泰森食品 (TSN) 2003 Q4 法說會逐字稿

(OPERATOR INSTRUCTIONS) 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.

Thank you sir.

You may begin.

Good morning and thank you for joining us today for the Tyson fourth quarter conference call.

With me today are John Tyson, our Chairman and CEO;

Richard Bond, our President and Chief Operating Officer;

Greg Lee, our Chief Administrative Officer and International President; and Steve Hankins, our Chief Financial Officer.

Before we move on to talk about the results for the quarter, I just want to remind everyone that some of the things we talk about today may include forward-looking statements, and that means those statements are going to be based on our view of the world as we know it today.

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.

So with that I will turn things over to John Tyson.

Thank you.

I think today's conference call is the end of a very good two years of this company coming together, resolving the issues and working on the opportunities.

But like all seasons there is a time for change and a time for growth.

The change for this company has been significant, with challenges and successes.

I am grateful to the women and men who made it happen here at Tyson Foods.

Now we must focus on our growth and the future.

We will continue to repay debt, we will continue to move our mix towards 50 percent value-added over the next five years and we will continue to work on our shareholder value.

I want to thank you all for your support, and I want to say thank you to my friends and those who have supported me and in this company.

Steve?

Good morning, everyone.

I'm going to talk just a bit about our financials.

In our press release this morning we reported our GAAP earnings of 42 cents per diluted share.

The 42 cents is comparable to last year's GAAP earnings of 24 cents for the same quarter.

But remember, the 24 cents included some unusual items that actually decreased the earnings by 6 cents.

Those were our Thomas E. Wilson brand write-off, live swine restructuring charges and the gain on sale as of Specialty Brands.

Some points to the financial statements I want to draw your attention to; the cash provided by operations was $401 million for the quarter and $820 million for the year.

For the quarter net income, depreciation and amortization totaled 267 (ph) million, which represented 67 percent of the total cash provided by operations for the quarter, and 795 million or 97 percent of the total for the year.

So net income, depreciation and amortization combined totaled 97 percent of our cash provided by operations for the year.

Our capital spending was $73 million for the quarter, and that brought our year-to-date capital spending up to $402 million.

This is compared to 433 million last year, and so within our target range that we had set for the year of between 400 and $450 million.

Our debt at the end of the year was $3.6 billion, which is down 386 million during the quarter and 386 million since the end of '02.

And we more than achieved our debt to capital goal of 50 percent or less by the end of fiscal 2003; we came in at just under 48 percent at a number of 47.7 percent.

And just to update you on our debt situation, in October we had quarterly interest payments and an estimated tax payment in our tax situation, and as we look today our current debt is about $3.7 billion.

So it is up from the end of the year.

And now I will talk about our financial outlook.

As we talked about in our press release, we expect the earnings for fiscal '04 to be in the range of 90 cents to $1.20 a share.

We expect our revenues to be between 25 and $26 billion.

Interest, foreign exchange and other charges for the year should be around $270 million.

The tax rate is expected to be in the range of 35 to 36 percent.

For capital spending for '04, we are targeting a range of between 450 to $500 million.

The spending will increase this year, and that's due to a couple of large things -- first of all, the planned refurbishment of our Dakota City beef operation; and also, spending related to our information systems area, what we have named Project One (ph), and we have talked a bit about in the past, and '04 will be the first year of what will be a multi-year effort around our information systems infrastructure and Project One.

Now depreciation and amortization is expected to be approximately 470 million for '04, so right in the middle of that range of 450 to 500 for our capital spending.

Weighted average shares should be approximately 355 million.

Now regarding earnings guidance, we've given the guidance of 90 cents to $1.20 per share for the year.

We will not giving quarterly guidance during the year, and also we will not be making any comments regarding quarterly earnings estimates that are out on The Street on the regular basis, or we won't be commenting on those within our call today.

Thank you and I will turn it over to Richard Bond.

Good morning.

Just a few comments, first on a general overview basis, and then I will talk in a little more depth about each segment.

Our operating profits in total for Q4 were 53 percent better than Q3 and about 64 percent better than Q4 of fiscal '02.

