泰森食品 (TSN) 2004 Q1 法說會逐字稿

Welcome to the Tyson Foods first-quarter earnings conference call. (Technical difficulty) John Tyson, our CEO, and 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 discuss the operating performance for the quarter, I just want to remind everyone some of the things we talk about today may include forward-looking statements.

That means these statements are based on our view of the world as we know it today, and that also means things can change.

So I would encourage everyone to take a look at today's press release for a discussion of those risks that can affect our business.

With that, I will turn things over to John Tyson.

Good morning, everybody, and welcome to our friends and our shareholders on our conference call today.

We continue to make progress against our strategy.

We are improving in our tactical execution of both the consumer segment and foodservice segment with our one face to the customer.

I can tell you that this is resulting in deeper penetration into our current accounts with our full range of products and new accounts coming on board.

We always believe and still believe that in the consolidated business environment, our ability to provide a full range of protein-based products would result in strong cash flow to pay down debt and increase market share.

And I can tell you that this is happening.

It also allows us to start thinking about the appropriate use of our cash to further grow our business and enhance shareholder value.

I would like to be leave you with one thought, though.

Our fundamentals are strong, our strategy is right, our execution is getting better.

We are doing an outstanding job of controlling the things we can and I can tell you we are doing an outstanding job of managing the uncontrollables when they show up to minimize the impact to our Company.

I am very satisfied with the way our management team and the folks that help me run this great company are executing in the environment that we are operating in today.

With that, Steve will talk about our financials.

Just to recap, in our press release this morning, we reported GAAP earnings of 16 cents per fully diluted share for the quarter; that's comparable to last year's GAAP earnings of 11 cents a share.

Last year, there were special items, plant closing costs and we got some vitamin settlement that had a net effect of 4 cents on last year's 11 cents so you might say that was more like 15 cents operationally.

Our 16 cents this year have items in it that lowered earnings by 16 cents, coincidentally.

Plant closing costs of 25 million, which was approximately 5 cents a share, and these involve chicken and prepared food facilities.

BSE related charge of 61 million, which amounted to about 11 cents a share.

So we had a 5 cents, 11 cents for a total of 16 negative that we charged in the GAAP earnings.

And I would like to make just a few comments regarding the BSE charge.

First of all, I know all of you recognize -- and I'm sure there will be questions later to us -- but there are many uncertainties that surround this situation.

And from an accounting standpoint, leading to a proper determination of the charge was a bit of a challenging exercise.

So you would expect, we've worked with our external auditors regarding the charge.

And we have looked at what our appropriate disclosure responsibilities were, taking into account all the appropriate accounting and regulatory literature that's out there, and particularly SAB 101, which deals with revenue recognition and FAS 5, which deals with accounting for contingencies.

I have a statement that is similar to the statement that will be included in our 10-Q when we file it in a few days.

And I am just going to read this to you because I think this actually provides all the important information.

So here's the statement.

On December 23, 2003 the USDA announced a single case of BSE had been diagnosed in a Washington state dairy cow.

The effect on the Company's beef segment caused by the announcement, along with the decision of various countries to restrict imports of U.S. beef products, resulted in the Company recording BSE related charges of approximately $61 million in the first quarter of 2004.

These charges primarily relate to finished product inventory destined for international markets, whether in transit, located at the shipping ports or located within domestic storage.

It also relates to live cattle inventory to an open future positions.

Finished product and product inventory was valued based on the Company's judgment of estimated net receivable value -- I'm sorry net realizable value for the product.

This judgment took into account a number of factors, including subsequent sales of product, following quarter end, alternate markets for products that are available, import restrictions by certain countries, and recent and anticipated future market demand.

The Company's judgment is based on its evaluation of facts at this time.

However, due to the large degree of uncertainty surrounding the BSE issue, actual net realizable value for the finished product inventory could vary significantly from the Company's estimates.

The Company estimates the additional potential loss to be in the range of zero to $30 million.

And again, however, due to the uncertainty and the probability of such additional loss is undeterminable.

That concludes the statement that is similar to what will be within our 10-Q.

And I would like to just point out a couple of things.

First of all, we recognized $61 million, because from an accounting standpoint and the FAS 5 definition, we believe that that is a probable scenario, and therefore, we've recognized it.

Also according to FAS 5, we are required to determine if there is any additional potential; and that is a range of zero to $30 million.

Certainly we don't feel that is probable, or we would have recognized that as a charge today.

So I want to be very clear with you around this, that we are being I think responsive to the accounting literature and trying to be responsive to our disclosure obligations.

But our charge that we believe is probable is around the $61 million point.

So you may have more questions about that.

I am sure I did not make that clear as I should, but I tried.

Again, within our financial statements, I want to point out just a few more things -- a strong cash flow quarter, cash provided by operations was $261 million.

Net income and depreciation and amortization brought about 176 million of that or 67 percent of the total.

And as a high point during the quarter and working capital management, we saw improvements in both our days outstanding and accounts receivable and our inventory days, particularly year-over-year.

Our capital spending for the quarter was $124 million, and there were onetime items that were spent during the quarter.

So don't take the 124 as representative of a normal run rate.

In a moment, I will speak to our guidance around capital spending.

Our debt at the end of the quarter was 3.5 billion, that's down 114 million during the quarter.

Debt to capital for the quarter ended at 46.5 percent.

Debt moved up a bit after the end of the quarter, which is not unusual from a seasonal perspective.

