泰森食品 (TSN) 2003 Q2 法說會逐字稿

Good morning.

Thank you for holding.

All participants will be on listen-only until the question and answer session of the conference.

This conference is being recorded.

If you have any objections, please disconnect at this time.

I would now like to turn the conference over to Mr. Louis Gottsponer.

Good morning and thank you for joining us for the Tyson Second Quarter Conference Call.

With me today are John Tyson, our Chairman and CEO, Dick Bond, President and COO, Greg Lee, CAO and International President, and Steven Hankins, our Financial Officer.

Before we move on to discuss the performance for the quarter, I just want to remind everyone that 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 that also means that things can change, so I would encourage you to go out and read today's press release for a discussion of the risks that can affect our business.

With that, I'll turn things over to John Tyson.

Thanks, Louis.

Thanks for joining us today.

I look forward to visiting with our shareholders and want to acknowledge to those who have supported me and the company in the past six months.

At your all's request, we have chosen to shorten our prepared remarks to allow for more Q and A time on this conference call.

With that in mind, I'd like to leave you with two thoughts.

The first thought being is I can tell you our folks have performed well in a tough economy the last six months.

However, we will tell you that we are not happy with our short-term operating results.

Secondly, we do remain committed and have not wavered from our long-term vision, which is paying down debt, delivery of synergy targets, go-to-market strategy, moving products up the value chain, and expanding the Tyson brand across all proteins.

I can tell you, we are more than confident that we are on the right long-term track.

Steve?

Good morning, everyone.

Just to recap and talk about a couple things, our press release this morning, we reported our GAAP earnings of 20 cents per diluted share for the quarter, and as we noted in the press release, these earnings include the receipt of approximately 94 million pre-tax dollars from ongoing vitamin litigation and that amounted to about 17 cents a share.

The vitamin litigation money is included as an offset to cost of sales in our income statement, and for segment reporting purposes, it's included in the other segment.

Just a few brief notes about our financial statements.

Our income statement, our SG&A is down for the six-month period year over year $50 million, and that's due to both our acquisition synergies and of course a lot of hard work on our team members' part.

We've been scrutinizing every part of G&A for synergies and additional savings, and that hard work is paying off in the income state went.

Just to restate our synergy targets for FY 03, which we're halfway through, our target was $100 million, and for FY 04, our target continue continues to be $200 million.

From the debt standpoint at the end of the March quarter, our debt was 3,906,000,000 which was down 167 million during the quarter and is down 81 million since the end of FY 02.

Cash provided by operation was 245 million.

When you look into that, earnings, depreciation and amortization, if you exclude the net earnings effect of the vitamin money, provided $123 million.

Our changes in working capital, deferred income taxes and other provided 84 million, and the charges relating to the closing of our Jacksonville facility that was previously announced in the second quarter used up $23 million in cash, and just for a reference point, that total charge that we took in the first quarter was at $47 million.

Our capital spending for the quarter was $82 million.

That brings our six months total capital spending up to 182 million dollars.

And overall statement regarding cash flow and debt, in our debt-to-capital ratio, our goal remains at 50% or less by the end of fiscal 2003, and just for a reference point, because many people as we go on the road ask us this number, as a reference point, to have achieved 50% debt-to-capital at the end of the quarter, we just finished, would have required a debt level of $3,735,000,000, or about 168 million less than when we finished, so our goal is still 50%, and we remain optimistic we'll be able to reach that.

Now to talk just a little bit about earnings guidance, as we've previously discussed, we're not providing guidance for the remainder of this year.

I am going to restate some key metrics for you.

First of all, our revenues for the year are projected to be in a range between 23 and $24 billion.

Our interest, foreign exchange, other charges for the fiscal year will be around $300 million.

Our tax rate for fiscal 2003 is still expected to be in the range of 35 to 36%, but I will add that for the final two quarter, we expect to be at the lower end of that range or near the 35% of that range.

Capital spending, we're still targeting a range of 400 to 450 million.

As you can tell from the spending to date, that we're definitely trending toward lower end of that range.

Depreciation and amortization is expected to be approximately 460 million for the year.

Our weighted average shares are about $352 million.

And just as a final note, regarding earnings guidance, and it would be useful for the remainder of the call, we will not be giving any commentary today regarding analyst consensus or questions about analyst consensus.

We're going to stay out of that during the call, and also in regard to a potential question about when in the future we might continue to provide earnings guidance, that's a decision that we'll make at a later point in time, and we really don't have any commentary in regard to that other than just saying that decision will be made at some point in the future.