Our beef margins led the way by improving 140 percent over Q3 and 100 percent increase on a year-over-year basis.

Our domestic chicken operating earnings improved over Q3 and were significantly better in the second half of the quarter.

Our pork segment earnings were up 116 percent over Q3.

And our prepared foods, despite continued volatile raw material prices and higher than normal selling and marketing expenses, achieved a 16 percent improvement in operating income from Q3.

Now I'm going to start in a little bit more detail with the beef segment.

On average, selling prices advanced 22.5 percent and volume for the quarter increased 1.4 percent on a year-over-year basis.

The Canadian border was closed to live cattle the entire quarter and boneless beef trade was re-established in early September.

Record high prices for beef products did not hamper demand, as we were able to pass along much of the higher live prices caused by strong demand and a shortage of cattle domestically and the closed Canadian border.

Our carcass weights were down 3 percent on a year-over-year basis, but were up 2.2 percent on a sequential quarter basis.

The recent USDA announcement on resuming live cattle trade with Canada after the prescribed comment period will aid in the supply picture for the latter part of our fiscal year.

These supplies are expected to remain tight throughout all of fiscal '04.

Livestock prices should remain high for the period as well.

Case-ready beef sales for the quarter were 263 million, an increase of 33 percent over Q4 last year.

And on a year-to-date basis dollar sales were 957 million, an increase of 20.4 percent over fiscal '02.

Volume on a year-to-date basis was also up 20 percent.

Now turning to pork, pork sales dollars were up 83 million or 14.5 percent on a year-over-year basis.

For the quarter our volume was down eight-tenths of a percent; the industry was down 1.6 percent versus last year.

And we were up 3.7 percent versus the prior quarter and the industry was up 3.4 percent, a slight improvement in market share.

We anticipate hog availability for the balance of the calendar year to be good.

This should produce a slightly weaker hog market, aided by the record high import of hogs from Canada with no signs of slowing in the future.

Hog numbers in Canada suggest we could see another 10 to 12 percent increase in numbers in calendar '04.

Case-ready pork sales dollars increased 58 percent to 63 million for the quarter over last year.

On a year-to-date basis volume was up 53 percent and dollar sales increased from 145 million to 221 million, an increase of 52 percent.

Total case-ready beef and pork sales dollars were 1,178,000,000 compared to 940 million in '02.

Our plan for fiscal '04 is to deliver another 20 percent increase, both in dollars and in pounds.

Operating margins, while falling slightly short of our expectations, were good.

Additional capacity utilization in our Goodlettsville, Tennessee facility in '04 will allow us to meet our margin expectations.

Our chicken segment reported an operating margin of 2.8 percent for the quarter.

Taking out the effect of costs related to plant closings brings the operating margin up to 3.3 percent.

Higher grain costs were offset partially by improvements in price and volume, higher leg quarter values and plant operating efficiencies improvements enhanced our results as well.

Fixed prices continued to negatively impact results in comparison to improvements in market-based sales and higher grain costs.

Our business saw improvements as the quarter progressed.

And in the September period, we saw operating margins in the six to seven percent range.

Looking forward, grain prices, especially soybean meal, have increased, but leg quarter values have held up extremely well so far this fall.

Following Thanksgiving, we expect to see the usual seasonal effects of our chicken business, and we are still optimistic about the supply situation looking into spring.

Our operating efficiency improvement program continued to pay good dividends during the quarter, and we expect this to contribute significantly throughout fiscal '04.

On the prepared foods segment our operating income on a comparable basis improved 16 percent over third quarter, but declined by 72 percent compared to fourth quarter of fiscal '02.

This business was challenged this year by higher raw material costs with our market-based selling prices lagging behind as raw material markets increased during the year.

Incremental marketing expenses related to our new product introductions in retail, as well as operational issues relating to the strike in Jefferson and in Buffalo and Manchester facilities also provided challenges.

Looking forward, the strike in Jefferson continues but the impact has been reduced substantially.

The operating problems in Buffalo and Manchester have been fixed.

The up-front marketing expenses also will be greatly reduced.

And pork raw material appear to be somewhat less volatile going forward.

Now I would like to address a couple of other significant activities during the quarter; first would be our focus on our approach to our customers.

