泰森食品 (TSN) 2007 Q2 法說會逐字稿

Good morning and thank you all for holding.

At this time I would like to remind all parties your lines have been placed on a listen-only mode until we open up for questions and answers.

Also today's call is being recorded, if anyone has any objections, please disconnect at this time.

I would now like to turn the call over to Ms.

Ruth Ann Wisener.

Ma'am, you may begin.

Good morning and thank you for joining us today for Tyson Foods second quarter conference call.

With me today are Dick Bond, our President and CEO, Wade Miquelon, our Chief Financial Officer, and Greg Lee, our Chief Administrative Officer and International President.

Before we move on to discuss the operating performance for the quarter, I want to remind everyone that some of the things we talk about today may include forward-looking statements.

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

So I would encourage you to look at today's press release for a discussion of the risks that can effect our business.

Now I'm going to turn things over to Dick Bond.

Good morning and thanks for joining us today.

The progress at Tyson Foods year-over-year is quite remarkable.

We had a $300 million operating income improvement quarter-over-quarter and all segments are profitable.

Obviously, market conditions are somewhat better than a year ago, but I think most of the credit goes to the Tyson team.

They pulled together and produced results, reflecting the strength of their efforts and abilities.

I commend them for everything they have done to manage costs, maximize revenue, and give us the strongest quarter we have had since the fourth quarter of fiscal '05.

Our second quarter 2007 earnings per share were $0.19 versus a loss of $0.37 in the same period last year.

That's a $0.56 swing that makes this call a lot more fun for us today than last year's.

To give you the financial highlights, I'm going to turn the call over to our CFO, Wade Miquelon.

Thank you, Dick.

In Q2 '07 we achieved earnings of $0.19 per share, this compares to a loss of $0.37 per share in Q2 '06.

And as Dick mentioned, this is a $300 million quarterly operating earnings year-on-year improvement.

Also,as a reminder, in Q2 '06 results were negatively impacted by charges of $59 million or $0.11 per share related to plant closings.

Our current quarter reflects our strongest quarter since Q4 '05, and all four segments were profitable.

Non-operating items were effectively a wash with a net gain of $8.6 million on the sale of a Company plane and a charge of $5.9 million for a trademark impairment as a result of our continued efforts on brand portfolio and SKU rationalization.

For the quarter, year-on-year negative net grain impact was minus $42 million, which represents a $90 million corn and soy bean meal increase, net of a $48 million positive commodity risk management impact.

Much like our first quarter, our earnings progress was driven by improved cost efficiencies and increased pricing.

There was also an overall strengthening in our core businesses versus the previous quarter, which Dick will describe in more detail in a couple of minutes.

We finished the second quarter with a net debt level of $2.9 billion, as we move closer to our goal of reducing debt to the $2.1 billion to $2.2 billion range, and our debt to EBITDA ratio continues to improve and is now at about 3.5.

Cash flow progress results from stronger earnings, continued capital spending discipline and improvement of working capital management.

We made good progress on inventory management as we balanced demand and supply, particularly in poultry.

While the dollar value of inventory is actually slightly higher, this is due to the increased value of live and finished goods, driven primarily by higher grain inputs.

Actual inventory pounds were lower as a result of SKU management, planned production cuts, and more targeted sales.

With respect to cost, our team members continue to make progress in identifying and eliminating non-value-added cost.

In this vein our cost-management initiative remains on track to exceed our $200 million goal.

Guidance.

Let's talk about the year moving forward.

We have shown a marked improvement in our segments during Q1 and Q2.

We have revised our full year earnings guidance upward to a range of $0.65 to $0.90 per share.

Our earnings assumptions take into account -- expectations that gain prices will continue to be volatile; improved pricing realization; cost management initiatives on track to exceed $200 million; and, as we said before, we do not anticipate any fiscal year '07 benefit from our renewable energy alliance.

So our specific outlook is as follows.

We continue to project the following specific information for the remainder of fiscal year '07.

Revenues for the fiscal year to be between $26 billion and $27 billion.

Depreciation and amortization is expected to be around $500 million.

We expect capital spending to come in at around $300 million.

Net interest expense is expected to be around $220 million.

Our tax rate for fiscal year 2007 is expected to be approximately 36%.

Weighted average shares will be approximately 354 million.

Our net debt position should continue to decline to around $2.7 billion, which will take us to a debt to EBITDA ratio well below 3.0 by the fiscal year-end.

With that, now I'll turn the call over to Greg.

Good morning.

Our total export sales were $584 million for the second quarter.

This is up 20% versus the second quarter of last year on a approximately the same volume.

We experienced stronger pricing across all three proteins during the quarter.

Our export commodity chicken sales were $121 million for the second quarter.

Market prices for leg orders were significantly higher than during the second quarter of last year.

Our sales volume was lower when compared to last year's.

Our export sales to Africa, the Middle East, and the Far East continue to grow and to provide market diversity.

Our ongoing sales to Russia fully support the volume we continue to target for that market.

Let's talk about beef and pork.

Our export sales of beef and pork products were $435 million for the second quarter.

This represents both a 24% sales increase and a 10% volume increase over the same period of the prior year.

Our second quarter volumes were bolstered by the stronger beef exports with boxed beef sales up 55% and volumes up 57% from the same period a year ago.

Mexico, Taiwan, and Hong Kong continue to be the key markets for Tyson's beef exports.

