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Tyson Foods, Inc. Class A TSN
Q2 2012 Earnings Call Transcript

Transcript Call Date 05/07/2012

Operator: Welcome and thank you for standing by. At this time, all participants have been placed on a listen-only mode until the question-and-answer session. Today's conference is being recorded. If you have objections, please disconnect at this time.

I would now like to turn the conference over to Mr. Jon Kathol. You may begin.

Jon Kathol - VP, IR: Good morning and thank you for joining us today for Tyson Foods Conference Call for the Second Quarter of our 2012 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 you as many of you as possible, please limit yourself to one question and one follow-up, then get back in the queue if you have additional questions.

I will now turn the call over to Donnie Smith.

Donnie Smith - President and CEO: Thanks, John. Good morning, and thanks for joining us today. Our second quarter earnings were $0.44 a share compared to $0.42 in the second quarter of 2011. Operating income was $302 million, which was about flat to Q2 last year. Sales were up 3.4% versus Q2 a year ago at $8.3 billion.

The Pork segment was again above its normalized range with an 8.4% operating margin. Prepared Foods was near the top end of this normalized range with a 5.5% margin, and our Chicken segment returned to normalized earnings sooner than expected with a 5% return on sales in the second quarter. Beef was challenging again this quarter, finishing around breakeven, and Jim will speak to what happened there in his remarks.

We are now halfway through what will likely be our third consecutive year of solid earnings. The team is running the business well by focusing on our customers and executing on key performance indicators. We continue improving production efficiencies and management systems, and we are getting a solid return on the capital we invested in recent years. The work we've done internally is paying off and now we're beginning to build on that for the long-term success or growth.

Externally key economic indicators continue to recover slowly. Consumers' views about current conditions improved in February and spending jumped to its highest level in seven months. However, consumer confidence pulled back slightly in March. Consumers appear to be cautious about the economy, but still hopeful that national gasoline price average fell in April from its recent highs of about $3.92 a gallon to the current average price of about $3.75 a gallon. The energy department, however, still says fuel prices will peak in May at about $4. Taken all these economic indicators into account, we're cautiously optimistic that the worst is over for the foodservice industry.

Foodservice dollar sales increased 6% in the first calendar quarter of 2012 versus the same quarter last year. Quick service restaurant segment continued showing growth with consumer spending up 3%. Full service is showing dollar growth as well with spending up 10%. Again, this is sales growth, driven primarily by inflation, not necessarily volume growth. Major restaurant chains are leading the recovery, although it likely continues to be at the expense of independents which are still struggling.

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