We completed the consolidation of our refrigerated processed meat sales force with our retail poultry sales force, creating what we call the Power of One to support our "One Face to the Customer" approach.

We will leverage the strengths of the individual sales forces into the combined retail sales force.

In the foodservice channel, we completed the consolidation of our poultry and prepared foods group into one strong foodservice organization, with a common sales force, common broker network and marketing team.

We have greatly enhanced our "One Face to the Customer" approach.

Now I would like to address some of the branding initiatives, new product introductions and some of the channel discussions that we might have at this point.

During the quarter we continued to gain distribution in our Tyson branded initiatives in consumer products, and grew our distribution foodservice and national account business.

In the consumer side of the business we continued to gain distribution and penetration in the retail and club sectors.

All of our new category entries have made significant progress on an ACV level with most at or above our targets.

Within our prepared foods segment, our Tyson lunchmeat and branded bacon initiatives have been extremely well received.

Our margins on these lines are still suffering from introductory sales and marketing expenses.

The pork belly market during the quarter continued to be high and somewhat erratic, causing our bacon margins to be squeezed.

Within our chicken segment we continued to enjoy both share and dollar growth in the frozen value-added consumer bagged and boxed categories, both for the quarter and for the fiscal year.

Statistically for the year we improved our ACV by 1.3 points to 93.3 on box and a 5.3 increase on bagged to an 84 ACV.

Also for the fiscal year our volume increased by 21 percent and our dollar sales improved by 20 percent.

Last quarter we talked about the introduction of our beef and pork extensions to our family pack line in September.

The items in this line included country fried steaks, steak fingers, breaded pork cutlets, meatballs and sausage.

I am pleased to report that we're tracking ahead of plan with a 26 ACV authorized in the first six weeks.

The foodservice marketplace continues to improve slightly, with chains like McDonald's, Darden, Wendy's, Outback, Taco Bell, Pizza Hut, Chili's and Carl's Jr. reporting positive same-store sales.

Our national account poultry volume was up 11.2 million pounds for the quarter and up over 30 million pounds for the fiscal year.

We have begun discussions with selected national accounts on some of our fixed-price contracts which are up for re-negotiation.

While still early in the process, we do expect to improve our operating margins through these negotiations.

Our distribution based business continued strong for the quarter, with all of our major accounts showing volume increases, both on a sequential quarter basis and on a year-over-year basis.

In summary, fourth quarter was a very good quarter from an overall operating income basis.

We will continue our focus going forward on growing the Tyson brand in our product categories, improving pricing, continuing to innovate from a product offering standpoint and concentrating on improving operating efficiencies and margins in all of our segments.

Now I would like to turn the call over to Greg Lee.

Good morning.

International had a strong fourth quarter with increased export volumes and revenues.

Export sales were 717 million in the fourth quarter, up 26 percent from the fourth quarter of 2002.

This increase in sales revenue was positively influenced by higher prices for boxed beef, boxed pork, leg quarters and beef byproducts.

Export volume increased by 1.8 percent from the fourth quarter of 2002.

Chicken export volumes were up 18 percent for the quarter, led by leg quarters at 16 percent higher than the fourth quarter in 2002.

Export leg quarter prices were up over 8 cents per pound versus the quarter at 2002.

Russian leg quarter sales volumes and prices were positively impacted by no market interruptions during the fourth quarter.

Sales of leg quarters to Russia have returned to our target levels, and sales of leg quarters to alternative export destinations are allowing us to achieve our targeted diversification.

Prices continue to remain strong for initial bookings in the first quarter of 2004.

We expect market prices to seasonally decline, but nowhere to the extent of previous years.

Also, freezer inventories are in very good shape.

Sales prices in the Far East continue to strengthen on non-leg quarter dark meat products and for other products such as paws and wings.

Export sales volumes of fresh meat items were down 4.4 percent versus fourth quarter 2002, primarily as a result of the lost Lakeside sales, which relates back to the Canadian BSE issue.

Sales revenues, however, were up 24 percent due to higher boxed beef prices as the Japanese market continued to improve to pre-BSE levels and the Korean market remained strong.