And so I'll pass it to Dick Bond.

Good morning, and thank you all for joining.

The domestic operating results in beef, chicken and prepared foods were less than satisfactory.

Our pork segment, however, earnings wise were considerably better than a year ago, but were also impacted by an abundance of protein and a slowed U.S. economy.

Beef average selling prices were up 8.4% on a year-over-year basis, volume for the quarter was essentially flat, and live cattle prices increased 11.6%.

We were unable to pass along the increased live prices as quickly as they incurred in a poor seasonal demand period.

The bright spot was case-ready beef sales dollars continued to grow at 15.4% increase, and volume was up 20% on a year-over-year basis.

Seasonally, fed cattle supplies will rise into the spring and summer period.

Demand will improve, capacity utilization will increase, and beef margins will be enhanced.

We are already starting to see improved demand.

Prices of live cattle are expected to trend lower towards the low $70 per 100 weight during Q3 and early fourth quarter.

Pork sales dollars were down 11.8%, and our volume was down 2.8% for the quarter, while the industry was up slightly over 1%.

Our market share slipped as we worked hard to maintain our margins.

Our live swine operations incurred an operating loss of approximately $2 million.

Our pork processing group earned approximately $26 million, or a 4.5% return on sales, a very good performance in a difficult environment.

Case-ready pork dollar sales were also up significantly at 44.8%.

Volume increased by 48%.

Supplies of market ready hogs continued to be heavier than what had been indicated by recent inventory reports.

This reoccurring theme, I believe, has kept the market somewhat subdued, indicating live hog prices will probably not escalate this summer to levels some might have expected.

More stable hog prices should lead to more consistent pork processing earnings.

Case-ready sales and margins of beef and pork continue to remain on plan, expecting sales dollars to exceed 1.1 billion for the fiscal year, up 23% on a year-over-year basis, and volume should be up approximately 24% on the same comparison.

Our retail chicken dollar sales increased 3.8%, while food service average sales were flat on a year-over-year basis.

In the retail arena earlier this year, Tyson became the First National Fresh Chicken Marketer to offer a full line of net weight fresh chicken products.

Our four-month sales results confirm consumers like this merchandising concept.

Our Missouri and net weight facility will reach capacity this quarter, and we are expanding our capabilities to other facilities to meet strong customer interest in net weight products.

Our further processed chicken sales increased 12% or $20 million on a year-ago basis.

We continue to lead the fast-growing value-added bagged meat segment with a dominant 64% market share.

We are also maintaining our leading brand position in the box category with a 39% share.

Tyson's shelf -- rollout continues to gain momentum and continues to meet expectations in terms of consumer trial and repeat purchases.

Our chicken food service dollar sales were flat but performed very well in a soft quarter with total restaurant same-store sales being projected down 1.6% in January, 4.3% in February, and 1.4% in March.

In our distributive sector, we have increased prices effective May 1st, and expect to yield an annual revenue increase of $12 million.

Less reliance on bulk commodity sales will continue to improve our value-added mix.

We also expect small breast portions to increase in value, and should yield a 3- to $4 million increase in revenue for the balance of the fiscal year.

Looking forward, April food service traffic has improved.

The oversupply of chicken is dissipating, and we ex-peck our margins to improve in the third and fourth quarter.

Our prepared food segment sales and operating margins declined substantially on a year-over-year basis.

Soft food service demand, higher beef raw material prices, the strike at our Jefferson, Wisconsin facility, and some operating problems in our Manchester plant contributed to the poor performance.

While some of these factors are improving, we still expect third quarter to be behind plan, not compare favorably with a year ago, but should be considerably better than Q2.

Our deli refrigerate processed meats and value-added frozen beef and pork sectors have several new product activities I would like to bring you up to date on.

First, and the one we have spoken about several times, is our Tyson-branded true deli quality line of self-service deli items.

You may recall that line replaces our old Wilson brand line of fresh cut deli meats, and is developed specifically to serve the deli consumer with the highest quality deli meats in the self-serve form.

The products have actually -- have only been shipping for the last 30 days, and while we do not have specific Nielsen information yet, we are encouraged by our reorder rates.

The Tyson name will be the first chicken, beef, pork and turkey brand with presence in the fresh meat department, sliced meats arena and the deli department self-serve area.

We also have successively started our sell-in of the new Tyson-branded poultry meats.

This line of both chicken and turkey meats has also met our expectations for distribution, topping the 75% level.

We have additional new items in poultry and ham scheduled for the second half of the year.

