Tyson Foods Inc Class A TSN
Q4 2010 Earnings Call Transcript
Transcript Call Date 11/22/2010

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.

And now, I'd like to introduce Ruth Ann Wisener. Thank you. You may begin.

Ruth Ann Wisener - VP, IR and Assistant Secretary: Good morning and thank you for joining us for Tyson Foods Conference Call for the Fourth Quarter and 2010 Fiscal Year.

I need to remind you that some of the things we 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 our 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 then get back in the queue for additional questions.

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

Donnie Smith - President and CEO: Thanks, Ruth Ann. Good morning, everyone and thanks for joining us. Well, I hope you've had a chance to review our press release to see that we had a record fourth quarter with GAAP earnings of $0.57 a share or $0.64 a share on an adjusted basis.

We produced net sales of $7.4 billion and operating cash flows of $350 million for the quarter. Our Q4 adjusted operating margin was 5.6%. Our net sales of $28.4 billion for the year, we produced record GAAP earnings of $2.06 or $2.19 a share on an adjusted basis, and all of our operating segments we're in or above their normalized ranges.

These results generated significant cash, which we used to reduce debt and reinvest in our business. These results also demonstrate the strength of our diversified protein model. Beef and pork produced close to $1 million in operating income for the year. The Chicken segment improved significantly and was within its normalized range.

Market conditions were favorable versus '09, but they were far from ideal. The economy has been slow to recover, foodservice demand was off again, consumer confidence was low, cattle and hog costs climbed throughout the year. (Cash), corn and soymeal prices averaged about $0.40 a bushel and $30 a ton cheaper for the year respectively, but of course we were out in Russian market for most of the year and lower leg quarter prices offset some of the benefit from feed ingredients. Overall, the domestic availability of protein was lower than in '09 which was favorable. But in the end, our diversified protein model and most importantly our improved execution made for a very strong performance in 2010, despite the headwinds.

Before I move on, I'd like to quickly remind you of our four objectives; be our customers go to supplier, be the best-in-class protein manufacturer, build a multi-protein enterprise and upgrade our raw materials and byproducts which is of course a reference to our renewable product business.

Success in serving our customers was demonstrated by several Supplier of the Year awards we received from some of our most valued customers, and we will continue earning their business through innovation service.

As for the second objective, our progress towards becoming a best-in-class protein manufacturer is evident in our results compared to our historical performance and compared to our competition. The progress of the other two objectives might be a little less visible right now but they are still important to our long-term growth and diversification. We made progress on our international operations in 2010, Tyson de Mexico had a great year by improving yield and product mix, keeping the gross margin up while simultaneously driving G&A costs down. India was also a good year, although it's a small piece of our business we continue to be very pleased with the execution of our team in India. We still have work to do on our new operations in China and Brazil. Keep in mind, we have greenfield operations in those two countries, and we knew they would not contribute to our earnings this past year, but I am confident in our teams in those countries. They are right on track. Although, we did write-down goodwill in Brazil, we believe our international operations still offer good opportunities for long-term growth.

Moving on to renewable products, I am happy to say that Dynamic Fuels plant began producing fuel in early October and has operated at a depth of 2,500 barrels a day as we continue to ramp up production. We're very pleased with the quality of the fuel being produced from non-food grade animal fats and greases. The renewable diesel we're making really is the best in the world from both a performance and an environmental standpoint.

Looking forward into 2011, we obviously have some turbulence to deal with. Inputs, especially corn are going to be a challenge, but we're doing everything we can to offset those inputs through pricing, operational efficiencies and managing our product mix.

We began in late 2009 and we'll continue through 2011 investing capital (indiscernible) fresh chicken plants. In our fresh plants, the primary focus of our capital expense is to increase yield, labor and line efficiencies, while concurrently improving our flexibility to produce a more market relevant product mix. We are also investing in our further processing plants, to improve line efficiencies to keep pace with customer demand for our value-added products.

The investments in size of the profit improvement projects differ from plant to plant, but many of them will produce a return of between 25% and 40%. We still have work to do, but we feel very good about out ability to mitigate at least some of the increased inputs with lower conversion costs.

Now on the demand side, we don't see any decline in U.S. protein demand in 2011, but it looks like growth will be limited.

In foodservice, if current trends hold, we predict sales to be about unchanged to maybe up 1%. Several foodservice operators are reporting positive comps, but there are still plenty signs of weakness. We think Chicken volume at foodservice maybe up around 1% in 2011. Intuitively, you think Chicken demand would improve, as Beef and Pork prices increase, but there doesn't appear to be protein substitution on the menus at this point.

At retail, we also predict total meat volume to be about flat in 2011 versus 2010, with Chicken a slight winner in year-over-year tonnage, all driven by lower available suppliers of competing proteins.

Consumers are still cautious about the economy, and their feelings are driving what they spend and where they're spending. Many consumers are still looking for the value play, while some are spending on the upper end of retail rather than returning to foodservice.

With that said, based on everything we can see now, 2011 will be a good year for us because of our multi-protein, multi-channel business model. I can tell you the year is getting off to a very good start. We currently expect Q1 EPS to be comparable to the Q4 results we report today.

I'll wrap it up by saving thank you to all of the Tyson team members for their efforts in making 2010 the most successful year in Company history. Let's stay focused on producing more good results in 2011.

I'll turn it over now to Jim for a review of our segment results, followed by Dennis with the financial report.

James V. Lochner - COO: Thanks, Donnie. As you said it was a great quarter and a great year, and we got there by following our strategy. We strive to be our customer's go-to-supplier, which means providing quality, service and innovation, and we do this while maximizing revenue and minimizing costs that driving to be best-in-class in protein manufacturing.

To see how we accomplished it, let's look at each of our segments. Pork had another phenomenal quarter with $125 million in operating income and 9.9% return on sales. This compares to 10% and $125 million in Q3 and 4.9% and $48 million in Q4 of '09. Sales volume was down 8.7%, but keep in mind this was the 13-week quarter compared to the 14 weeks in 2009. Average sales price was up almost 42%.