Boxed pork volumes were up 27 percent and sales revenues were up nearly 51 percent, primarily as a result of strong ham demand into Mexico.

Sales of (indiscernible) products were negatively impacted due to the lost Lakeside Canadian protein and tallow sales volumes.

Results of our international overseas operations continued to exceed last year.

Tyson to Mexico reported an increase of profits of 33 percent over the fourth quarter of last year.

Profits improved despite difficult commodity markets.

We continued to see the benefits from a shift in mix towards further processed products, coupled with continued improvement in operational performance.

Our Tyson Zhucheng partner (ph) processing plant in China was disrupted for the majority of the fourth quarter due to the AI related import ban that was imposed by Japan on Chinese production in May, the month of May.

This ban was listed in early September, and shipments to Japan have resumed in the month of October.

Overall our further process sales volumes from international-based operational operations continue to show strong growth with an increase of 58 percent for the fiscal year just ended.

With that, I will turn it back over to John Tyson.

I think you have seen a lot of nice information shared today.

There's been a lot of hard work, as we spoke earlier, over the last two years.

It is a complement to the men and women of this company on how they work through the opportunities; how they work through the issues and the challenges in front of us.

I think we need to commend ourselves for meeting or exceeding our debt repayment goals, hitting our synergy targets and getting ourselves in a position to have "One Face to the Customer", while handling our international issues and starting to figure out how to grow our international business.

I think at this time it would be better to have you all ask us some questions, and we will try to answer them to the best of our ability.

(OPERATOR INSTRUCTIONS) Christine McCracken.

Good morning.

A few housekeeping questions for you this morning.

One, it looks like there's about a penny tied to vitamin settlements.

Is that accurate?

And why did you choose not to break that out in the release?

The vitamin settlement money that we received in this past quarter is less than a penny; a little over half a cent or so.

So we just didn't break it out because of the small number.

Fair enough.

In terms of the other category, could you go into a little more detail?

Obviously it was very strong in the quarter.

Wondering if you can go into just a little bit more detail as to what you saw in the quarter, where did you benefit.

We anticipated that people would want to know a bit about this and ask.

First of all, the other category contains a couple things.

One, that's where our transportation and warehousing businesses goes.

The other thing that goes into the other category is what I would term "other corporate items", or miscellaneous items that don't fit into a particular segment.

This is year end, and each quarter end and year end has dynamics as we evaluate things.

I don't want to go into all the specific pieces of that beyond that, but the piece of information I will give you is about half of that number of the fourth quarter EBIT in the other segment is related to ongoing items versus being things that are related to corporate items or onetime adjustments, which were a scattered pot.

So that would be the best I can tell you about that right now.

In terms of that number going forward, I assume it's fair to forecast something far less than that level of EBIT from that segment?

That's correct.

As I say, probably about half of that number is an ongoing number.

Which is consistent with prior periods.

And then I guess just one final housekeeping questions on interest expense.

It seems like in the quarter it's a little higher than I expected.

Could you count on (ph) higher debt levels or is this rates or could you give us more --?

The interest expense, Christine, is a bit higher than previous quarters.

And as we've talked about a bit, we're on a program where we are constantly evaluating our bond portfolio to determine if there is some advantage in buying back bonds early.

During the quarter we found some opportunities that we want to take advantage of, which results in an interest charge in the quarter and then we receive the benefit over coming quarters.

So that is the explanation for the interest expense being higher than you might have expected.

I will follow up at the end.

Brad Aiker (ph).

This is Kyle Evans for Brad.

Nice quarter.

A couple questions, and they're kind of broad, macro-economic questions.

How should we think about the cattle cycle and the pending influx of Canadians supply on beef margins next year?

That's the first question.

I'll try and address that for you.

I think from a cattle availability standpoint, we are going to see fewer cattle in fiscal '04 or calendar '04, however you want to look at it, than we did in '03.

That number will probably not diminish that much during the first calendar quarter, but we are projecting -- and there are a lot of other people who are projecting even a higher decrease -- but I still believe we will be down in that 2 to maybe 2.5 percent range in terms of volume or market ready cattle availability.