Although we continue to see good buying interest from our Japanese customers, sales continue to be severely limited by the 20-month and underage requirement.

We remain encouraged by the prospects for U.S.

beef sales internationally.

We believe that sound science will eventually lead to a significant increase in international beef sales and particularly in key Asian markets.

We currently anticipate beginning to ship product to South Korea in the very next few weeks.

Box pork export sales were 11% higher than the same period last year, while volumes continue to track at historical levels.

In Mexico, our sales for the quarter were up 8% compared to the same period last year.

The increase in sales was largely offset by higher grain cost.

While operating conditions were difficult in Mexico, we have seen escalating market prices, particularly during the month of April.

In visiting about China, our sales continue to grow with increases in volume versus the same quarter a year ago.

These sales are driven in large part by growth in our food service business and the organic growth of our fast food customers.

We continue to make progress toward establishing a joint venture with a leading local poultry company and anticipate finalizing the negotiations and beginning the government approval process during our fiscal 2007.

Additionally, we are exploring other JV and/or acquisition opportunities in China.

Early on during the quarter, we completed our beef joint venture with Cresud and Cactus Feeders in Argentina.

And we have started the integration of the [Carnese Pompadais] plant and the organization.

As a result of this joint venture, Tyson is now servicing export customers primarily in the European Union, in Russia and in Chile, as well as growing the domestic sales base.

We continue to evaluate several opportunities in South America, in both poultry and beef.

Now a few closing comments.

As many of you know after 27 years, I am retiring from full-time service as a Tyson team member, but I leave knowing that the Company is in good hands.

I would like to take a minute to tell you how my responsibilities are being divided.

Rick Greubel has assumed the role of Group Vice President and international President.

Donnie Smith, Group Vice President of Logistics and Operational Services, is also now responsible for environmental health and safety, manufacturing services, and corporate quality assurance.

Jeff Webster, Senior Vice President of Corporate Strategic Development and Renewable Energy, will report to Wade Miquelon on strategy matters and to Dick Bond on Tyson Renewal Energy division matters.

Howell Carper, Tyson's Senior Vice President of Corporate Research and Development, will also report to Dick.

If I may add a personal note, my career at Tyson Foods has been enormously rewarding both personally and professionally.

Thanks to each and everyone of you who have supported both me and the Tyson team throughout the years.

While I will miss everyone, I do look forward to spending more time with my wife, Hanna, with our family and our friends.

Our Company is on a very good trajectory.

We have a very capable management team in place and I am looking forward to working with them in my new role as a consultant.

The future for Tyson is very bright and I will take a great deal of pride in the Company's success in the years to come.

It has surely been fun.

Now I'll turn the call back over to Dick Bond.

Thanks, Greg, you have been an integral part of making Tyson Foods what it is today.

And we just can't thank you enough for that.

We're going to miss you, seeing you here every day at the office, but we wish you and Hanna and your family all the best.

Now I would like to move on to our segment performance.

Chicken sales increased $23 million and operating income increased $52 million for the quarter.

Through pricing improvements and risk management activities, we were able to partially offset higher grain costs in our chicken segment.

As we indicated in our first quarter call, we should begin seeing the full effects of higher grain move through during our third quarter.

We believe that production cuts that we made in 2006 contributed to the success in the chicken segment in the second quarter.

While we won't comment on a specific production number, we plan to keep our supply in balance to meet our customer's needs.

We don't intend to create a oversupply situation, but we are not going to give up market share, either.

With the recent price increases, chicken is still a tremendous value for consumers.

Therefore, we anticipate good demand into the fall, which should limit seasonal price declines after Labor Day.

We have reorganized demand planning and production operations for the Chicken and Prepared Foods segments by putting it under one person's direction.

This will optimize our enterprise supply chain, create better efficiencies and balance supply and demand.

Our beef segment is the real turn-around story for the quarter.

Sales increased $152 million and operating income increased $212 million.

Margins improved quarter-over-quarter from a negative 6.6 to just short of 1%.

Although external factors accounted for some of the progress, the majority was due to internal operating improvements.

Capacity utilization averaged 77% versus 71% in Q2 of '06 and we expect capacity utilization to be over 80% in Q3.

Adverse winter conditions caused a number of cattle not to be processed in second quarter.

Therefore, we believe cattle supplies should be adequate moving into the grilling season.

Pork segment sales increased $76 million and operating income increased $26 million.

Margins improved from 1.2% to 4.3%, due in large part to operating efficiencies.

Capacity utilization averaged 83% versus 82% in '06.

Demand for pork, both domestically and internationally, continues to be very good.

However, seasonal hog supplies will tighten, putting pressure on the spread and lowering capacity utilization, but it's unlikely that it will drop below 80% for the third quarter.

I would like to take a second to recognize the people in our beef and pork fresh meats group for a fantastic job on improving yields, SKU reductions, and overall price and cost management.

They have done a great job of running their business.

I know our folks aren't satisfied, but they are well on their way to getting their segments back to where they need to be.

Prepared Foods sales increased $5 million and operating income was up $11 million.

Operating results in the Prepared Foods segment were improved by higher average sales prices, lower raw material cost, and product mix improvement.

The segment improved over -- of Q2 of '06, however, a trademark impairment affected this quarter's results.

Excluding this impact, we would have been at the low-end of our normalized margin range.

Moving to the topic of grain prices.

