泰森食品 (TSN) 2002 Q4 法說會逐字稿

Good morning welcome to the Tyson Foods fourth quarter conference call.

All participants will be able to listen only until the question and answer portion of the conference.

Today's call is being recorded.

If anyone has objections you may disconnect at this time.

I would like to introduce Mr. Louis, Director of Investors Relations.

Good morning thank you for join us today for the Tyson Foods fourth quarter call.

With me today are John Tyson our Chairman and CEO, Dick Bond and Greg Lee, our Co Chief Operating Officers, and Steve Hankins our Chief Financial Officer.

Before we move on to discuss the operating performance for the quarter and the year let me remind everybody some of the things we talk about today may include forward-looking statements.

That means those statements are going to be based on our view of the world as we know it today and also means things can change.

So take a look at our press release today for the list of risks that affect our business going forward.

So with that I'll turn things over to John Tyson.

Good morning everybody.

And welcome to our year-end conference call.

We thank you for your time and listening to what we have to share with you.

When I take a look at this year I am pleased with all of the things that has been accomplished on both a professional perspective and from a personal level.

A personal note, I would like to thank those that have supported our company from both inside and outside the company.

Our integration activities have been very successful and we've accomplished many things in that area.

There were some concerns when we put these companies together.

There was concern about key management staying with the company and we've lost no one.

There was concern about the integration risk.

By the close of the year we've integrated almost 17 stand alone companies into the infrastructure and to our supply chain and our financial reporting systems and the process has gone very well.

Without many errors.

There was a concern about our synergy targets.

We had a target of $50 million for '02 and we made that number and we are track for '03 of $100 million and on track for '04 at $200 million.

There were concerns whether this acquisition would be accretive to earnings and there's no question about that.

There was some concern about our level of debt.

During the year we paid down $789 million and since the close of the cash tender we have paid over $900 million.

And we ended our business year at under $4 billion in debt.

At the rates that we project for going forward in our business, we expect to be paid down on our debt to capital ratio of under 50% by the end of our physical year '03.

That's our goal and we are on track.

We tried to organize our business around one company with a common shared service infrastructure but most importantly on a simple statement of focus on the customer.

And it is going very well.

Our account team strategy with major customers is on track.

We have one phase customers representing all our products whether beef, chicken pork or prepared foods.

On both the retail side and food service our broker networks are integrated and giving our customers one point of contact for all our products.

I think the thing we have to remind ourselves while all this activity was going on we did a very good job of growing our value added business in every area we have.

And Dick and Greg will speak to about what they've done in their respective areas of responsibility and new product initiatives.

As with any integration you have to make decisions about production facilities, about rationalization, what to keep, what not to keep and tough decisions about what to close.

During the year we closed six production facilities.

We integrated that volume into other existing facilities.

We discontinued nonprofitable product lines.

And that has been successful.

And we will continue to look at these opportunities.

We sold our mallard's business.

We sold our specialty business.

And we purchased a vacant facility in Omaha, Nebraska.

The purchase of the vacant facility in Omaha takes to us a 15% market share and a number 1 share.

As we spoke through the last three conference calls, we're going to sell those things that we don't need or don't fit and we'll buy these things that take and improve our market share, or meet our common vision which is to be a one stop shop in beef, pork and chicken for our customers. 'd have to say that in the last twelve months the folks that I have gotten to work with day in and day out have made some pretty good progress.

In a lot of changing environments both in the market place and in the economic situation in our country.

I would tell you I am satisfied and I am very pleased with the effort that went on.

So I would say to all of our team members, thank you.

Thank you for the efforts that you put forth this year in staying focused on taking care of our customers and bringing these two great companies together.

Steve is going speak about our financials.

Dick will then speak to consumer products and fresh meats.

Greg will then speak to food service and international.

They'll come back to me then as always it will be question and answers for our callers out there.

Steve?

Thanks, John.

Good morning.

This morning if you have had the opportunity to review our press release you noticed our earnings had a few moving parts to it and I'll go through that quickly to make sure everyone has a clear picture.

The press release we reported GAAP earnings of 24 cents a share for the quarter.

Within those GAAP earnings are the following: One time charge of 27 million which was related to the write off the Thomas E. Wilson brand.

There's a restructuring charge related to the live swine operation of $26 million.

We've announced both of those during the quarter.

So I know those are not a surprise.

And those combined make up the $53 million in charges that we referenced in our press release.

They're shown on the income statement on the other charges line right above the operating income line.

During the quarter we also sold our specialty brand subsidiary and announced that.

We recognized a gain on that sale of $22 million.

This gain is included in the other line on our income statement below the operating income line the net affect of the charges and the gain was a 6 cent a share negative impact within the 24 cent GAAP earnings.

So if you look at earnings per share from on-going operations, exclusive of these items, 24 plus 6 gives you 30 cents.

