents a share, which was within our guidance range of 24 to 28 cents a share for the quarter. Our sales revenue was 5.9 billion dollars. In our segment reporting, beef had an operating income of 2.3 percent for the quarter. This is up from the second quarter, which was 0.5 of a percent. Our pork segment showed a loss in operating income for the quarter at 1.5 percent which is versus quarter 2's positive 1.4 percent and this loss really was directly from the results of our last plan operation, our plan operation at quarter-end had a lower cost of market adjustment of approximately 16 million dollars.

  • Our prepared fruit segment had operating margin of 6.9 percent. This compares to 4.8 percent in quarter 2, with 3.8 percent in quarter 1. We continue to make progress in that business and our product mix, and our operating cost. Our integration of these companies into the quart

  • and infrastructure continues to be on schedule and we expect to have that near-completion about in the end of September.

  • Our chicken segment had operating margin of 5.6 percent for the quarter, that is compared to 3.5 percent a year ago and down slightly from Q2, and Q1. For the quarter, we saw a

  • quarters, averaged 20 cents as compared to 30 cents in the previous year, 23 cents in quarter 2, and 30 cents in the first quarter.

  • Our boneless brands averaged 1.40 dollar, as compared to 1.32 dollar in the previous year and was up from the first and second quarter, which averaged to 1. 23 dollar and 1.22 dollar. Of course in the later portion of the quarter, we saw extremely difficult market conditions due to the overall supplies of protein and the Russian situation.

  • Our lab cost for the quarter were 0.5 point, they were down from the previous year, we are still slightly advantaged for the

  • cost, and have had improved world performance over the previous year.

  • The question of accretion for the quarter of the IBP acquisition continues to be accretive. It added for the quarter about 6 cents a share at our earnings. Our year-to-date accretion is about 4 cents a share. Just remember the previous quarter was slightly negative. As we continue to project that the acquisition of IBP will be accretive for the whole of this fiscal year. And just to confirm again, the adoption of FAS 142 has an annual benefit of about 20 cents a share.

  • As we look at our balance sheet for the quarter, we paid down another 44 million dollars on debt. We ended the quarter at 4 billion, 257 million. This was a reduction during the year, 519 million dollars of total now, and since the cash tender for IBP, we paid down 643 million dollars in debt. The cash provided operations for the quarter remained strong. It was 250 million, advances to 939 million for the year-to-day. During the quarter from the cash to implement, we made our semi-annual interest payment related to our bond that was part of the acquisition and it was well we had the cash outlay for the acquisition of our new baking facility in Omaha, Nebraska.

  • Steven Hankins - Chief Financial Officer

  • Capital spending for the quarter was 126 million dollars. In our outlook for the fourth quarter, we are giving a guidance range of 24 to 28 cents a share, that would bring the annual guidance range now to a dollar 8 to a dollar 12 range, and this is for fully diluted GAAP earnings which would be inclusive of a partial bottom of settlement, is always when we speak about EPS we will speak about GAAP reported earnings. Our weighted average shares will continue to be approximately 355 million. Now this outlook of course is based on views that we have taken in particular to the resumption of shipments in Russia, and the effect that could have on markets, the development of the beef and pork market environment as quarter progresses and of course our view to grain costs. Now the other portions of our outlook are essentially unchanged. Revenues continue to be projected around 24 billion dollars. Our interests, foreign exchange, and other charges will be in the neighborhood of 310 million dollars. The tax rate will continue to be 35 to 36 cents; you will notice this quarter, if it is right up 36 cents, 36 percent I am sorry. Capital spending we now expect to be approximately 450 million dollars or just slightly short of that, which is the top of range of our guidance per year. Depreciation and amortization continues to be expected to be approximately 455 million dollars. Now, at this point in time we are choosing not to provide guidance for fiscal 2003. We are continuing to develop our views on what the economic conditions will be and the related market conditions next year. We are committed to the process of providing guidance and we will be committing on fiscal 2003 at some point in the future. That concludes our financial overview and outlook and now I will turn over to Richard Bond.

