smithfield food   	Fourth Quarter Earnings Transcript 2008
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smithfield food   	Fourth Quarter Earnings Transcript 2008 smithfield food Fourth Quarter Earnings Transcript 2008 Document Transcript

  • FINAL TRANSCRIPT SFD - Q4 2008 Smithfield Foods Earnings Conference Call Event Date/Time: Jun. 05. 2008 / 9:00AM ET www.streetevents.com Contact Us © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call CORPORATE PARTICIPANTS Jerry Hostetter Smithfield Foods - VP, IR, Corp. Communications Larry Pope Smithfield Foods - President, CEO Carey Dubois Smithfield Foods - CFO Joe Luter, III Smithfield Foods - Chairman CONFERENCE CALL PARTICIPANTS Bill Chappell SunTrust Robinson Humphrey - Analyst Farha Aslam Stephens, Inc. - Analyst Jonathan Feeney Wachovia Securities - Analyst Reza Vahabzadeh Lehman Brothers - Analyst Tim Ramey D.A. Davidson & Co. - Analyst Ken Zaslow BMO Capital Markets - Analyst Diane Geissler Merrill Lynch - Analyst Christine McCracken Cleveland Research Co. - Analyst PRESENTATION Operator Ladies and gentlemen, thank you for standing by, and welcome to the Smithfield Foods fourth quarter conference call. At this time, all lines are in a listen-only mode. Later there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, today's call is being recorded with a digitized replay. The call will be available started today June 5th at 11:00 a.m. Eastern time, and it will be available through Friday, June 20th at Midnight Eastern time. You may access the AT&T Executive Playback service by dialing 1-800-475-6701, and then enter the access code of 924027. That number again is 1-800-475-6701 with the access code of 924027. (OPERATOR INSTRUCTIONS). At this time then, I would like to turn the conference over to Jerry Hostetter. Please go ahead, sir. Jerry Hostetter - Smithfield Foods - VP, IR, Corp. Communications Good morning. Welcome to a conference call to discuss Smithfield Foods' fiscal 2008 fourth quarter results. We would like to caution you today that in today's call, there may be forward-looking statements within the meaning of Federal Securities Laws. www.streetevents.com Contact Us 1 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call In light of the risks and uncertainties involved, we encourage you to read the forward-looking information section of the Smithfield Foods Form 10-K for fiscal year 2007. You can access the 10-K and our press release on our website at www.SmithfieldFoods.com. Each quarter there are several analysts waiting to ask questions, as our call ends after one hour. We would like to provide the opportunity to as many analysts as possible to ask questions, and as a courtesy, we request that you ask only one follow-up question, so that everyone can participate. Thank you. With us today are Carey Dubois, Chief Financial Officer, Dick Poulson, Executive Vice President, Larry Pope, President and Chief Executive Officer, and Joe Luter, Chairman. This is Jerry Hostetter, Head of Investor Relations. Larry Pope will begin our presentation with a review of operations. Larry? Larry Pope - Smithfield Foods - President, CEO Thank you, Jerry and good morning, ladies and gentlemen and I am pleased to report this morning that our fourth quarter income from Continuing Operations totaled $1.8 million, or $0.01 per share, compared with $51.8 million, or $0.46 per share in the fourth quarter of last year. For the 12 months ending in April, we had $139.2 million, or $1.04 a share, compared with $211.9 million, or $1.89 per share. I hope you took note in reading the press release that there are a couple of things that need to be thought of as you look at these numbers. We do have a couple of one-time charges going through both directions. We did have an impairment related to a plant that we are in the process of closing, as we speak, which adversely impacted the pork results by $8 million, and on the other side, we had a $9.4 million gain in our European operations on the sale of a small portion of that business. In addition, there is a very favorable tax adjustment in the quarter, as we adjusted our effective tax rate to the revised annual rate. Mr. Dubois will maybe talk more about that, and the favorable outcome of some tax positions that we had. Finally, we have Discontinued Operations, and you can see those numbers. I won't review those for the sake of time, except to tell you that we have now reclassified our beef operations and cattle feeding operation into those numbers, as that business we do have a contract for sale of that business to JBS, and so for accounting purposes, that is no longer reflected in the operating numbers. That is being shown as Discontinued Operations. The basic story for the quarter is that the hog production business was down sharply as a result of dramatically lower live hog prices, and sharply increased raising costs. Those losses were offset in large measure by substantially better results in the pork operations, both fresh pork and processed meats. Unfortunately, we were not able to recover all of the declines in the hog production side of the business back through pork pricing and pork margins, and as a result the bottom line suffered. I am very pleased on the fresh meat side of the business, we had an outstanding quarter and had an outstanding year. This has been a very good fresh meat year for the Company. This has been helped by some very strong export business, as many in the industry have been reporting upon, I can report to you today that our export business has been excellent. I know the numbers in the industry have been up very substantially, even very substantially the last three months. Our export business is actually better than the industry's. We are benefiting very nicely from that. We have a very strong business. Many of you know that we have had some business in the Asian markets, and strong business over there, and that has been very helpful to the business. www.streetevents.com Contact Us 2 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. View slide
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call But as well, we also have some strong business as a result of our two plants that are qualified to ship into Western Europe. We are shipping product on a regular basis into Western Europe, into our Western European operations, where the markets are favorable, and as well, we have got some business, some sizable business in Australia. I can report to you that our export business this past year exceeded 1 billion pounds, which is a mark for us, and substantially above where we have been in the past, and that has been very, very good for the fresh meat portion of the business. Certainly cheap dollars have helped that process, and these cheap proteins in the United States, particularly pork, have made our product very competitive in the other markets. On the slaughter levels, we did kill at very high levels this year. The numbers reflect the PSF numbers, Premium Standard Farms addition into the family, as well as we ran our slaughter plants at higher levels this year, reacting to the opportunities that were presented on the fresh meat side. So we did run more hours and more Saturdays than we have in the past, and so we took that benefit to the bottom line, it is showing up in the numbers. The other positive in the pork section is the processed meats business. As I have spoken to you a number of times, that is part of the focused strategy we have to convert all of our available raw material that is suitable for processed meats, into