So 30 cents from on-going operations which exceeds our guidance of 24 to 28 cents.

So we had a nice quarter from operations.

As we look into our segment reporting, there are just a couple points I want to make.

Beef segment sales dollars were down a little bit over 2% versus quarter 3.

But our earnings were up just under $32 million.

The important number is the operating income percentage of 3.6% in beef really had an excellent quarter.

Our chicken segment sales were down 3.5% year over year for the quarter.

And international sales as we reference in the press release were down 26%.

The operating income line was 4% compared to 5.2% of the same quarter last year.

A big difference were leg quarters.

The leg quarter markets this year were around 20 cents for this quarter versus a 33 cent or so market last year.

So there was a about 13 cent difference in leg quarters.

If you play with your models and look at that number, you'll come to the conclusion I think that the performance of the core chicken business exclusive of the leg quarters actually improved over last year's fourth quarter.

That's been a theme for the year.

And I think when you make that adjustment you'll see the continuation of the improvement of the chicken business.

Our pork segment is for the live swine restructuring charge shows up.

Without that charge the operating income for the segment would have been 3.2 million.

Within that the process pork group made about $14 million and had a 2.6% operating income margin.

Our prepared food segment had an operating margin of 5.3%.

Our charge for the Thomas E. Wilson brand is reflected in this segment and without that charge the operating margin for prepared foods would have been 8.94%.

Versus a 6.9% in quarter 3.

So we continued our progress quarter over quarter this year in prepared foods.

Again product mix and operating cost continues to be a positive in that area then raw material processing did give us additional benefit against some of our pricing contracts during the quarter.

As John said the integration has gone well.

It's pretty much complete.

Those 17 companies are about 3 billion dollars worth of sales.

So that's a big business that we've got the common supply chain and financial system and the ability to enable one face to the customer.

Accretion for the quarter an important number.

Beef was solid, prepared food was solid.

Chicken was affected somewhat.

The accretion was outstanding.

So the total accretion for the year with all the one time events adjusted for as about 23 cents a share so.

The acquisition is really contributed to our performance.

Just to confirm again probably for the last time I guess with the full effect of the adoption of FAS 142 was about 20 cents a share benefit.

As we look into the balance sheet as John's already told you we paid down lots of debt for the year.

Another $268 million in the quarter.

Ended the year at $3,987,000,000. 789 million pay down during the year and 914 million since we closed the cash tender of.

Cash provided by operations for the quarter was $235 million.

For the year that brings us to 1,174,000,000 from operations.

Capital spending was $67 million for the quarter.

We ended the year with capital spending of $433 million which was against depreciation and amortization of $467 million.

Now I'll take a minute and talk about our outlook for next year.

We are maintaining our guidance for the year at between $1.05 and $1.15 per share.

However we are reducing our outlook for the first quarter to a -- a range of 22 to 26 cents a share.

We've lowered our guidance for this quarter due to a couple reasons.

Primarily one is a larger than expected experienced operating loss as we reduce our live swine operations.

And also our leg quarter pricing has not improved as quickly as we expected during the quarter.

So we have reduced the guidance.

Really remains to be seen if the holidays provide a seasonal uptick in some of our businesses.

That still is possible.

Last year certainly that was the case.

But we're taking conservative approach to the quarter.

But we are very optimistic the short fall in the first quarter will be made up in the back half of the year.

Our view to that has grown a little bit more optimistic since the last time we talked.

Earnings for the year we expect to be unaffected in total.

So again $1.05 to $1.15 earnings for the year.

I think that's the strong message that view remains unchanged.

Weighted average shares will still be approximately $355 million.

For the full year we expect revenues to be approximately $24 billion.

Again market prices for the proteins have an affect on that.

You have seen this year that number can swing quite a bit because of that.

Interest foreign exchange other charges in the neighborhood of $300 million.

Our tax rate for the year will be in the range of $35 to 36% probably on the higher side of that range but the year will play out.

Our capital spending target is again $450 million.

Deppreciation and amortization should be around $460 million.

So that con concludes my remarks about our financials and now I'll turn it over to Dick Bond.

Thanks, Steve.

Good morning to you all.

I'd like to make a couple overall comments first then we'll talk about the various segments within both retail and fresh meats.

I am very pleased with the results of our consumer products as well as the fresh meat groups for fiscal 2002.

Integrating, restructuring and reorganizing for effectiveness and efficiency were challenges that were executed extremely well.

Asset, product and plant rationalization was completed on the refrigerated process meat side of the business as John stated.

In our poultry business we've recently completed an analysis of all of our facilities to determine from a customer and economic perspective if we have the right number of plants in the proper geographic locations and producing the optimum value added mix of products we need for our customers.

We are evaluating the results of this analysis at this time.

Like to talk first about the fresh meat segments.

First, beef.

Operating results for the fourth quarter were significantly better by 51% as compared to Q3.