The Canada piece, we won't see an impact on cattle moving to the US in all likelihood until into close to the beginning of our third fiscal quarter, primarily because it will likely take until February or maybe March to have the border open up, if after the comment period that is what happens.

And initially, there's not going to be that many cattle ready to move south of a market-ready type.

So I think we won't see a whole lot of activity there until we get into the April, May, June period.

And historically we saw as much as three percent of the US supply on a live basis coming from Canada.

I think it will be a while until we get back to that level.

But certainly by the summertime, we might have that same type between feeder cattle and market ready cattle.

We could see that happening on the cattle supply side.

Second question, and then I'll get back in queue.

On foodservice contracts, I know you guys are in a renewal period there.

Maybe you could comment a little bit on pricing and what you see going forward in that segment.

As I said, we are early on in that negotiation process.

But I do believe we will see some operating income positives coming out of that re-negotiation process.

It's a little bit hard to be any more specific about that at this point.

Thanks.

I'll get back in queue.

John McMillin.

Great quarter.

Two questions, but first I want to say to Richard Bond and all the IBP people that I'm sorry to hear about Bob Peterson's illness and my prayers are with you all.

Just first on the -- there seems to also be a charge in -- and I think Dick alluded to it -- in the chicken side.

Was that $10 million to close down chicken capacity?

That's correct.

On the income statement that is rectified on the normal charges lines within the chicken segment.

And it's exactly 10 million?

Well, it rounds to 10 million. (multiple speakers) that you see on the other charges line, yes.

So that more than offset the vitamin thing that Christine alluded to?

Yes.

The second thing, Dick, if you said it I didn't understand; the chicken volume in the quarter -- volume and selling -- I'm just trying to get the selling price, the chicken selling price, in this quarter per pound versus last year.

John, I did not give you a number there.

I told you that volumes in our national account segments were higher --

I'm not sure what 11.2 million pounds is.

But I'm just trying to get a rough idea in terms of sequential selling prices.

Even if I add the 10 million back, chicken was a little bit below my numbers, even though it was more than offset.

But I'm just trying to get -- if your sales were up 7.4 percent, what were your volumes?

I would reference you to the segment of the press release, the sales price was up three percent for the quarter and volumes were up five percent.

I'm sorry, I missed that.

The expectations for '04 in chicken, it looks to me like you could have 200 million plus of incremental income there.

In your earnings guidance what kind of segment number are you factoring in for chicken?

We haven't made a decision to give out specific segment percentages guidance.

The thing I would point you to on that would be the grain situation, which was up in '03.

And as we look at projections for grain in '04, of course on any particular day you can pick your poison and it might make a big difference.

But that's what we're looking at and trying to project the future around chicken and why I think we're being very conservative.

As Dick referenced in his conference call notes, toward the latter half of the quarter we saw some very strong chicken margins, but certainly not at the type of grain prices that we potentially could see next year based on particular closes or such.

We're like you guys; we watch the markets and look at the closes and are constantly re-forecasting.

Lately that number has moved around quite a bit.

I'm sure you guys have observed that also.

But we've taken a very conservative view going into next year based on grain.

How active have you been in soybean meal, in terms of contracting in your costs?

I think, as we have said before, it's not in our best interest to reveal our current hedging strategies as it pertains to grains.

So we're not really going to address that in any more depth than that.

Dick, why did the -- I was pleased to see the case-ready volume pick up in the fourth quarter, the growth rate pick up.

Why was that?

We did add a few the new customers, more on the pork and on the ground beef side.

But also you've got some fairly significant Wal-Mart related growth in there as well.

Okay, well congratulations.

David Nelson.

Good morning.

Good quarter.

Beef packing was very strong in the last quarter.

Could you comment at all on how beef packing has been quarter to date here recently?

I would answer that by saying quarter to date it has done well.

(indiscernible) historical lines, isn't it?

On a quarter to date basis it has probably done a little bit better than historical, but the latter you go into the quarter it's probably coming back to more historicals.

And historical is $20 or so per head?

That's kind of what we have characterized as traditional.

Prepared foods, another 11 million quarter.

What should we be thinking about in terms of the potential for improvement there next year because you've certainly done a lot better than that in the past?