The real news in this area is our Tyson-branded bacon launch.

We have a unique combination of stack packed, L-board and precooked bacon varieties that leverage our successful Wright brand bacon heritage into a national premium bacon position.

The selling has begun, and first orders began shipping last week.

The conversion of the Thomas E. Wilson beef and pork roasts to the Tyson brand is now complete.

Sales dollars for the quarter were up 12% compared to last year.

We are shipping to accounts representing 70% ACV.

Finally, I wanted to update you on the test market status of our IQF steaks, roasts and chops.

You will recall that we started a West Coast market initiative with initial shipments beginning in January.

In a short 12 weeks, we have been able to capture a 13.9% share of the category and currently have products distributed through approximately 1,900 grocery stores.

Obviously, we are very pleased and are receiving numerous requests to expand beyond our current geography.

Our current intentions, however, are to validate both consumer support plan and our product assortment prior to further expansion.

We believe we can complete this activity in the next six to 12 weeks.

Obviously, we are very pleased and excited about the possibilities for these products.

In summary, while our results are not what we would like, we are continuing to move commodity products up the value chain.

We are establishing the Tyson brand successfully across all proteins.

We are customer-focused and committed to creating value for our shareholders, our customers and our team members.

We look forward to better third and fourth quarter results.

And with that, I'd like to turn the call over to Mr. Greg Lee.

Thanks, Dick, and good morning.

Let's talk a bit about our international business.

We had a good quarter internationally with increases in our export revenues and volume, as well as some increased profitability in our overseas-based operations.

Export sales were $615 million in the second quarter.

This is up 15% from the second quarter of 2002.

Volumes at our export business increased by 11% over last year.

Poultry exports were up by 8%, despite the increases in volumes, revenues from poultry exports declined as prices for export products were lower than a year ago.

The price of bulk leg quarters was 18.5% this year as compared to more than 23 cents per pound last year.

We did make significant headway on poultry inventories during the quarter, and we were pleased with that.

Export sales for fresh meats continued to show a recovery in sales for fiscal year 2002 with volumes increasing by 11% from last year.

Our boxed meat sales improved nearly 6% for the second quarter versus 2002 due to strong demand from Korea and greater China.

Sales to Japan have been slowly recovering from the BSE scare of a year ago.

Sales of boxed pork were flat for the quarter.

There were some offsets between a slight decrease in Japan, offset by growth in Mexico.

Our operations outside of the United States enjoyed a good second quarter.

Despite the fact that the Peso was 19% weaker in quarter 2 this year, the operational performance at Tyson to Mexico in Peso terms was strong enough to offset the weaker currency in U.S. dollar margins exceeded our plans.

Tyson of Mexico also recorded good increases in sales volume.

A significant part of the increase was from improvements in hatchability and livability, providing us more product to sell in the marketplace.

In addition, the product mix continues to shift from the lower value-added items and moving towards more of the par fried and fully cooked volume items.

In fact, they increased by 38% during the quarter versus last year, we're very pleased with that.

Our Tyson (inaudible) further process plant in China continues to improve with increases in volume driven by the addition of our second shift.

This resulted in an 80% increase in revenues versus the same period last year.

The plant has reached capacity on the second shift, and we are in the process of doubling our capacity with the addition of another further processing line scheduled to be in production before the end of this calendar year.

Since the last conference call, there have been significant progress made towards resolving the quota and plant inspection issues related to chicken leg quarter exports to Russia.

We're optimistic that there will be an agreement on the inspection equivalency issues and the process of inspecting plants will begin within the next two weeks.

We expect prices to remain stable through the third quarter, and prices should increase 2 to 4 cents per pound in the fourth quarter as inventories decline in Russia.

Thank you, and I'll give it over to John.

You've heard a summary of where our business has been for the first quarter and for the second quarter, and as we stated earlier, our intent was to shorten our prepared remarks so there would be more Q and A time available, and with that, we'll look for the first question.

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

You will be announced prior to asking your question.

Once again, to ask a question, please press "*1".

Leonard Teitelbaum of Merrill Lynch Global Services, you may ask your question.

Thank you.

Merrill Lynch.

Good morning.

Good morning, Len.

A couple of things.

How much of the prepared food dropped between last year and this year had to do with work stoppages and how much of it had to do with low margin because of product introduction, et cetera?

Lenny, this is Dick Bond.

Yes, sir.

The operating problems, the strike, and those issues increased our cost by between 8- and $9 million for the quarter.

That's a multitude of things.

That's not just the strike.