And 77% better than a year over year proforma comparison to 2001.

Slaughter volumes both industry and ours were flat on a Q4 to Q3 comparison and on a year over year basis industry volumes were up slightly over 1%.

And our volume was down a little less than 1%.

Life prices were down 7.9% for the quarter versus last year.

And 2.3% Q4 versus Q3.

Cattle weights continued to be considerably higher than normal indicating an ample supply and still during Q4 a relatively cheap grain supply.

On a going forward basis we expect cattle availability to tighten on a moderatet basis with fiscal Q2 and Q3 being the tightest down in the three to four percentage points and with Q1 and Q4 being down 1 to 2%.

This would equate to a full fiscal year reduction in slaughter of about 2.6 to 2.7%.

On the pork commodities side.

The live swine and pork processing combined reported losses of $23 million for the quarter including the restructuring charges as Steve mentioned.

The pork processing segment had operating earnings of approximately $14 million.

Our Q4 volume was up 4% on a year over year basis as was the industry.

On a quarterly comparison basis our volume was down slightly and the industry was up 1.7%.

Capacity utilization for both the beef and pork components were in the mid-80% range.

Our live swine restructuring efforts are continuing and we are on our planned schedule.

The operating losses, however, on a weekly basis have been substantial during October and thusfar in November .

We expect those losses to decline to a minimal level once we reach the December period when we will be for all practical purposes out of the hog finishing business in Arkansas.

Now I'd like to switch to case ready for a second.

Let's talk first about our efforts to move beef and pork up the value chain.

Case ready sales per Q4 were $225 million of which beef accounted for 76% of the total.

For fiscal 2002, we achieved sales of $901 million, a 63.4% increase over fiscal 2001.

On a pounds basis we marketed 478 million pounds compared to 284 million in 2001.

A 67.8% increase in tonage.

Our plan for fiscal '03 calls for double digit sales and tonage growth as well.

The tyson brand with over 91% consumer recognition has replaced the TEW label on case ready pork.

While this conversion is very recent, we're already seeing increased comp store sales.

The dropping of the TEW label in favor of unbranded beef packaging has prompted additional interest in case ready.

This will help our retailers differentiate their beef program from their competitors.

On the case ready poultry side of our business we continued to be pressured by rising input cost and seasonally low external markets as both Steve and John mentioned.

These conditions coupled with seemingly abundant supply in the erosion of leg quarters and wing values have created a very difficult operating environment on the fresh side of our business.

On the bright side, however, our volume remain fairly strong for the fourth quarter up approximately 1.5% over fourth quarter of '01 and continues to show an increasing change in mix to the higher value boneless products.

On the consumer products front.

The major activities here continues to be the consolidation of our major branded initiatives under the Tyson brand.

Our new packaging roll out and significant new business activities in virtually every segment of our business.

We also continue to be very pleased with our TEW roasts.

We remain the velocity leader for points of distribution in this category outpacing our competition by 20% according to the latest 13-week Neilsen data.

Our distribution also increased by 3 points during the quarter with the addition of over 1,000 new stores bringing our overall distribution to 70% A C.V.

We believe the new family sized hams and pork tender loin items we've added to this line will continue to allow us to grow this business significantly over this new fiscal year.

These products too will be converted to the Tyson brand over the next six months.

The new product front, we've begun test marketing a full line of Tyson branded IQF steaks and chops.

These products are a unique blend of traditional cuts as well as some new grill ready varieties which utilize some of the highest quality and most tender muscles in the animal.

Due to the high consumer interest we selected the west coast.

And early return by the retailers has been exceptional with six chains authorizing the line in the first two weeks of the sell in.

We're excited about this and will keep you posted on our success.

Finally the performance of our new bacon facility in Omaha has also met our expectations the facility is running well and meeting all of the criteria for quality and performance.

The combination of this facility with the right brand bacon facility in Vernon, Texas, produced record volume and profits for fiscal '02.

We currently estimate we represent approximately 15% of the overall bacon business nationally.

Our Tyson retail deli group is in the process of launching our first multi-protein branded initiative with a complete line of premium self serve deli meats this.

This initiative will be a 28-line item of true, deli quality sliced meats including ham, roast beef, turkey and chicken.

This line will replace our existing Wilson branded fresh cuts line which had limited distribution with a line that affords our consumers much greater variety and significantly higher quality options from which to choose.

We expect we will start to see these products in stores during our second fiscal quarter of '03.

Our value added chicken business continues to do very well.

The new packaging rollout is virtually complete with all the products now shipping with our new graphics.

The retail sales on our core value-added boxed and family bagged businesses continues to grow in both volume and dollar sales with a full 25% increase in both for fiscal '02 compared to '01.

Additionally, the most recent 13-week share numbers show an increase of 4.9% on boxed and 12.9% increase on family packed bag bringing our total share to 38.5 and 57% respectively and enhancing our position as the undisputed category leader.