We're encouraged to see that USDA is reporting farmer intentions to increase corn plantings by 15% to 90.5 million acres.

However, we will need that size crop to satisfy what appears to be a strong demand for feed, exports and ethanol.

Our position on the food versus fuel issue hasn't changed.

Corn being diverted to ethanol production is still a long-term concern, because it could seriously affect the quantity of food and the price.

According to a recent news article, if all of the 70 million acres of corn grown in 2006 were used for ethanol, the amount produced would displace only 12% of gasoline in the U.S.

Taking into account the energy used to make the ethanol, the net energy gained would just be 2.4% of the market.

The fact is ethanol from corn is not a panacea.

There are viable alternative raw materials for fuel and as a nation we should be exploring all of these alternatives.

This quarter we announced a renewable energy strategic alliance.

We're excited about this because we believe it's a win for animal agriculture.

It's a win for the environment, because it's a cleaner-burning fuel.

And it's a win for national security because it lessens dependency on foreign oil.

While there have been -- there have been some opponents to the tax credit for renewable diesel, we believe it's a positive step for U.S.

energy policy.

We think all technologies and all processes should be given equal footing.

After all, the purpose of this tax credit is to encourage development of alternative fuels.

We are proud of the innovative leadership Tyson has demonstrated in the area of alternative fuels.

It aligns with our push for innovation in all areas of the Company.

I know many of you were here in March for our analyst's day and saw our new Discovery Center.

I want to share with you one of the several success stories we have had since then.

Recently we had a meeting with the management team of a major QSR chain.

They indicated they needed help with menu development and a summer sandwich promotion.

Their team came to the Discovery Center.

And we worked with them on more than 50 sandwiches and in less than two days they left with approved concepts going into test.

They told us we would be their supplier for all of their meat and non-meat prepared food products we can supply.

They said we could now by their R&D and innovation resource, which is something that they had been outsourcing.

They see the discovery center as a resource and they are willing to pay for it in both price and in share.

This is just one example of joint value creation, but there are many stories like this one demonstrating how the Discovery Center is helping us grow through innovation.

And there will be more examples in the future, as we leverage our R&D resources.

The Discovery Center is one of many reasons and it's an exciting time at Tyson Foods, but it's our people who are making it happen.

Our increased guidance shows our confidence in our team's ability to execute our business plans.

Although we still have a lot of work to do to get back to where we should be, there is a tremendous amount of enthusiasm throughout our Company.

As we experience small successes and share them with each other, we're creating an environment of progress, which will lead to bigger successes in the future.

I thank you all for your attention and now I'll turn the call back over to Leslie for questions.

(OPERATOR INSTRUCTIONS) Tim Ramey, you may ask your question and please state your company name.

Good morning.

DA Davidson.

Congratulations on a great quarter.

On, whatever it was March 8th, Dick, I asked you if Lochner was earning his bonus.

And I'm wondering if some of his risk management alternatives played a big role here.

You sort of mentioned that obliquely.

How might that play out in the 3Q?

How should we think about how you are positioned?

And I know you don't want to give up too much information there, but that would be helpful if you could share some.

Tim, I would say that we are -- we will continue to be prudent and utilize the risk management resources that we have.

Again, like you said, we really aren't going to comment on the specific side of that but as we have said before, we will and will continue to use all of those things available to us, again, to make sure that our fixed-price sales basis that we cover those input costs.

And then on any other types of activities, we really work as a senior management team to make sure that we are, in fact, staying abreast of what is going on on these volatile corn and soy markets.

So just to clarify a comment you made in your prepared remarks, you talked about the 3Q, the impact of corn being fully felt there or was that the price increases or how should we think about the two of those things moving hand in hand into the Q3.

Tim, I would say it's a combination of both.

The price increases that we have been able to pass along to our customers because of higher inputs will be fully realized in Q3 as well as the higher grain costs.

And really, that is because of the amount of time that it takes for the increased corn prices to flow through physical inventories of corn, to flow through the growing process of the chicken, and then also through the finished product inventory.

Just a question on the 2.1 - 2.2 debt goal, do you have a timeframe on that?

Or is that just sort of a long-term outlook.

I wouldn't say it is long-term, but we had said in the next two to three years that was a target range we wanted to be at, which puts us very comfortably at the ratio we want to be.

And also ensures we have plenty of flexibility moving forward.

Thanks, Wade.

Thank you.

Kenneth Zaslow you may ask your question.

Good morning, everyone.

Good morning, Ken.

Good morning, Ken.

Dick, maybe it's kind of continuing on this line of questioning, but your first comments were market conditions are improving slightly but you seemed to be tempering that, and it was really more the cost efficiencies, the hedging, and the team at Tyson doing more to perform -- to generate these results.

Can you give us a little bit more color, by division, where you thought that the industry improved relative to Tyson outperforming the industry?

I'll start with that and then if anyone else has anymore comments to add.

If you think about the Company, first of all, I think one of the key things is our cost management initiative.

I mean, that -- that has added to each and every quarter and will add to each and every quarter this year.

And that's significant.

We have said that we are going to exceed that $200 million, so that's an internal factor.

I also talked about beef and pork and some of the things that we have been doing there.

And really, quite frankly, I do believe that a significant portion of the improvement has been in us as a group managing our business more effectively and more efficiently.

On the poultry side you have seen prices rise.

If you go back to late December and go to current, breast meat prices are up $0.60 to $0.70.