Earlier this year, we raised the normalized range for pork, return on sales 4% to 6%, and it continues to outperform by a significant margin based on what I've seen halfway into the first quarter, we don't show any signs of letting up.

Beef also had a very strong quarter with $121 million in operating income and 4% return on sales, this compares to $176 million and 5.6% in third quarter and $120 million, 4% in Q4 of '09 excluding the $560 million goodwill impairment.

Sales volume was down 11.8% with average sales prices up 14.4%. I am extremely pleased with the Beef and Pork results in 2010 and thus far in Q1. We are forecasting no major changes in the market fundamentals for either Beef or Pork.

Let's talk about each of the components. First supply, either Beef nor Pork production can change much in 2011, due to lifecycle of the animals and we should have ample supplies in the regions in which we operate our plants.

USDA Cold storage data indicates Beef and Pork inventories are down substantially, 14% versus last year and 13% versus the five year average. Finally, imports into the U.S. have trended down with no significant growth forecast for next year. The supply data looks to be in good shape in support of our prices

On the demand side, disappearance in both domestic and export channels is good, exports in Beef and Pork have been very strong and are forecasted to remain strong next year in the USDA projections. USDA positive beef cutout the last four weeks is up 12% versus the same period last year with slightly higher volume. The Pork cutout over the same time period was even more dramatic and generated 34% improvement even with 5% more pounds produced compared with the same timeframe last year. Obviously, overall demand has been strong enough to support the revenue this fall.

In summary, at this point we don't see anything in the market fundamentals to prevent Beef and Pork from performing in fiscal 2011 at or near the levels of 2010.

Turning to Chicken, in the fourth quarter the Chicken segment posted $141 million in operating income with a 5.4% operating margin or 6.5% adjusted for the goodwill impairment of our Brazilian poultry operations. This compares to $186 million and 7.4% in the previous quarter and $32 million and 1.2% in the same quarter last year.

Our volume and price were each down less than 1% compared to Q4, '09. Despite softer market pricing, we delivered a fiscal year within our normalized range for the first time in several years. Our Chicken operations continue to perform well and we anticipate Q1 results also would be within the normalized range.

We attribute our performance to our ongoing efforts to gain operational efficiencies and generate a more profitable product mix. We realized approximately $400 million of these improvements in fiscal 2010.

2011, there are more than $200 million in operational efficiencies to be implemented and about $200 million in price and mix improvements. This should help offset higher grain prices forecasted for the year. Although we have planned normal seasonal production decreases, perfect growing conditions resulted in a heavier weights and excess pounds on the market. USDA data showed record pounds produced for several weeks this fall before the planning to lower levels on October and November.

Our goal is to match production to our sales forecast, while keeping inventory at appropriate levels. Therefore, we are continuing our planned production cuts into the second quarter.

Thinking about chicken production, it's important to keep in a context of total protein disappearance worldwide. Exports in the supply of other proteins are key factors. Currently, USDA and other analysts project total domestic availability of all proteins to be flat to slightly down in 2011, despite a projected increase in Chicken production of 1% to 2%.

Moving on, we were disappointed with our Prepared Foods segment's fourth quarter results. It generated only $10 million in operating income or a 1.3% return on sales. This compares to $22 million and 2.9% in Q3 and $39 million and 5.3% same quarter last year. Volume was down 6.7%. Average sales prices increased 16.9% primarily due to higher input costs.

With raw material price volatility we experienced, we continue to move away from long-term fixed price contracts towards more near-term pricing agreements. This will allow us to absorb rising input costs more effectively, which will be important in 2011 as inputs especially pork and (beef) are likely to increase again.

In closing, the protein fundamentals present a mixed bag. We have a negative trend with grain costs projected to be above 2010. The positive trends in global protein supply and demand fundamentals took part of a protein prices into 2011. The opportunities we've identified inside Tyson will create significant value whatever the markets do. You can see how far we have come by our 2010 results and we look forward to implementing the rest of our plans in 2011 and beyond.

Lastly, I want to personally complement all of our team members. I'm very proud and pleased with our focus on taking care of the customer, improving the product and the cost, and their spirit of continues improvements as they willingly take on new challenges.

Now, we'll go to Dennis for the financial report.

Dennis Leatherby - EVP and CFO: Thank you, Jim, and good morning everyone. Our reported Q4 earnings of $0.57 per share include $29 million or $0.07 per share related to a non-cash goodwill impairment charge, involving our Brazilian poultry operations. Excluding this impairment, Q4 EPS was $0.64 per share.

Our reported full year of fiscal 2010 earnings were $2.06 per share, which includes $0.13 per share of adjustments for the goodwill impairment, losses on bond buybacks, impairment of an investment and insurance proceeds received in Q3. Excluding these items, fiscal 2010 EPS was $2.19 per share.

Our operating cash flow was $350 million for Q4 and $1.4 billion for the year. Because of this, we've reduced our debt to its lowest debt level in nearly a decade. Net debt, which includes cash of $978 million, was $1.56 billion, a reduction of $190 million from Q3 and $732 million from a year ago.

Total liquidity, which includes availability under our credit facility, cash was $1.8 billion. Our bond buyback program slowed considerably in the fourth quarter because of the higher prices of our bonds. As a result, we purchased just 32 million of bonds for the quarter.

For the full year, we retired or repurchased 956 million of bonds, a great achievement we don't expect to repeat in 2011, due to consistently high prices for these bonds. Return on invested capital for the year was 23% a measure we are proud of achieving and are striving to maintain and improve over time. Capital expenditures were $146 million for the quarter and $550 million for the year. This number is less than our previously announced capital spending plans due to the time lag between authorizing and spending on these projects. As you'll see in our 2011 CapEx guidance, we will spend these dollars in 2011.

Our effective tax rate for Q4 was 35.6% or 32.6% without the non-deductible goodwill impairment charge. So, here are some thoughts on the outlook for fiscal 2011.

Revenues are expected to be around $30 billion. We expect net interest expense will be approximately $245 million, down nearly $90 million compared to fiscal 2010. Effective tax rate should be about 37%.