But we continue to be on track to achieve the goal we've set for ourselves of reaching 45 percent debt to capital over what now would be the next 12 months.

And it's quite possible that we could achieve this goal within six to nine months.

Interest expense was down $10 million from the same quarter last year, which reflects the continued debt payment progress.

And also, we've had efforts to opportunistically buy back some of our bonds when the pricing in the markets made sense.

A thing you may note on the balance sheet, the goodwill came down by $91 million.

This had to do with adjustments of tax liabilities that were assumed along with the IBP acquisition.

There were open IRS cases that had been reserved by IBP that we booked.

Those cases have now been closed.

They were closed primarily in our favor.

So those liabilities are no longer needed and goodwill is reduced.

A couple other notes, in our segment operating performance, the plant closing charges affected the margins in our chicken segment and our prepared foods segment.

There were $4 million of the charges included in the chicken segment that would bring the operating margin from 6.1 percent for the quarter up to 6.3 percent for the quarter.

In our prepared foods segments, we showed an operating margin of 0.8 of a percent for the quarter.

And $21 million of the plant closing costs hit the prepared foods segment.

And excluding those costs, the operating margin would have been 3.8 percent.

Now I will talk a bit about our financial outlook.

As we mentioned in our press release, we continue to expect our earnings for fiscal 2004 to be in a range of 90 to $1.20.

As part of maintaining our guidance, we have taken into account the $61 million charge related to BSE.

We have not taken into account any additional potential loss related to BSE.

However, I am not sure, had we taken that account, that that in and of itself would have made any difference to our guidance level.

As is our practice, if future events lead us to believe our guidance should be changed, we will certainly do that and announce that in the marketplace.

Our practice of not giving quarterly guidance will be continued.

We will maintain earnings guidance at an annual level.

Then today, during the call as usual, we will not be making any comments regarding anyone's quarterly earnings estimates on the street or consensus estimates.

We will not make comments about those.

Revenues for the year, we continue to project to be within the range of 25 and $26 billion.

Interest, foreign exchange and other charges should be approximately $270 million.

Our tax rate will continue to be in the range of 35 to 36 percent.

Capital spending target remains the same, at a range of 450 to $500 million.

And depreciation, amortization continues to be expected to be approximately $460 million.

Weighted average shares, for your calculations, you should use about 355 million shares.

So that concludes my comments on the financial area, and I will turn the call over to Dick Bond.

Our first fiscal quarter for '04 was a great quarter on an adjusted basis.

Our domestic chicken and pork segments improved significantly on a year-over-year basis and on a sequential quarter basis.

Our prepared foods group sales increased $26 million while our operating earnings were flat if you exclude the plant closings.

Our beef segment, as Steve said, results were impacted negatively by $61 million due to the BSE incident.

I will get into more detail in each of these segments starting with beef.

A few statistics first, our average selling prices were up 31.5 percent on a year-over-year basis, but a decrease in volume of 12.1 percent.

Commercial slaughter for the industry was down 9 percent for the quarter versus last year and 15.1 percent versus prior quarter.

Our volume fell 10.4 percent and 19.3 percent, respectively, indicating a planned loss of market share for the period.

Our carcass weights were down 2.6 percent versus last year and flat with the prior quarter.

The month of October, demand continued fairly strong; volumes and margins were excellent.

The November and December periods saw demand weaken significantly and the supply of market-ready cattle decreased substantially.

Margins for the November and December period, prior to the BSE announcement of December 23rd, were poor, at best.

The shortness of supply continues into Q2 and will probably be with us for the next few weeks.

However, with the lack of cattle marketed in November, December and January coupled with the large fall placements will give us more cattle availability for the late winter and spring period.

The lack of export markets has impacted our (inaudible) and the value of certain cuts of beef.

As a processor, we must manage the spread between what we pay for cattle and our revenue stream.

While adjusting to no export markets has not been easy, we have made great strides in returning the beef segment to profitability.

On a positive note, domestic demand has remained strong at both retail and foodservice.

Case-ready beef sales were up 33.8 percent over Q1 last year and our volume was up approximately 10 percent.

We continue to add customers and see continued growth in our case-ready beef.

The pork dollar sales increased 142 million or 24.1 percent over a year ago, with a 19 percent increase in sales price and a little over a 4 percent increase in volume.

The industry hog slaughter was up 3.3 percent for the quarter versus a year ago, we were up 6.7 percent.

The industry increased 11.7 percent versus the prior quarter, and we were up 15.8 percent.

The strong volumes coupled with the very good operating earnings again confirms our belief we are significantly better than most all of our competition and truly are the leader in pork processing.

Demand for pork products continues to be excellent, with both volume and prices higher than last year and last quarter.

The supply of hogs continues to be good and we would anticipate a one to 2 percent greater availability of hogs than a year ago.

Case-ready pork sales continued very strong, with sales up 33 percent and volume up 29 percent.

We still expect our case-ready beef and pork to be approximately 1.4 billion in this sales for the fiscal year, an increase of greater than 20 percent.

In the chicken segment, sales increased 6.4 percent or 115 million versus last year.

We were able to get a 2.7 percent increase in our selling prices, and a 3.6 increase in volume.

Operating income, adjusting for plant closings in both Q1 of this year and Q1 of last year improved by $60 million.

Higher grain costs for the quarter were more than offset by increased selling prices, improved mix and significant improvements in our production facilities.