Leg quarters are up significantly as well.

So we have seen market conditions improve, mostly, I would say in the poultry segment, but we also have had a lot higher grain prices to deal with.

The production cuts, I think, have helped us to make sure and to ensure we have got a good balance between supply and demand.

So if you put all those factors together, I believe that it is mostly our driving our business, innovating, maximizing revenue, managing cost, that has helped our results to this degree.

Which segments do you think that you outperformed the industry relative -- given that what you as a Company is doing?

I mean, I -- Tim, it's hard for me to answer that, because I don't know what the industry results are.

I just know that we're running and managing a much better business.

And then, kind of laying into that a little bit more, if in these conditions, which are not particularly great, and you go into these normalized earnings and these ranges, is it fair to say that call it two, three years out, there will be no such thing as normalized earnings for you guys and you will just have a business model?

I guess what I would say -- I think conceptionally, yes.

What we would say is we evolve our business more towards value-added product, driving more innovation, creating new segments, things like renewal energy, that we've talked before.

Our profile will continue to change and that will change, I think, how we think about what's normalized versus how we keep building value progressively year-on-year.

And my last question, the guidance increase has nothing to do with the South Korea, I'm assuming that's not going to be material to your earns.

That's not factored in in any way.

That's correct.

It won't be material to this fiscal year.

So it is really just improvement in the industry as well as Tyson-specific initiatives?

Correct.

Great.

Thank you very much.

Thank you.

Diane Geissler, you may ask your question.

Good morning.

Good morning, Diane.

Congratulations on your quarter.

Thank you.

And congratulations, also, to you, Greg, we're going to miss you.

Thank you.

I'm glad you were here today though.

Thank you.

Just a question on the grain.

Given some details here on sort of some of your hedging, et cetera, could you just -- looking forward into the third and fourth quarter, maybe some commentary on the magnitude of what we can expect on the grain side?

Well, I would tell you that kind of for a fiscal year, I mean, as you know grain is very volatile, so it is very difficult to predict the full impact, but the rough estimate is year-on-year, we'll see grain increase about $300 million for Tyson Foods.

So again, it's very difficult to predict exactly the third and fourth quarter, because as you know, gain is volatile.

But as Dick has mentioned earlier, we do have fixed-price contracts, other forward agreements, where we need to employ some smart hedging strategies to manage that.

So we will have those in place throughout the balance of the fiscal.

But in terms of any specific impact, it's really impossible at this point in time to speculate.

Do you think the pricing actions that you have taken, sort of year-to-date, have covered you on the grain side?

No, not-- not yet.

We've actually -- if you look at our year-to-date, we have had a greater impact, negative impact on higher grain than we have on a year-to-date basis from price increases.

Okay.

And what is the competitive set out there, particularly in the food service arena in terms of -- I think you were early, you were sort of out there last fall with some price increases.

Have you noticed -- what is the landscape like right now?

Everybody's followed you?

Or -- ?

The most that I can tell you, Diane, is what we read publicly and that would indicate that -- I mean, it's logical that most people couldn't stand this type of grain increase without some form of price increase.

All right.

Okay.

And then I guess on the -- on the beef side, things seemed to have improved there more rapidly than I had been looking for, and particularly some of your commentary when we were down at your headquarters at the beginning of March.

How do you -- I realize the cattle markets are notoriously difficult to predict, but what is your vision of what will happen over the summer in terms of cattle availability and what that will do to the input cost and then I guess the demand side seems to be taking care of itself, so can you give us some commentary there?

Like I said, I think that we will see reasonably good availability of cattle through the summer and into the fall.

We did have a couple of down months on placements, which is not unusual seasonally, especially with the weather back in January and February, but we did have higher placements in March.

The weights of cattle have kind of come back up after they were hurt a little bit again during the wintertime.

So from the standpoint of available supply, I believe that we will have reasonable supply to run in excess of 80% capacity utilization, for sure during the third quarter and I wouldn't be surprised to see us stay above 80 in Q4 as well.

As far as the price of cattle, it is somewhat volatile, but I think over all we might see prices decline slightly over the summer, which would be seasonally the way that would normally would go anyway.

So I view, again, reasonable supply, us continuing to do a better job on the internal metrics that we believe are so important to, again, maximizing revenue and minimizing cost.

Okay.

Well I appreciate your comments and congratulations again.

Thanks, Diane.

Thank you.

Pablo Zuanic, you may ask your question.

Good morning, everyone.

Good morning.

I'm just trying to get a better sense of the shape of your contracts on the chicken side and I guess there's two questions there.

One, on the hedging side on grains, did you do anything out of the ordinary this first half of '07 or was it just your natural hedging on all of those fixed-price contracts that you have.

And the second question, which is related to this, in the past you have disclosed that your cost plus contracts are 10% to 15% of sales, if I'm not wrong, on the chicken side and that you have the practice of hedging grains on most of your fixed-price contracts, and the fixed-price contracts are 50%, 60% of your sales, that would mean that if I take that plus your cost plus grain should not be an issue for you like in 70% of your business.

How should I think about that Dick?

Pablo, this is Wade, I would say first and foremost is we are, if not the largest, tied to the largest grain buyer in the U.S.

And so yes, we have some fixed contracts but we also have lots of variable exposure and we have to understand what kind of runway we need to manage our input.