processed and packaged meats. We have done what I believe is an excellent job in this Company. We have accomplished in the past I have told you that we are in fact a net buyer of hams and bellies on a regular basis. We have focused on improving our margins on this end of the business. We have focused on having a much more disciplined approach, and we have focused on taking out costs out of our processed meats businesses, and this impairment charge even this quarter, is one more demonstration of the fact that we are looking very critically at our processed meats business, and maximizing the utilization of the capacities that we have, and idling those capacities or eliminating those capacities when we cannot fully utilize those, and we are not operating them at the highest levels. We pointed out in the press release some of the information relative to the margin improvements that we have seen in the packaged meats business, of some 30% for this past quarter, and even much higher numbers for the full year. As well, we have very nice margin gains in a number of the very important categories, that I know I seem like a broken record in talking to you again and again and again, about the advances that we are making in the precooked category, from precooked bacon to precooked ribs, the smoked sausage, the dried sausage, our precooked entree business, all of those businesses are doing very well. Our year-over-year volume gains there are very sizable. All of those double-digits and many of those well into the double digits. It certainly makes me feel good about the business, as the business is migrating, particularly in the bacon business, away from the raw business towards the precooked business. Our precooked bacon business is up very dramatically. Nearly one-third of all the bellies we process go into precooked bacon, as this business is transitioning toward that end of the business. It is much more value added, much higher margins for us, it is where we I believe we have very strong capacities and capabilities, and that business is doing very well for the Company. And it is falling to the bottom line, the addition of the Armour Eckridge business a little over a year ago, and the addition of the Premium Standard Farms, which did bring some precooked bacon capacity and operations there, the Armour Eckridge business, all of those have brought to us categories of processed meats that are where we want to focus, and where we want to send our raw material, and I think this focused effort has resulted in sharply improved margins, and they are following through in this pork processing number, which is 138 million for the quarter, compared with $78 million last year in the fourth quarter, or $60 million better, and a 75% improvement, and if you look at the year-to-date numbers, it is a little over double what last year's numbers were. Yes, it was somewhat favorable raw material markets that we were selling into, so that certainly helped our margins. But I do believe that our focus on driving out cost and being disciplined in the way in which we go to market, I think is having a very nice longer term benefit, that will be continuing to show on this line. www.streetevents.com Contact Us 3 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. View slide
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call I guess the big negative for the quarter is clearly the hog production. Hog production for the quarter is showing $129 million operating loss, compared with a $41 million profit in the fourth quarter of last year. Certainly, that is a giant turnaround, and the quarter was a situation where we had started off the quarter with very low live hog prices, and accelerating raising costs, and I would say that is a terrible environment for us to be moving into. As many of you know who follow the Company and the industry, you know that the live hog market has turned around pretty dramatically since February and March, and in fact, the live hog market is well over $50 today. Unfortunately, our raising costs continue to go up with the ever-increasing grain cost, from an operations side, I am very pleased with the improvements that have been made on the live production side of the business, our livability numbers are sharply improved. Our feed conversion, or what we call feed performance is up very nicely, and those give us more than $20 million of improvements that we have made at the farm level. Unfortunately, we cannot offset these grain costs that even though we, as you know, we take hedge positions that we don't necessarily disclose so much to you, that that is a regular part of our strategy to manage this end of the business, but as you know, as we look forward, grains continue to be very expensive well into the future, and so as we look forward, and I will talk about that when I get there, after Carey gives his update on financial. I mean, we are looking at a grain market that none of us has ever seen in the past. I think you all do know that we announced back in February that we were going to initiate a 4 to 5% reduction in our sow herds. We are in the process of doing that. We are committed to that, and we are well on our way to doing that. I think there is liquidation. As many of you know, 10 out of the last 12 weeks, the sow liquidation numbers have been well over 10% or double-digit numbers. I think that even given the return of the live hog market back into the 50s, I think people's raising costs are now approaching $60, if they are not already $60, and if these grain markets stay anywhere near where they're at, they are going to be $60 better than $60, including ours. Even though the live hog market has recovered, no one is feeling like they can sit back and not focus on this end of the business. We are certainly not back to where we need to be, and these live hog markets are nowhere near where they need to be, in order for this business to be profitable going forward. The one comment I made toward the end of the press release that we are very bothered by, is this ethanol situation in this country, that is taking a substantial portion of the grain production, corn production in particular, out of livestock feed and diverting that into fuel. This is having, we believe this is having a substantially adverse effect on our business. And it is going to cause food prices in this country to go up. It is causing a strain on the American family, and we are very bothered by this policy, and to the extent that can be reviewed and looked at, I think that is one big positive down the road. There is a lot of attention now coming both in the United States and around the world, dealing with focusing on this issue, and attempting to get some of the leaders in Washington to pay more attention to this policy, and to review this for changes. I think that the law of unintended consequences has occurred here, and where we have thought we were doing something to lessen our dependence on foreign oil, that may be somewhat true, although I could debate that for most of the rest of the day. That will be minimal. What we are doing is having a ripple effect on food prices, that some portions of the economy have already seen, in the protein sector they have not yet seen so much of that, because of the strong supply levels that have been out there, although these supplies are declining, with the sow liquidations that are going on, what is going on in Canada, what's beginning to happen on the white meat side of the business. I think that the protein pricing that we are seeing is going to be