  • Richard Bond - Co-Chief Operating Officer and Group President of Fresh Meats and Retail

  • Thanks Steve. Good morning and thank you for joining us this morning. This is going to take a few minutes and cover the major segments; beef, pork, and consumer poultry and some of our value-added operations. Let me start first with beef. Operating results for the third quarter were considerably better as Steve said than second quarter but still about 28 percent less on a year-over-year basis. Suppliers of all proteins were certainly ample for both domestic and international customers. The industry volumes were flat and our volume was actually down about 5 percent on a year-over-year comparison basis. The cow fodder was a greater percent of the mix in the current quarter but our market share of fed cattle was about seven-tenths of 1 percent lower for the quarter. Live prices were down about 13 percent for the quarter versus last year and 6.7 percent current quarter versus prior quarter. April volumes were slow but May and June improved substantially with our June planned operating income being about 15 percent ahead of the year ago. Supplies of cattle should still be ample for our fiscal fourth quarter and the December-January period we will start to see the numbers begin to decline slowly. On the pork side, the live swine and pork processing combined yielded in unsatisfactory result of a loss of approximately 8 million dollars for the quarter. Industry volumes were up 4 percent over the last year and remained unchanged from the prior quarter. Our pork processing volumes were up 10.1 percent compared to last year and we were also virtually flat compared to the second quarter.

  • wage remained unchanged on a year-over-year and quarterly comparison basis. Our pork processing for the quarter had operated earnings of approximately 15 million dollars and we are currently evaluating our live swine operations for competitiveness and long-term sustainability. Let me move into case-ready. Case-ready sales for Q3 were approximately 236 million, up slightly from Q2. Beef case-ready sales accounted for 77 percent of the total. As I stated last quarter, we had commitments from two retailers to begin testing. One has begun testing on a limited

  • basis and the second will begin in August on case-ready brown beef and then roll on to case-ready pork and beef subsequent to that.

  • We continue to meet some resistance on the branding of beef and the case-ready form. Given are lower than expected beef and pork prices, revenues for the fiscal year will be lower than the 1 billion we expected by about 5 to 7 percent. On our

  • initiatives TEW continues to expand its number one brand position in a refrigerated on trade category. We have some scanned data for the 13 weeks ending June 29 shows our dollar sales velocity is over a 1.5 times over our nearest competitor. We are now shipping to accounts representing 67 percent national ACV up from 60 percent in Q2. We are expecting to add a second shift to our cooked facility shortly as we move into fiscal 2003 to support the recent addition of the 1555 Safeway stores and over a 300 additional Wal-Mart Supercenter store distribution. Hence in

  • are gaining acceptance quickly. In our refrigerated processed meats in

  • group, we have completed the final excecutional steps of our plant rationalization; additionally we have consolidated our distribution process into our Arkansas distribution center. We have developed a single sales force approach for the refrigerated processed meats group by combining the former ITC dry brands and IBP food selling efforts. We have also worked to consolidate our broker networks with the traditional Tyson representation.

  • Another significant event is the move to the Tyson data management systems for the majority of these businesses. The acquisition of the MPS baking facility is complete, and we are very pleased with our initial results. Our daily group performed extremely well during third quarter with sale dollars up 5 percent over Q2, and an earnings growth of slightly over 80 percent over Q2.

  • In our consumer poultry area, our new packaging is rolling into the market as I discussed last quarter and we continue to get very favorable comments from both retailers and consumers. We are about 80 percent complete on the fresh side of our business, and have now started shipping new packaging on the further processed side. We should complete this transition by the first week of September. On the new product front, initial tests on our new shelf stable line of Tyson branded Canned Chicken

  • was very encouraging, and the product is now being expanded to other retailers in the Eastern US. Based on these results we expect to roll out nationally in 2003, these items and other shelf-stable products.

  • Generally the sales of our core further processing retailer and cold stored products continue to grow significantly, in both volume and share. Our new family pack bag line leads the way, with over a 50 percent share in the high growth category. On the supply chain front, our two major supply chain projects integrated planning for poultry and network optimization for the new company continued to progress well. With those results stated, I'd now like to turn the call over to Greg Lee.

  • Greg Lee - Co-Coo & Group President Food Service Intl.