So while we don't talk specifically about our strategies, our strategies are a little more complex than just simply looking at our fixed exposure but also looking at the total amount of underlying exposure we have.

Secondly, we have never said our cost plus contracts are 10% or 15% or anything else.

We have talked about the number of facilities we have which are dedicated, but that doesn't de facto mean that's the way in which we operate there.

Okay.

But just understand on the grain side, these first couple were seven.

Did you do anything out of the ordinary in terms of hedging grains?

Pablo, I would answer that by saying we did what we normally do, which is, again, make sure we protected all of our fixed-price contracts and our fixed-price contracts are probably not as -- anywhere near as high as what you have kind of envisioned them to be.

Uh-huh.

But also, again, we meet as a senior management team very, very frequently to manage this risk.

Did we do anything different than we did in '06?

No.

But do we continually evaluate what we are doing and recognize that risk and try to make sure that we have optimized our -- the effects of our exposure, yes, we have.

We didn't do anything any different.

Okay and one more.

On the chicken side, when you look at the production outlook for the industry, how would you judge the industry structure and discipline compared to two years ago?

Is there any reason to think that the industry is more disciplined, that we shouldn't see a rump-up in production later in the year?

Based on my math, the industry is making on the spot market economics, profit margins are above normalized levels.

An economically rational industry, we imply that we would start ramping up with action, but how should I think about that as we look forward over the next 12 months?

We aren't the ones -- we can't control that.

All we can do is manage our business.

We are more in the value-added stream, so that the commodity player could possibly add a few more chickens.

I believe that we will do whatever we can to make sure that we balance supply and demand for our customer's needs and for our innovation and for our growth strategies.

One last one on beef.

When I look at beef in the case of Korea and Japan, those markets as they open and lift most of their restrictions, with supplies of cattle still tied, the one that benefit is more the feedlot operator and the rancher, I'd say, than the packer.

How should I think about that?

Well, I wouldn't -- I'm not going to disagree with you, but I think the processor like Tyson also benefits.

Again, because often times some of the products that we are able to market overseas, are -- do not have some of the same markets domestically.

So while, yes, we will have to potentially pay more for cattle at times, but because of the revenue stream and the additional revenue stream, again, if I go back to 2003 levels, there was significant revenue expansion when we had those markets in full available, availability for us.

So I think it's an advantage for both.

I think it is an advantage for the producer.

If our revenue streams go up, certainly the cattle producer might and will feel some of the benefits from that, but we'll also feel some benefits from that as well.

Again there are no age restrictions on the Korean agreement, right?

So far?

It's 30 month and down is the way that that is being thought of at this point in time, yes.

30 month and down, not the Japanese 21 month and down process.

Okay.

Thank you.

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

Prudential Equity Group.

Good morning, everybody.

Good morning, John.

Greg, good luck on the senior tour.

Thank you.

Amateur tour.

Just -- I guess I'm looking at the year-to-year change in the consumer area in chicken and there was some decline there.

Now I don't think Cisco and I mean there's been some talk about loss of accounts.

Can you just kind of explain, because I guess that Cisco would be in food service, correct?

Correct.

What is behind that 4% decline in consumer products chicken?

Is there any loss of accounts, because their -- and what about that risk to the Tyson going forward?

John, first of all that-- it's not in consumer products.

Yes.

Chicken.

It's in the chicken segment and it is based on the sales pounds sold.

So, I mean, there is a variation year-to-year in terms of inventory here.

And inventory and mix of inventory is the first factor.

Secondly, if you do recall -- I mean, we are down year-over-year on our production cuts of a little bit less than 5%, so logically, we are going to be down a little bit just due to that factor.

So it's really a combination of 4.6, 4.7 less volume, plus a mix of inventory shift, which accounts for that.

Okay.

I think I got a handle--

Let me go on to say, I will tell you, matter-of-factly, we have not lost any significant business with any account, whether that be on the consumer products side or on the food service side.

That certainly answers the question.

Can you just give me the leg quarter price in the quarter?

The price realization in this quarter versus a year ago?

I don't know if I can give you the exact price, but it probably moved -- let's see, it -- I'm going to -- this might not be exactly right, John, but I'm going to think we averaged a year ago in the low 20s and this year in the low 30s.

So you are probably talking $0.10 to $0.13 increase on a quarter over quarter basis.

Okay.

And you have grown that case-ready beef business a lot.

I guess it's now kind of reaching some kind of -- what is behind that modest drop in that quarter in that -- hard to find negatives in this quarter, so I'm just doing my best.

Why are you doing that?

My wife would tell you it's my nature, but I'm just trying to understand, because I think case-ready beef was kind of a big part of the growth strategy a few years ago.

It is just kind of unusual to see it decline.

I'm not sure what you are referring to.

I don't think we have any case-ready specific breakout, John.

I think if you go on your website -- Ruth Ann are you there?

I am.

It's in the supplemental information, is that right, John.

Yes.

Can't I read supplemental information.

You may.

The only thing I would tell you there is, again, we had some shifts in business with one of our major case-ready customers.

And sometimes you get a shift from beef to pork or beef to ground beef, so I do believe that that's probably what impacted that.

Okay.

Again, we-- I can't answer that off, right off the top of my head, but we will get you some more information around that.

But again, we -- I think it's more of a shift.

Sometimes we pickup DCs, we pickup -- lose DCs, so there is some mix of activity there that sometimes will affect that.