passed through. We have to pass it through with these, we are in a 1, 2, 3% business. Certainly we cannot begin to stand 60 and 70% increases in input costs, without having to raise our prices dramatically. Unfortunately, this quarter we weren't able to do it. We are raising prices as we go. The industry is raising prices. But at the pace at which these cost increases are coming at us, it is impossible for us to raise prices as fast as the costs are increasing. Although we are committed to that. I think the industry is committed to, as the market allows, we are all focused on this. www.streetevents.com Contact Us 4 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call We are all focused on being very efficient from our operations standpoint, but this is an industry that is already pretty efficient. There is not a lot of slack in this industry from any of the players. This is a mature business where all of us have our cost controls in place. We monitor costs every day. So it is not like we can go in and cut $100 million of costs out of our operations. That is simply not doable. So if this policy continues to be where it is at, this has simply got to come through in increased pricing at the retail case. On our international side, I won't spend much time on that. Poland has done extremely well. I am extremely pleased there. Our Western European operations, what we call Group Smithfield, had a very good year. Romania, our Romanian meat processing operations are continuing to ramp up, needing more volume. As you know, we are vertically integrated in Romania. We did have a classical swine fever issue last summer which reduced the supply of the hogs from the farms to the plant. We will continue to deal with that issue, until we can get the farms back in balance, and get the volume coming to the plant to be back to the levels that we need to be. But as far as the operation side, I am satisfied there. Unfortunately the live production side of the business in Europe is even worse than the situation in the United States. They are dealing with even higher cost grains in that part of the world, and there has been severe outrage and liquidation occurring in the European markets on the live production side of the business, and so it is a worldwide issue. These grains are a worldwide issue that we are all dealing with, and it is affecting our European operations every bit as much, and in fact more than it is our U.S. operations. With that, I will turn it to Carey for a financial review, and then I will give you some of my comments looking forward. Carey? Carey Dubois - Smithfield Foods - CFO Thank you Larry, and good morning everyone. I want to begin by pointing out two key items. First, this quarter includes the Premium Standard Farms results, whereas last year's quarter did not. Going forward, Premium Standard Farms' results will appear in all numbers. This acquisition occurred in May 2007. Second, and as Larry noted, we stopped reporting the beef results under the beef segment, and are now showing the results under Discontinued Operations. Both quarterly and full year numbers in the press release were adjusted to reflect this change. Moving on to the income statement, for the quarter sales increased by 20% to $2.9 billion, versus $2.4 billion for the same quarter last year. Sales were up across all of our business segments for a third consecutive quarter. Sales for the pork and hog production segments were up 19% and 42% respectively, primarily from the Premium Standard Farms acquisition. The international segment had another strong quarter, with sales climbing 59%, due largely to strong volume increases, and foreign translation impacts in Poland and Romania. Selling, general and administrative expenses were up a modest 2% for the quarter. Increased expenses from Premium Standard Farms, compensation and benefits, and marketing activities, were largely offset by positive foreign currency translation effects. Operating profit decreased to $29 million for the quarter, versus $101 million last year. The decrease was attributed largely to an operating loss of $129 million in hog productions. Quarter-over-quarter results for this segment dropped by $170 million. Relatively low hog prices throughout most of the quarter and a continuing high grain cost environment was accountable for this swing in results. Positive results in other segments, partially offset this loss. For example, the pork segment was up 76%, or $60 million due to the addition of Premium Standard Farms, continued low raw material costs, and further growth in exports. Further positive numbers came from the international segment, which was up 425%, or $25 million for the quarter. Adding back depreciation www.streetevents.com Contact Us 5 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call and amortization of $70 million, plus impairment adjustments, our earnings before interest, taxes, and depreciation and amortization were $107 million, or 30% lower than the $154 million for the same quarter last year. On a fiscal year basis, EBITDA was $672 million, as compared to the $635 million for last year. Looking at our equity method investment, equity and income results increased by $13 million, to $19 million for the quarter versus last year. Aggregate quarter-over-quarter contribution improvements of $20 million from Group Smithfield and Campofrio, were partially offset by an $8 million drop in Butterball's results, due to the impact of higher grain costs. Interest expense was up slightly by $4.5 million over the same quarter last year. Although debt levels increased $800 million throughout the year, a significant drop in our overall interest rate, almost fully offset the impact of incremental interest expense from the higher debt level. The increase in debt resulted from the acquisition of Premium Standard Farms, investment in Eastern Europe, increases in working capital, and foreign currency translation effects. There are two other points worth noting for the quarter, before we get into the balance sheet items. First, we had several one-time items for the quarter, which in the aggregate were almost neutral to our results. A net gain of $9 million from rationalization activities in our Group Smithfield business, was offset by an $8 million restructuring charge taken by the pork segment, in the previously-announced closing of an older plant in Kingston, North Carolina. Second, $10 million of the income tax benefit resulted from favorable outcomes on the prior year's federal and state income taxes. These benefits were realized as settlement items in the current quarter, and resulted in a reduction to the annual effective tax rate of 34%. Looking at an intraquarter balance sheet and cash flow items, capital expenditures for the quarter were $116 million, as compared to $69 million of depreciation. Within the quarter, the overall debt increased by $277 million. Further working capital needs from higher raising costs and an increase in exports, as well as the execution of the final stages of the planned investments in Eastern Europe, accounted for most of this increase. Our debt to capitalization ratio was 56%, and our current available liquidity is over $400 million. I will now turn it back over to Larry for forward-looking comments. Larry Pope - Smithfield Foods - President, CEO Thank you, Carey. Clearly, looking forward into fiscal '09, the big risk is in the hog production side of the business. We are all looking at $6 plus corn well into the future, and we are concerned about how we are going to somehow