Presently, we have approximately 379 million shares outstanding. However, this number could change based on the dilutive effect of options in our convertible bonds as it relates to our stock price performance.

CapEx should be around $700 million as we continue to reinvest in our businesses, this includes carryover spending from 2010. Our spending will again be focused on improving the operating efficiency and competitiveness of our domestic operations and completing the build out of our existing foreign businesses.

Depreciation and amortization will be approximately $525 million. As per debt, we will continue to repurchase notes when available at attractive rates. Also we do not have any significant maturities of debt coming due over the next three years other than our 8.25 notes due October 2011. The balance on these notes was down to $315 million at end of fiscal 2010, and we plan to retire the current cash on hand and/or cash flows from operations on the last day of fiscal 2010.

Looking back 2010 was a record year that we are very proud of, but we also believe there was a start of many great years ahead for our company. We have changed each of our businesses for the better and we are seeing our efforts pay off. Our diversified protein model is working.

The Beef and Pork performance in 2010 was outstanding and we expect it to continue. The Chicken and Prepared Foods businesses are both now in their respective earnings ranges and our teams are actively working on additional improvement to help offset the challenges they are facing with input costs. Our capital structure is sound. Our overall company performance was strong and our improved ratios are reflected in the upgrades and positive outlooks received from all three rating agencies in recent months.

We look forward to demonstrate that our improved performance was sustainable and we're worthy of return to investment grade and higher earnings multiples from investors which are reflective of the strong and sustainable operating performance.

In summary, Tyson Foods is a much different company than it was even two years ago, and we plan to continue to grow and improve.

For the Tyson team, I'm proud of all you have done, but let's keep getting better as there are even more opportunities ahead of us.

Thank you, and with that – that concludes our prepared remarks. I'll ask Candy to begin the Q&A.

Transcript Call Date 11/22/2010

Operator: Ann Gurkin, Davenport and Company.

Ann Gurkin - Davenport and Company: I want to just ask two questions if I may, one regarding the Chicken segment. I believe you said you look for margins to be in the range in Q1, can you help us understand how this margin should look as we move to the calendar 2011 year? Secondly, what gives you the confidence in your statement that export volumes are likely to grow, is there any data behind that statement or what gives you that confidence?

Donnie Smith - President and CEO: I'll start with the first part. We do think Q1 will be inside the normalized range. As we look forward, obviously, as we move through the year, there's quite a bit of unknown or what grain would do, but we also think that we've got a lot of opportunities inside of our business to reduce our operating costs and continue to improve in our operating efficiencies, and we believe there's opportunities for us also in price and mix. It looks like probably Q2 would be the trough in our earnings, but we do believe that our Q2 is going to be profitable. So I think that's probably about as clear as I'd like to be now on the Chicken segment for the year. On the export, please, could you repeat your question there again?

Ann Gurkin - Davenport and Company: Your confidence about export volume to grow for overall proteins, I guess the markets are so unpredictable that I was just interested in your thoughts behind that statement?

James V. Lochner - COO: It's really based on what we've seen in Beef and Pork particularly the last quarter and just the interest going forward and most analysts including some of USDA data and other analysts that have looked at it are projecting Beef and Pork exports to continue to grow. Chicken may or may not, depending upon what happens with Russia and the rest of the world. I think the only stand that we could potentially see again would be the weakness or strength of the U.S. dollar, but right now it certainly looks like demand is carrying right through into 2011.

Operator: Vincent Andrews, Morgan Stanley.

Vincent Andrews - Morgan Stanley: I want to make sure. I heard something correctly on the call. It sounded like you said that you were cutting production in Chicken in 2Q as you've planned or did I mishear that?

Donnie Smith - President and CEO: No, that was correct. Let me add a little bit of color here. During this late summer, it was incredibly high in most of the growing regions, which really caused our bird weight and therefore, live pounds produced, dropped. So, in order to make demand, we did two things. We maintained a pretty large inventory in the field, and then at the same time, we've repurchases to meet off the market. So, we can keep our expected service levels to our customers. Early in the fall, we implemented our normal seasonal production cuts to make sure that our inventories stayed in line, but the combination of that increase in lot of supply coupled with what turned out to be a fairly dramatic improvement in our performance, cause us to produce more pounds than we intended. Of course, also during that time, USDA data shows that there were several record weeks of total poultry production. So, in essence, we build too much inventory. So what we did is we extended our production cuts into Q2, so that now our current plan will have our inventories back to their target by the end of Q2, and does at the beginning of what we would call the peak volume season. We've got our inventories in line, and we'll be running our production deal. Currently, we're planned back to normal levels, but it all depends on our demand.

Vincent Andrews - Morgan Stanley: If I could just ask you to square that in prior quarters you've made some commentary, or that actually looking to increase production, is that accounted for within what you just said and it sort of washes out or is that a separate issue?

Donnie Smith - President and CEO: Listen our plan is to always match supply and demand, that's the overall goal. In our Q1 frankly, we ran a (busted play.) We pulled another play out of the play book and we're going to cut our production in Q2 so that our inventories where we want it to be at the end of Q2 and then from that point forward or during Q2, we'll always look forward at our forward demand and then make our production decision based on our what our forward demand curve looks like.

Vincent Andrews - Morgan Stanley: But none of these decisions is a function of either, A, the amount of production that the rest of the industry is increasing or, B, the corn and soybean meal price outlook is that correct?

Donnie Smith - President and CEO: No, it's balancing supply and demand they've got away from us a little bit in Q1 and we're correcting it in Q2.

Operator: Farha Aslam, Stephens, Inc.

Farha Aslam - Stephens, Inc.: First, just a point of clarification, you said that fiscal first quarter was going to be in line with the fourth quarter. Do you mean the GAAP number or adjusted number?

Dennis Leatherby - EVP and CFO: Adjusted number.

Farha Aslam - Stephens, Inc.: Then in terms of Chicken, you're right now in the foodservice contracting season. Could you address how you're dealing with the higher grain prices in your contract?