I would answer that by saying that we will have significant improvement.

Raw materials is always an issue, but we had some other elements that really hammered us this yea -- the strike in Jefferson; we had some operational problems, as I mentioned, in both our Manchester, New Hampshire and our Buffalo, New York facilities; plus we have spent a lot of money on slotting fees and intro marketing fees that really those things by and large are going to diminish significantly.

I also do see a little bit more stability coming in belly prices, on the pork belly prices, at least in the last three or four weeks anyway.

So I think there are a lot of positives there.

Our volumes continue to be good.

Our new product categories are doing well.

So we still are doing some investments spending there.

But overall that segment will most assuredly improve on a year-over-year basis.

Let me ask one last question, please.

There seemed to be some movement on COOL -- country of origin labeling -- in the Senate over the last week or so.

Could you comment on what you're doing to prepare for the implementation of that and what we might watch for from you as we move towards presumably September '04 implementation of that, if it indeed does fly?

Two things; one, the political battle on COOL does continue to move forward.

We still have a significant hope that we will either be able to get it to go back to voluntary or minimally have an implementation period back up two to three years.

We should have a much better picture on that between now and by the time the Congress recesses, which looks like it's now going to be probably not until sometime towards the end of next week.

If that doesn't take place and we do have to deal with this, we're going to try and deal with it on a facility by facility basis.

There are numerous facilities of ours that won't really be impacted because they're not close enough either to the Mexican or the Canadian border.

But where we will need to deal with the dual system, we're going to try to minimize the number of facilities that we're going to have to do that in, and only do it where we have to and try to minimize the impact.

There have been lots of numbers floating around and it is going to be an expensive process, which is why it's hard to determine where the benefit from COOL comes from.

But eventually, it's going to be a cost of doing business and we will have to pass it on.

Thank you very much.

Ken Zaslow (ph).

How concerned are you with the tight cattle supply?

Do you expect to further reduce your production levels or your workweek levels going forward?

How do you adjust for that?

We will adjust for that on a weekly basis as we see both supply and demand change.

The last couple of weeks we've gotten down to some very small volumes, and no we in all likelihood won't go any lower than that in terms of output.

We just have to manage that on a week-to-week, month-to-month type basis based on the supply and the demand of beef products and live cattle.

I know it's probably a little early for the Christmas demand to pick up, but is there any color that you can put on what you think the Christmas demand will be on the beef side?

Traditionally you have a few items that have very strong demand, mainly in the rib and in the tenderloin, which is a very small percentage of the animal.

And we would believe we would still have very strong demand on those items for the holiday season, not so much different than any other year, even though prices will probably be considerably higher than what they historically have been.

Just my final question -- can you give us an update on the strike at the Jefferson facility and the status of the replacement workers?

Are you at the level that you -- how long will it be before you're operating -- the effect is completely anniversaried (ph), I guess?

Probably shortly after the first of the year.

Thank you very much.

(OPERATOR INSTRUCTIONS) Philip Begursund (ph).

Good morning and congratulations on a good quarter.

Steve, have you seen any impact from the strike in Southern California against the three largest grocers out there?

Yes, we actually have probably two observations.

One, we have been sending some case-ready product out of both our Council Bluffs and Goodlettsville facilities out there.

And secondly, we have seen a significant increase in our other customers' businesses in Southern California.

So net-net it's not really having an impact on your business then?

It is not having a negative effect at all.

Steve, over the last week or so a couple of companies in the packaged food sector had received wealth notice (ph) from the SEC with regard to their prior business transactions with Flemming.

If I'm correct you guys did not receive anything from that perspective, correct?

That is correct.

And then can you, Steve, just tell us what the drawings are currently under the revolver, as well as any outstandings under the asset-backed facility?

Those are not specific numbers that we normally give out.

I think if you look at our bond portfolio you can very quickly get a view to that in terms of total debt versus the bond portfolio that I think everyone's aware of.

So we're in very good shape from a liquidity standpoint, as you can imagine, with the debt that we paid down in the past year.

Absolutely, and you've done a wonderful job in the quarter there.