While we will not discuss our specific grain positions, rest assured, we have been very active for some time in our efforts to obtain some coverage.

Conversion costs, excluding grains, improved by $11 million during the quarter.

Leg (ph) quarter values were exceptionally strong for the quarter, as they did not have the steep declines in the November/December period as they typically do.

We continue to modernize and automate our chicken processing facilities to ensure we are competitive and are the best-cost producer.

The demand for chicken products continues to be excellent, and the supply side appears to be taking a very disciplined approach.

Our operating income return on sales, not counting plant closings, rose to 6.3 percent, almost double from the first quarter of fiscal '03 on the same basis.

Within our prepared foods segment, sales dollars were up 3.8 percent over first quarter last year, while operating earnings adjusted for plant closings were slightly over 27 million or a 3.8 percent return on sales.

Beef raw material prices adversely impacted our earnings; prices escalated very quickly early in the quarter, making it difficult to pass on these increases in a timely manner.

The effects of the continued strike at our Jefferson, Wisconsin facility, coupled with lower volumes being produced in our two facilities that we will close in the next few weeks, also impacted earnings negatively.

In Jefferson, the plant is currently running with replacement workers, and we are optimistic there will be an end to the strike by the close of January, as they will vote on a new proposal this week.

On a positive note, pork bellies and ham products raw materials have stabilized and margins have improved especially on bacon.

On a sequential quarter basis, our return on sales again, before plant closings, improved from 1.6 to 3.8 percent.

On the consumer products side of our business, we continue to gain distribution with our Tyson-branded initiatives.

Within the prepared foods segment, we achieved significant distribution gains in our fully cooked and ready-to-eat Tyson-bacon product lines.

We will be concentrating on expanding distribution of our lunchmeat items in the second quarter, so we are authorized for shipment for the peak summer season.

Within our chicken segment, we continue to grow our Tyson frozen bagged product line, with our sales up 54 percent and volume up 49 percent.

This was driven by increases in both velocity and distribution versus a year ago.

Our tray-pack or chill-pack fresh chicken results were substantially better than first quarter last year.

Our operating earnings improved by $23.6 million.

Improved pricing and mixed mix, coupled with our conversion cost improvement programs, were the primary contributors to this turnaround.

We also completed the conversion of our second facility to net-weight products within our retail fresh business.

This will allow us to continue to expand our customer base with a net-weight fresh chicken program.

Within our foodservice group, we successfully operated as an integrated one face to the customer from a sales, broker network and marketing team for the entire quarter.

Combining the poultry and prepared foods group into one has allowed us to leverage the strengths of our individuals sales and marketing teams.

The foodservice marketplace continues to improve with the casual dining and QSR segments driving the growth.

Most of the major chains in these categories reported positive same-store sales.

We have achieved price increases in the renewals of most of our fixed-price agreements, which will have a positive impact on our operating earnings going forward.

In summary, our adjusted operating earnings, without BSE and plant closings, were just short of $250 million for the quarter, with the beef segment only contributing $32 million.

This shows the strengths of the Company and demonstrates the improvements that have been made in all segments.

We will continue to concentrate on moving products up the value chain, grow the Tyson brand where applicable and continue to focus on operational excellence.

Typically, our second quarter is our most difficult.

But I am confident we will continue to strengthen our business segments and deliver the appropriate results.

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

Let's talk briefly about international.

Export sales were 681 million for the first quarter.

This was up 23 percent over the same quarter of 2003.

The increase in sales revenue was due to higher prices on the majority of our export products, including boxed beef, boxed pork, chicken leg quarters and beef byproducts.

Our export volume actually declined by 11 percent from the first quarter of 2003.

This volume decrease was driven primarily by the lower fresh meats volumes.

Our chicken export revenues increased 44 percent.

This was despite a 1 percent decrease in volume that we exported.

Export leg quarter prices exceeded last year by over 10 cents a pound.

Russian leg quarter sales and prices continued to be very positively impacted by no market interruptions.

And we're very comfortably moving to that market, the volumes that we have targeted for that market.

Prices also gained strength as a result of diversification into new markets such as the Middle East, and increased business in relatively immature markets, such as Africa.

Prices seasonally declined towards the end of the quarter, but remained significantly higher than prices during the same period last year.

Our sales prices into the Far East strengthened on the non-leg quarter dark meat items and other items, such as paws and wings during the same quarter.

Our frozen inventories, both as a Company and as an industry, remained in very good shape.

Going forward, we see positive impact on both chicken volume and pricing as a result of the strong underlying international demand and some recent events such as the AI outbreak in some of the Asian poultry producing and exporting countries.

Our fresh meats volumes were down 17 percent for the first quarter of 2003, primarily as a result of lost rendered product sales.

Overall, rendered product volumes were down 37 percent due to lower beef tallow export sales.

There was also, by the way, very strong demand domestically for beef tallow.

As well as lost lake-side (ph) protein sales due to the Canadian BSE issue.

Boxed beef volumes were down 11 percent as a result, of once again, of lost lake-side sales for export.

These decreases were partially offset by stronger boxed pork sales volumes.

Much of this was increases into Mexico.

Despite the lower total volume, sales revenues in aggregate were up 21 percent compared with the first quarter of 2003 and boxed beef revenues were up 22 percent, as the Japanese and Korean markets were very strong pre the BSE incident.

Going forward, we will continue to phase the impact from BSE.