James V. Lochner - COO: Farha, I'll answer that. We're certainly communicating what we think the forward curve for our increased input costs are. We're working hard with customers looking at the meat block, looking at where they can work their menu prices and then we're certainly trying to make sure that the mix is right or not trying to go out very far, but in customers who want to go in the year contract we try and as best we can to either get ceilings and floors on the grains that's one approach. Again, we're just been out communicating particularly all year with most of our accounts that we think if the domestic availability of protein is going down prices are going up and we're trying to make those adjustments. Thus a qualitative answer because I clearly can't get into the account-by-account answers.

Farha Aslam - Stephens, Inc.: Maybe just one clarification then I'll pass it on. When you talk about mix could you just give us some color about what you mean when you're talking about trying to improve mix and change mix?

Donnie Smith - President and CEO: This is Donnie, I'll give you a quick example. I'm going to use our fresh trade pack or chill pack business as an example. There are times in the year when whole birds, for example, are popular in the retail marketplace, but there are other times in the year like, for example, grilling season when it's more of a boneless side drumstick type market, so they want to cut out parts. In several of our fresh chicken plants, we have some mechanical limitations to be able to provide that market relevant mix, in other words, have the percent of boneless as a percent of the total mix that we're selling into the marketplace at an adequate percentage, frankly, to meet customer demand and to give us the type of return that we need to compete in that segment. For the last year or so, we've been plowing quite a bit of our CapEx into those fresh chicken plants in order to add the flexibility that we need to produce for example more boneless and more cut out parts versus whole birds or those types of things, anyway to have the flexibility to have a more market relevant mix. Mix would also pertain to selling more value added further process items in foodservice, for example, than a commodity CVP breast meat or CVP bone end part, that type of things. So that's what we mean when we talk about mix.

Operator: Kenneth Goldman, JPMorgan.

Kenneth Goldman - JPMorgan: Could you walk us through, I know you're talking about mix here and I appreciate that and I appreciate the Tyson brand goes a long way, but on the other hand a meaningful amount of your business is still commodity-oriented and we've seen exits up maybe 5%, 6% on average lately, and we've another big retail plant opening in a month or so. So with projections for demand relatively flat, may be up a little bit, supply flat or may be up a little bit too next year, I am just curious for some more color on how pricing goes up quite enough to offset your grain costs. I know it's not all of it is offsetting your efficiency too, but I think you mentioned $200 million. Maybe you can give us a little sense of how much of that is mix and pricing and may be some more confidence on how you get there?

James V. Lochner - COO: Donnie gave you a good explanation on how mix and finding and having the ability to produce the mix that's generating the most revenue and staying offset, so you're just not pushing meat into a wholesale market. You're really trying to find the best retail, the best foodservice or even the best export opportunity. So it's a combination of mix and having flexibility. But I want to step back and make a real – think through what's really going on the Beef and Pork pricing, and as I mentioned in my remarks that we're up 12% Beef, 34% in Pork year-over-year last four weeks, and then I'd read a report here this morning that retail prices are not in 10-year highs, which is really suggesting that that price as well as wholesale and the retail prices are going though. Now if we take the whole domestic protein scenario that's going to continue to decline, you can see for some forecast Beef down 2%. So we're going to have that trade-off between proteins going forward, and even if Chicken production does come up 1% to 2%, and exports don't increase, I think Chicken will be the value, and you saw very strong pricing last summer. So, right now, it seems pretty doomed, because we came through this extra production from increased performance. But as we go into the normal seasonal demand periods, I'm fairly optimistic that we're going to be able on navigate the prices. But again, it's the combination of the whole picture as the protein supply, and the validation that we were able to push wholesale prices and retail prices in the other segments. So, that's my explanation.

Kenneth Goldman - JPMorgan: Just one question on Pork, you mentioned that retail Pork prices are at an all-time high. They keep growing. Industry Pork margins are at record high, as the retailers are making great margins. Can you help us understand this dynamic a little bit better? It seems to be a little – I know, you can go in through this from months now, and frankly I'm still not fully comfortable as to why it's happening, given that hog prices are so high. How much of it is related to new breakfast programs at QSR? How much of it is related to – other of your competitors I have heard acting more like a Pork packer rather than hog farmer, I've heard a lot of different theories, but I'm just curious how sustainable these Pork margins and Pork prices will be you think?

James V. Lochner - COO: I'll answer it real quick by saying just I used to go back, and take a look at a pure demand forecast report and when you look at domestic availability and price, and it's right on plan. In other words, we're just set tight in supply and there hasn't been a fall off in demand and export markets are sustaining in that, and just keep in mind, the (indiscernible) declined for may be the $1.60, and we're pushing, the industry is pushing, and the retailer is pushing bacon prices. So at what point, (we're not seeing a demand). That's my whole plan.

Operator: Tina McGlone, Deutsche Bank Securities.

Christina McGlone - Deutsche Bank Securities: Donnie, I was curious last year it seemed in the winter that Tyson made a decision that you'd rather buy breast meat than store like quarters, given the seasonality. I am curious, if your inventory position that you talked about, the fact that you have to cut production, does that change that plan, because I thought that was something that you are going to do consistently going forward?

Donnie Smith - President and CEO: Christina, the plan would be the same. Obviously, we'll let Q1 get away from us a little bit. We will have that corrected by the end of March. Going forward with the current demand forecast that we see in place in Chicken today, we're pretty balanced on a whole bird basis now so it doesn't appear we're going to be in the market, but if we were to be out of balance certainly we would make the decision whether to buy it a part that we need versus growing a whole bird and produce parts that we don't need. So, wrapping all that up, it appears going forward our forecast tells us we're pretty balanced in whole bird increments and won't be on the market much and own through the year.

Christina McGlone - Deutsche Bank Securities: Then follow-up Jim, in terms of Pork, you talked about good export, lower imports. September might be an odd month because prices were so high, but it looks like that the opposite happening. I am curious are you seeing that reverse October, November where exports are stronger and imports of Pork are lower?