Now just in terms of kind of the next year, year and a half, it seems to me this crop is -- every crop is important, but this one is kind of bigger than most in terms of Tyson and kind of keeping the U.S.

as a reasonable cost producer of livestock.

First of all, when you talked about the Chinese joint venture, can you go into more details?

And second of all, is that your major, even though there's nothing you can do about it other than hedges, is that your major fear, Dick, kind of looking out the next six, 12 months, that we have some kind of crop problem?

I don't know if it's a major fear, John.

With the 90.5 intentions on the corn crop, that's a positive.

But like I said, I think demand is going to be good.

All I would tell you is I think that corn prices, in my opinion, aren't going to retreat to 2006 kind of levels.

I think what is happening here is we have a new plateau or a new lower level on corn for a period of time, and I think that's going to last for more than a year or even two years.

So I don't -- I don't get too concerned about that.

And it -- and I think that we have to deal with that new level on corn, but, no, I'm not concerned that we'll have enough corn to support our poultry operations.

Well tell Hilary what you want, it seems to me like you're certainly making your point across in terms of your political desires to have corn used for feeding animals, not for making fuel, so it's -- hopefully it will play out.

I guess, is there any issues on Russia?

I think there has been some talks -- Greg, is there anything kind of new in terms of Russia in terms of fears of them changing any desires for chicken?

Well, I think, John, no.

Over the years that we have been exporting to Russia, it seems like there's always a certain amount of political commentary going on in Russia with regard to the import of meats either from the United States or other countries.

That dialog continues.

There has been a bit of a pattern of some salmonella testing here over the last number of months and a few plants have been delisted as a part of that, but I would not look for that to be any kind of a significant issue or an impediment to our ability to continue to ship volumes of chicken to Russia, not only near-term but longer term.

Finally, there was obviously a lot of controversy last week about what is fed to hogs and whether or not that might impact export markets for pork.

Do you have any kind of fears in that regard?

I'll let Dick comment on that.

No, we really don't.

We're aware of the matter and we're working closely with USDA and FDA, and a few of those hogs, I think it's 195 of those hogs, did go to our pork plant in Nebraska.

But if you have seen the -- the reports and the press releases from FDA and USDA over the weekend, they said in that release there's no evidence of any harm to humans and therefore, no recall is being issued.

Great.

Thanks for doing all that.

Congratulations on the turn around.

Thanks, John.

Thank you, Farha Aslam, you may ask your question and please state your company name.

Good morning, Stephens, Inc.

Good morning, Farha.

Good morning, congratulations on the quarter.

Thank you.

And Greg, enjoy the time.

Thank you.

Question I have got regarding protein prices.

We have seen a tightness in chicken, do you believe that's supporting cattle and kind of beef pricing and pork pricing overall right now?

Well, I would tell you that on a relative-value basis, beef prices are probably still the highest.

And even with chicken breasts moving up into the $1.70s kind of range, I think from a value standpoint from the consumer, chicken is still a tremendous value.

I think on the -- on the pork side, you're pork products are kind of relatively priced, again, more to what I would say the chicken prices are.

I think beef still leads the way in terms of highest prices relative to the three.

Are you concerned with the increase in pricing that we might see consumers consume less proteins?

All of the protein that is produced will be consumed.

We or no one else is going to throw any away.

It will be consumed.

It's a question of whether it gets consumed domestically or internationally and whatever that price disappearance is.

I think fundamentally the economy in general is still fairly strong.

We haven't really cut back on our gasoline usage as we've got to $3 a gallon, so I think people will still eat protein.

I think it still is a value, a tremendous value at these kinds of levels.

Great.

My final question is a while ago Tyson put out a normalized mid-cycle EPS estimate of $1.50.

Given all of the changes that you have made internally, do you think that's still a good number or do you think that may prove conservative going forward?

$1.50, I don't know if we actually put it out, but what we did say is we said if you look at our normalized ranges and then you weight average those and you look at where our debt level that we're anticipating it to be, where I talked previously, that gets you to $1.50.

But at this point in time, I think we're not going to revise anything.

We're going to stay on our trajectory just to get back to where we need to be as a first step.

Great, thank you very much.

Thank you.

Eric Katzman, you may ask your question and please state your company name.

Hi, it's Deutsche Bank.

Good morning, everyone.

Good morning, Eric.

Greg, I think you named like four or five people that are placing you.

Scary.

But congratulations.

Thanks, Eric.

I guess one question, is kind of follow-up to Farha's.

Dick, I think you mentioned that capacity utilization was up 6 percentage points in beef?

Correct.

And that business swung year-over-year from roughly negative 5% margin to 1%.

Correct.

So if you can get back to -- if beef -- if the recovery actually occurs the way you hope it will, and we get to, let's say, a mid-80s type of utilization, would that mean that margins within beef would be kind of north of, I guess, what you assumed in that $1.50 earnings number or a normalized margin of 2%?

Eric, I would answer that by saying probably not until we can fully get the effects of exports reestablished.

I mean, I think that's going to be the key, if you will, to get us north of the weighted average.

I see.

I see.

And in your kind of normalized assumption of earnings, did you assume that exports kind of come back, or is -- did you kind of assume the status quo?

If you are talking about--

In beef.

In beef.

If you talking about Wade's reflection on the $1.50 a share.

Exactly.

That is -- that is utilizing the 2.25% on beef, which is, if you will, the midpoint on beef.