Just as a final question, Steve, following two consecutive quarters now of strong earnings recovery, any idea what the current thinking is of S&P and when we might expect them to come back with their review?

I think S&P will come back with something in the next -- I would say 60 days or so.

Certainly we expected something before then, but I think we have visited with them and they're watching the performance that you referred to and want to be sure that they say something that stands up for many quarters, I believe.

So they're performing due diligence around that.

But I would expect in the next 60 days they will have some comments.

Best of luck with that review.

Christine McCracken.

Just on chicken production, looking at some of these recent numbers coming out from USDA it looks like producers have ramped production up a little bit.

Obviously this is on a fairly light year in the prior to period.

But wondering what your expectations are in terms of total chicken production and what that implies for pricing in the next 12 months.

There has been a slight increase in placements and sets here as of late.

But given the other proteins and where we sit with probably lesser beef and pork supplies, I feel very good about -- the levels of increase have been extremely modest, as you said, Christine.

And we believe that the demand-side will be good as we get into the spring and into the summer months next year.

And we still feel very good about the supply-side and the demand-side being in pretty good balance for us to stay in that one chicken short mentality.

At this point you're not concerned that we're going to move into an oversupply situation?

You guys are probably in line with the industry, is that fair to say?

That is fair to say.

In terms of your debt levels, obviously now you're down to your target level.

John, I think you have talked about in the past focusing still on debt repayment.

Can you tell us what your position is at this point toward share repurchase or possibly increasing the dividend?

Our new target on debt reduction is 45 percent over the next 12 to 18 months.

And then the second option will be either a use of cash for a dividend, maybe a special dividend, but I would tell you that's got to be two or three years out, just to make sure we've got plenty of cash.

As we look at our use of cash, share repurchase would be a consideration.

But this company has the ability to generate good cash, solid cash, and we still believe based on some models that Steve and Dick and Greg run the first use of cash to pay down debt towards these next set of targets is appropriate for us right now.

Fair enough.

On this case-ready -- and this will be my final question -- Dick, I think you had mentioned getting into some of these stores out here on the West Coast.

Any likelihood that you'd be able to hold on to some of those new stores once the strike comes off?

Or have you talked to these guys about working with them on case-ready?

Yes, we've talked quite a bit about working with them.

It is hard to say at this point what they will do when the strike ends, but we have had several that have been impressed with what the case-ready can do.

So on a general basis I am hopeful that either in Southern California, or in St. Louis, or some of these areas where they are experiencing some problems, we will be able to hold on to some business that's -- we don't have anybody at this point that I can firmly say to you that they have committed to do that on a post-strike basis.

Thanks.

Brad Aiker (ph).

It's Kyle again.

Two questions.

On the case-ready side in the beef segment of case-ready, could you talk a little bit about the whole muscle cut versus ground proportions in the quarter and for the year and what your outlook is in '04 on that 20 percent growth assumption?

I don't have with me the absolute breakdown of ground beef and whole muscle.

I'm not sure we want to release those figures that way.

But I can tell you that we have had substantial volume growth in both -- there has been greater volume growth in ground beef than in whole muscle, but they both have grown substantially on a year-over-year basis.

And we would expect a similar ratio improvement within that 20 percent for fiscal '04.

We will probably see a little that more increase on a ground beef side on a volume basis, but both will increase substantially.

My last question is, you guys talked about the margin compression related to the new product rollouts.

Can you quantify that it any way, shape or form and also give us some kind of outlook on when you expect that to subside a little bit?

We do expect it to subside here during fiscal '04 as we get our distribution up where we want it to be.

We will still have some effects of that here in first quarter, and probably to some degree in second quarter.

But beyond that, that should start to get to a much lesser of a significant number.

And to answer the first part of your question, really not going to comment on what those total marketing related expenses are.

Fair enough.

Thanks guys.

John McMillin.

I just wondered if you could comment broadly just on the Atkins diet, what it's meant to Tyson, because you hear a lot about it.

Also, do you think it's a bigger positive than just the economy getting better (ph)?

Somebody told me the other day that for people who are on full-time diets, only one percent of the population is using the Atkins diet.

But I do believe that the Atkins diet has had some influence on how we think and how we eat when we go to purchase one of our meals out there.

