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Smithfield Foods, Inc. (NYSE:SFD)

Q1 2014 Results Earnings Conference Call

May 14, 2014 08:00 AM ET

Executives

Keira Lombardo - VP Investor Relations

Ken Sullivan - Chief Financial Officer

Bo Manly - EVP and Chief Synergy Officer

Analysts

Kevin McClure - Wells Fargo

Karru Martinson - Deutsche Bank

Operator

Ladies and gentlemen, good morning. Thank you for standing by. And welcome to the Smithfield Foods 2014 First Quarter Earnings Conference Call. At this time all lines are in a listen-only mode. [Later] there will be an opportunity for your questions and instructions will be given at that time. (Operator Instructions). And as a reminder, today’s conference is being recorded.

I would now like to turn the conference over to our host Vice President and Investor Relations Ms. Keira Lombardo. Please go ahead.

Keira Lombardo

Hello, and thank you for joining us today for Smithfield Foods conference call for the first quarter of 2014. On our call today are Ken Sullivan, CFO; and Bo Manly, EVP and Chief Synergy Officer. We would like to caution you that in today’s call there may be forward-looking statements within the meaning of federal securities laws. In light of the risks and uncertainties involved, we encourage you to read the forward-looking information section of the company's 10-KT for the transition period from April 29, 2013 to December 29, 2013. You can ask access the 10-KT on our website at smithfieldfoods.com.

I'll now turn the call over to Ken Sullivan.

Ken Sullivan

Thank you Keira. Good morning everybody and thank you for dialing in. As Keira mentioned Bo and I are conducting call this morning. Larry is taking some very well deserved time off as 12 months been a world win for the Smithfield management team, [no] we worked harder during that time than Larry. So, he is taking a few weeks off to reintroduce himself to his family.

The reality is company's profile has changed since we last held regularly quarterly calls. We no longer have public shareholders, we're a private company and have just one shareholder WH Group. We're only conducting these calls now for the benefit of our bond holders who put their trust in us, when they lend us their money, so we have an obligation to tell them how we are doing with particular emphasis on the financials. So you have the current CFO and the last CFO here with you on the call.

Larry is here, he is engaged, he is incented to lead this company going forward. So before anyone makes something of Larry missing this call, I'm telling you he is simply on well-earned vacation, nothing more, nothing less, in fact Bo and I are going to flip a coin after this call and see who goes next.

Now on to the report. This morning Smithfield is reporting very strong earnings for the first quarter, in fact these are record first quarter results, we’ve never had a better January to March period.

Here are the numbers sales increased 3% versus last year to $3.4 billion, principally on higher values across the entire pork chain. Operating profits totaled $196 million versus $59 million last year, that's an increase of over 230%.

Pre-tax profits totaled 157 million versus 16 million last year, that's nearly a tenfold increase. As we finished paying the tax [amount], we’re reporting net income of 105 million versus 18 million last year. That's the high level recap on the numbers.

In terms of the key drivers for the quarter, it starts with the top-line. Values across the entire pork chain were elevated in the back half for the quarter, particularly last six weeks when live hog markets increased in dramatic fashion. Nobody can remember a hog rally like the one we witnessed in late February and March. As most of you know, the rally was sparked by concern over the PED virus and the related expectation the industry will have less hogs and less meat.

The PED issue combined with strong demand rally pork prices across the value chain. So, these higher values together with significantly increased sales volumes in our international segment were the key drivers behind Smithfield's top-line revenue increase. Since we’ve touched on the PED subject, let's just get it out of the way entirely. Much has been said and written about PED, so much so we candidly don't have anything to add to the debate. Here are the facts. PED is real, it's affecting the U.S. heart, Smithfield by most industry participants has it, and there is no question we in the industry will have fewer pigs this year. Higher weights will however help offset some of the head loss.

Beyond that, I'm not sure we can add ending to the debate or prognosticate about what the final impact on the industry will be. We’ve seen estimates ranging from 3% to 8% less supply and we think those are right goal posts. That said, we expect to meet all our customer needs, our vertically integrated model and flexible manufacturing platform are helping us manage through this issue and our customers need not worry, we will meet there needs.