pass that through in prices for the meat, at the retail and food service case. Much of the grains, as you know, come into the operations over time through the feeding process, so some of those grain costs are already embedded in our operation and will take time, even if the grain markets were to reverse. As you know, we routinely take commodity positions in the markets, to protect us against some of the risk associated with this. We will continue to look at that very aggressively from our side, to minimize the impact of this. But I cannot give you any assurance today that we are going to have profitable operations in the hog production side of this business in the near future. I certainly do believe that the liquidation that is occurring will have its effect on the markets, and I think live hog prices in this country have to go up, or raising costs and grain costs in particular have to come down. One of those two have to happen. Liquidation is occurring as we speak, although it takes time, and I don't think we are going to see the real benefit of that until calendar 2009. We said that earlier. I continue to believe that these grain markets are elevated, and we are hopeful through some of the crop reports, and if we have a good crop this year, that maybe these prices that the futures markets are reflecting are not reality here. www.streetevents.com Contact Us 6 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call I think the reality today is we have to consider that they are going to be there. I wish I could tell you that there was some relief, and that maybe there was going to be some changes occurring in Washington, or some news that I knew that was going to change this, but I can't make that statement to you today. So that is the reality of the business that we are going to have to live with. On the other side, the export markets continue to be extremely good. We have cheap dollars around the world. We have relatively cheap product, particularly on a U.S. dollar basis. The export markets are excellent. They are open. In fact, most of us are having, many of the people in the industry, we are having logistical problems getting the product to our customers. The orders are there, and there are plenty of them. That is helping to move this product out of the country. As you know, we have had about a 10% increase in slaughter levels for the year. That product has moved out of the country. We have all got very active export programs, and those export programs are still there. So that is going to help to deal with some of this issue. One other point, looking forward, I think it is very positive. We haven't made a big deal of it, but we made some management changes inside this Company beginning with the new fiscal year, that I think are going to be very positive for us longer term. George Richter, who was running the Farmland Foods operation, has now moved to the corporate level, responsible for all of our pork operations, reporting directly to myself. As well, we have moved in a new operating President of Farmland Foods, which is Jim Sbarro, who was the Sales & Marketing VP. And as well, we have moved Joe Luter IV, from the present Chief Operating Officer at Smithfield Packing Company, to an Executive Vice President position at the corporate level, focusing on the sales and marketing synergies, and help manage our sales and marketing efforts on a combined basis. And Tim Schellpeper, who was the Vice President of Operations at Farmland Foods, has moved in as the President of Smithfield Packing Company. All of those I believe are very strong moves. Each one of those is moving into a position that I think can improve the operating performance of the individual IOCs, in terms of the IOC Presidents, but as well, we are going to manage our pork group in a much more cohesive way, and a more synergistic thought process, and I think that the addition of Joe Luter IV and George Richter are very positive moves. Joe was very strong on the sales and marketing side, and George Richter is very strong on the management and the operations side of the business, and the combination of those two I believe to be a very powerful management team. We have been focusing, as I have mentioned a number of times, on improving the efficiencies in our processed meats business. That has been a heavy focus here for the last two years. We are going to continue to focus there. But we are as well turning our attention this coming year on the fresh meat side. There are some significant opportunities across our many fresh meat operations. We have done a detailed analysis, and we have called in some outside help to help us with that, and we have identified some very significant opportunities to improve our fresh meat results. And the combination of those four people I just mentioned, particularly with George Richter and the two operating presidents, plus Joe Sebring, who was running John Morrell, I believe that we will be making some very significant improvements on the fresh meat side of this business, that will be falling to the bottom line in the pork segment going forward, and I think these are very doable, these are very doable improvements, and they will not take huge capital expenditures to accomplish that. So as I look forward, I think the basic business operations, what I call the things we can control, I could not be more pleased. I think we are doing what any good management team would do in this environment. We are tightening down our cost controls. We are looking for efficiencies, and we have put in place some things over the last two years, that are now beginning to hit the bottom line in a pretty significant way. Those are still in the implementation stage, some of that, so I think there is still some more of that to come, and the focus on the fresh meat side, all of that I believe will help our pork segment, and help offset what I see as the adverse impact of these grain costs coming through our hog production side. www.streetevents.com Contact Us 7 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call I am very pleased on the production side. Again, I told you about the efficiencies you have driven out there even this past year. We are reducing our herds. We are taking out our older, inefficient farms. We believe that this 4 or 5% reduction will have no impact on cost in our hog production operations. If anything, it is going to improve our cost structure there, so it does not have an adverse overhead impact to us. And so we are focusing on that side of the business as well, trying to help with this oversupply, and at the same time help our cost structure. So as I look forward with a cautious note that I think from where we have done execution, I a'm very satisfied. The processed meat strategy that we rolled out two years ago, we will continue to push that. We still have a ways to go there so I think that is still coming. Fresh meat is still coming, the management changes will help us, and the only wild card we are playing with at this point, exports will probably be in our favor, the only wild card is grain costs, and that one we can all track, and you can all see in our results, unfortunately or fortunately, will go the direction of where those are. With that being said, with Jerry we will open it up for questions. Jerry Hostetter - Smithfield Foods - VP, IR, Corp. Communications Operator, if you will begin to take questions please? QUESTIONS AND ANSWERS Operator Certainly. (OPERATOR INSTRUCTIONS). Our first question then today comes from the line of Bill with SunTrust