James V. Lochner - COO: Exports have been tracking just a little bit under the prior year but again, we've seen strong interest in imports on in a huge factor when you look at it, but the bulk of those come from Canada. Again, the world, (I will) take you back to the world supply of Pork are down because Canada is way down, EU is down and we're down. We're the primary three countries that are producing Pork in the world, aside from China. That's the key message – clearly, we're down I think year-to-date 1% or 2%.

Christina McGlone - Deutsche Bank Securities: So the net balance is enough to pull our product – to help fight the pricing outlook for Pork?

Donnie Smith - President and CEO: Keep in mind, we're down 1% to 2% year-over-year when our supply is down, got to factor the less supply into the export equation. So, it's still a net domestic availability and Pork overall being down and that really answers the question on the price point.

Christina McGlone - Deutsche Bank Securities: Last question Dennis, can you talk about when you said about shares and the options in the convertible bonds and your stock price, can you review what the triggers are there?

Dennis Leatherby - EVP and CFO: Basically, when you think about our converts, that's the biggest driver. When our stock price gets say in $17, $18 range and above we start to have – to add more shares to the count, and same with options. So, there is a formula that you can find in the back of our convertible offering and it's just really driven by the stock price.

Operator: Christine McCracken, Cleveland Research Company.

Christine McCracken - Cleveland Research Company: Jim, first, relative to your comments on the retail pricing on proteins, when I looked at the retail pricing for chicken it seem like there wasn't as much of a decline maybe as the underlying market, and I'm wondering to what degree would that limit your ability than to get pricing at retail. I know there is a difference wholesale versus retail pricing, but just curious what impact would that have on your ability to realize better pricing?

James V. Lochner - COO: I'm not sure of all your questions. Chicken wasn't as high as the other two, but the spreads are still fairly good and the report that I read, but we get paid always on wholesale prices, and so it's always against that the disappearance was happening in a given week relative to demand and we're coming through the timeframe right now where the increased performance bird put more pounds out there than supply – than demand was cleaning up. At this point, I don't really expect to see a major issue trying to get retails prices and wholesale prices in Chicken up relative to what the supply/demand fundamentals give us. So I'm not really following your question whether Chicken will have a decreased demand relative to the others or…?

Christine McCracken - Cleveland Research Company: Not so much, just relative to the retailer's willingness to increase the shelf price. But following up on your comments on weight, we saw big increase in weight. You've talked about the favorable growing conditions. I think part of that was your move to the bigger birds over the last year. When you talk about your intentions, I guess the whole production or at least reduce – take your – or continue your seasonal cutbacks I'm just wondering is that in weight or is that in heads and so when we look at those exact numbers, there's a…?

James V. Lochner - COO: Christina we'd be in both that the issue when our weights get above the target zone, our customers and our specifications we got to pull them back. So we're going to try to produce bids by category against the expectation of the customer. Obviously, the large bird deboning has a little bit different play, but the average weights were (578) again and you're just seeing this very good performance, which many attribute to really the quality of the corn and a very high test rate and then we had excellent growing condition. So the productivity all came up. That's really were the imbalance this fall came from when you really look at the retail. Then our production cuts will be both, but we're going to try to obviously give the best live production we can at the targeted weights, and really match our egg sets and placements according to where our demand forecast are upfront. So, that's really is the plan.

Operator: Heather Jones, BB&T Capital Markets.

Heather Jones - BB&T Capital Markets: One, going back to your comment about you haven't seen a meaningful shift at foodservice away from the other protein to Chicken, and that's in a contrast to what some of your competitors have seen. I'm just wondering – just broadly are you not seeing a shift to QSRs, just wonder if you could elaborate on that comments on?

James V. Lochner - COO: I'm going comment against all of the foodservice whether its restaurants, the non-restaurant part of demand, we have not seen a meaningful shift in demand from Beef and Pork in to Chicken as this time across all of foodservice.

Heather Jones - BB&T Capital Markets: When you say that you think Chicken volumes at foodservice will be up 1%, are you talking about above what's foodservice traffic will be up or just period – Chicken traffic, Chicken's demand, volume demand at foodservice will be up 1% year-on-year in '11?

Donnie Smith - President and CEO: Heather, I'll add just a little bit of clarity, and then Jim if you want to clean up if I happen to make a mess here. Here is what I think will happen at foodservice in 2011. I'll first start talking about growth sales or let's call that real growth. In total restaurants and bars, which is about two-thirds of the foodservice industry, I think you'll be up about four tenth of a percent in real growth in 2011 versus 2010. In all our foodservice beyond restaurants which would be the supermarket foodservice, convenient stores, travel and leisure, business and industry, healthcare et cetera, education those categories I see those categories as being flat in 2011 versus 2010. So, if your load up all of foodservice, in terms of real growth I think you're going to be flat to up 1% at best. My number today would be 0.3% increase in that total sales and that could be driven by drinks that could be driven by anything on the menu. So, then on the Chicken side, it just looks like to us intuitively with Beef and Pork prices are higher in 2011 that ought to be some advantage to Chicken volume and I am calling total Chicken volume up 1% from '10 to '11. Jim, you want to add anything to that?

James V. Lochner - COO: I did a fair amount of quick analysis, to spare you all the detail, but the reality is that Beef drops in domestic availability of 2% and above half of that flows foodservice and I got to walk that back down to boneless Beef and then hitting an estimate of how many pounds would be consumed in Chicken. At foodservice, I get to a nice number that's pretty close to 1% to 1.2% and my assumptions are right, just as if protein consumption at foodservice is flat next year, year-over-year just less Beef and Chicken replacing it because I really look at foodservice to be predominantly in Chicken, Beef consumption pattern. In Beef, domestic availability dropped 4% and roughly 2%, I've just worked the math out looking at mass balances.

Heather Jones - BB&T Capital Markets: A single question, wondering with the exception of this past week there has been a fairly sizable disconnect between excess data and the size of the breeder flock. The latest data we is for the breeder flock in September for this point up like 2.5% year-on-year but you've had much larger year-on-year increases in that in excess when typically they tend to agree more, I'm wondering if you could give us some sense of what you believe is driving that.?