Now moving on to the operating segments. First, our pork segment performed well with operating profits up 40% over last year. Operating profit in the fresh meat component of the pork segment totaled $59 million compared to $22 million last year. We’re pleased with this result as the first quarter is typically not a strong quarter for fresh meat. Despite the almost [mediocre] run up in live prices, meat values generally kept pace. Sales volume was actually up despite processing fewer heads, a function of higher weights. Demand was healthy in our key trade channels. Retail and food service demand was strong with sales volumes up nearly double-digits in both channels. Export volume was also strong with growth in two or three key export markets including China where we’ve begun executing on synergy plans with our sister company Shuanghui Development in the WH Group. While this is still only a small part of our production, we’re excited about the programs we’re developing and believe they’re an important part of our growth moving forward.

In packaged meats, our packaged meats results were very solid with 8% operating margins during the quarter. At first glance, our volume numbers appeared down markedly but as mentioned in the release, the timing of the Easter holiday is the large factor in that decrease; you see hams weigh a lot. In addition, we have some non-recurring USDA disaster relief business last year that’s affecting our year-over-year comparison. The real tale of the tape is our year-to-date April figures where we caught back the vast majority of the Q1 volume difference. If you exclude the non-recurring USDA business from the comparison, we caught back the entire volume shortfall in income. Nonetheless, even with the retail volume decline and raw material cost pressures, our margins improved and total operating profits increased nicely in this part of the business to $121 million versus $107 million last year.

Bottom-line, we remain as excited as ever about the future of our packaged meats business. We believe we are making incremental progress each quarter and our regression line continues to move in a positive direction. We will continue to increase our consumer marketing spending and invest in our brands.

Moving to the log side of the business; in the hog production segment, the headline is losses turned into profits. The operating result is $70 million above last year. Our raising costs are declining, thanks to lower grain cost flowing through our system. And hog prices have moved up nicely year-over-year. So we are making more on the hogs and the cost to grow them. It’s really not more complicated than that. We are executing well the operating level and have a number of improvement initiatives that have things moving in the right direction for us.

It’s also worth pointing out that our risk management activities continue in full force both this past quarter and into the future. Our objective is to reduce volatility in this end of the business. One of our key goals in the [large] side of the business is to minimize the volatility we have seen in recent years. We are doing that impart through an active hedging program that means we will likely give up the tops and hopefully minimize the downturns 2014 will be no different in that regard.

Fundamentally we are a meat company and growth focus is on the further value-added end of the business particularly the packaged meats business. While our farms represent a significant point of difference for us and are helping us access markets and developed upscale program, we otherwise wouldn’t be able to including our entry into the world’s largest pork market China through our -- meat free production system. We are developing chilled frozen and packaged meats programs right now with our sister company Shuanghui Development, all of which are predicated on our vertically integration supply chain.

Moving to our international segment, the international segment comprised principally our wholly-owned operations in Poland and Romania, Mexican joint ventures contributed $37 million in operating profits for the quarter, that’s a $23 million year-over-year improvement. Strong operating results from our last line operations drove the increase.

However, our meat businesses also performed well particularly in Poland with impressive double-digit sales volume increases in both fresh and packaged meats. As we have said before, our international segment has become a consistent contributor and represents a growth opportunity for us.

Now let’s turn to balance sheet and expand on some of the key metrics of bondholders’ find of interest. In terms of our debt profile, I am going to give you all the facts and figures you need, but I will say this, it’s a bit of a moving target. Our short-term borrowings have fluctuated quite a bit over the last six months following our seasonal working capital adds inflows and further impacted by margin requirements associated with our hedging portfolio.

So let me first provide you with some numbers including some up-to-date figures that are as current as of this week then I will tell you what it all means. I’m warning you though you likely have to go back and listen again to get all the figures easier still you will be able to find most of these figures in the 10-Q documents we will be filing later today.

I will provide the numbers in chronological order starting with the opening balance sheet that reflects the $900 million in new bonds from the acquisition financing from the Shuanghui acquisition. Smithfield’s gross debt is outstanding including capital lease obligations as of the acquisition date in September 2013 was $3.428 billion by the end of December 2013 the gross debt balance totaled $3.046 billion. By the end of March 2014, the end of Q1, debt totaled $3.342 billion.