  • Thank you Rick and Good Morning. I'll give you a brief overview of our third quarter highlights of food service Chicken, the food service prepared foods group international, and finally our purchasing initiatives. With regard to our food service chicken basis, we grew 7.2 percent in sales for the quarter versus the same period last year. Our operating income for the food service chicken was significantly improved over the same quarter last year. This improvement in earnings resulted from the increase in overall volume and a very good growth rate of 7.6 percent in our core value enhanced products. Earnings were also positively impacted by continued progress in reducing plant conversion costs, while producing a higher mix of value-enhanced products. Improved low production costs and improved pricing also contributed to improved margins. Earnings for rate quarter values at lower residual product values. Sales gains for the quarter reflected growth in sales to both our broadland food service distributor customers as well as our multiunit food service operator customers. Our strategy to provide our distributors a full line of refrigerated and frozen chicken products to meet all of their customer needs continues to meet success. Sales to multiunit food service operators were positively impacted by the promotion of new items by major QSR Chains during the quarter. We anticipate the rollout of additional new items as well as the promotion of some existing products by our QSR customers that will contribute to sales growth late in quarter four and into quarter one of fiscal year 2003. We continue to focus our capital investments on those projects that support our strategy of moving our project mix up the value chain reducing our operating cost and allowing us to meet our customers' needs for value-enhanced chicken.

  • Our food service prepared-foods group enjoyed an excellent third quarter with good overall sales growth particularly to broadland food service distributors. Overall, operating income per the group showed significant improvement. Our net dollar sales to multiunit food service operators continues to be negligibly impacted by sluggish sales across the US pizza industry. Additionally, our net dollar sales for the group are negatively impacted by the lower raw material markets. Improved operating income for the group resulted from lower and more stable raw material input cost improvements in our product mix, improvements in plant conversion cost, and improvements in price management practices. During the third quarter, this group integrated the right brand food service bacon business. The sales of right product continues to expand leveraging the sales, marketing, and distribution capabilities of this group.

  • In June, we also integrated the Mexican original land of corn and flour tortillas into this group and fully expect similar positive results from this step. Additional projects are well under way to expand our product portfolio and production capabilities in identifying growth categories of value-enhanced red meat. Significant additional steps have been implemented through quarter 3 to leverage Tyson's proven food service sales, marketing and distribution capabilities across the full portfolio of our product lines. The following steps have been accomplished today. The food service prepared foods group has been rolled onto Tyson's operating data platforms. DFG has been fully consolidated into the Tyson's

  • foods plant and we afford a hospitality group focused on selling these consolidated product line. This group is operating within our food service poultry group. We have established a unified marketing group with complete multi-protein oversize. We have put into place and systematically expanded a multi-protein team selling strategy and approach for key customers. We have announced and undertaken the consolidation of our poultry of prepared foods group and the DFG brokers to one unified multi-protein group. This broker consolidation will be completed by October 1st. This consolidated broker group will now service our broadline food service distributors and their operator customers offering them the full array of our products and services. These initiatives allow us to continue to move aggressively forward with our plans to offer our customer's one order, one invoice, and one shipment service, if they so desire. Our plans to divest of the specialty brands business are all scheduled and it is our intend to close this transaction during the fourth quarter.

  • Now let us talk about international, our international business continues to be adversely affected by interruptions in market access. Overall international sales of chicken were down 16 percent versus the same quarter last year. This resulted from a significantly lower sales of paws, wing tips, and dark meat to China, lower sales volumes of both dark meat and value-enhanced products to Japan and overall lower prices of dark meat items to all markets. Sales of Lake orders to Russia were up in pounds versus third quarter of last year by 25 million pounds, but as Steve alluded to earlier our sales price was in fact down. Russia in effect instituted a ban on United States' chicken i.e. have all shipments curtailed since approximately July the 8th. The US and Russian governments have recent agreement that provides a 6-week window of time that Russia will receive US chicken while they continue to work on the final details of a new protocol governing future shipments. By the United States Government in an attempt to restore the normal issuance of import certificates have not yet proven successful. We remain uncertain as to when we can expect volumes to China to return to meaningful levels. Tyson in the Mexico had an excellent quarter with increased sales and earnings versus the same period last year, despite the influence of US

  • orders due to the Russian problems into the country of Mexico. Sales were up sharply due to acquisition volume, increased production, and a continuing focus on value-enhanced products.