Volume and prices for export sales for pork and poultry will be supported as a result of the incremental demand in Japanese and Asian markets.

We expect second-quarter volume of pork to Japan to rival our first quarter volume.

The first quarter is historically the heaviest quarter of shipments of pork to Japan.

Some specialty pork items could be used for the Japanese and Korean barbecue trade.

However these volumes will be somewhat limited.

We do not expect major shifts in consumption patterns in the very short term.

Results of international overseas operations were mixed for the first quarter.

In our Tyson to Mexico operations, profits declined due to softer market pricing, particularly in the first two months of the quarter, and of course, significantly higher grain costs.

Our second-quarter earnings performance for Tyson to Mexico is back on track with our normal expectations and budgeting.

Our Tyson (indiscernible) for the processing and plant had an excellent quarter with very strong shipments.

As many of you -- let's talk a little bit about our strategic planning process -- as many of you know over the last six months, we have been developing a new, year-five year strategic plan for the Company.

This plan is the roadmap we will use today and into the future for achieving our company vision of being the world's first choice for protein solutions while maximizing shareholder value.

I am happy to report today that we have completed the planned process, and over subsequent meetings and calls, we began to unfold the key elements of our plan.

The first element I would like to share today is innovation.

While this has been the implications for the total organization, a central component of this element is with respect to product innovation.

We have been the leading product innovator in our categories and believe that elevating this emphasis will bring great new products to the consumer, increased value for our customers, continue to improve our margins and increase value creation for our shareholders.

To support this element, I am proud to announce that we will be breaking ground on a new 184,000 square foot discovery center here in Springdale, that will house our research and development team, our consumer insight group and our team member development activities.

An important part of this new facility as a state-of-the-art USDA-inspected pilot plant, capable of developing and testing chicken, beef, pork and prepared food products and processes.

This will enable us to shorten the time for product concept to product introduction.

The discovery center underscores our continued commitment to innovation and forward thinking.

As a leader in the food industry, we believe that the discovery of new products, processes, consumer insights and helping our people discover their unique gifts and talents is critical for the continued success of our company.

We expect this facility to be up and running in the fall of 2005.

With that, I will turn it over to John.

I think you can see from Steve, Dick's and Greg's comments that our fundamentals are strong, that our strategy is right and our execution is getting better.

We did a good job of controlling the things we can, and we are doing a good job of managing the uncontrollables when they show up to minimize that impact to our company.

With that being said, it is now time for your all's questions to the management team.

(OPERATOR INSTRUCTIONS).

Christine McCracken, FTN Midwest Research.

A lot of information here on BSE, obviously.

And just to dig a little deeper on the charges, Steve, if you could just talk about -- and maybe it's possible that you can't go into more detail -- but what is the possibility that some of this inventory could get re-valued here in the second quarter and has that been factored into your guidance?

Certainly, Christine, we have looked hard at what that inventory valuation should be.

And when we talk about that additional potential, that's something else that could happen.

But we don't feel that that is probable.

With the probable charge, we think we have taken into account everything that is going to happen.

But of course, we've made judgments and assumptions, and you heard all the language around that, but we feel (indiscernible) that we have taken all that into account.

I think your question was in relationship to guidance and the impact on values for the second quarter.

The numbers that we shared in today's conference call were a mark-in -time set of numbers.

The markets will change as we go into the second quarter.

Steve has given an estimate of potential over 35.

But at the same time, markets could improve in the second quarter, which might have a different impact as we go into the second quarter, and only time will tell.

The 61 million effect has been included in regards to making the guidance statement of 90 cents to $1.20.

In terms of re-opening some of these markets, obviously, it's tough to tell today.

But in terms of your guidance again, are your assuming that these markets stay closed for 12 months?

What are your expectations there?

Our expectation is that the Japanese and Korean markets will be closed something on the order of three to six months.

And then we would expect to have the opportunity to resume sales in Mexico on say something on the order of six to eight weeks, or less.

Great, that sounds good.

On avian and you referred to it briefly, a lot of concerns tied to that relative to the U.S. market.

What is the likelihood that that could spread into the U.S. market?

Are you concerned about that at all?

And on the flip side, are you seeing or do you expect any net benefit possibly on the pork side with shipments into those markets?

On the first question with regard to the AI outbreak, this is high-path avian influenza, and it is moving through some Asian countries.

I believe our bio security over here is significantly more advanced than what you might find in some of those countries.

So we have a high degree of awareness.

As you know, we had several low-path avian influenza outbreaks last year, so a lot of attention has been paid to that.

This is primarily driven through the live bird market.

So while you never say never, I think that would be extremely unlikely that we would have that type of difficulty here in the United States.

With regard to the impact on sales, we are seeing and do expect to see, some positive benefit as a result of disruptions in some of the Asian production, both for domestic -- those in country consumption as well as exports.

Thailand, as you know, is a pretty large exporter.

So there will be some incremental demand, and we believe that will be positive to volume and price.

To come back just a moment on the guidance question, you heard Greg's view to markets opening.

But as we re-stated our guidance, whether our markets open in six months or nine months, we would not make a change in guidance.

So the guidance is good, whether or not those markets open per Greg's anticipation or not, as we stand today.

Sounds good.

I will follow up later, thanks.

Brad Eichler, Stephens.

John, I think your comments you alluded to some hedging, or maybe it was Steve, on a grain side.

Can you talk a little bit more about what your assumptions are as it relates to chicken for the balance of the year?