Robinson Humphrey. Please go ahead. Bill Chappell - SunTrust Robinson Humphrey - Analyst Good morning. Larry Pope - Smithfield Foods - President, CEO Good morning. Jerry Hostetter - Smithfield Foods - VP, IR, Corp. Communications Good morning. Bill Chappell - SunTrust Robinson Humphrey - Analyst I guess talking about the sow liquidation, and the recent runup we have seen in hog prices, does that seem premature? Is that all seasonal? Kind of how do you look at how hog prices should trend through the rest of the year? www.streetevents.com Contact Us 8 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call Larry Pope - Smithfield Foods - President, CEO I guess I would tell you that I am a little surprised this hog market has run up, and in fact it ran higher than it is today. It has actually come off a little bit of its high. As you know, the hog market trends up in the summertime anyway, and so we were moving into the summer when the weights drop, and the supply generally is a little bit less. I think you know all of that. Bill Chappell - SunTrust Robinson Humphrey - Analyst Yes. Larry Pope - Smithfield Foods - President, CEO And so I think there is still going to be some hogs out there come the fall, and I think that there is going to be a fairly significant supply of that. So I think we are going to continue to have pretty high hog prices through the summer. I think we could have some fall-off in this hog market come fall, and we will have to see how the fall hog run occurs, but I think that could be some lower hog prices, but I think by January this thing becomes, this liquidation becomes real and the hog market then, and the futures market even reflecting that, I think this hog market then is $60 and $70, I guess they could be as high as that. I predicted that the hog market was going to be $70 by next summer, and there is some indications there it could be even sooner than that. To answer your question, the summer I think we will have some fairly high priced hogs. That is very seasonal. I think that we will have a fall hog run just like we have had in the past, where I think you will see these prices fall back, and then by January I think the full effect of this liquidation will start to show up in higher prices. Bill Chappell - SunTrust Robinson Humphrey - Analyst Okay. And then just as my follow-up, you might have disclosed, how much did currency help on the international operations, both top and bottom line? Larry Pope - Smithfield Foods - President, CEO Carey, I would have to ask Carey to answer that question, if you have got the numbers handy. Bill, why don't you, Carey, why don't you look that. We got your question. We will come back to you before we finish the call. How about that? Bill Chappell - SunTrust Robinson Humphrey - Analyst Great. Thank you. Operator Thanks. We do have a question then from the line of Farha Aslam with Stephens. Please go ahead. Farha Aslam - Stephens, Inc. - Analyst Hi, good morning. www.streetevents.com Contact Us 9 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call Larry Pope - Smithfield Foods - President, CEO Hi, Farha. Farha Aslam - Stephens, Inc. - Analyst I know you don't comment on your hog positions, but could you share with us the parameters around hedging, how many hogs can you sell forward, and kind of what percentage of your production can you hedge? Larry Pope - Smithfield Foods - President, CEO Depending on how far you are willing to go forward, you can hedge a pretty substantial portion of that. I mean, there are open positions out there, when you look at a whole year's production and the contracts. So yes, you can get a very substantial portion hedged. Carey Dubois - Smithfield Foods - CFO You can hedge 100% if you want to. Farha Aslam - Stephens, Inc. - Analyst You can hedge 100%. Great. That is helpful to know. And my follow-up is on the Turkey division. We have heard that you might be selling your facility out in Colorado. Any thoughts of sales or reducing your placements to improve Turkey profitability? Larry Pope - Smithfield Foods - President, CEO At this point, we have not done a lot of reductions in terms of placements there, Farha. We have looked at that operation you are talking about. We do not have anything to report to you today, and I would tell you that's not new news. That is old news. We have been having discussions with a number of people, so that is one plant that has not been running anywhere near capacity. It is a plant we have been looking at. But it is not really related to the industry conditions and the situation today. It is a discussion we have been having now, ever since we acquired the Butterball business, and so it is not just, my point is it's not related to the grain costs and the situation we are in at all, and we are looking today, we have got an awful lot of use of the meat into the deli business in the cooked product. We have not reduced our production, but we are certainly talking about it. Farha Aslam - Stephens, Inc. - Analyst Great. Thank you. Operator Great. Thank you. Our next question comes from the line of Jonathan Feeney with Wachovia. Please go ahead. www.streetevents.com Contact Us 10 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call Jonathan Feeney - Wachovia Securities - Analyst Good morning. Thank you. Larry, you talked a little bit more I think today about state of the corn markets than usual, I guess. I know it is an issue for everybody. I guess just that, combined with when you look at the spread between your reported sort of raising costs, and I guess what I would view as spot, buy it all today raising costs, that got a little bit closer sequentially. Is it fair to say you that are hedging a little bit less on the corn side, and that you are maybe a little bit more willing to take the view that corn complex is inflated right now, than say three months ago? Larry Pope - Smithfield Foods - President, CEO Luter, why don't you take that question? You might want to answer it better than I do, Joe. Joe Luter, III - Smithfield Foods - Chairman No. Well, here again we are not going to tell you what our exact hedging positions have been, but I can tell you they have been substantial, and hopefully this corn has peaked. The bottom line is that when you take one-third of the U.S. production and burn it up into ethanol, and in effect reduce the supply in the United States by one-third, if you don't expect it to have a, I don't call a ripple effect, I call it a tsunami effect upon prices, you don't have any understanding at all about the law of supply and demand. Normally if you reduce supply by a third there is some reduction in demand. In this particular case, the demand is increasing worldwide, rather than going down. So this is why you have got the extreme effect, and thank God we have had great crops for the last two or three years. We have not had a drought, and production has been very good. But if we should have a drought in one of the years going forward, if we continue this ethanol program, you could have a worldwide disaster, and disaster means hunger and starvation in my mind. So I think that the government is going to have to look hard at this ethanol policy. You could have some very, very drastic consequences, that would have severe political and economic and health negatives for years to come. I am very concerned about what I consider this flawed policy of the United States, and I know there was a big conference in Europe two days ago, and I never thought I would get to the position that the United Nations is right and our