As I said, there were a couple of other operating issues that are included in that.

That would have been from 35 down to about 16, approximately, correct?

I mean, 35 last year, seven this year, we just add it up, it would have been 16 under other conditions?

That's correct.

And some of that has to do with higher are raw material prices like on beef 50's, as an example, in the pepperoni area, we generally have our revenue based on not fixed price but an item that rolls with the market and an increasing market the way 50's went up so substantially during the quarter, it's hard to catch up, and that also contributed to that.

Ok, sir.

Now, if I look at poultry and swine --

Lenny, Johnny here.

You kind of asked a two-part question.

The other one was the introduction of the products that go over with the deli product introduction, the IQF steak introduction, and I'm not sure we answered that question.

We answered just the operational.

Sorry.

Yeah, please.

The other part of that is, we do have some marketing expenses associated with that, and realistically, that was probably another 3- to $4 million in the quarter.

But that should be in the third quarter as well, though, shouldn't it?

That's correct.

We will have some of that that will continue in Q3.

But on the strike issue, we're making good progress on getting that plant capacity back up, and the operational issues at the Manchester and at our Russia plant are back on stream.

On the poultry, swine and beef side, why shouldn't the trend this current quarter, if the margins aren't coming back, shouldn't those numbers be up maybe 10 to 20% next quarter versus this quarter?

I'm sorry, Lenny, what should be up 10 to 20?

Let's take poultry for example, take swine and take beef, all three.

From what you've said, we should be looking at much better results in Q3 than we did in Q2.

I said that we were looking for better results in Q3 and in Q4.

I did not, however, quantify what those, you know, higher results were going to be.

We do believe they're going to be better.

I mean, April has shown some increased traffic on the food service side.

We have seen some better demand on the beef side.

But as Steve said earlier, we are not going to try and comment specifically on any types of changes to Q3 or Q4 from operating results.

But I'm trying to figure out whether this is the last of the bad quarters or not, and I'm having trouble doing that, and I'll get off the line and let someone else go.

Let me just offer an observation.

I think the fact that at this stage of the recovery, if indeed that's it, for you guys not to give guidance creates the impression that there may be confusion on your part as to where this thing is going to go in the second -- in the third and fourth quarters, and I don't think it's -- at this time, I think more guidance would be better.

I mean, if we're talking about a stock with a much higher multiple, maybe you could get away with it, but I think it's something that ought to be rethought, and I think it would help in part to us that you've got a good handle on your business and you know where it's going as opposed to this.

But that's my observation and I'll thank you for your information and get the next questioner.

Duly noted, Lenny.

Thank you.

John McMillin of Prudential Securities, Inc.

Prudential.

I won't ask what you think you're going to earn next quarter.

Seems like -- just in terms of the numbers that Dick cited for restaurant traffic, was that just fast food or was that the entire food service, domestic food service channel?

What numbers were those from Dick?

That was -- that is the entire industry.

There are various breakdowns, John, within that, but those numbers that I quoted are anticipated to be the results for all segments, both QSR, mid scale, and all the different segments.

And John, to clarify, those are not our numbers.

Those are just the industry trends for the segment.

And they're sales, not traffic?

Right.

Just in terms of, you know, Asia, Greg, you know, there's obviously a lot in the news, and it's impossible, really, to measure SARS and the impact of what it all means to the Asian market, but you're obviously not seeing it yet in your export demand.

Some of these numbers are good.

Can you just talk about it and any risk it might have?

Well, John, you are correct, we've really not seen, with regard to China, any effect that we might attribute to SARS.

You've heard us commenting that really for the last number of months, or really quarters, we still struggled a bit in getting the kind of historical volume into China, but that has been more related to quibbling about labels and export, you know, issuance of export certificate both in numbers and in volume that they've historically done.

Those have had an effect on our volumes.

So our comp volumes for the quarter were up, but they're still, I have to say, substantially below our history, so I'm not so sure that SARS is really going to negatively impact us from here in that we may actually, you know, have an offset going here.

You know, the underlying demand may be impacted by SARS, but we hadn't been able to answer it anyway, so if we can continue to show some progress on sort of the technical side, let's call it, perhaps we won't really feel an effect.

We've not seen it yet.

Ok.

Dick, you cited case-ready beef sales of 15% in and volumes of 20%.

You know, why the 5% negative price realization in a market where cattle costs are up?

There was a little bit of a mix shift to a little bit more ground beef, John.

Ok.

In other words, a greater portion of the increase in volume came from ground beef, which on average is a lower sales realization.