Finally to bring the figures current our total debt balance this week is back down to approximately $3.091 billion. So, if you follow those numbers, you'll understand that our short term borrowings increased about $300 million during the first quarter and then came right back down almost immediately after. The reason for the Q1 borrowing increase is straight forward, it's working capital, specifically, most of the working capital builds in the first quarter is attributable to two things. First, it's an increase in margin requirements related to our hedging portfolio, in the midst of the best hog rally anyone to remember, we certainly took the opportunity to try and secure profits on our hog farms. But hedging profits comes with a cost, you have to fund margin requirements when necessary, that's what we did.

The second reason for the working capital build is inventories, remember the timing of the Easter holiday and the increased values across, the value chain [and those are] two primary factors driving the inventory build up during the quarter.

Now that said, in just a six or seven weeks since the end of March, we've reduced the debt balance by approximately $250 million. The very same working capital build we saw in the first quarter has reversed in the early going on the second quarter. Hog features have come up, so we have had a corresponding reduction in our margin requirements and the Easter business arrived and inventories were liquidated.

Takeaway this in the 10-Q, we're filling later today, you will note debt balances increased during the first quarter. However through this week debt has been reduced by over $300 million since the acquisition date.

In terms of liquidity, we ended the quarter with over $735 million of global liquidity. This week our global liquidity position has improved more than a billion dollars. Liquidity both during the quarter and after is not an issue. With no meaningful debt maturities anywhere on the horizon, we're in a very strong liquidity position.

Interest expense for the quarter was $41 million compared to $43 million last year. Looking forward, I expect interest expense to be in the $160 million to $165 million range for the full year based on current projected debt levels.

CapEx. Capital spending for the first three months of the year totaled approximately $31 million, we have a lot of capital projects in our pipeline and I expect spending will accelerate considerably as we move through the balance of the year. As I've said before, we must and will invest in our plans Shuanghui, sorry the WH Group is pro-growth and is encouraging investment in our plans.

CapEx for the full year is expected to be in the range of $300 million to $350 million. Depreciation and amortization for the quarter totaled approximately $57 million or annual run rate in the $230 million, $235 million range. In terms of ratios, our debt to capitalization is hovering in the low to mid 40% range.

I just finished telling you the short-term debt balances are fluctuated with working capital, but we would pay the debt-to-cap at approximately 44% at the end of the quarter. It is now down closer to 42% today after the reduction post quarter. Debt repayment is a priority, so don't be surprised if our percentage has a [three] front of it by the end of the year. Equity at the end of March is $4.204 billion.

Our debt-to-EBITDA ratios have begun the recover from acquisition point highs in lackluster 2013 results. Our debt-to-EBITDA ratio as of the end of Q1 is right around four times, that’s an improvement of over 1.5 turns in just last six months. And after the quarter ended our leverage ratio improved even further saving an additional 20 bps or so of the quarter end number to something a right around 3.8 times. I expect our leverage ratios will continue to improve as we move through calendar 2014 as higher expected EBITDA quarters replace lower 2013 results and we continue our focus on the balance sheet.

Interest coverage, interest coverage like our leverage ratio continues to improve. Based on trailing 12 months numbers our coverage ratio is about 4.5 times an improvement over the approximate 3.7 times at the end of December. Based on our projections I expect our interest coverage ratio will continue to improve considerably by the end of the year.

In terms of covenants, I’ll be brief. We don’t have or foresee any covenant issues. I think that covers the water front in terms of the summation of the first quarter and the items that our bond holders would find the most interesting.

With that we’re concluding the opening remarks. We thank you for your attention. Bo and I’d be happy to entertain questions but I’ll remind you that we’ll be filing a comprehensive 10-Q later today and many of your questions will likely be answered in that document.

Keira Lombardo

Operator, please go ahead and open the line for questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question today comes from line of Brian Hunt representing Wells Fargo. Please go ahead.