Are you assuming stable prices or rising?

You are talking about the actual sale of the product?

Or are you asking in context of what we see grain prices doing, or both?

Both.

Dick, why don't you go ahead?

The grain prices are going to be what the grain prices are going to be.

We will see and have seen much stronger corn and soybean meal markets, especially in the last 30 days.

As I said in my prepared comments, we have taken some activity and some action there.

But I am not going to get into any more specifics about any of those positions.

But we are continuing to be able to pass along through price increases on the chicken side.

We see very, very strong breast markets.

We have seen the Georgia dock remain extremely strong, in typical times where it would have fallen.

And as Greg said, we see good demand on the export front for the leg quarters.

So overall, yes, grain costs are going to be higher.

But we are experiencing and will continue to be able to experience, price increases, as demand for chicken domestically and internationally, remains and looks to be very solid going forward.

I would just add on, certainly, the markets help.

And we take a view, the markets around grain into account.

We take a view to the chicken markets.

But it would be remiss if I didn't go ahead and mention, Dick made the comment about the fixed contracts, and then other fixed portions of our price list.

We continue to do, I believe, an excellent job of managing those prices and related selling programs, and continue to firm those up.

And we have taken that into account, over the course of the year, also.

On the beef pricing -- or on the beef side -- you mentioned you expect a continued shortness of supply in the next couple of weeks or for the period.

What are you seeing sequentially on the pricing side?

Sequentially meaning from Q1 to Q2?

Yes, or month to month, however you want to look at it.

We have seen, in late as last week, we got live cattle prices back up into that mid-80s range.

Again, we are backing up cattle, because we are not marketing cattle as rapidly as what we should, primarily because, from a processor standpoint, we didn't have very good margins.

So our volumes have been down.

That has continued in January.

But what we have been able to do is at least get back on the right side of the spread.

But we have seen domestic boxed beef prices go up substantially in the last three to four weeks.

Eventually here, as we start to come into more cattle and we get into the lent period and pre-Easter period, we should see those prices come back down a little bit as we see more supply.

But on a net basis, you should be able to hold kind of a positive margin?

Yes.

John McMillin, Prudential.

Basically, the earnings guidance includes this 16 cent charge.

You are basically saying on an operating basis, the bottom then would be $1.06.

But Steve, are you making any projection?

Are you including in this guidance the potential for the zero to 30 million charge?

The way the guidance is formulated today, John, the specific answer to the question would be, we have not taken into account that additional potential charge.

However, I would hurry on to say, as I have said in my comments, that if we were today to take that into account, I don't think that would cause me to make any change in guidance, that, in and of itself.

What we will do is, if that potential becomes something that becomes more probable, we will certainly make adjustments if needed.

But I think the message you should get today is we are on the 90 to 1.20 guidance.

And the 61 is definitely there.

If an additional 30 were to happen, I'm not sure we would make any change because of that.

That's only 6 cents.

That's great as you are getting through this difficult period.

The only issue that I see is the foodservice chicken volume, I guess, was down a little bit, Dick.

Could you discuss that?

I am surprised given the way the fast-food restaurants seem to be featuring the products.

The only thing that would have happened in this first quarter is, we did have some seasonal adjustment of some volume, which was down, really because of, as I said, we converted our second plant in Monroe, and that was down for about 10 or 11 days.

We just had some seasonal things that happened in that quarter, which might have -- which did cause a little bit less volume, in terms of chicken variability.

We are basically through all of that now, as we go into Q2.

I would also remind you, we were a bit of a tough comparable from a foodservice standpoint, year-over-year.

We had a lot of volume in the first quarter last year with particular distributor customers.

So it was a bit of a tough comparison.

So I think you have got to factor that in and not necessarily read this as a negative, because our volume was down.

We did have a tough comparable last year.

Just in terms of chicken pricing, Dick, it was up 2.7 percent in this quarter.

And I guess you are hinting that the number goes higher.

Can you give us a rough idea?

Do we get 4 or 5 percent pricing as we look to the first six months of calendar '04?

That's a difficult question to answer.

I do believe that we will continue to see price increases.

And I would tell you that minimally, I think they will continue in Q2 anyway, to move at a rate at least similar to the Q1 increase.

On a sequential basis, or compared to last year?

I am going to say on a sequential basis.

Okay, great.

And just I know it's a broad statement, but when you said you are the leader in pork processing, your principal competitor just bought a big asset in farmland.

Did you mean that in terms of returns, efficiency?

I know it was a broad statement, Dick, but what exactly did you mean?

I just meant that I believe that we operate that segment of our business better than anyone else does.

Johnny, just in terms of the management of the Company during a crisis period, I think -- I applaud you for the way you have gotten through this mad cow issue.

But I think there are some people that kind of question what is in the charge, and whether or not you took just kind of any let's say bad procurement hedges and just kind of tied it into mad cow.

Can you just talk about -- it certainly didn't make your Christmas -- but just how you managed the business, and just in terms of giving us the feeling that you just didn't roll (ph) stuff in here that was not related to mad cow?

First of all, so the air is cleared on that, the charges of the $61 million are related to running our beef segment.

It's a good number, it's a clean number.

The other activities that you referred to, hedging activities, are ongoing whether they are on the live cattle side, whether they are on the corn side, or whether they are on the soybean meal side.

Those activities are moving activities on a daily basis.