Got you.

And then if Steve is there or this might be Johnny, on February 7th, you announced a 25 million share repurchase program.

I don't think you've done much.

I guess shares are down a little bit for the quarter.

Kind of why did you announce it if your intent was not to do it?

Well, John, this is Steve.

The reason we announced it was it was an act of the board that we felt worthy of including in public announcement.

I think as we've talked about before, I believe it was 1994 or 1996, one of those dates was the previous one.

You know, it was an ongoing action of the board.

We expect it to take quite a period before we use it up.

It was not to signal any type of movement, aggressive movement towards share repurchase at all.

Our share repurchase will still be in line with our benefits plans, and of course another note would be, you know, why did we do another one?

The previous authorization had been used up, so it was about to expire, so the press release was -- it was an act of the board that we felt was worthy of disclosing publicly, and it will take us a while to use that one up just as it did the last one.

But John, to take the responsibility of your question is, we wanted to put ourselves in a position to have the flexibility.

We did spend a little money in last quarter buying some shares back, but we have the obligation to pay down debt and keep everything in balance, and I think if you've watched for the last six or eight quarters, some quarters we get a chance to buy a little more stock than other quarters, but it's always in concert with keeping our debt structure and balance to those obligations, and as Steve mentioned earlier, we're pretty focused on getting 50% debt to cap at the end of the business year, and we're going to work hard to meet or exceed that when we close our year out in September.

Great.

Fair enough.

Thank you.

Christine McCracken of Midwest Research, you may state your question.

Midwest Research.

Good morning, Christine.

Good morning.

Wondering, you had mentioned, I think, a $2 million loss out of your hog production operations.

Are we done with that now?

Is that out of the numbers going forward?

Christine, I said that the live swine losses for the quarter were $2 million.

We still do have (inaudible) and feeder pig operations both in Arkansas and in Oklahoma, which totals about 70,000 sows equivalent, so that still will be reported as part of the pork segment.

Ok.

But the businesses that were shut down are independent of that?

I guess --

Well, we did take a charge, and I can't remember exactly --

This doesn't include any of this?

No.

This is an operating -- we did not have any restructuring charges, I don't believe, in Q2, and that $2 million actually is an operating loss.

Ok.

All right.

And then just on this plant closures, you announced even one just a few weeks ago and you mentioned some in the press release, wondering, do you anticipate consolidating more plants, let's call it in the second half of the year, and should we look for maybe more savings that come out of these consolidations?

Christine, Dick and Greg have been very methodical the last six quarters of going through their businesses to understand where those plants don't fit long-term.

Stillwell and Jacksonville on the poultry side in the first quarter, Berlin here in the second quarter, we had some processed meats in the operations in the last quarter.

We will have the discipline to continuously look at what our plant asset rationalization strategy should be.

For the next six months, I don't see anything coming to me that would indicate that there's another step of an isolated plant.

Now, as we look three, five and seven years out and some of our plants are now 30, 40 and 50 years old, we'll probably start to do what we call a leap frog strategy of trying to set the next generation of plants, the next generation of technology into some of our strategies for the future to make sure we're in the right balance, both from a supply situation, from a geographical situation.

But on the short term horizon, I don't see any other plant closures.

All right.

The other thing I would add would be that while we don't see any, you know, complex closures, we could see product mix, changes and things like that to help us, one, create the ability to produce more value-added products, but also try to do things as efficiently and as effectively as we can.

All right.

And then one final question, just on beef.

The prices that we've seen obviously at the top end, why wouldn't produce producers start rebuilding their herds?

I mean, we've talked with about this, I guess, over the past several years.

What are you seeing, do you expect, expansion here?

Where are we in that?

Christine, I would answer that by saying if you look at historical cycles, the rebuilding process is a very slow process, and it takes, oftentimes, 12 to 24 months to see a significant change in the rebuilding process.

Yes, margins from a cattle feeding standpoint have been very good for the last, oh, four months, but there also was a tremendous equity drain for about sixteen months.

We just think it is going to start, but it's a relatively slow process.

What does that imply, though?

I mean, are you seeing -- maybe you can give us, you know, from a historical perspective for Tyson shareholders that maybe weren't as familiar with the IBP history, is that something you feel you can manage in the next couple years?

I mean, we think we can manage the spread, which is basically on the commodity side what we do is try to, you know, match what we have to procure cattle for since we are not an integrator, our job is to do the best we can given the supplies that are available, and I think from an operating and a cost -- operating cost perspective, we can do that as well or better than anyone can, and still believe that we can manage those margins effectively.