  • has not directly affected Tyson in the Mexico in fiscal 2002. The pace of the evaluation has not affected Tyson in the Mexico, due to the fact that our bid is pace

  • denominated. Our check in JV operations in Panama and in Japan continue to perform very adequately. Export sales of beef and pork continue to be impacted by the BSC and false labeling problems that occurred in Japan in early 2002. Sales volumes to Japan improved in quarter 3 for our pork products and we continue to maintain market share for shipments of beef into Japan. Japan represents the number one market for US exports of red meat. Overall export volumes of Boxed meat declined 6.3 percent versus last year same quarter, but are improved versus the year-to-date numbers. Product prices have been more significantly impacted with quarter-over-quarter impact of 20 percent per beef. These sales at Korea continue to be very strong. Based on recent visits to Japan and conversation with Japanese customers, we see signs of recovery for beef in Japan and expect volumes to continue to improve. Prices will improve after volumes begin to improve. Boxed pork sales are up for both the quarter and the year-to-date. We have gained share in Japan, prices continue to remain somewhat soft through the first, third quarter. Our Chinese JV casing operation and pork processing operation both continue to perform at or above plan. We are moving into a new casing plant later this month. We will be installing new processing equipment in our pork facility to boost productivity and our Russian JV; we are now taking over direct management of that company. Volumes and earnings continue to improve. Brief comments on the Chicken market, we are seeing slaughter numbers tracking up about 2.6 percent for the third quarter our projections for them, our fourth quarter suggests about a 1.5 percent increase in production. Weights for the year have continued to track about 5.4

  • . Given the morphic additions in the probability of higher year, year-over-year of grain prices, we would expect very moderate expansion. Our purchasing initiatives are fully on track versus our plans. With that, I will turn it over to John Tyson.

  • John Tyson - Chairman, Chief Executive Officer

  • Thank you. You have heard a good description of the business as it exists today and before we go to Q & A, I do want to thank everybody who have been on the call, for the supporters, those that support us both personally and those that support us professionally. I would summarize at this way. In a sluggish economy, we have done okay. We have not done great, we have not done bad, we have done just okay and sometimes in a business environment, okay is okay. And with that, we will go to Q & A.

  • John Tyson - Chairman, Chief Executive Officer

  • Thank you.

  • Operator

  • Thank you. At this time, if you would like to ask a question, please press 'star 1' on your touch-tone phone. We will be announcing your name prior to asking your question. If you would like to withdraw your question, you may press 'star 2'. Once again, press the question at this time, please press 'star 1' on your touch-tone phone. Our first question comes from Mr. Leonard Teitalbaum. Sir you may ask your question and please state your company name.

  • Leonard G Teitelbaum - Analyst

  • Merrill Lynch okay. One of the things that I have got here John, I need some help on or from somebody. Is that, are we expecting any vitamin additions in fourth quarter? Or will it all be operational?

  • John Tyson - Chairman, Chief Executive Officer

  • At this time Lenny, we do not have any indication that there will be any settlements in the fourth quarter. Those are in the court cases and then negotiations but there nothing in the, in the earnings guidance for the fourth quarter that reflects any vitamin issues.

  • Leonard G Teitelbaum - Analyst

  • Okay.

  • John Tyson - Chairman, Chief Executive Officer

  • Leonard, Steve has got a comment.

  • Leonard G Teitelbaum - Analyst

  • Yes sir.

  • Steven Hankins - Chief Financial Officer

  • This is Steve. As we give guidance even if we were to inspect those, we will not include those guidance. Guidance will be based on our operational view and then you know we do have additional balance settlements along way which we do expect some point of time. We will continue to write those settlements.

  • Leonard G Teitelbaum - Analyst

  • Thank you. Okay now if we look at the you had mentioned that little resistance in getting through the case ready program. Is that coming from unions or is that coming from supermarket change? Is it price could you kind of flush out where the resistance is coming from?

  • John Tyson - Chairman, Chief Executive Officer

  • Leny, it is not union directed. It is more just try and get an appreciation for the brand that is not sway for one customer to get through that mode of client that say that this is a national brand that has national capabilities.

  • Leonard G Teitelbaum - Analyst

  • Okay. Now if we take a look at a lot of the resistance, not resistance but the, let us say some of the operational problems having a heavy cost of introducing both case ready in Thomas E Wilson and going all through the programs of what we might call them extraordinary expenses this year. If an immediate attempt want to quantify it and then to kind of tell us how much of that might be in next year's numbers or might make next year's numbers look better.