As for how this team worked during the disruption to our Christmas vacation, several people, obviously, canceled vacations.

We met every day at 10:00, and had continuous dialogue, not only amongst ourselves but with USDA, with FDA with our export customers and also with key domestic customers.

We did a lot of data, we did a lot of polling.

I think one of the interesting numbers that stood out during the data pulling -- most of us were watching TV -- CNN was putting out a number that when the question was asked, how many people are going to eat less beef?

The number was 25 percent.

The interesting data though, that same question has been asked since February of '01.

And since February of '01, if you ask the same question, 20 to 25 percent of the people are always saying they are going to eat less beef.

We say that to let you know that actual demand for beef stayed strong, actually was on track, and was very pleasing to us.

So the consumer has basically said this is a nonevent.

The consumer has gone ahead and maintained their eating habits.

I think what the consumer looks for is what is the right value at the right time from the three proteins that we manage, whether they choose to eat one of our beef products, on of our pork products or one of about chicken products, which reemphasizes the strengths of the Company.

Okay.

Well, congratulations again.

Thanks, John.

David Nelson, CSFB.

I too want to credit you for maintaining the 90 cents to $1.20, but including what other companies might exclude as onetime charges.

But on the plant closings and the restructuring of your operations, how much, if any more, plant closings might we expect to see as headwinds?

We are still looking at all of our assets.

There is a likelihood that potentially, we might see some more rationalization -- probably not too many more.

We're coming to the close of that process, probably, by the end of this fiscal year, I would think.

But there is a possibility that we might be see a little bit more activity yet this fiscal year.

Like Greg's new product plant?

That's not a closing, that's an opening.

Well, it's an expenditure.

If we can get to the protein markets, we've got major movements in the moving parts, if you will.

Chicken was certainly fantastic, especially given the time of year.

But it was also a time period when, as you noted, beef supplies were way down.

But it does certainly look like beef supplies will be coming back again, actually at very heavy levels in the March to June period.

I am just trying to get the net balance here.

Would you expect beef packing margins to come back very strong, but that also, chicken margins might decrease with more competition from beef?

I think you're right, that your processing margins on the beef side should get better, as we get into more availability, as we are able to run higher levels of capacity utilization.

I guess I feel, on the chicken side, though, given where we are from a demand perspective, both domestically and on a worldwide basis and the fact that the chicken side of the business appears to be from us supply-side, fairly disciplined.

I believe that our -- I don't think because of more beef, our chicken margins are going to be adversely impacted.

To make the midpoint of your guidance range, we would need three 30-cent quarters.

I am just trying to figure out how we are going to get there?

On prepared foods, we have certainly seen improvement.

X the plant closing, we are up to 3.8 percent margin there.

Where do you think that margin should be, and where do you think it will be a year from now?

We still believe we should be able to get that back into the 5 to 7 range.

Regarding the chicken, one of the things that is an important component beside the industry supply discipline is, we have rationalized some facilities and we have talked a lot in the past about getting ourselves from the one-bird long to the one-bird short, that we are a buyer of raw materials out into the marketplace today.

That continues to strengthen some of those underwriting markets, but puts us in a much better competitive and pricing situation all the way around, including on our fixed-price portfolios.

So we have accomplished a lot of our goals in the last two or three years in regard not only to how the industry supply looks but how Tyson manages its supply of chicken that I think are playing very positive in our chicken subsidiaries.

I think the industry, also, the number of frozen ending stocks in a very positive light that hadn't been there for four or five years.

Less chicken in frozen, the fact that we are in a one-bird short position, I think, creates the opportunity for us to manage our margins better.

Leonard Teitelbaum, Merrill Lynch.

I think Dave actually had a similar question to mine, and that is, you've made the statement a couple of times that people seem rational in the poultry side of the business, which is something that's, I think, unusual if I look at history.

Is it your strong feeling that people are going to stay this way?

With AI out there and the questions about who is going to export to whom, etc., you're not seeing maybe some of your other competition out there trying to increase supply?

I think on the export issue, Brazil has a tendency to step into that void very quickly, when you have to supply either the UK or China.

So Brazil probably gets a lot of that increase, which leads to us being a little more disciplined, if we are thinking about an export market.

Dick has some thoughts on the domestic market.

I would just say on the domestic market, with grain prices doing what they're doing, we have not seen an expansion of supply of any magnitude.

That's all I am basing this on -- is historically, for the last three or four years, in general, it hasn't been as profitable of a business as one would either hope for or expect.

I think that we have seen a more disciplined approach and I think that will continue.

And I think the higher grain prices will try to keep that somewhat in check here, going forward.

That's a good answer.

Steve, you don't see any reversal of your $61 million accrual?

Lenny, as I said in my comments, that's based on judgments, differences will play out during the second quarter and possibly beyond.

We will report against this to tell you how we are doing.

But it's one of those deals, just as we have said, there was a potential for it to go one way, there's also a potential for it to go the other way.

We, again, took the most probable middle ground around that.

We will report on progress against that also.

I've got to presume this accounts for marking to market on any open hedges, inventory reductions etc., the whole -- everything has been covered right?

What's in there, as dealt, was finished product inventory, which primarily relates to international, whether in transit, at the port or back in our areas.

There is a bit of live cattle that played into that, and as part of the cattle business, as we have all discussed, there is some hedging program against forward sales against cattle; and it certainly has taken that into account and the impact this had on that.

That's really the three components that make up the charge.