What hurt us the most in this quarter was the rapid rise in prices.

And as long as we don't -- that's usually what hurts the most, is when we get a rapid rise in live prices, it's very hard to pass them along on a timely basis.

In a consistent market that doesn't have that kind of volatility in it, you know, we will eventually get our margin structure back and do believe that we've seen probably the peak on cattle prices certainly for the balance of this fiscal year and do look for them to trend lower during Q3 and Q4 as I said.

Great.

Thanks so much.

Thank you.

David Nelson, you may ask your question and please state your company name.

CSFB.

Good morning.

Good morning, David.

In the international area, are there any reasons for potential optimism given the influenza in the Netherlands for you?

And also Greg mentioned he has optimism regarding settlement of the Russia situation.

What are the things you're looking at there that give you that optimism?

Well, let's quickly respond to the question about the influenza in the Netherlands.

That has affected obviously some of the supply over there, and they've put a number of birds down.

As a percent of the worldwide total, I think it's relatively insignificant.

There's been a few implications from a breeder standpoint, but, you know, Dave, I don't think that in and of itself is going to be any really major contributor to any real shift in prices or supply lines.

Ok.

But with regard to -- repeat the second part.

You mentioned you had some optimism regarding the Russian situation with the inspectors coming over here next week, that things will go smoothly?

Well, preliminarily, you know, we've been back and forth on trying to get these technical issues resolved as you know for months.

There were some meetings that have transpired within just the last number of -- the last couple weeks, both in Russia and some over here, that there's been quite a bit of progress, and we sort of established this way of trying to resolve some of the remaining issues using equivalency as the basis rather than doing it exactly as the Russians have called for, but if we're able to demonstrate that we'll get an equivalent result, that would be amenable to them.

The attitude about that has been very good.

They've gone through the protocols, set up a test protocol to try to work through this, and at this juncture, we remain optimistic that that's going to resolve the remaining issues.

Then that will allow us, once having established that, to then start the plant inspections.

And keep in mind that we're only dealing with a very limited number of issues out of all the whole body of issues that we started down the road trying to resolve.

So we've got a way to get at the last few remaining ones that we remain optimistic about, and if, in fact, it follows through as it looks like it should, then we can get on the road to getting these plants inspected, and I do believe clearly we're going to have an extension in time to be able to complete those plant inspections.

You may be aware of the fact that Gordiav (ph) , who is the Minister of Agriculture for Russia is going to be here in the United States at the tail and of this week, and he has made it clear that he would like to have all these issues resolved or see a path to having them resolved while he's here.

So we're certainly anxious for that to follow through.

Another question.

Are you still un-hedged on feed?

At this time, we've not taken any positions going into the summer waiting on indications both from crop condition, crop plantings and all the springtime issues.

Ok.

Thank you very much.

Dave, were you talking about beef?

No, feed.

Oh, feed.

Corn and bean meal.

Corn and so soy bean meal.

Brad Eichler (ph) you may ask your question and please state your company's name.

Good morning.

Brad Eichler from Stevens.

Two questions.

On the case-ready side, you talked about the mix shift towards more ground beef, but can you give a little more detail in terms of adding new distribution agreements, A, and B, success in selling in the higher end whole muscle cuts?

Brad, we did actually add two significant pork whole muscle customers.

That's why it was up in that 48% range and 44% on dollars.

We did add about 400 new stores on ground beef, and our Wal-Mart Super Center expansion continues, which really accounts for the balance of that.

We still have capacity to produce more whole muscle products in Goodlettsville on beef and pork.

We're running about 65 to 68% of capacity.

There, and in council bluffs, we're more up in that 80-85% range.

And on the Wal-Mart Super Center side, how many distribution centers do you have today, and what's the number that you're in the process of adding?

Well, our growth -- I can't tell you exactly how many we are in because it varies somewhat by -- in other words, beef, pork and ground beef, they're not exactly all the same in each one, but we have a significant portion of that business in all three of those entities, and, you know, as Wal-Mart grows, our business continues to grow accordingly.

Ok.

And then you guys have made a comment on the food service side about seeing a pickup thus far in April.

Could you elaborate a little more on what you're seeing?

Just that we have seen our orders both from the distributive sector and from our national accounts group.

We have seen an increase in our business, which to us indicates that if you use chicken and beef and pork as an indicator, we do see an increase in demand there, which is why I translated that into what I said in terms of what's happening in that sector.

Ok.

Thanks, Dick.