We also launched during fourth quarter our first Tyson branded premium shelf stable product line.

The 15-item line includes premium pouched packed chicken breast, canned chicken in a variety of sizes, beef and chicken bullion in both cube and handy shaker top varieties and innovative chicken salad kit which includes everything necessary for a meal on the go.

While it is too early to have specific numbers we are extremely excited by the trade and consumer acceptance of the Tyson brand in these categories.

Additionally, we continue to be very pleased with our wholesale club performance.

You may recall that this is an area where we executed our first multi-protein customer specific sales team.

Our volume was up an impressive 5.5% on a year over year in a very, very competitive operating environment.

We are continuing to expand these customer specific multi-protein teams to other retail customers as their structure allows.

We continue to see the value of these teams bringing in planning our entire business in coordinated rather than competitive fashion.

These teams also include category analysis which allows us to assist our customers with proper product, assortment, down to the individual store level.

It is our belief that this structure will strengthen our relationships and effectiveness with our major customers.

In summary, the fourth quarter and all of fiscal 2000 were challenging but rewarding.

Fiscal 2003 will no doubt present some opportunities but I believe we have the vision, strategy, and the management team to deliver as we did in 2002.

Now I'd like to turn the call over to Greg Lee.

Dick, thank you.

I am pleased with the physical 2002 results of our food service and international groups.

This year has been marked by improvement in year over year financial performance across these businesses.

This year was also marked by the implementation of significant projects designed to align our sales, marketing, and operational functions to better service our customers in the market place and improve our operating results.

Let's talk about our food service poultry business.

Our food service sales were up 3.1% quarter over quarter and 4.9% year over year.

Overall operating income for the group was down slightly for the quarter versus the same quarter last year principally driven by lower leg quarter values and lower residual product values.

Year over year operating income was up substantially.

Growth in sales of core value enhanced products were up 7% for the quarter versus last year.

And 5.9% year over year.

Sales of value enhanced products to broad lined food service distributors were strong for the quarter and the year paced by excellent growth in core value enhanced products as well as the introduction of several new products targeted at schools, contract feeders, convenient stores and independent commercial restaurants.

Our sales to chain restaurants continued to be negatively affected by sluggish sales to leading quick service restaurants.

This has been offset by new item introductions to leading pizza chains, sandwich chains and casual dining restaurants.

Average sales prices for the quarter and for the year were positive despite lower commodity markets.

This was due to improved sales mix.

Our plant operating costs were comparatively lower for both the quarter and the year despite our volume shifting to more value enhanced product as as percent of mix.

This could be attributed to aggressive cost containment efforts and productivity gains.

As Dick indicated, we have analyzed our poultry operations to match against customer needs, geographic location, and productive capabilities.

We have closed one food service plant this year and will continue to assess our facilities in an effort to optimize our business opportunities.

Our capital expenditures are focused on cost reduction, quality assurance, and expanding further processing capabilities to meet growing customer needs.

Let's talk about our food service prepared foods group.

Performance of our food service prepared foods group was much improved both quarter over quarter and year over year.

Earnings were positively impacted by lower and more stable raw material costs, improved sales mix, reduced plant operating costs, improved sales expense management, and improved price management practices.

Sales to leading QSR pizza chains continue to be soft for both the quarter and year over year.

Sales of cooked meats, soups, sauces, processed meats, and cooked meat fills to Mexican food chains, casual dining restaurants, and as well as ingredient sales to industrial accounts have been excellent for the quarter and for the year.

Our sales volumes to broad line food service distributors were up for both the quarter and for the year.

Sales growth has resulted from focusing on expanding both our base of distributors and our penetration of items with our distributors.

We're enjoying excellent growth in our Right bacon program by expanding our distributor base and making key food service operator sales placements.

We've initiated the rollout of a line of fully cooked beef and pork meat fills, cook crumbles, taco meat and porse control meats targeted to the school segment.

These products will be marketed to the food service industry under the Tyson brand.

Additional new Tyson brand beef and pork value enhanced items will be introduced into the food service market place in early 2003.

Talk about our one face to the customer initiatives.

This year has been marked by significant steps to better align our operating groups and food service to ensure we are offering our customers the full benefit of our broad range of products and services.

Key steps implemented to date include: One focused multi-protein marketing team.

A multi-protein team selling approach for the top 100 restaurant chains.

An integrated multi-protein regional chain sales team for all chains 101 and down.

A multi-protein team selling approach for leading national and regional broad line food service distributors.

Integrated multi-protein sales force with specialists targeted at contract feeders, schools, health care and military operations.

One consolidated broker force representing the full array of our product line to food service distributors and operators.

A Tyson hospitality group combining culinary foods an DFG into one business unit to leverage the synergy and customer base and bring efficiency to the business.