James V. Lochner - COO: I'm not exactly sure either, at this point, because we clearly are watching eggs it appears the hatch is up and then looking back at forward lead on the pullet placements. I would clearly think with increased feed input costs and the long-term picture, particularly with the pressure we saw on pricing that we're still in a dynamic shift that's happening because this happened fairly quick and people have to make some changes. So, we're confused a bit as well.

Operator: Diane Geissler, CLSA.

Diane Geissler - CLSA: Can you talk about your coverage on the grain side into 2011, I think on your last call you mentioned you recovered on your grain needs through the December quarter?

Donnie Smith - President and CEO: Yes, we did. Let me add this, and I want to be a little careful about how much detail I give, because frankly this comes back to us in the marketplace but I do understand I want give you as much clarity as I can. Q1 is in good shape. In Q2, we have extended some coverage into Q2. Feel very comfortable that our pricing in that range is going to be good for us. I don't really want to talk about much beyond that, but let me say this. The real focus of our position in grain was to try to get us covered to a point at which we could see what we felt like the value of corn would be. So, there are two very important things that come to play here. One, we need to get into that January crop report and find out what our total yield really is. We like, a lot of people, were pretty surprised that we thought we had a 165 yield in September and we're staring at 144 in the eye today. There are some analysts that are talking 154 in the eye today and some analysts talking about that they may be easing down in the 150. We'll know that or at least we think we'll know that in early January. There's also some talk about how much of new crop production got used in old crop and did that affect the stock's report? We'll find that out in January. Finally, may be as important or maybe more is what we're going to do about this ethanol tax credit. I would not want to have a long position hung that over this market if this tax credit does not get renewed because we think there's a significant drop in play, and we told you before and it won't change we're going to keep a very conservative close to the best approach on our commodities trading. So that's really about as much color as I'd like to give on grain things.

Diane Geissler - CLSA: Maybe I can follow it up this way. I think one of the issues with your stocks this fall has been volatility in the grain market and even if I look at where estimates are on the street, you've got a low of $1 and a high of $2.40, now it sounds like with your commentary on your first quarter, what your expectations are there, it should be a slam-dunk on the buck. But this is probably as wide a range as I have ever seen on the forward look for the next fiscal year. Can you give us some comfort, it sounds like Beef and Pork are continuing to put a number certainly above the historical range. If you move your Chicken into the historic range for the full year, it is possible you could do better this year than in fiscal '10?

Donnie Smith - President and CEO: Here are the things I can say about '11. Number one, we're off to a very strong start with Q1 looking like our Q4 just ended. Number two, we do have a couple of $100 million in operating efficiencies that we feel like we can improve in our business, and we've got a $100 million worth of mix and price improvements that we feel like we can improve in our business, all in the Chicken segment. We feel like we've done a pretty good job of containing the grain costs for our Chicken segment in the time of the year when there was the most volatility, and we know least about the fundamentals of the crop. The other segments in our business are strong and appear very strong, and don't forget, we've got about $85 million to $90 million interest improvement from '10 and to '11. All those things add up to a good year. Now, is it going to appear this year, well that's too early to say, but we are sure off to a good start and feeling pretty confident at this point.

Operator: Ken Zaslow, BMO Capital Markets.

Kenneth Zaslow - BMO Capital Markets: Easy question, how long will it take for you to pass through the pricing on Prepared Foods that we should start to get to more normal operating profits?

James V. Lochner - COO: Certainly, the correction that occurred on inputs with bellies dropping from 160 back to the 85 helped. But again, we're just trying to shorten that forward sell cycle with the volatility of inputs and then we had the correction in input costs as well. So, it's just a dicier game across Prepared Foods and the meat category and then we experienced the same thing and we try to get as much formula business in both categories as we can. So, I can really give you a time line, but I am going to give you the drivers behind it.

Kenneth Zaslow - BMO Capital Markets: So, the first quarter that you are seeing is going to be similar to the fourth quarter is still going to be absent any decent performance in Prepared Foods essentially?

James V. Lochner - COO: We are expecting it to be better than it was in Q4 and Q1 just because they have those corrections in input costs.

Kenneth Zaslow - BMO Capital Markets: In terms of balancing the idea between higher hog prices and stronger Pork packer margin, can you talk about what would put you in a position that you'd be more nervous about that not sustaining at these Pork packer margin, I know they might not be at record levels. But are there influences or factors, exogenous or internal, or whatever you could think of that would take you off, taking these strong Pork packer margin for the foreseeable future there. What are the risks, I guess?

James V. Lochner - COO: Short answer is no, I don't see any outside forces. Always keep in mind that our job is always maximize the revenue and we do it through finding the best prices, making sure that the wholesale prices reflect the spot demand fundamentals (and the) export etcetera. Keep in mind there is a very strong correlation between live stock costs and total revenue. We operate trying to maximize everything we can within our plans and stay extremely competitive and really just it's all internal, you run the best efficiencies you can, you watch all the components you save, you can get all your yields your service to customer etcetera. So, the short answer is, there is not much on the outside unless we see a very huge, absent any trend or some disease or something going on or some international factor, but I don't really see anything on the horizon there either.

Kenneth Zaslow - BMO Capital Markets: Would you (say anything) on Beef?

James V. Lochner - COO: Yes.

Operator: Robert Moskow, Credit Suisse.

Robert Moskow - Credit Suisse: I had a question about the 25% to 40% returns that you expect on your investments in Chicken. Donnie, can you give us a sense of the total dollar amount that you're spending on projects like these, and can we expect the return – what kind of incremental return would you expect for 2011?