Thank you.

Tom O'Neill (ph) , you may ask your question and please state your company name.

Thanks.

Good morning.

Barkley's Capital.

More of a fixed income question.

With respect to your bank covenants, I think you you're required by the end of the year a step-up in the covenants in terms of maximum debt to EBITDA of about four times, and interest cover of three and a quarter times.

Seems like your in good shape to be ok with respect to those.

What's your level of confidence you'll be ok there?

And would you consider going to the banks to maybe in advance of that, you know, make an adjustment if need be?

Well, I think -- this is Steve -- our answer to that, we remain committed to our plan.

Our level of confidence as you suggested our self looks pretty good right now, so we don't have any consideration right now to make any adjustments whatsoever or asking the banks to make any adjustments.

If we were to be in a situation where that would be appropriate, we certainly would give that consideration, but right now, we feel very comfortable with where we're at.

Ok, great.

Thanks.

And second, can you just talk in general about your hedging strategy, how that may have changed over the past few quarters?

You know, since we've seen the recent rounds of earnings pressures?

You're talking hedging on animals or hedging on grain or --

Just in general on both.

This is Dick Bond.

I don't think it's in Tyson's best interest, you know, really to reveal our current hedging strategies, especially as it pertains to the grain complex.

I mean, Tyson's procurement needs pertaining to grain are quite significant, and it's really not in the firm's best interest to reveal our current hedging portfolio from that perspective.

Right.

No, I just wanted to know if you made changes to your general, you know, the way you go about, you know, your broad-based hedging strategy, you know, if you've had any changes there.

Not asking specifically about your strategy.

Not at this point, no.

Ok.

Thank you.

Thank you.

As a reminder, if you would like to ask a question, please press "*1" on your touch-tone phone.

The next question comes from Eric Miller (ph), and please state your company name.

Yes, Lehman Brothers.

Good morning, everybody.

Just a couple quick questions to follow up on the debt reduction theme, and also on the vitamin litigation.

Debt reduction side, could you give us a little bit more details on the 167 million of reduction, what that's comprised of?

Was there any term debt in there that was taken out in the open market?

And secondly on the debt reduction question, can you talk about asset sales potentially for debt reduction?

Would you consider making any asset sales to get debt levels down or your CAPEX number even at the low end of 400, could you make it thinner than that and pay down more debt over the course of the Nicks six to 18 months?

This is Steve.

To the question about term debt reductions, it was primarily short term debt reductions during the quarter.

And then to the question of asset sales, at this point in time, we don't have anything contemplated in regard to asset sales to effect that.

Ok.

On the CAPEX number, is that something that you think 400 -- could that number be skinned up even from there to be a smaller number?

I guess I would is say to that, you see the progress to date, we're at 182 million year-to-date, so we're managing very tightly in regard to our range of 400 to 450, and as my comments indicated, we're certainly trending toward the bottom end of the range, and I'll let all those numbers really speak for themselves.

Just to back up in a moment in regard to asset sales or such, I make those comments with consideration of our press release announcement regarding Berlin and the plant closure there and miscellaneous sales regarding that already being on the table.

Great.

Just one more question on the vitamin antitrust litigation, could you just update us on sort of the timing and expectation for any kind of additional cash flow there?

Is there any -- obviously $94 million number is a big number for the quarter.

What should our expectations be going forward?

I think the basic answer to that is we've seen the bulk of the benefit from that to date.

Ok.

Thanks for your help.

Margaret Kanelly (ph) , you may state your question and state your company name.

Hi.

It's Margaret Kanelly with J.P. Morgan.

On March 7th, Moody's put your ratings outlook, actually they downgraded it, I guess, from stable to negative and made the comment that if your debt production measures don't start to improve again, ratings could be lowered.

Eric just asked a whole series of questions, you know, trying to get to what you could do within your control to generate cash to reduce debt, but could you talk a little bit about, you know, how you view your investment grade ratings, whether they're important or not, and, you know, what efforts you might make before the end of the year in order to meet, you know, Moody's criteria?

This is Steve again.

I think in answer to your question, our investment grade rating is something that we feel is very important to us today.

As far as Moody's is concerned, we've had conversations with Moody's with regard to their outlook on the company.

Our intentions as we've reflected in this call, this conference call, is to continue to pay down debt and get below that 50% target.

I think it should go duly noted just the amazing progress that we've made since we put these two companies together in terms of debt repayment and also to note that we're well ahead of any schedule that was provided to anyone or any schedule that anyone else worked out, so we've made a lot of progress, and we continue to make progress and have every expectation of making progress in order to meet the goals that we've committed to.