Kevin McClure - Wells Fargo

Good morning. This is Kevin McClure standing in for Bryan. Thank you for taking the questions. I just want to clarify one comment on hog production margins. It was a very good quarter but the margins were a little bit light of what we were looking for and I just want to make that that had more to do with the hedging programs in place rather than anything else as you sold hogs forward.

Ken Sullivan

The short answer Kevin is yes, our hedging as I said sort of where our objective is it takes the tops off, the top and mitigate the downside. I think there is some element of weights that would play into that and perhaps some discounts related to some heavier weights but the bottom line is I think you are fundamentally correct in terms of the hedging component.

Bo Manly

And that will also indicate that that scenario will probably hold true in the coming quarters as well.

Kevin McClure - Wells Fargo

Got it. Thank you. And moving on to PED, can you just provide some color as to what steps you are taking to protect your pigs from it and what appears to be the most effective combating the disease that you’ve learnt so far? Thank you.

Bo Manly

This Bo Manly. The easiest explanation to how to keep the disease out is isolation. And obviously that’s -- the whole industry has learned how to basically isolate movement of people, trucks and pigs. Those are the three vectors that you are going to have. And it’s a matter of keeping them at cleanest possible level, minimizing any interaction with other animals, segregating different loading shoes, unloading shoes and various facilities when we unload; it’s all the matter of segregation and isolation.

Kevin McClure - Wells Fargo

Got it. Thank you. And one kind of broad question, as your outlook is very strong for 2014, based on that outlook you believe that $1 billion of EBITDA is within the realm of possibility and where would that put your debt at year end? That’s it for us. Thank you?

Ken Sullivan

Kevin, we have maintained that we’re $1 billion EBITDA company through the cycle. And the cycle includes even the sort of down year that we had in our fiscal 2013. So the idea of whether we can achieve the $1 billion, we have always believed that and we see nothing in 2014 that would suggest otherwise.

Kevin McClure - Wells Fargo

And where would -- your objective would be to pay down as much debt as possible and just accrue cash in the balance sheet in that case?

Ken Sullivan

Our focus is on the balance sheet right now. That’s right.

Kevin McClure - Wells Fargo

Great, thank you.

Operator

Our next question today comes from the line of Karru Martinson with Deutsche Bank. Please go ahead.

Karru Martinson - Deutsche Bank

Good morning. Just from a housekeeping perspective, I mean is there a material shift in how we should be modeling the credit for the top line given the calendar change as we go forward here, understanding and putting the side Easter?

Bo Manly

No, I think short answer to that is no. It’s simply just a timing issue and particularly this year that Easter holiday is sort of the few days difference, made a difference in terms of the shipment dates. And when those volumes fell, obviously you’re going to recall quarters different in terms of what must follow that. But I don’t think any of the major holiday other than Easter really will move in and out of any quarterly numbers as we have the best versus all in line of same quarters as always been with that. That’s right.

Karru Martinson - Deutsche Bank

Okay. And when you talk about the capital expenditure investment needed certainly elevated for this year. What types of investments are we making in terms of the capacity here?

Ken Sullivan

It's not necessarily a capacity investment as much as it is improvement in our operational efficiencies at the plants. So it's not we're not intending to expand capacity in the plants, it's more mechanization and modernization of plants.

Bo Manly

Packaged meats would certainly be continued focus going forward in terms of capital expenditures and we continue to spend money in group housing as well.

Karru Martinson - Deutsche Bank

Okay. And just lastly, so you referenced strengthening the brand positioning, I just wonder this is why you feel margins will be normalized for the year, what does that entail, does that mean new advertising, new spokes people, where is that money going to be going?

Ken Sullivan

Well, we have a commission, it starts with our CEO, Larry Pope who many years ago began the efforts to make us a consumer packaged goods company. And so I would tell you that every single management person in team that we have in the company is focused on building the brands and investing in our consumer marketing. In terms of specifics, we've got a broad array of programs that are out there; perhaps the most high profile is our NASCAR program which is, which again is a sort of a most high profile. I don't know that if there is any more color I can provide to you on that.

Karru Martinson - Deutsche Bank

Thank you very much guys. I appreciate it.