Donnie Smith - President and CEO: I'll try to add little more clarity. Our total CapEx for the year will be about 700 million, now that does include some carryover from 2010. Of that $700 million roughly half will be focused at our folks in Prepared Foods business with the bulk of that focused on poultry because in '09 we made some fairly significant improvements in our Prepared Foods and processed meats businesses. Of that, if you take around a third or so, you've got fairly normal CapEx that's got to be spent on these plants for maintaining and that runs pretty much across our entire business. So that leaves you about two-thirds of that money that's going into profit improvement type projects. If you get a good half of that that's going to have somewhat of 25% to 40% return, you've got well over your cost of capital return against the total portfolio of your spend. The real focus of that is to fix some problems we're dealing with today on bottlenecks in our plants, limits in our ability to produce a better mix or more market relevant mix that will allow us to move our revenue up and also we've got some cost improvement projects that we need to improve yield and labor efficiency and line efficiency and all of those things come into play and improving our productive capability in forward years. So, that's pretty much the whole picture on our CapEx spend.

Robert Moskow - Credit Suisse: When you came up with the $200 million in price or mostly I guess mix that you expect to be positive for 2011, does the math tie here? I mean roughly I guess it kind of does where if you assume two-thirds of $700 million that gets you about $500 million. Then if you're aggressively saying 40% returns on that $500 million, that's $200 million, maybe that's the high-end of it, but is that how you look at it?

Dennis Leatherby - EVP and CFO: No, no that's just pure improvement in efficiency and execution, just by building better systems, better feedback mechanisms focusing on our team members, retraining, I mean, is that all CapEx. Our CapEx can solve a lot of your layout and efficiency problem, and then it's really some better data flows and more real time feedback facing manufacturing stuff and feedback mechanisms that really have improved our execution. So, that's why you'll have trouble just saying nothing changed year-over-year; execution improved and continuous improvement regardless to where we spend, we just know where we have to spend to improve those layouts and the bulk of that spend was mixed efficiency.

Donnie Smith - President and CEO: Rob, I think, your math is right but I believe the improvement is coincidental.

Robert Moskow - Credit Suisse: What about for fiscal '10 and then what kind of return do you think you got on the projects that you did in fiscal '10?

Dennis Leatherby - EVP and CFO: On average they were – the forecast, because they're still being realized on the profit improvement alone was in the 35% range.

Operator: Lindsay Drucker Mann, Goldman Sachs.

Lindsay Drucker Mann - Goldman Sachs: I may have missed it, but (what's your vision) for your second quarter production forecast. Can you tell us what you expect total Chicken production for you guys will be next year?

James V. Lochner - COO: I think about as much clarity as I want to add that would be low single-digits for the year. I would hasten on to say though it will depend on our demand.

Lindsay Drucker Mann - Goldman Sachs: Are you seeing any indications at this point that some of the last profitable players are starting to modify their own production schedules?

James V. Lochner - COO: No. We are just focused on our customers and our business.

Lindsay Drucker Mann - Goldman Sachs: Next, can you help us understand how the China tariff impacted you in the quarter and how you expect it will impact you for the full year?

Donnie Smith - President and CEO: China primarily for us is like (wing tip, second joint wing type) market and the tariffs did reduce our revenue. Our business there is still marginally profitable, but it did have an effect.

Lindsay Drucker Mann - Goldman Sachs: Anyway to quantify expectation for how that will impact you, either how it didn't afford or what you're looking for next year if nothing changes?

Donnie Smith - President and CEO: It's really a hard calculation, because that market will move obviously if you would put a tariff on and antidumping duty, countervailing duty, the importer has to pay that so they're going to knock their revenue down, but then all of a sudden normal supply demand revenue are components take over which could offset it may or may not, and that's why it's a bit difficult. We just know that although the revenue drop holding everything else constant, but the reality is not everything stays constant. The impact of the tariffs in China were not being incremental to anything we've said on the call, it's all been taken into effect already.

Operator: Ryan Oksenhendler, Bank of America Merrill Lynch.

Ryan Oksenhendler - Bank of America Merrill Lynch: I just had few follow-ups, I guess, just right on top on Lindsay's question. In terms of your increase in production, you said low single-digits, how much of that is domestic versus international?

James V. Lochner - COO: I am just guessing that the question was domestic.

Ryan Oksenhendler - Bank of America Merrill Lynch: And then to follow-up on Rob's question in terms of cost savings. It sounds like you saved few hundred million in fiscal '10. You have few hundred million planned for fiscal '11. Where are we in terms of runway, is there more – as you look out into fiscal '12 and fiscal '13. Is there $200 million on annual basis going forward?

James V. Lochner - COO: I'd tell you, that's the point of lot of this CapEx. A lot of the money that we will spend in 2011, frankly those projects won't be completed until the summer months and in latter part of the year so we'll get the benefit of those in 2012. Now, to be able to quantify that it's pretty early in the game but you should think that there will be continual operational improvement in '12 versus '11, although today I can't quantify that?

Ryan Oksenhendler - Bank of America Merrill Lynch: Dennis, can you just talk about cash flow expectations for 2011 and if your debt doesn't look attractive to repurchase here, I guess, what's the next priority for you guys?

Dennis Leatherby - EVP and CFO: We do expect cash flow to remain strong. Working capital is up primarily due to the raw material values that we're seeing coming through inventory, and we do have a heavy CapEx, so cash flow well strong will be not quite as strong as '10. As far as uses, our first priority is reinvesting in our business. Other than that, we have the 2011 coming due and we'll keep holding cash for that and just look for other opportunities to grow within the existing business with our cash.

Operator: Tim Ramey, D.A. Davidson.

Timothy Ramey - D.A. Davidson: Going back to some of the comments on Chicken pricing, maybe I'm coming out of the another direction, but it seems like a 2% price mix outlook is conservative for this year? I'm wondering, if you're just sort of looking at it from a static perspective and saying well we're not seeing the mix shift to Chicken just yet so we're not going to put that in our forecast, but if you had to put brackets around it, do you think that maybe the risk of the upside is greater than the risk of the downside on that 2%?