We appreciate that.

And with regard to the 50% target, though, is that a Moody's target?

That's a company target.

It's just kind of our guidelines for our business.

Well, and we've been asked that question a number of times, and that 50% target was a target we actually gave out at literally the very beginning of all of our discussions around the -- putting the two companies together, and the reason we continually cite that target is simply to make the point that was the target on day 1, people gave us little possibility of meeting that, and we're sitting here now 18 full months into it, and we still have exactly that same target and remain optimistic that we will meet that goal by the end of the two-year period, as we've said in the very beginning.

So that's the reason we continue to do that, and to the question of what then, we will certainly evaluate that as we go, but we will continue to pay down debt as a first use of cash.

Thanks very much.

I appreciate it.

Thank you.

John McMillin, you may ask your question, and please state your company name.

Just the synergy savings of 100 million, how much was achieved in the first half, Steve?

Well, John, you know, the points I would reference would be when you look at the SG&A line of the income statement, you see $50 million, that is not all totally, you know, in regard to the original synergy statement but a very, very nice number there, and primarily on the G&A portion that line.

When we talk in terms of total synergies, we also have reference that the majority of the synergies targets has always been something we expect to realize through our purchasing programs, and as we've reflected on the road in the many conversations, we've made excellent progress against those programs and you all the big hitter-type programs are in place, and we're seeing savings against that, and we are well on target for the 100 million as it says today, we've not given out specific numbers of what we've achieved in purchasing and probably won't, but the purchasing savings as a run rate, you know, combined with the G&A savings that you're seeing on the income statement today, we're very comfortable about the 100 million and very comfortable about the 200 million.

So you've done probably more than half of that in the first half is what you're suggesting?

Well, you see almost 50 on the G&A, SG&A line itself, so I'll let you gather your own conclusions about that, but I'll just reiterate, we're very comfortable with the 100 million.

Great.

Thank you.

Thank you.

At this time, I would like to turn the call back over to Mr. John Tyson.

Well, we thank you all for joining on the conference call.

Dick, Greg, Steve, any comments before we close out our conference call?

John, this is Steve.

I'd like to make just a couple other comments, in regard to, I guess, Lenny, your first comments at the opening of the call regarding earnings guidance, and I would just like to make a couple observations about that, and first of all, you suggested that our reluctance or our decision would be a better word around giving guidance at this point in time perhaps was a suggestion of confusion, and also you suggested around the multiple regarding that, and I would simply state that we are hardly alone today in regard to giving consideration to what is the appropriate roll of earning guidance in the overall discussion, and there are many other companies that have chosen not to give guidance, and I'm not sure that suggestions of confusion have been offered to them, and also I would say that we see lots of companies who are choosing not to give earnings guidance who have multiples larger than ours.

So I think, you know, our decision is a part of the bigger dialog that's going on.

We're hardly alone as companies considering this, and as reflected by recent business week article, there are many who think that, you know, perhaps less guidance is better than more guidance.

And we're going to continue to evaluate this and do what we think is best.

We also understand that in lieu of guidance, that further metrics about our business may be appropriate and we're evaluating that, and we'll continue to give metrics.

I'll restate, it is a decision we'll make at the appropriate point in time, but I did want to make that commentary that I think we are operating in a bigger dialog here and the suggestions that you made, and we take those as input and criticism and feedback, but I want to stayed we're hardly alone, and I don't think those suggestions are quite fair as far as our outlook to the business, and I think you can look at our continued reiteration of our 50% debt target is an indication that we have a lot of confidence in our business and where we're going.

Well, Steve, thanks for the final observations, and I would like to say thank you to everybody on the conference call and tell you, we're running our business for the long term.

You know, we've addressed the fact we're going to pay down our debt and work towards that 50% target.

We're working hard on our synergy targets, and Steve clarified that we believe and are on target for that based on some G&A type numbers for you all to look at.

The go-to-market strategy that Dick referred to in moving products through the value chain are well along their way.

The $100 million spend on expanding the Tyson brand across all our proteins, you know, Greg told us about an improving international market with both volumes and some pricing strength, and it just simply comes back to the statement that when we put these companies together about 18 months ago, we had a long-range plan, and we're very confident that we're on target for our long-range plan, and I think it's a compliment to our folks and our people that we've had to make no adjustments to our long-range plan and we keep running to that long-range plan and we look forward to visiting with you on our third conference call and wish everybody a good week.

Thank you, all.