And one uniform sales order fulfillment process across all proteins.

The implementation of these steps coupled with our strategy of building tyson as multi-protein brand and food service positioned us of to provide each of our customer the ability to benefit from our full selection of products and services.

Talk about our international business.

This year this has been a year as well as a quarter that has been greatly influenced by market access issues.

Overall international sales volume of chicken was down 17% for the quarter.

Leg quarters were off 44 million pounds for the quarter due to Russian market access problems.

Current shipments to Russia are strong and inventories are coming down.

Leg quarter sales for the fiscal year were up 11 million pounds.

Leg quarter prices for the year were 4 cents lower comparatively.

And leg quarter prices for the quarter were down 13.5 cents versus last year.

Sales of Pauls to China were down 38 million for the quarter and 140 million pounds for the year.

These sales losses resulted from chains and expectation requirements by the Chinese government and slowness in issuing import certificates.

Sales are slowly rebounding on these items.

Sales of boxed beef continues to improve and was flat for the quarter versus last year.

Export sales volume of boxed beef was down 6% for the year.

Korean sales continued to be strong making up for some of the Japanese short fall.

Boxed pork sales were strong for the quarter to both Japan and Mexico, our primary markets.

Sales volume was up 15% for the quarter and 6.7% for the year.

International operations enjoyed a good quarter highlighted by Tyson to Mexico which added 24.9% increase in sales for the quarter and a 36% increase for the fiscal year.

Operating earnings were up significantly due to higher prices, increased volumes, and improved product mix resulting from our new fully cooked plant opened late last year.

Our Tyson day long further processed chicken plant in China was profitable for the second successive quarter.

This plant opened in January of 2002.

Our Tushinski processed meat plants in Moscow, Russia was profitable for the quarter and is targeted by expansion in fiscal 2003.

Our other international operations are performing very satisfactorily.

We continue to explore opportunities to build the Tyson brand franchise in other places around the world.

Shipments of chilled and frozen beef and pork were severely impacted during the two weeks the west coast ports were closed.

Since the ports have reopened, sales of chilled products are back on track and frozen product volumes are slowly getting back to normal levels.

Sales of chicken to the same markets including Japan, Hong Kong, China, Korea and Taiwan, were also adversely impacted.

Depending on the final resolution of this situation, some sales and earnings planned for quarter 1 may be pushed to quarter 2.

The integration of the tyson and IBP international businesses has been grouped into one cohesive multi protein group and that has been successfully implemented.

A few closing comments about the chicken market.

Rising grain prices coupled with recent export issues have resulted in a reduction in slaughter to levels that should lead to the OND quarter kill running 1 to 2% below last year.

This trend will continue into the first quarter of next year.

Production rates should keep commodity prices from further slippage and prices should improve particularly in the second six months of our fiscal year.

Tyson will be aggressive in managing bird weights and with seasonal production cuts to better balance supply and demand.

We look forward to fiscal 2003 with confidence.

Thank you.

John?

Greg, Dick, Steve have done a good job of sharing with you the accomplishments that went on in the last twelve months.

Now I will tell you we've done a lot of good things last year.

Right now its all about next year.

And we have the size.

We have the scale.

We have the brand.

And we have the flexibility to make this a great company.

We will work very hard to meet or exceed our year target of $1.05 to $1.150.

We thank you for your time and now it's time for you all to ask us questions.

Thank you.

At this time if you would like to ask a question please press star 1 on your touch tone phone.

You will be announced prior to asking your question.

Once again to ask a question please press star 1 on your touch tone phone.

Our first question comes from John McMillan.

You may ask your question and pleas state your company name.

Prudential.

Good morning, everybody.

Good morning, John.

Thanks for all the information.

Greg, you gave us the change in pounds of leg quarters for the quarter.

Can you just give us the total amount of volume in leg quarters for the year?

The complete total number of pounds?

Yeah.

You got it.

Let's see.

Or you can come back with you.

I'll have to come back to you.

We were up about 11 million pounds we'll have to get the total number.

And just on the subject of leg quarters, where are prices now?

Are they closer to the 20 cent level.

Right around 20 cents, that's correct John.

The failure of the price to kind of come back and I know it's difficult to predict like you thought which is the reason the December quarter is going from instead of 26 to 30 to 22 to 26, does some of that reflect the fact that while were you locked out of Russia you know some South American suppliers have kind of pushed in and are reluctant to give up market share?

It's no secret, John, that some product from Brazil got into the market place during the point and time we were precluded from shipping.

Came in at very attractive prices and that has add a amount in the product we can push in near term.

What's going make Brazil give thaup share?

Doesn't look like -- it looks like their cost basis allows them to do okay at 20 cents.

Do you have any feel on that?

Well certainly we've been you know looking and thinking about Brazil and we're certainly aware of the fact they have a very attractive cost basis.

We look at them to be a competitor for the long term.