government is wrong, but I do believe that to be the case in this particular instance. Jonathan Feeney - Wachovia Securities - Analyst Thanks. And as a follow-up, Joe, do you think maybe others, I mean you have seen the industry change a lot, as far as the competitor hog producers out there. Do you think maybe other hog producers are hedging to an extent they never did in prior downturns? I guess before it used to be low hog price that's caused downturns. Do you think increased hedging is maybe one of the reasons why you are seeing close to record hog losses here, without drastic supply reductions earlier? Joe Luter, III - Smithfield Foods - Chairman Well, I think there is increased activity. I don't think it is commercials such as ourselves doing the hedge, and I think the financial markets have gotten involved to a much greater degree. I can tell you that we have hedged this past year very, very significantly, and thank God that we did, because it certainly has been a positive to our bottom line, rather than going naked for the year. But we do use hedging very, very aggressively, to try to eliminate the possibility of a disaster, which would be $7 or $8 hog corn prices, and at a time when we haven't had the chance to significantly reduce the herds. www.streetevents.com Contact Us 11 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call But hedging we feel is very, very valuable to us. It helps to eliminate an awful lot of risk. It doesn't eliminate all of it, obviously. Last year's results is a good indication of that. As I said earlier, if we hadn't of hedged at all and just went naked, our losses would have been substantially higher. Jonathan Feeney - Wachovia Securities - Analyst Thank you very much. Operator Thanks. Our next question comes from the line of Reza Vahabzadeh with Lehman Brothers. Please go ahead. Reza Vahabzadeh - Lehman Brothers - Analyst Good morning. You mentioned Larry, last quarter processed value added meat margins were at least $0.10 or better. I know seasonally they come down in this quarter, but would you say that they were still in the high single digits or better? Larry Pope - Smithfield Foods - President, CEO Yes, I would. I would tell you that we had a very good processed meats quarter, and you are right, generally the third quarter which includes the holiday season, is the quarter when our margins are very good. I would tell you that our margins for this quarter were very good again, extremely good, so no, I would tell you that they are right at that $0.10 number I talked about. Reza Vahabzadeh - Lehman Brothers - Analyst Got it. And as far as some housekeeping items, Carey, what was the total consolidated debt of the Company, including the Discontinued Operations? Carey Dubois - Smithfield Foods - CFO It was just under $3.9 billion. Reza Vahabzadeh - Lehman Brothers - Analyst Okay. And what was the revolver availability on a committed basis? Carey Dubois - Smithfield Foods - CFO We have a number, we have a revolver and a number of lines, as I had stated, we have in excess of 400 million of liquidity today. Reza Vahabzadeh - Lehman Brothers - Analyst Is that committed and uncommitted, or just committed? www.streetevents.com Contact Us 12 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call Carey Dubois - Smithfield Foods - CFO Committed. Reza Vahabzadeh - Lehman Brothers - Analyst Okay. And then as far as the EBIT, or the EBITDA of discontinued ops in this fourth quarter, would you happen to have a number? I am just trying to do apples-to-apples versus last year on a consolidated basis. Larry Pope - Smithfield Foods - President, CEO You are asking for the EBIT on Discontinued Operations, Reza? Reza Vahabzadeh - Lehman Brothers - Analyst Yes, sir. Larry Pope - Smithfield Foods - President, CEO Why don't you give these guys a second to calculate that. Reza Vahabzadeh - Lehman Brothers - Analyst Should I just follow up with you? Larry Pope - Smithfield Foods - President, CEO Why don't you call Carey offline. Reza Vahabzadeh - Lehman Brothers - Analyst Thank you much. Carey Dubois - Smithfield Foods - CFO Thank you. Operator Our next question comes from the line of Tim Ramey with D.A. Davidson. Please go ahead. Tim Ramey - D.A. Davidson & Co. - Analyst Good morning. Relative to the hedging, was there any mark-to-market gain or loss in this quarter? Can you comment on that? www.streetevents.com Contact Us 13 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call Larry Pope - Smithfield Foods - President, CEO Carey, do you want to answer? I was asking. Carey Dubois - Smithfield Foods - CFO There are mark-to-market adjustments every quarter. Larry Pope - Smithfield Foods - President, CEO There are. I guess were you asking, Tim, were you asking, what was your question again? Are you asking for the number, are you asking was it positive or negative? Tim Ramey - D.A. Davidson & Co. - Analyst I know you are not going to give us a number, but was it positive or negative, and was it substantial or unsubstantial? Larry Pope - Smithfield Foods - President, CEO It was positive, and it is modest is what I'd tell you, Tim. Tim Ramey - D.A. Davidson & Co. - Analyst Okay. Terrific. And if we think about the European operations with kind of the rebuilding of the herd in Romania, I mean, I am sort of torn now. We want that to happen so that you can have capacity utilization, but the margins are difficult. How should we be thinking about it? Larry Pope - Smithfield Foods - President, CEO Tim, you are having some of the same thoughts we are. We have got to get the operations back to a normal, at least the farms back to a normal operating level. We were planning on that plant moving up, but today the losses at the farm level far exceed the opportunity at the plant level. So the rebuilding of the herds at this point, we were at 50,000 sows, we went down to 37,500, which is what we had to do as a result of that. We continue to be around that number, and we are going to move the sow herds up modestly, up to about 40,000 as we can, and as the markets dictate we will go to 50,000. But we are dealing with that same issue. We've got very expensive corn there, and it simply does not justify moving these sow herds up to 50,000 at this point. We are buying hogs for the plant from outside of our own operations, and in fact, outside of the country. We are very close to the Hungarian border. We can bring some hogs across the border from Hungary and process those. It is not the optimal solution, but it is the best solution right now. Tim Ramey - D.A. Davidson & Co. - Analyst Thank you. www.streetevents.com Contact Us 14 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call Larry Pope - Smithfield Foods - President, CEO You are welcome. Operator Thanks. Our next question comes from the line of Ken Zaslow with BMO Capital Markets. Ken Zaslow - BMO Capital Markets - Analyst Good morning, everyone. Larry Pope - Smithfield Foods - President, CEO Hey, Ken. Ken Zaslow - BMO Capital Markets - Analyst I guess the first question I have is how much liquidation from the hog side would be required for you to get to a sustainable level of profitability? Are these cuts deep enough for you to eventually be returned to profitability? Larry Pope - Smithfield Foods - President, CEO Well, I guess that's -- Ken Zaslow - BMO Capital Markets - Analyst assuming current corn prices, assuming the current feed environment. Larry Pope - Smithfield Foods - President, CEO I think we need to be approaching that 10% reduction across the total sow inventory in the United