  • Leonard G Teitelbaum - Analyst

  • I guess it has cost just several 10s of millions of dollars to initiate all of these new programs and I don't know whether that same level of spending is going to be there next year and the conversion cost be there next year or not and that is the point I am trying to get to you?

  • Richard Bond - Co-Chief Operating Officer and Group President of Fresh Meats and Retail

  • I have two comments. One, we did have significant plans start off expenses and the continuing of the ramp up of the good

  • plant. That had probably an adverse effect in the 5 to 7 million-dollar range. The second thing would be that the media spend on the TEW

  • category. If you add that to it in terms of trying to build some brand recognition, those two factors are probably in the, you know, 20 million dollar range in this fiscal year. No, it is not fair to say that, that is all just a one-time ..........

  • Leonard G Teitelbaum - Analyst

  • No, you are going to have some continuations, right?

  • Richard Bond - Co-Chief Operating Officer and Group President of Fresh Meats and Retail

  • Yeah, but those would be the numbers that would have affected this fiscal year thus far.

  • Leonard G Teitelbaum - Analyst

  • Would you expect that to be, take-out the plans start-up costs that certainly wouldn't be a repeat and could you talk a little about your synergies this year and what they might be next year? How much the synergies will be in your numbers for this year and how much would you anticipate being in next year?

  • John Tyson - Chairman, Chief Executive Officer

  • You know just to finish up on the comment also bill to bill particulars is not full yet so we will continue to get efficiency since we fill up the plan. As far as synergies, we remain on target this year for the 50 million, we continue to project 100 next year and 200 the year following as we get closer to the point of giving guidance for 2003, we could possibly amend those numbers a bit, we continue to feel very good about the synergies as Greg mentioned, purchasing program in particular is right on track performing very well for us, but we are not updating our purchasing or our synergy guidance at this point.

  • Leonard G Teitelbaum - Analyst

  • Thank you.

  • Operator

  • Thank you. Christine L. McCracken, you may ask your question and please state your company name.

  • Christine L. McCracken - Analyst

  • Midwest Research. I am wondering if you could mention your position on

  • , obviously, it is a little early, but I was wondering, what are your functions for guidance on beef cost for fourth quarter as it relates to, in economy, is there any potential volatility that could impact these numbers or are you pretty confident that these won't impact those guidance?

  • Greg Lee - Co-Coo & Group President Food Service Intl.

  • Well, Christine, this is Greg Lee and you have to take into consideration on how

  • works through our system, you know your inventory averaging and we have been through that and even though obviously, you have seen some upside in the grain market, it will not have any material affect on our fourth quarter number.

  • Christine L. McCracken - Analyst

  • And on Russia, obviously, news are still coming out on this, it looks like that there might be some disruption tied to the import certificates and I am wondering, how comfortable are you that shipments will start to resume here and over what period of time can we expect an improvement there?

  • Greg Lee - Co-Coo & Group President Food Service Intl.

  • Well we were involved in quite a bit of conversation as you might suspect to around DS up to and through this morning the way this thing will implode unless there's some dramatic change from what appears to has been agreed to is essentially you have in place a six week time window that'll extend that August 1st deadline that Russia had imposed on accepting the current export certificate so that would take it up to September the 15th. That would put the US industry and our company in the position of having the shipped product by about approximately the 15 of August, because you've got, you take into account about 30 days to get it over the water and to get it unloaded, so you have what in real terms what turns out to be, you know, a short three week time period to be able to ship product. Now probably very importantly during that, infact, it is in fact very important, during that timeline there will be continued negotiations, the new protocol over really the area of disagreement appears to set around the AI and how we're going to certify AI and it still is our belief that it will be worked out in the next couple of weeks. So you know, our intent is to get our Russian volume re-totaled but we have done a good job of managing our total inventories and managing the flow when we've moved product around to other destinations. Markets have clearly been very very you know, impacted by this whole situation but we have got product moved.

  • Christine L. McCracken - Analyst

  • And since you've gotten this extension, are you shipping now?

  • Greg Lee - Co-Coo & Group President Food Service Intl.