We see it as still a very large market.

The domestic supply in Russia supplies less than a third of their requirements and we fully expect to sell a significant amount of product into Russia for an extended period of time.

Thank you.

And just a quick one for Dick.

In terms of you know the -- there's obviously going be much tighter supply coming up.

Yet you know you've got company plans to improve trends as the year goes by.

Can you just -- it seems a little bit after disconnect that your business gets better as supplies get tighter.

Well, John, I guess I would answer that by saying you know we will see a change in supply.

But I don't believe that change is going to be as significant as I said two of the four quarters being Q1 and Q4 I don't think we'll see much more than a percent to a little bit over a of percent of decline in supply.

And in Q2 and Q3, fiscal Q2 and Q3.

Q2 is probably going then hardest one of the four.

Because generally speaking by the time you get to Q3 you have a much better ability to pass through some of those prices on the spread just because of the grilling season and on the middles we should be able to achieve higher prices.

That coupled with trying to continually move more of that product up to case ready availbility which gives us a much better profitability picture I do believe that even in the slightly shorter supply period we still should be able to have very good operating results from the beef side of the business.

I just think we're positioned well enough to do that from being a low cost operator and continue to work on our mix of adding value to those products, both through case-ready and other initiatives you know including things like irradiated beef.

I just think there are some opportunities for us to continue to enhance that business.

Great.

Well done.

Okay.

If you give me that pound number that's all I need.

Thank you.

The pound number is 1.2 billion.

Great.

Thanks, Greg.

Our next question comes from Leonard Tietelbaum you may ask your question and please state your company name.

Merrill Lynch.

Could you just summarize -- I want to pick up on John's question a little bit.

Could you summarize for me what you think your capacity is going to be up in terms of tonage next year versus the industry capacity next year?

Beef and poultry please.

And pork.

This is Dick Bond.

On the beef side even though there's going be a decline on a composite basis in that 2.5, 2.6% range, we anticipate our volume in our plan to be basically flat year over year.

So what we're saying is we are going to pick up a slight share increase during fiscal Q3.

So industry down two and a half to two point six you are flat.

What about pork now?

On the pork side.

The industry will probably be flat to up slightly.

Because you are going to have increased volume in the first half of the year on a calendar basis.

Then in the second half of the year we might drop off a little bit because of the margin problems.

The hog producer has had.

But again on pork, we anticipate our volume to be up about 1 percentage point for fiscal '03 which should give us a little over a 19% share.

And for poultry?

Chicken numbers are projected to increase very, very slightly next year.

Less than 1%.

And our production should be right on par with that.

Okay.

Now, and not to kick this horse dead, but of the pork and beef that shows you gaining shares, is that due to case ready programs or is that simply due to market share gain across all channels?

It's a market share gain across the channel .

Then within the overall beef and pork as I said we are anticipating double-digit growth in both sales dollars and in pounds going through the case-ready piece.

But that as you know starts from the original slaughter base as the denominator.

So it's within that group that we do anticipate and do expect to have that market share increase.

Okay.

Thank you.

One final question.

If my numbers are right, then your input costs this year on a hedge basis were below what they were last year.

And can you give us a percentage basis on what you think they might be using this year as a base, next year in terms of percentages?

Up or down.

Up I am presuming.

Lenny, tell me what --

I think you did a good job of hedging this year.

I wouldn't be surprised to see a lot of our grain costs for the year that just ended to be flat at least with 2001.

I am trying get what the pop is going to be in 2003 on a hedge basis.

Hedge basis from grain?

Yep.

You got to be up pretty far don't you.

No.

No we're really not.

As a matter of fact we're not out far at all.

So you are looking for a drop in grain prices then?

Well as you have seen the grain at least from a commodity standpoint if you look at the futures we have seen a significant decline over the last six weeks you know from the peak being back in September there is a report that will be out the SND report will be out tomorrow morning.

If you look at the latest estimates, and these are estimates from the, quote, experts, they're still believing that the crop, the corn crop is better and expecting that the U.S.D.A. number will show a higher yield on a bushel per acre basis.

So if you've got up volumes and lower import costs, you guess I am still -- all right I'll work on you offline.

I'm having trouble seeing some of the quarters why they couldn't be a little bit better.

But I'll work on that.

You have given me this input.

Thank you very much.

Okay.

Our next question comes from David Nelson.

Your line is open please state your company name.

Good morning CSFB.

Beef was especially strong.

How much could you attribute to that case ready?

And then walking through the expectations for case ready for the next year please.

I'm not sure I can give you -- I think Steve maybe can give you the number on the contribution side of that.

Off the top of my head I can't give you that number.

On the case ready side of the business, we actually achieved here about a week or so ago about an 11-million pound week on the combination of beef and pork.

Which was a milestone that we were looking to do.

And we continue to see very, very strong interests in the case-ready activity.