That's all been charged to beef.

And then on a consolidated statement, it goes to the cost of goods sold?

That would be correct.

Back to the hedging aspect, I know you're not going to divulge your position (indiscernible), but I am looking more now on finished product than I am on grain.

Do you have any of those contracts that are going to roll over in this quarter, that if conditions stay where they are today, ones that you have just put on, we should not expect any other change, then -- which are on the market now, in terms of your finished goods inventory?

Clarify those contracts a little bit more.

What I want to know is whether or not you have put on contracts, post 12/31, that are currently -- if the quarter were to close today, you have to mark them down?

Are you talking about cattle?

Cattle?

Yes.

No.

The answer would be no.

In your 90 to $1.20, just to be very clear on this, that's a GAAP number, so it includes plant closing costs and the 61 million?

Yes.

Thank you very much.

(OPERATOR INSTRUCTIONS).

Ken Zazlo, Morgan Stanley.

Can we assume that the chicken operational issues are entirely behind you?

Or are we not going to see anymore issues with fixed-price contracts, as well as the realignment of your facilities?

As I said before, we are still looking at all of our facilities.

So it would be unfair for me to say that that might not affect the chicken segment yet in the balance of this fiscal year.

We always have contracts rolling on and rolling off.

But at this point, I think that where we have renegotiated contracts, we have been able to do that effectively.

And I don't see any ongoing negative effect.

We are pretty much over that era.

Now speaking to plant issues, the plant closings primarily have been over in the other operations, in the first quarter, over in our prepared foods.

But I think you did hear Dick speak to capital spending being concentrated in places where we can make sure we are the best cost producer.

There has been a very aggressive spending in automation and cost reduction.

I would refer you back to the note that excluding grains, we reduced conversion costs on the poultry side $11 million, to let you know how we are focusing our capital spend on some of the opportunities that we have inside the poultry business that are coming to our bottom-line.

I guess what I am just trying to get at is, will you be, will Tyson be experiencing the same margins or at least a margin plus what the industry is, rather than lagging the industry now, because all these fixed contracts?

And it looks like 6.3 percent chicken margins, it seems like you've got really the industry-level margins are even higher than that.

Is that what we can expect now, you are at the industry level again?

I think when you look at the Tyson margins, we typically don't have those high bursts and we don't have the low lows.

So a lot of the industry margin is based on very market-related product mix.

We have a strong fixed-price portfolio in both foodservice and retail, that's one of our core strengths.

So we continue to think that getting the chicken business up in that 5 to 7 to 8 percent range is where we ought to perform.

Six percent is better and we've certainly made a lot of improvement.

But our aspirations are higher than to 6 percent.

You are going to see an industry number, one off in a quarter that we are not going to get to because of the fixed-price portfolio.

But again, we don't see the drastic lows that a lot of those folks see either.

So we are done seeing the 3 to for percent that we saw in 2003, I guess that is the bottom-line?

No, we are not going to see 3 to 4 percent.

That's what I wanted to make sure.

No.

Given your exposure to the international beef exports, how has Tyson been able to keep the employee reductions below the industry level?

You hear a lot of companies out there saying they are laying off 700 people, 100 something people; and you guys seem to be managing well below that.

What is your secret?

I don't really think we have a secret.

We haven't necessarily reduced our chain speeds.

We have just been able to run minimum hours.

And at this point, we have been able to hold on to our work force because it generally is a short-term situation and we haven't had to do any layoffs per se.

We have had a few operations that were for international-type products that we have had to cease doing.

But we have been able to absorb those team members into the normal operating facilities.

But if we were to continue to run extremely low hours for the next six months, which that won't happen, yes then we probably would see our turnover go up.

But we have just done a good job I think of managing the business and managing our own expectations with our team members so that they understand what's going on, as well.

Grade, I think it's great that you guys are also paring (ph) back a put option.

I think it sounds like it's going to help you with your beef packer margins say in six months or six weeks, I guess, for a little bit.

So I think that is a good thing also.

Thanks, that's all I have.

For the operator's purpose and those listening, we are just going to go a few minutes over and take a few more questions.

We ask everybody to be fairly concise, if you could.

We want to get to as many people as we can in the next five or so minutes.

Eric Katzman, Deutsche Bank.

Three quick ones, one, it seems like you're right now contemplating maybe 150 million in charges in total.

How much of that is cash, if any?

Tell me, Eric, how you are arriving at 150?

You have 25 million for the prepared foods and poultry closures, plus you have BSE at 60 and a potential other 30.

So that's 90 and 30, I'm sorry 120, and I figured another maybe 20 or 30 for the rest of the year?

I think in regards to specifics of cash versus noncash, of course, a lot of the charges that we are talking about today are noncash charges.

Certainly, they get realized in operations as we, go, but the specific charge is a noncash charge.

Most of the plant closing charges that we would experience in past, certainly in looking forward to potential rationalizations, I wouldn't expect the profile to be much difference, or primarily noncash charges.

Second, I think, Dick, you mentioned that in prepared foods, there was the cost of the strike plus two plants that started to operate inefficiently as you were preparing to shut them down.

I assume by the fact that you mentioned them that they were material?

How much did that cost you in prepared food margins in the quarter?

I think some of those are really some color comments going on.

We are not really at this point going to get into a specific number around those particular things that Dick mentioned.

Lastly, I think you mentioned CAPEX at 450 to 500 this year.