And I believe to exceed that, like I said, I think we are going to need to have a more robust export market and I think we'll get there in time.

I think Korea is very -- looks very promising.

Here lately, there have been some published releases between Japan and the U.S.

at the Secretary level and at the Minister level in Japan, about re-establishing some audits of plants here in the U.S.

So I think there's some progress being made on expanding Japan back to the 30-month and down levels.

Only time will tell and that will be not something that's going to happen in the next few months, however.

Okay.

And then did -- last fall, did the roughly $1.50 normalized level, that did not assume any contribution, if I remember, from the biodiesel or diesel business, right?

That's correct.

That was not part of those historic segment normalized, weighted-average earnings projections.

Okay, perfect.

Thank you.

Thank you, Jonathan Feeney, you may ask your question and please state your company name.

Good morning, Wachovia.

Congratulations guys.

Thanks, Jonathan.

I wanted to dig in a little bit on beef to follow-up on John's line of questioning, maybe.

Can you give us an update, and I know you don't usually do this until the K, on what your slaughter capacity is right now?

And what total head slaughter looks like roughly in percentage terms year-over-year in beef?

Jonathan, I don't have that on the top of my head.

If you think about slaughter capacity and in terms of what plant rationalization we did last year --

Uh-huh.

-- we took out about 3700 head a day from our own internal capacity.

So, if that helps you--

Sure, yes.

-- with that that's what we took out in terms of quote, slaughter capacity.

And I don't think, at least thus far, the industry has added a whole lot of capacity back.

So I -- if that helps you.

If not, I think Ruth Ann can maybe try to give you some more information offline if you wanted that and then we can share it.

That would be great.

I'll follow-up with that.

What actually I'm really trying to get at is on a apples-to-apples basis, if you held head slaughter the same, and intrinsic margins, just that spread between weighted beef sales and cattle the same, how much cost have you taken out, conversion cost improvement in that beef business right now?

We haven't -- we haven't given that number, but it is significant.

And it's significant in a lot of areas.

It's significant in a better job, as I've said, on yields in the plants, attention to detail on yields.

It's been on, again, making the life of those plants a little bit more simplified in terms of SKU reduction.

We've reduced SG&A both at the division level and then, of course, what we have done at a corporate level, which would get less allocation to beef or beef and pork.

We have concentrated hard on our sales realization and making sure that we're maximizing revenue in terms of what we're doing there.

Some of our other programs are natural programs.

All of these things are contributors to just an outstanding improvement on a year-over-year basis.

Okay.

Thanks.

Just one other question.

When I look at the supplemental information, I see some of the looks like the consumer product side of Prepared Foods was down a little bit.

And just in general in the regular release, you gave us 3.5% price mix factor in that Prepared Foods division.

And given everything that is going on in raw materials, it seems to me like that number should have been higher.

Is that evidence that maybe the consumer is pushing back a little bit, at least on the high-end prepared foods, that pricing power is limited?

No.

I would say that it's more, again, an internal view of our different Prepared Foods businesses.

We have been in the process over this last six to nine months of rationalizing and making sure that all of the segments that we are playing in, one, we have a right to win, and two, that we have the capacity to win.

And I don't mean production capacity--

Yes.

-- I just mean the capacity of running that business.

So I think what you have seen there is a -- the effects of those types of activities to, if you will, lose the losers and concentrate on the areas where we can succeed and where we will succeed.

So it really is examining the business in a much greater level of detail and determining what we want to do.

So I will tell you that's where that decline has come from, not necessarily from a push-back from the consumer's side on prices for various Prepared Food products.

Okay.

Thanks so much.

Thank you.

Oliver Wood, you may ask your question and please state your company name.

Great.

Thanks.

It's Stifel Nicolaus.

Just looking for a bit more detail on pork exports in the quarter, if you could just kind of breakout pricing and volume mix.

I think there was a comment in the prepared remarks that volume was kind of at historical levels, which sort of implies a decline, just based on the ramp and what historical levels looked like..

So if you could provide some color on that.

Well, our volumes, on an absolute basis, were flat.

But remember, our volumes have increased very significantly in pork exports over the last couple of years, sequentially built to a much higher base.

And this particular quarter, as Dick has alluded to a number of times, we have a certain amount of vagary that kind of moves product around in a short time cycle.

But we had improved pricing and we had relatively, as I say, flat volumes.

We're still healthy in our major markets.

And we feel very good about our pork export sales.

So kind of looking forward to the balance of fiscal '07, is there an opportunity for volume growth, or is the expectation for kind of flat volume and up pricing?

No, modest growth.

Okay.

And my other question is on chicken.

I think it was about 8:30 the poultry slaughter report came out and it should a RTC production down, I think it was just about 8% in March.

And just wondering, with cold storage down below 600 million pounds and I guess kind of as this relates to the one chicken-short strategy, is there any risk given these cut backs that at some point as seasonal demand picks up that supply fails to meet demand?

Well, I -- usually, prices continue to increase if demand exceeds -- if demand exceeds supply.

Uh-huh.

I think that there will be a good balance between supply and demand.

I think demand will be very good throughout the summer and throughout the fall, so I don't know as we're going to end up saying that prices are going to double from where they are now or something like that.

But I do believe that supply and demand is going to be in pretty good balance, because you really can't affect the supply for at least the early part of this grilling season at this point.

You can't bring that many more chickens to market.