Dennis Leatherby - EVP and CFO: Tim, I got a lot's of my bullish enthusiasm, but in particularly when I look at the big picture, it's so right now was dampened a bit with our performance improvement that Chicken did see in extra pounds that did put on the market, but the big picture still is all the domestic availability and then per capita consumption getting tighter, so that's supportive of pricing. To what degree – and everybody forgets prices chop. They may trend, but it's a long (way trend). I am still thinking they're going to trend up next year, maybe not to the same year-over-year change that we saw in '10 over '09, and '11 will have some increased production in Chicken, but again I don't see demand shifting that much and I'm seeing export interest stay out there. So again I think, you're right, I think we could see some supported pricing. How much, price forecast is – although there is a big standard deviation in those estimates.

James V. Lochner - COO: Tim, I am a little bit cautious here on the economy. With this unemployment right hanging around 9.6%, I am finding a lot of correlation between jobs growth and real growth at foodservice and so until I get a better feel I think for what this economy might do and whether or not people will get back to – our recent data shows that only short of 10% of the 8.5 million jobs that have been lost in this recession have actually been recovered. So until that starts happening, we want to be a little bit cautious, and I think we're in a good number now.

Timothy Ramey - D.A. Davidson: Just a follow-up there, if I could. On the outlook for byproducts including fuels for '11 versus '10, do you have a sense of what the overall mix and profitability might do in '11 versus '10?

James V. Lochner - COO: Well, certainly, you're just seeing, a very strong fat prices even without biodiesel tax credit that's hasn't been acted on all year. You're seeing the demand for biodiesels was up, that'll continue. I don't expect probably to see a major decrease in the byproduct values, because fat and soybean oil, and other veg oils, grape seed oil, etc cetera are in short supply relative to demand. So we're seeing very supportive prices in fat.

Operator: Akshay Jagdale, KeyBanc.

Akshay Jagdale - KeyBanc: Just one quick, I think two questions. One is, from all the comments you have made, is it fair to say that the biggest wildcard for next year is grains in the back half?

James V. Lochner - COO: I don't know why back half would be any different than the current forecast with fundamentals myself. That's always a wildcard.

Akshay Jagdale - KeyBanc: Right. But in terms of just it seems like most people agree on including you, I mean, on Beef and Pork outlook there is no near-term risk and on Chicken, you pretty much said 1Q is going to be very good and 2Q have some certainty. From everything you said it seems to me that the biggest wildcard where you don't have coverage right now is on grains and that could go either way. You think there is a possibility grains could come down, but at the same time we've seen grains move up and down quite a bit. So, it seems to me, since you, I guess, have exposure to about 320 million bushels of corn that if those prices move up or down that could change the outlook quite a bit and that seems to be the main source of variability still remaining in your P&L for next year. Am I missing something there?

Donnie Smith - President and CEO: Grain is half the cost of producing the Chicken, but we're going to control what we can control our costs, our yields, our labor efficiency, our line efficiencies, improving our relationships with our customers which we've done a great job in the last couple of years, which is allowing us to grow our business. We're doing a great job of taking care of our customers in terms of our quality. We are an innovation leader in our industry. I think we've got great opportunities through the year to offset this grain pricing deal. So, we're going to keep our head down and focus on controlling what we can control.

Akshay Jagdale - KeyBanc: One last one on exports, that seems to be another variable piece. Can you just comment on, in terms of demand outlook for exports relative to pricing because obviously leg quarter prices have moved up, and what you're saying domestically for Beef and Pork is with those prices up, does it trade down to Chicken. Is it the same thing globally for protein prices? On a relative basis, Chicken is still cheaper despite the move up in leg quarter prices?

James V. Lochner - COO: Absolutely, Chicken is still the lowest cost of produced protein and therefore should be the better value protein and the demand worldwide is really not going down, it's going up. Then you couple that with international Beef production topic, international Pork reduction still continuing to decline, and still driven by the fact that grain did its job it took producer margin out which will again pull back in various supplies going forward. So, that's why again, the long-term picture is still a support of the pricing to include Chicken exports, not maybe in the short run you'll have some deviations depending upon number of variables there, but you got to look at the long term picture and you're saying it right.

Operator: Colin Guheen, Cowen and Company.

Colin Guheen - Cowen and Company: Just two quick questions. First one just on a general sense regarding the foodservice contracts, would it be fair to say that you bought – or you have above average lower – you bought yourself more protection with grains in the second half in those contracts in average?

James V. Lochner - COO: Generally, when we're doing a annual fix we're going – it's going to be based on the input costs and we're going to try to lock that variation, or lock that input in where we can. So, that's all is the goal.

Colin Guheen - Cowen and Company: Then on the international side of the business, is there an opportunity in the years coming up maybe to do less capital intensive joint ventures in some of the growing markets with protein where companies can leverage your knowledge base but their own capital?

James V. Lochner - COO: Short answer is, yes.

Colin Guheen - Cowen and Company: Is there any inflection point to that or any point in time when that becomes more of a focus?

James V. Lochner - COO: We're always analyzing opportunities and always analyzing partnerships and right now in our international businesses with startups already getting our arms around how to run in those countries and then allowing our technology that we understand very well here to layering over the improvements in country. That's the game plan

Operator: That does conclude today's questions. We'll turn the call over to Donnie Smith.

Donnie Smith - President and CEO: Thank you. Well, there is a lot of questions about corn prices and Chicken production and I do understand your concern. If Tyson was the same company it was a few years ago, I'd be concerned too. But Tyson isn't the same company we were a few years ago and we're also not a $28 billion Chicken company. We're a $28 billion diversified protein company. Yes, we'll be dealing with challenging market conditions in 2011, but it will still be a good year. We know what we're up against, and we plan accordingly. 2010 was a record year and I am extremely proud of our team for producing such great results and taking our business to a new level of excellence in execution. Our plan is to continue doing in '11 what we did in '10. We set a new standard of performance and expectations for our sales and for our investors and that standard is to produce return on sales and/or above the normalized operating ranges. We think 2011 is going to be a very good year. We're already off to a strong start with the Q1 that should be comparable to Q4 where we set another record this year, too early to say. Our plan is stick to the basics, strive to be the best-in-class in each of our segments, manage our costs, get our debt back to investment grade and reinvest in our business. Thanks for the interest in our Company and have a great day.

Operator: Thank you. That does conclude today's conference. You may disconnect at this time.