  • We are in a position, based upon the conversation we had Friday, we believe we will be in a position to ship product to Russia this week if you mean just is there a mean by which to do that, you know paperwork lies and what have you, yes.

  • Christine L. McCracken - Analyst

  • All right and then finally just on pork. Obviously you lost money in this business on the production side this quarter and you are re-evaluating your position there. Is it your expectation that that's going to continue the way on earnings and in the fourth quarter?

  • Richard Bond - Co-Chief Operating Officer and Group President of Fresh Meats and Retail

  • Christine, this is Dick. Yeah it will. I mean we're not going to see an increase in hog prices from a production perspective during the quarter so we will probably not see anywhere near or maybe no effect from an LCM but we will have operating losses for the quarter yet.

  • Christine L. McCracken - Analyst

  • All right.

  • Richard Bond - Co-Chief Operating Officer and Group President of Fresh Meats and Retail

  • In live production.

  • Christine L. McCracken - Analyst

  • Got it . Thanks.

  • Operator

  • Thank you. John McMillan you may ask your question and please state your company name.

  • John McMillan - Analyst

  • Prudential. Good morning everybody.

  • John Tyson - Chairman, Chief Executive Officer

  • Morning John.

  • John McMillan - Analyst

  • I think if pizza's down it's because it's all because we're eating chicken.

  • John Tyson - Chairman, Chief Executive Officer

  • There you go

  • thank you.

  • John McMillan - Analyst

  • You know John; a year ago in this conference call you gave guidance for the coming year. The reluctance to do it today, does it reflect just the uncertainty or why yesterday and not today sort of thing.

  • John McMillan - Analyst

  • Yes, a year ago you gave guidance for 2002 an actual guidance that you have exceeded or should exceed. I just to the extent a company does something a year ago and does not do it today, I am just kind of wondering...........

  • John Tyson - Chairman, Chief Executive Officer

  • May be I would answer, I will answer this way, a year ago we were in the closure stages in the start of the new company. We had an obligation to, to share what with you what we perceive to the best our ability that the company looked like in what our pro formas said, I think you have seen us adjust ourselves to be in a conservative approach. We have taken the position of trying to give you guidance each quarter out, now we have given you the guidance into the fourth quarter. I would say that when we get closer to September then we had some conferences in September that we will be able to give guidance for the 2003 and for appropriately addressed at those particular conferences.

  • John McMillan - Analyst

  • Right, I appreciate that and just a comment and, and you can respond to it if you want but I think Steve, the inclusion of the 5 cents into your numbers. If you are not including it in forward guidance that kind of included, I mean you are lowering guidance here. I just don't know why the reluctance to just takes the 5 cents out and forget about it.

  • John Tyson - Chairman, Chief Executive Officer

  • Well I think what we try to do John is just being transparent and give you the option of doing it the way you need to. When we look at our, our GAAP earnings that will be as Steve reported plus the one projected and so if we want to hit it, did it that way and just felt like we can explain it and you guys could interpret the way you wanted to, you know $30.0 million is a visible number and the effect is, is visible so you know we could do it one way or another we just chose to do it that way and tried to be transparent about the numbers. So you know exactly what we are doing.

  • Mitchell Speiser

  • Yes, because even if, you know even if it is a $1.3 it is a lot better than what you were saying a year ago and a lot of progress.

  • John Tyson - Chairman, Chief Executive Officer

  • You know actually you know we have a, based on the guidance we are giving today as we come right in and basically that original guidance done a bit is better perhaps, so yeah and you know back to giving guidance today you know what, we tried to take a conservative approach and there is probably more better ability in our view to serve the banks at this point than we felt comfortable with going out with the numbers is John

  • as soon as we get that firmed out we will be coming out with an announcement.

  • Operator

  • Thank you. Our next question comes from David Nelson. Sir you may ask your question and please state your company name

  • David Nelson - Analyst

  • CSFB, good morning.

  • John Tyson - Chairman, Chief Executive Officer

  • Good morning David.

  • Richard Bond - Co-Chief Operating Officer and Group President of Fresh Meats and Retail

  • Good morning.

  • Steven Hankins - Chief Financial Officer

  • Good morning.

  • David Nelson - Analyst

  • Your, I do not know if your, personally mentioning it but did you mention a hedged position no your precost, how far out you might be?