Is there anything incremental in there from the R&D facility?

Or is that going to be a spike in next year's number because of the cost of that new facility?

That number is included in our CAPEX budget.

It will go over two years, by the way.

Margaret Cannella, J. P. Morgan Fixed Income.

Can you talk to us a little bit about your discussions with the rating agencies and any parameters they may have given you?

Secondly, can you also address the situation with the beef spread and any comparisons you can make to what happened in Canada, after the outbreak of mad cow last spring?

I will take the first and let Dick take the second part.

Of course we are and always have been in ongoing discussions with the rating agencies.

You have seen what their public reaction has been.

We have shared with them our numbers and our outlook.

I don't expect there to be any more activity from them, at this point in time.

And I am optimistic that we will get back on the positive side of the ledger with them, what they've announced.

I think our outlook continues to be good on that front.

We continue to make excellent progress against debt, and we see that continuing out through the year.

I think the first quarter adjusted, and then hanging with the guidance, to let you know that from an earnings standpoint, we certainly continue to have a positive view going through the year.

I will let Dick speak to the latter half of your question.

Really the Canadian versus the U.S. situation, is quite different.

The reason I say that in Canada, they export more than 50 percent of what they produce up there.

In the states, we consume greater than 90 percent of what we do.

So I think the impact is probably going to be somewhat different.

From a processing side, in Canada because of the situation up there, the live cattle in Canada decreased substantially.

We really saw that only for a little bit here in the states.

And the market dropped 14 or $15, a hundredweight live but has literally recovered more than half of that thus far.

So I think the two situations are significantly different.

What will help us get back, as Dave Nelson and someone else said, is we will come into more availability of cattle here after the next three or four weeks.

And that will help us be able to run our facilities more efficiently.

And that's where we will be able to return to a greater level of profitability.

We are going to take three more questions and then we will wrap up our conference call.

Richard Diamond, Enwood (ph) Capital.

Two quick questions.

One, should we expect any additional charges or additional capital expenditures if the FDA imposes a total ruminant feeding ban for meat and bone meal?

And then one quick follow-up.

I don't think we will have any substantial capital expenditures because of that.

If that were to happen, which I don't believe it will, but if it were, we would have to really look for landfill as the potential for that if it can't go into the meat and bonemeal stream.

Secondly, to what extent could new government regulations drive further consolidation in the beef industry, as smaller and smaller packers are unable to meet regulatory requirements?

That would just be pure speculation until we see what the government may do.

I would go back to all the decisions our government needs to make based on science, not on emotion.

There seems to be some pretty good science going on both at the FDA and USDA level.

The industry has made some adjustment related to some of the issues moving forward and only time will tell the answer.

Phillipe Gusson (ph).

I have three quick questions, the first one, accounts payable year-over-year went up about 24 percent.

Is that largely seasonal factors at work here?

That would be seasonal factors, yes.

The second question, if you could help me reconcile one number on the balance sheet.

Your short-term debt shows up as $408 million, yet you have a $500 million piece of paper coming due in October.

Should we assume that you took advantage of some spread widening over the last few weeks to perhaps buyback some of that paper?

I think that is a fair assumption, yes.

Final question, I had some questions from some of my investors trying to better understand the current losses in Alabama.

Can you just help us understand better how people that buy or sell in the spot market could actually claim that they are being disadvantaged versus people that are engaging in forward contracts?

I thought it was just the opposite?

I think that issue is being resolved in the courts and we will let the judge and the jury make the proper answer.

It would be inappropriate for us to comment.

Stuart (ph) Sazanski (ph), Vanguard.

I had a couple of questions for you.

One is, the ban occurred about a month ago.

Presumably, you have recovered some, if not all, of the product that was in transit in the other inventory.

Can you update us or let us know what has happened to that?

And based on your charge of 61 million, is that based on what you have actually realized to date and any losses that you have taken to date?

Stuart, I think, certainly, we have identified the location of all the inventory.

And I mentioned whether in transit or wherever it happens to be, we have identified it and that is in our possession, thus, it is inventory.

And we have looked at what market conditions appear to be and look to be.

We have had to make a judgment, and I think that is clear from the comments.

But yes, we know all the inventory.

And the judgments we have made have been against that inventory balance.

So you are telling us that you have not sold any of the inventory?

No, that is not what he is saying.

There is some inventory that we would have had in our plants -- or (indiscernible) possession that had originally been set up and packed for export that we have in fact, re-sold domestically.

Okay.

And second, can you quantify at all what the impact has been on your operating costs for running the plants at the lower level because of the lower demand?

That is not something, Stuart, that we want to quantify and give out a number.

But other than our general comment that we make that within the beef business, capacity utilization and fixed cost coverage is much less of an issue, certainly, than in the chicken business.

So the differences in the capacity utilization are not the prime income drivers there.

Again, it is the buy and sell and how we manage the spread.

So I wouldn't put a lot of detail from your research standpoint into differences in capacity utilization.

One final if I may -- as we mentioned, you have a 500 million and a 400 million-odd debt coming due in October.

Do you have any current plans to either refinance that or pay that down in full?

I think our plans, certainly, would be to pay on that.

As far as refinancing, we have a lot of short-term capacity in various facilities and what not is totally paid will transfer into short-term facilities.

We want to thank everybody for joining us on our conference call.

And we look forward to seeing you at the end of the second quarter.

Everybody have a good day.

Good bye.