And your food safety is one of the big drivers of that.

Especially in ground beef.

So we continue to feel very good about our case-ready business.

We still have some capacity left in Goodletsville which is the plant outside of Nashville.

We are looking at some other locations for a third facility.

Not quite ready to commit to that as to when we'll start on that process, but I mean I believe this is an evolution.

It's not a revolution.

But we continue to see that grow and we see our customers being more and more interested.

As I said especially now on the beef side as we are going to be in an unbranded mode here primarily any way going forward.

At least in the short-term on beef.

The packaging company talks about seeing 20% year over year volume increases in case ready.

Is that consistent with what you are seeing?

Yes.

I mean I believe that we'll meet or exceed that.

Okay.

On the prepared foods, certainly the higher growth as you ramp up there.

But you guess I could see the potential for higher marketing spending.

Would you envision margins anywhere near the 8.9% next year?

I would tell you, Dave, that as we try to introduce the range of products, whether it's over in the deli, whether it's in some of the new frozen meat products, then with probably a little pressure on raw material costs, that our target is at 7-9 percent range and would probably be more towards the 7% range than 9% range because of both marketing costs and a little raw material pressure.

Great.

Thank you very much.

Hey, Dave, this is Steve.

Just to give you an yod the case-ready question.

I mean the overwhelming majority improvement was just in in the core beef business.

Case ready business profitability was up a bit and did nicely but most of that was just core beef across the board.

Thanks, Steve.

Our next question comes from Christine McCracken.

Your line is open.

Please state your company name.

Midwest Research.

Good morning.

Good morning.

Wondering if you could give me more detail on Russia.

Obviously things are starting to pick up there.

But I am wondering there are rumors earlier that they might consider an export quota.

Have you seen anything like that?

Or do you expect to see it in it any time soon?

There is not -- Christine, this is Greg.

There have been discussions from a variety of parties, many of them from this side of the water, about the possibility that they might institute some sort of a quota system.

You know we are aware of that possibility.

Not aware of any official plans to put one into place.

There have been some studies done in Russia trying to understand what the impact of imported chicken is to the domestic producers.

Again it's bit of an unknown.

We still expect it to be a significant market given the fact that they supply less than a third of their chicken requirements internally.

And in the past you talked about possibly looking at some acquisitions you know Brazil obviously comes to the top of that list.

Now with the situation as it is today, are you considering at all moving into Brazil and possibly offseting or you know I guess diversifying a little bit your chicken sources?

Well that is -- I will tell you we continue to evaluate our opportunities not only in brazil but in other places.

All right.

And then switching gears.

I notice this quarter you announced obviously a switch to irradiated ground beef.

Can you talk about any incremental investment that may -- might require or possible affect on margins?

Christine, the Sure Beam system there is a facility in Sioux City, Iowa as well as one in Chicago that are owned by Sure Beam.

And thus far -- I mean we have quite a few stores that are trying and introducing a line of irradiated products.

I would still today classify it as a niche business.

But it is starting to gain some popularity amongst the retailers.

More so probably in the northeast and the upper Midwest.

So I think we will continue to see some growth there.

But until we see it become greater than what I call a niche at this point, I don't think we will be making significant capital investments in order to add these types of facilities to our own operating plants until we see a little bit better sense of what's going go on here.

And from an earnings perspective, today it's so small that it won't have an affect on the short-term.

Right.

Okay.

Just one final question then.

On the shift to the Tyson brand on the former Thomas E. Wilson products, is that complete?

Where are we on that?

And could you talk about if you had to pay any incremental fees.

let me take that in order.

All of the case-ready beef and pork has gone to unbranded and on pork it is now all in a Tyson brand.

On the TEW roasts, we'll have an interim package that will come out later this month that will have a Tyson logo and a smaller TEW on it as an interim package.

We'll get to the final Tyson master brand package at the end of the six-month period that I talked about earlier.

And on the sliding, I'll answer that by saying no.

Thanks.

Congratulations.

Thanks.

Our next question comes from Brett Eichler your line is open.

Please state your company name.

Good morning Brett Eichler from Stevens.

On the feed cost question I just want to make sure I understand this correctry.

When you issued your guidance originally from the buck five to buck fifteen that was predicated we understand on feed cost and three dollars for corn and 1.90 on soy mill.

As you mentioned it looks like prices have come down.

Also sounds like your hedging has been minimal.

When you put all that together it should imply a positive influence going forward on your earnings power?

Yes.

I think that's right.

This is Steve.

That's one of the reasons that we kept the guidance the $1.05 to $1.15 because we expect what you are talking about to take place at this point and time.

I realize it's early in the year but if these trends were to persist I guess it would give you greater confidence in the upper end of the range of that then not?

That's why the observation was the back side of the year as the potential to be in a stronger position.

If the economy gets stronger, starting in march and April and the things that you just spoke to, Brad, show up the last six months of the year have the makingsof having some real strength in it.