  • John Tyson - Chairman, Chief Executive Officer

  • We have. We have purposefully did not give the details of that. We have been watching this very very carefully and we are working to protect our selves from the outside.

  • Steven Hankins - Chief Financial Officer

  • We have selected the vision in certain areas, certain time frames but it is pretty volatile right now and I think Greg said it best, our strategy is protecting instant runaway.

  • David Nelson - Analyst

  • Which implies that you have hedged forward.

  • John Tyson - Chairman, Chief Executive Officer

  • Some spots and instances like the

  • selected months.

  • David Nelson - Analyst

  • All right.

  • did mention that may be some resistance to the Thomas E. Wilson brand pressed beyond Wal-mart. Is some of it also in terms of how much that the needs have been pumped?

  • John Tyson - Chairman, Chief Executive Officer

  • But I would say you that we have not had, means the resistance has not been with the enhanced properties of the product. It has been much more brand related and I do not want to make an overly large display of that because the two retailers that we are in test with, i.e. in a TEW brand. So, I am not trying to

  • here or anything along that line. I just felt it was, we are meeting a little bit of resistance there, but we have not, the enhanced properties of the beef have not been a major issue, most all of the pork that is out there is enhanced to those same levels and we have had no resistance there either.

  • John McMillan - Analyst

  • Okay. You have got your prepare food margins up to 6.8 percent. Do you have an account and what you think had normalized margin from that business might be and if that is to any extent, then boost it by the low input cost?

  • John Tyson - Chairman, Chief Executive Officer

  • Overall, on all those prepared foods businesses, both on the retail and on the food service side, if you put all those together, we are targeting somewhere in that 7 percent range.

  • John McMillan - Analyst

  • Okay. Then on the, you have it on your pork production operations, Tyson to have that business up for sale at one point and did not get it sold. I do not know if that market has changed in terms of the potential bidders out there? Are you implying that you might consider just shutting it down?

  • John Tyson - Chairman, Chief Executive Officer

  • Well, I guess what we are doing is we are looking at all of the different options and if you look at every option, you know that conceivably could be one of the options on a regional basis that we might look at, but we have got 5 or 6 alternative strategies there and certainly you have to look at some segments of that as one as a possibility.

  • John McMillan - Analyst

  • Great. Thank you very much and congratulations on your great chicken performance.

  • Operator

  • Thank you. Brad Eichler you may ask your question and please state your company name.

  • Brad Eichler - Analyst

  • Hi Stephnes Inc, good morning.

  • John Tyson - Chairman, Chief Executive Officer

  • Good morning Brad.

  • Brad Eichler - Analyst

  • Could you just talk about what the impact was on the chicken margins from the almost 17 percent decline internationally, have you thought it all about what type of impact that has?

  • John Tyson - Chairman, Chief Executive Officer

  • Well of course the most apparent impact is in the value of Lake orders themselves, the others, there is a couple of other two or three areas that you need to think about though, and that is the fact that your difficulties of shipping product to Japan or you are no longer shipping any meaningful volume I said Japan, I meant China, excuse me. You are no longer shipping any meaningful

  • of pols and wing tips, though that ends up meaning that our sales as well as most of the industry is now putting the majority of that product into byproduct flows. So, you have lost the incremental income that resulted from those in the Chinese from an export prospective and it has also had a negative effect on byproduct and vendor value, and the aggregate of all of those is significant, that is, it is just an absolute dollar computed that way we are not prepared to talk about in that way.

  • Brad Eichler - Analyst

  • The new

  • as commodity in trading risk any initial observations or opportunities that stood out to that individual?

  • Steven Hankins - Chief Financial Officer

  • No, its too early I mean there has been some input from the individual on the grind position strategy but overall to the company now it's too early.

  • Brad Eichler - Analyst

  • And finally the 30 million dollar gain, what was the effective tax rate on that?

  • Steven Hankins - Chief Financial Officer

  • It was our standard tax rate.

  • Brad Eichler - Analyst

  • Okay. Thank you.

  • Operator

  • Thank you David

  • you may ask your question and please state your company name.

  • David Swartzman

  • Hi Swartzman Morlens

  • . Just thinking of overall your chicken sale, what portion is branded sales and what portion would you might call commodity sale?

  • Steven Hankins - Chief Financial Officer

  • We don't have a number to report to you for that to respond to that.