States. I don't know whether you are talking about us, or you are talking about the United States. Ours is 4 to 5%, sow liquidation today is running better than 10%. I am sure you already know that. I think that is a giant start. We are killing 430,000 hogs in this country, and it has come down a little bit of late, but if we could get that daily kill down below 400,000, and the export markets continue to be good, I think this thing, I think the live hog prices would be substantially higher. The meat prices would be substantially higher. Whether that is enough to move the hog market over $60 on a sustained basis, and if grain prices stay where they are at, the live hog market is going to need to be over $60 on a go-forward basis. I don't know whether that will do that. I mean, I don't think that model has been tested. Joe Luter, III - Smithfield Foods - Chairman It will get there. The only question is the timing. I mean, we are going to have hog prices in my judgment in the high 60s for the foreseeable future, here in just four, five, six months, if you look at the futures market for next June on a dress cost basis, I don't have that figure right in front of me. It is right at $0.90 on a dress costs. www.streetevents.com Contact Us 15 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call So the bottom line is that this meat cost is going to go up. The hog numbers are going to come down. And the question is timing. But whether the timing happens in January of next year, or September of next year, we don't know, but it will happen, because the industry just cannot sustain itself in this current environment. Ken Zaslow - BMO Capital Markets - Analyst Okay. And then the Canadian and the Denmark liquidation is still happening pretty aggressively it seems like also from the data that I see? I don't know if you could add some color to that? Larry Pope - Smithfield Foods - President, CEO I really can't add much more than you. I don't have any more data than you have got, but yes I think it is. Joe Luter, III - Smithfield Foods - Chairman I think it is much more substantial than what is taking place in the U.S. is. Larry Pope - Smithfield Foods - President, CEO That is right. I agree with that. Ken Zaslow - BMO Capital Markets - Analyst In terms of your pork increase, the increase, can you identify how much was really from the improvement in the fresh pork business, versus how much was really Smithfield specific, and the sustainability of that? Larry Pope - Smithfield Foods - President, CEO I don't follow that question. Ken Zaslow - BMO Capital Markets - Analyst If I look at your year-over-year increase in pork. Larry Pope - Smithfield Foods - President, CEO Yes. Ken Zaslow - BMO Capital Markets - Analyst There is a part of that is probably because of the pork packer margins have increased. A part of it that is because you guys have shifted to higher end products and higher value products, and to me that seems to be more of a sustainable piece of the business. I am just trying to figure out exactly how much of that business is sustainable, and do you think there is a piece of that business that should continue into the future, versus the fresh pork business could move all over the place. www.streetevents.com Contact Us 16 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call Carey Dubois - Smithfield Foods - CFO I think I can give you the answer. I think about two-thirds of that for this quarter, two-thirds of that improvement were in the fresh pork margins, and one-third of it was in the processed meats margins. Larry Pope - Smithfield Foods - President, CEO Does that answer your question? Ken Zaslow - BMO Capital Markets - Analyst Perfectly. Thank you. Operator Thanks. Our next question comes from the line of Diane Geissler with Merrill Lynch. Please go ahead. Diane Geissler - Merrill Lynch - Analyst Good morning. Larry Pope - Smithfield Foods - President, CEO Good morning, Diane. Diane Geissler - Merrill Lynch - Analyst Hey, just thinking about your comments on ethanol, and this has obviously been something that other companies have addressed in their conference calls. You are the last meat packer to report, so maybe you get the question because of your position in terms of the earnings calendar. But it strikes me as, look it doesn't seem like Washington is budging on their policy on ethanol. Despite sort of some of your commentary, and some of your competitors' commentary about the impact on grain. So is it fair to say that the rules of the game have changed, and now we have to just adapt to the new rules, and what is your outlook for how the little players out there are adapting to it? Because it is just not only in pork, but in poultry and beef, it just seems like it is always kind of the marginal player that delays the change within the industry. Can you talk about that a little bit? Larry Pope - Smithfield Foods - President, CEO Gosh, Diane, I hope to tell you that I do think the game has changed a bit. I do believe that we are not going to return to $2 corn. That part I do believe has changed. Even if the ethanol policy were completely reversed and eliminated, I am not convinced that we would be back at $2 corn. So I think we are all going to have to adjust to higher priced grains. I think again, we could have a recession here, and who knows what could happen as a result of all that. But I do think that has changed. The question is, is $2 corn or $2.50 corn, or is it $3 or $4 corn, or is it $6 corn, or God forbid, some weather event and it is $8 corn, like we see in Eastern Europe. I think we have to adjust to an increased input cost, and a grain cost which is going to result in higher priced meat, but meat in this country has been cheap. In many cases, the raw material hasn't gone up substantially in www.streetevents.com Contact Us 17 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call 30 years. So we have gotten efficiencies in these operations for 30 years. Food has been very cheap in the United States. That is going to change. Food prices are going to go up. And meat prices are going to go up. Now your question is, how does this affect, there are two little guys. One is the guy raising the animal, and the other guy is the person processing the animal. I guess I don't believe the losses that are occurring with these grains that are not being passed through in either live prices or meat prices, the small guy, I don't know if they have got pockets deep enough to get through this to get to the other side. There is clearly going to be the fallout from those guys who are already leveraged up, or didn't have much equity in the business. Those guys I don't think are going to make it, particularly when you have got the banks out there, that are not all that happy about lending more money to this industry. So I think those that go out will stay out. It is not that they're going to take animals out of production, and put them back at some later point. But I think that is good. We need some contraction in this. The livability, the productivities that we are all able to accomplish through our breeding operations continue to improve, and so I think that is a natural process. And then on the processor side, it depends on how that rolls through. If hog prices go up pretty dramatically, some of these smaller guys, we are not going to be able to get the prices through at the retail case fast enough, then the margins on the processing side could be severely impacted. As I said here just a few weeks ago, in our organization, we were losing huge money in live