So there's an underlying tone and an underlying discussion about how that enters into lifestyles and there's no doubt we're getting some benefit of it.

I'm still more optimistic about the overall economy.

Some of the people that I have talked to here in northwest Arkansas and some other people I had a chance to visit with, there has been more upbeat comments and attitudes from that sector than I've seen in the last six or eight months.

I think everybody's real positive towards December; everybody's a little worried about momentum in January and February and very optimistic about March on.

So if we can carry the holiday season momentum on into January and February I think things are setting up pretty good for '04 calendar.

Was the quarterly guidance?

I'm joking.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS) Craig Albert (ph).

Good morning.

My question was for Dick.

It relates to the increase in soybean meal prices.

Your cost of production, I know corn is down year-over-year; when you net those two out, could you just comment on whether your cost of production is up or down and maybe a ballpark of by how much?

I think we stated earlier that we're not going to comment on our hedging position and we'll stay in the same philosophy.

I wasn't asking about your hedging position.

I was just asking just unhedged the changes in prices, whether that increases or decreases your cost of production?

The substantial increase in soybean meal, and if you net the two right now our grain costs would be higher than what they were at this point in time a year ago.

Thank you.

Richard Diamond (ph).

Good morning, gentlemen.

Good quarter.

Dick, could you reconcile your contentment with beef margins and industry publications that show beef margins running negative for packers?

And secondly, as we go forward in the quarter, should we expect to see more plant closures due to lack of cattle supply as we did last week?

I don't know as we will see any more plant closures.

That is a pretty significant thing.

And we did have one facility that was shut down for a week.

But no, I don't anticipate that being a normal course of business going forward.

My reconciliation of where they post negative packer margins oftentimes are predicated solely on what is the current spot market price on the revenue stream, and that always doesn't indicate what your revenue position is.

So while that is a current snapshot in time, it doesn't always or necessarily reflect a current margin structure.

Now, given the decline in box prices and the relative strength in live cattle, margins, as I said earlier, have narrowed from their fourth quarter levels, which were much above norm.

Last, could you comment -- the Senator from North Dakota has come out strongly advising opening the Canadian border to US imports.

Do you think that the Canadian border issue and cattle imports may be held hostage to short-term politics in '04?

No, I really don't think so.

I think given that it's in the Federal Register and in its comment period, I think that the USDA and the Administration wants to reopen that segment and I believe that's what will happen.

Thank you very much.

Eric Falle (ph).

How many head of cattle did you (inaudible)

You cut out on your question.

How many head of cattle did you process in the quarter?

We gave a volume statement.

I don't have that number right in front of me.

We can move on.

Can you quantify how much -- obviously hedging helped you in the beef segment and hurt you in the chicken segment in terms of selling prices you received on chicken and it helped you on the price you paid on your input cost on the beef side.

Can you quantify the impact on either of those segments?

I don't know that I would totally agree with your statement there.

As we said earlier on the call, we're not going to reveal hedging positions or quantify those.

Which part of my statement would you disagree with?

Did hedging not help you on the beef processing side?

I'm not sure either one of those I would agree with.

But that's beside the point.

So the beef improvement was solely based on box prices improving more than your input cost of live cattle?

Yes.

I would tell you that the beef margins are a fundamental function of supply and demand; supply went down, demand stayed steady to up a little bit.

They call that Economics 101 where I live.

I'm trying to get what your actual average processing margin was on the beef side.

I already asked you how many heads you processed, but if you could tell me what the average margin was that would be helpful.

Then I could backout what -- that is really what I'm trying to get at.

The number of head information in specifics is not a number we commonly release, and I think when you look out in the industry information you get a pretty good idea of what that is --

I can.

I don't understand why you're reluctant to (multiple speakers)

It's a personal choice here at this company not to release that information.

You had a great quarter.

Congratulations.

That will conclude today's question and answer session.

As always, we appreciate your interest in our Company.

We appreciate your questions, because it lets us understand better what you would like for us understand to work on and focus on.

I can tell you the men and women here will be doing that here in the next year.

We wish everybody a great holiday season.

We will see you next year on the conference call.