  • David Swartzman

  • Okay. Thank you.

  • Operator

  • Thank you. Our next question comes from Margaret

  • you may ask your question and please state your company name.

  • Margaret Cannalis

  • Hi J P Morgan. Could you provide a way of update, I wonder if you can tell us what some of the most recent development might have been with the justice departments?

  • Steven Hankins - Chief Financial Officer

  • Related to the INS investigation?

  • Margaret Cannalis

  • Yeah.

  • Steven Hankins - Chief Financial Officer

  • The trail date is set for February of 2003 and there have been no new developments.

  • Margaret Cannalis

  • Okay thank you.

  • Operator

  • Thank you our next question comes from Mitchell Speiser sir you may ask your question and please state your company name.

  • Mitchell Speiser

  • Thank you. Thank you good morning this Mitchell Speiser at Lehman Brothers. I covered the restaurant industry and I liked to know if you can give us your outlook for chicken and beef prices over the next couple quarters particularly to your restaurant customers that try to lock in these commodities and some of the drivers like whether importer feed prices that shape your view on the cost outlook. Thank you.

  • Greg Lee - Co-Coo & Group President Food Service Intl.

  • This is Greg Lee, I'll comment firstly at least I think that just like you have seen us be a little of conservative and wanting to be watchful before we give guidance for next year part of that is some of the uncertainties of markets and some of the input values and again it could be very difficult to give you a number. We do believe that in the area of chicken that we will see a very moderate increases next year for some of the reasons that we mentioned earlier, we hope that will result in some price strengthening as demand you know, grows out and what we have seen from a chicken perspective we will see some good new product activity on chicken in the restaurant sector and we hope that that will be a positive to the markets and we certainly wanted to be positive that with regards to our strategy of value-enhanced product.

  • Steven Hankins - Chief Financial Officer

  • I would respond on the beef side saying that at least for the balance of our fourth quarter and I think for most of first quarter prices on beef will still be reasonable and a good value we will see prices no doubt rise as we get in the late first quarter and into the first calendar quarter of next year as the supplies of beefs start to tighten up a little bit. That would be offset a little bit by if we still have ample and abundance supplies of pork and certainly an ample supply of chicken. I am sure that we will have to balance that a little bit but we will seize, you know, higher beef prices as we go into calendar 2003.

  • Operator

  • Thank you. As a reminder, to ask any further questions please press star 1 at this time, and we have a follow up question from Mr Leonard Teitelbaum.

  • Leonard G Teitelbaum - Analyst

  • Just one question. I presume the dividend is not going to come up on the agenda for an increase this quarter. Is that correct?

  • John Tyson - Chairman, Chief Executive Officer

  • You are correct.

  • Leonard G Teitelbaum - Analyst

  • Thank you.

  • John Tyson - Chairman, Chief Executive Officer

  • This is John here. On behalf of Greg, Rick, Steve, Louis, and I and the folks did get a chance to run this great company, we want to thank you for your time. You know, we do have a larger basket of goods in this new company with all the proteins and at one time, some part of that basket of goods has some difficulty, but it is the total company. The total company of all proteins that generates the strong cash flows and when we put these companies together, we told you that cash flow was going to be a key component of it and I think that stands out. I think we have another question?

  • Operator

  • Our next question comes form John McMillan.

  • John McMillan - Analyst

  • Okay. Just in a year of 50 percent control, John, by your family and after the first event someone must obligate into this question, you know, whether or not you view that 50 percent control is likely to change, sure over a long term?

  • John Tyson - Chairman, Chief Executive Officer

  • No John. I mean, that question was answered before we decided to buy IBP. At that time we firmly asked the question, do we want to go forward, and we looked ourselves and said no, we have a good company, we think putting these companies together. If the family was going to have made a decision related to your question, it would have been made before the acquisition.

  • John McMillan - Analyst

  • Okay, that's right I've just learned, but these two voting issues that give you control, I believe.

  • John Tyson - Chairman, Chief Executive Officer

  • Yes.

  • John McMillan - Analyst

  • Okay. Thank you.

  • Operator

  • Thank you and at this time no further questions.

  • John Tyson - Chairman, Chief Executive Officer

  • We thank you all. Everybody, have a good day.