production just, gosh, six weeks ago, seven weeks ago. I mean, that is not the case today with live hog prices coming back. We are not losing huge money. We are losing money but not big money. Now the pressure comes in the meat processing side. That is what is going to happen to the model. Which Mr. Luter made the comment here a few minutes ago, this thing is going, hog prices are going to go to $60. Hog prices are going to go to $70. When they do that, the price at which we have got to sell meat for to produce a profit at the meat processing plant, is going to be a price our customers have never seen before. And the consumer has not seen before. Our consumers have seen $60 hogs. Consumers have seen $65 hogs. But they have never seen those kind of levels on any kind of a sustained basis, and so there are going to be price levels for the meat that consumers have never seen, and there is going to be lots of resistance from the retailers. I could go through and talk about the food service side, which I think are going to feel it even worse. There is going to be that price resistance as we try to push that through. That is what Mr. Luter was talking about, the delayed impact of this. That delay is there. There is no question that it has to go up, it has to go up substantially. Those who don't have the pockets to get through this are not going to survive. I think there could be some big numbers in periods of time even on the production side or the meat processing side, the numbers could get ugly, very ugly, for a modest period of time. If you don't have the capital to survive that, you won't make it. That was a long statement. I apologize. Diane Geissler - Merrill Lynch - Analyst No, I appreciate your insight. Just as a follow-up, you had indicated that you thought on the seasonality with the fall hog run that you might see prices pull in a little bit here as we move into the fall. Would it be a mistake for us to think that if you have that outlook, you wouldn't be already sold forward on your hog production for this fall? Larry Pope - Smithfield Foods - President, CEO Diane, we are not going to give you our positions, but I would tell you obviously we have a view, and we aggressively hedge. So you draw your own conclusions. www.streetevents.com Contact Us 18 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call Diane Geissler - Merrill Lynch - Analyst I will. Thank you very much. Operator Thanks. And our next question comes from the line of Christine McCracken with Cleveland Research. Please go ahead. Christine McCracken - Cleveland Research Co. - Analyst Good morning. Larry Pope - Smithfield Foods - President, CEO Good morning, Christine. Christine McCracken - Cleveland Research Co. - Analyst Just a follow-up on one of the earlier questions on liquidity. With the significant increase in grain cost that we have seen, don't you think, or do you believe that you will have sufficient liquidity to finance all your working capital needs? Carey Dubois - Smithfield Foods - CFO Christine, it is something that we do weekly. We actually are looking at our investments, our costs, our CapEx, and our working capital needs, monitoring this very closely. And we continue to speak to our bankers and rating agencies routinely on this thing. So something that we continue to monitor very closely, and to the extent we feel that we need to further improve the balance sheet, then we will take measures to do so. Larry Pope - Smithfield Foods - President, CEO Christine, to follow up on Carey's comment, one of the things that we have done is secure additional working capital facilities out there to cover us for this. There is no question that some of the lines of credit that we had established, were not established, the balance sheet was not capitalized, thinking of $6 corn. But our banks have been very supportive of us. Christine McCracken - Cleveland Research Co. - Analyst Great. And then just as a follow-up, as you look ahead at that liquidation that really needs to happen, whether you cut 10, 15%, to get hog prices higher, if you look then at the processing industry, and what that might mean in terms of securing hogs, and the overcapacity that might come as a result, how do you see this playing out? From your perspective you are integrated, but several of your competitors it appears aren't. I am just wondering if you see a structural change in the industry as a result of this liquidation that has to happen? Larry Pope - Smithfield Foods - President, CEO Well, I think, Christine, the industry has killed a lot of hogs this year, running longer hours and running Saturdays, and so I think that you will see a reduction as this things liquidates back, I think you'll see fewer Saturdays and less hours, and I think there www.streetevents.com Contact Us 19 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • FINAL TRANSCRIPT Jun. 05. 2008 / 9:00AM, SFD - Q4 2008 Smithfield Foods Earnings Conference Call has been some discussion along the way about building another processing plant, by one person in the industry. That seems to be tabled for now, that is for sure. I don't know that I think a 10% reduction in this number is going to result in anybody leaving this industry, or closing any operations as a result of that. Joe, I don't know if you have a different opinion of that, but I don't see any of that. Joe Luter, III - Smithfield Foods - Chairman No, I don't think so. I think what I believe, I believe that we are going to continue to have inflation, and might even call it hyper-inflation in regard to food prices. If this ethanol policy continues, we are going to be taking not a third but about 40% of our corn crop into ethanol in the foreseeable future, and when that happens, in my opinion, you are going to have a disaster on your hands in regard to food inflation. Christine McCracken - Cleveland Research Co. - Analyst All right. I will leave it there. Thanks. Larry Pope - Smithfield Foods - President, CEO Christine, one of the things that you raised is whether we had liquidity, whether we were concerned about our liquidity. I want to remind you that we have a pending beef transaction that is scheduled for closing here, I think Dick Poulson is on the phone, somewhere probably in our fiscal second quarter. That is going to generate between 500 and $600 million of cash, at least that on closing and could be significantly more than that, depending on what we do with our cattle raising operations in connection with that. So there is from our standpoint, there is a substantial cash infusion coming in here in the relative near future. Christine McCracken - Cleveland Research Co. - Analyst Great. Thanks. Jerry Hostetter - Smithfield Foods - VP, IR, Corp. Communications Our time is up for today. We want to thank all of you for joining us, and have a good day. Operator Great. Thank you. Ladies and gentlemen, this conference will be available for replay again starting today, Thursday, June 5th at 11:00 a.m. Eastern Time. And I it will be available through Friday June 20th through Midnight Eastern Time. You may access the AT&T Executive Playback service by dialing 1-800-475-6701, and then enter the access code of 924027. That number once again is 1-800-475-6701, and again, enter the access code of 924027. And that does conclude our conference for today. Thanks for your participation and for using AT&T's Executive Teleconference. You may now disconnect. www.streetevents.com Contact Us 20 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
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