So I think we're going to be in pretty good balance there.

Right.

Great.

Thanks.

And nice quarter.

Thank you.

Thank you, Ann Gurkin, you may ask your question and please state your company name.

Good morning.

Good morning, Ann.

Good morning.

I wanted to start with the pork business and pork exports.

The USDA had issued data that pork exports, overall pork exports were down 30% plus in February, which was a decline from January.

Can you kind of tell me what drove that decline?

What are you seeing now, March, and April, in terms of exports to Mexico for pork?

Ann, this is Greg.

We have not seen those types of declines in our business and really don't anticipate that being the case.

Mexican -- Mexico has been a significant destination market for pork and we don't see any major change there.

I really can't speak to -- again, I think you see very short time windows.

You can see some numbers move around, but on balance pork exports have continued to be pretty darn good.

So March and April they rebounded there?

Maybe up or not down as much?

Ours are tracking along, okay.

And then switching to chicken production.

Can you tell me what you are doing with eggs?

Are you breaking them, selling them?

And then are you bringing breeders back online to go after market share?

It sounds like maybe you are going to ramp up production a little bit.

Is that the correct interpretation?

Now, Ann, I didn't say that.

I did say that we were going -- we were going to make sure, or we believe we are going to make sure that we have enough chicken to supply our customer's needs and do believe that chicken is going to be in pretty good balance.

I think what I was really trying to indicate is that we kind of are where we are and believe that's a good place for us to be at this point in time.

Okay.

Tell me what you are doing with breeders?

I'm not sure -- what is the specific question?

Are you bringing production -- are you increasing your production is the real question.

No, I just said that we're trying to keep that in balance and at this point in time, we do not anticipate dramatically increasing our production.

Right.

Great.

That's great.

Thank you very much.

Thank you.

Our last question comes from Christine McCracken.

Ma'am, you may ask your question and please state your company name.

Yes, Cleveland Research.

Just on these costs setting programs, I'm wondering how much of your programs are getting you back to maybe where you were a few years ago?

I think in your earlier release you talked about some costs that have kind of gotten out of hand and maybe we're kind of cleaning things up.

And then how much of that is like going forward incremental, I guess, over and above getting back to where you were before.

Christine, I don't know if we have actually broken that out that way and I'm not sure that I could break it out that way, but I will tell you some of it was trying to make sure that on the commodity side of the business, we operated with a commodity mind set, as I have said a number of times.

There's no doubt that some of it was paring back some of those expenses.

I would say that the other major contributor is making sure that we, from a process standpoint, are getting rid of non-value-added activities.

And I think those are the -- those are the two things that I would say about that.

And going forward, I would say that we do intend to make sure that we do everything we can to be the lowest-cost provider, whether that be on the commodity side or on the value-added side, for what we're attempting to do.

So on the commodity side, you do want to be able to maximize revenue, minimize cost.

On the value-added side, you do have to spend money to generate innovation, to generate growth, and we will spend those dollars there to ensure that, but we want to make sure that we're doing it, again, in the most efficient and effective way.

Can you give us some idea of what segments might be seeing more opportunities for cost saves as well as touch your earlier expectations?

Well, actually the way we broke that down initially, seems it's pretty close to the way these savings are coming in.

Great.

I can probably go over that.

I don't know that I have it right here.

I know that chicken was about half of it.

And between beef and pork, that covered, I believe, about 35% of it.

And then Prepared Foods was the other roughly 15%.

And then just on the sale of those chicken assets in the quarter, you have done a little bit of plant rationalization over the last few years, do you anticipate doing anymore and, again, maybe not by segment, but are there opportunities to maybe trim back some of your plant capacity going forward?

Well, I think we have done a good job of looking at that in all of our segments, and specifically, as far as chicken is concerned.

I think we're in pretty good shape now and I would not expect us to do anymore anytime soon.

And then just finally on Canada.

That had been a problem for you over the last year or so, couple of years.

Can you give us an update of where you are now and if things are getting at all better?

Things are getting better.

We really had a couple of issues.

One, was a shortage of labor.

With all of the oil and oil shale and oil field activity in Alberta, we ended up being short.

We had the short strike in the fall of 2005 and those things are really difficult to overcome.

But through a guestworker program that the Alberta government has helped us with, we are getting our team member strength back up to anywhere close to full strength, so some of those same operating efficiencies that we have achieved in our domestic plants, certainly are going on in Canada as well.

(Multiple speakers) management team up there in terms of some new team members in our management team in Canada.

We're continuing to try to make sure that we can keep as much of the product that we're producing in Canada.

So all of those things have definitely helped the performance.

It is still not back, again, from an operating efficiency standpoint, to where we want to be.

The exchange rate is another factor there that is a lot different from what it was three or four or five years ago.

So we have to continue to deal with the strength in the Canadian dollar.

But other than that, we are making substantial improvements (Multiple Speakers) but we're definitely making some good headway.

You remain committed to that business, correct?

Absolutely.

Okay.

Good luck, guys.

Thank you.

Thank you.

Thanks, Christine.

Thank you.

At this time I would like to turn the call back to your speakers for any closing remarks.

Thanks, Leslie.

Again, thank you all for being with us today.

It was a lot more fun doing this call today.

We are very thankful to our team members for all they have been doing for us and we appreciate your interest in our Company and have a great day.

Thank you.

That concludes today's conference.

You may disconnect at this time.