http://www.morningstar.com/earnings/29027095-tyson-foods-inc-class-a-tsn-q2-2011.aspx

Tyson Foods Inc Class A TSN
Q2 2011 Earnings Call Transcript

Transcript Call Date 08/08/2011

Operator: Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now, I’ll turn today’s meeting over to Ruth Ann Wisener. Thank you, you may begin.

Ruth Ann Wisener - VP, IR and Assistant Secretary: Good morning, and thank you for joining us today for Tyson Foods Conference Call for the third quarter of our 2011 fiscal year.

I need to remind you that some of the things we'll talk about today will include forward-looking statements. Those statements are based on our view of the world as we know it now, which could change. I encourage you to look at today's press release for a discussion of the risks that can affect our business.

On today's call is Donnie Smith, President and Chief Executive Officer; Jim Lochner, Chief Operating Officer; and Dennis Leatherby, Chief Financial Officer.

To ensure we get to as many of your questions as possible, please limit yourself to only one question and a follow-up.

I'll now turn the call over to Donnie Smith.

Donnie Smith - President and CEO: Thanks, Ruth Ann. Good morning, everybody, and thanks for joining us on our Q3 call. Well, our multi-protein, multi-channel value-added business model again proved effective. I am pleased with our execution and our results.

In our press release this morning you saw we reported $0.51 a share for the third quarter or $0.46 a share on an adjusted basis. We once again posted record sales with $8.2 billion, and our overall operating margin was 3.8%.

Jim will provide detail on our segments, but I will just point out that Beef’s return on sales was near the top of the normalized range and Prepared was just under its range. In May of 2010, we raised Pork’s normalized range to 4% to 6% because it has consistently performed above 6% and we believe this performance is sustainable over time. We’re again raising Pork’s annual range to 6% to 8%.

The Chicken segment’s return on sales was only 1%, but given the unexpected supply and demand imbalance in the third quarter, we are proud to say our Chicken business was profitable. We believe we’re adjusting to a new paradigm layer for a prolonged period; we’ll be required to get chicken pricing to cover live cost in the upper $0.40 per pound range. To give some context, live costs have averaged in the mid-$0.30s for the first five or six years, and in the mid-$0.20s for the two plus decades prior to that. We believe the current input cost are here to stay. Therefore, we're focused on pricing because the current situation is simply not sustainable.

On our second quarter call, we were cautious about chicken consumption, particularly at foodservice, but it was slightly worse than we, our customers, or other forecasters predicted. This, along with excess production led the market prices at or near historical lows. We now know why consumption didn't meet expectations, as the Commerce Department recently released its advanced estimate of calendar Q2 GDP at a weak 1.3%, and simultaneously revised calendar Q1 GDP, down from 1.9% to 0.4%. Unemployment is still over 9%. Gas prices continue to take a bigger piece of disposable incomes with the average price of unleaded peaking at almost $4 a gallon in May.

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