But I would like to get through winter on and see what springtime looks like.

Okay, on the case ready it may be a question for Dick, last quarter you talked about two beta customers coming online.

Could you give us an update as to where those are.

And behind your 20% type growth this year whashtion are some of the the assumptions in terms of new customers?

Just -- Brad, on the two that we spoke of at the end of third quarter.

One of those is still in tests.

Primarily on the ground beef side of the business.

And they'll roll out the beef and the pork products here hopefully over the course of this quarter that we're currently in.

I just the other thing I would add to that would be that you know we continue to see a lot of interests, but this is a rather large decision for these retailers to make.

And it is a very difficult decision for them to make and it takes longer for them to make these decisions than what we would like.

But that's the nature of the game.

So both from an economic standpoint, what types of changes they have to make to their stores, their thought processes, it's just like I say an evolving process rather than a revolutionary process.

It just takes time to continue to convince and to sell into this process.

But there's nothing any different about what we've said.

We still see this growth coming from one existing customers and then, two, from new customers also predominantly more initially in ground beef then moving on to the beef and pork sectors.

And the muscle meat side.

Thanks, Dick.

Once again if you would like to ask a question, please press star 1 on your touch tone phone.

Our next question comes from Felipe Goosens.

Your line is open.

Please state your company name.

Good morning.

Credit Suisse First Boston on research.

I have three questions this morning.

The first one with regard to the underlying business.

And are you seeing any initial signs that trading down by consumers at retail has stabilized?

The other two question is have more for financial related.

Based on the guidance you gave for shares outstanding for fiscal '03 can we assume your top priority in terms of free cash flow still remains at that reduction?

Then related to that give than you've accomplished more than we expect in terms of debt reduction this year, any initial indication for what Moody's is looking forward to at least change your outlook to positive?

Thanks.

This is Steve, I'll go ahead on the financial questions.

From a free cash flow standpoint the focus will continue to be on paid down debt.

As we go through the year, in terms what Moody's is expecting we are continuing to visit with Moody's on a regular basis.

Moody's view I think would be that they set our rating for a long term basis.

Which I think they really have defined in a two year type time frame.

We're certainly encouraging them to take note of our process and -- progress and they probably are on the call.

But our expectations will be that we'll be sitting in front them in the late spring and over the course of the summer and hopefully showing them the type of numbers and company performance that they would be interested in to change those ratings.

But you know it's -- we'll have to see when we get there.

Their story continues to be they've stepped in for across a business cycle or a longer term rate.

But you know without a doubt we have greatly exceeded any financial models we gave to any institution in our to Moody's and S & P in terms of this pay down in debt is really an outstanding story during the year.

The progress will probably not be as rapid next year because we took advantage of a lot of opportunities but we'll continue to have strong, strong cash flow.

As John said, every expectation at the current trajectory will be below the 50% goal we set for ourselves within two years fairly comfort by I think by the end of the next quarter.

Is it fair to say aside from debt reduction that free cash flow might go first towareds let's say selective opportunity compared to shared purposes.

let me speak to that before Greg or Dick speaks to the trading down question.

I think I've been with consistent with proper use of our cash the proper use of our cash at this time is to make sure our debt is in line.

We did make good progress last year and will keep that in mind.

Couple other folks around the table have mentioned that we have some thoughts on the table related to looking at potential acquisitions but they have to be at the right value.

If those don't come through and match our strategies, then our third option is to apply it to a selective use of buying back stock.

But those will be the three priorities of cash use.

Thank you.

On trading down.

I guess we would say from a product mix and from a desired -- from the consumer's perspective.

First on the food service side, we did see a significant decline in the fine dining.

We have seen a modest improvement there, but we're still not back to pre 9/11 levels.

But we are starting to see some improvement in the fine dining and upscale casual segment from a food service perspective.

From a retail perspective, we still see a very strong mix.

As you seasonally do on ground beef.

Certainly during the summer and early fall periods.

And really the consumer at least from the data that we can see currently would indicate that they are still more interested in the lower valued products but are still very interested in convenience and ease of preparation.

Okay.

Thanks very much.

Sir, there are no further questions.

I would like to take a moment to thank everybody for taking time to listen to Louis and Steve and Greg, Dick and I and the things that have been accomplished by this company.

The individuals in this room would tell you we could not have accomplished it without all of the hard work that went around the company at the different locations.

And at the different facilities and the sales and marketing folks making a difference and pulling those two great companies together.

It's an exciting time for the company.

It's an exciting time to be the premier beef, chicken and pork supplier to the consumer base out there.

And as we spoke earlier we are going take advantage of our brand, our scale and our flexibility to do some great things next year.

And until our next conference call we wish everybody a happy holiday period.

Take care.

That concludes today's Tyson Foods conference call.

We'd like to thank you for your participation.