Operator

And our next question comes from the line of [Karen Eldritch from Mitsubishi]. (Operator Instructions). Please go ahead Karen.

Unidentified Analyst

Thank you very much. Can you maybe talk about with the reduction in the [heard] and for yourself how much has your own [heard] been reduced and what are you looking at with regard utilization for your plants; and is our further shutdown expected to occur?

Ken Sullivan

In terms of hog numbers, it obviously is somewhat a moving target, but we think we're going to be somewhere over the course of the year 3% to 7% less than what our normal production would be. And we think that's…

Unidentified Analyst

Sorry to the interrupt. How much of that offset by higher hog weight?

Ken Sullivan

It'll depend seasonally, but it won't cover all of that quite likely, but it may offset as much as half of that loss.

Unidentified Analyst

Okay, great. And sorry, getting back to utilization?

Ken Sullivan

Utilization, we and the rest of the industry have been obviously attempting to run at the highest level they possibly can. It has meat people will have taken Saturday production typically off the schedules and then you may see plants rolling either Friday or Monday taking off depending upon their individual circumstances. There will be some regional impacts, we think probably it's impacted the East first and we'll then move into the Mid-West as we get further in this summer.

Unidentified Analyst

Great. And I have to say I was beyond impressed with your results and process given the higher input costs. Is this because of the shift to more into value-added products? I mean what are the key factors that are driving the fact that you're able to hold onto margin in this category?

Ken Sullivan

Well, I think to be fair Karen, we will see margin pressure in Q2; there is a little bit of catch-up mechanisms that's going to happen to us here. In terms of Q1 results, the run up was in the last six weeks of the quarter, we had inventories to sell off. And clearly we did have and did see increased raw material cost, but I think the more of a full run of it will be born in the second quarter. So, I am not trying to signal to you anything in terms of that because our seamless focused on maintaining those margins even through these higher raw materials.

Bo Manly

I think it speaks to some of the success of our marketing programs as well.

Unidentified Analyst

Great, thank you. And you mentioned that you are seeing increased export demand, are there any new markets where you’re seeing increased demand? And Bo maybe you can elaborate a little more on where you’re finding the synergies in China and what competitive advantages you’re finding that you’re having as this new combined company?

Ken Sullivan

I’ll let Bo answer the latter part of that, Karen, but the first part in terms of new market really I think the most significant thing has happened on the export front is Russia and our ability now to ship product to Russia and we’ve begun doing that and that is having an impact on our export volumes that’s the key swing market for us if you will and that’s been the development there.

Unidentified Analyst

Is there any concern about sanction program given kind of progress?

Ken Sullivan

There is always geopolitical concerns in terms of how markets operate, open and close. So I am not going to tell you we don’t have concerns about it. But I would tell you that that market is open to us and we’re shipping product.

Bo Manly

To focus on some of the synergy areas, obviously the easiest one for people to focus on, get their arms around is the importation of U.S. fresh pork and frozen fork products and all pork products into China. That is an ongoing effort; we had good shipments of muscle meat. And I would say for the first time fresh and ever frozen muscle meat in China in Q1 our exports of muscle meat have diminished significantly at this point because of the pricing relationships, but we continue to look at that on an everyday basis.

I think one of the more exciting synergy elements is that we have opened up Smithfield stores in China. These have gone very well and their kiosk with inside larger stores quite often we have a plan to open up over 20 of those throughout this year. And that’s being well received and we are getting good volume through those facilities.

We have project summit which is the package meat initiative where we are developing Smithfield brand in China based upon using U.S. raw material. Obviously that’s a little bit rough in the pricing relationships we have now, but there are -- we’re under contraction shortly here with one facility that will be a Smithfield-only plant in [Jinzhou], China. There will be three others that will come online within the next 18 to 24 months that are producing Smithfield branded products and soused baking products in China under the Smithfield brand. And we’re very, very excited about that. We have put a number of marketing resources from this country against that project, as well as engineering activities and working with their counterparties in China.

We have best practices sharing across engineering, operations and in many areas of the country or in the company both in live production, as well as plant operations. We have initiatives and strategic sourcing looking at the global opportunities that combine our packaging acquisition and ingredient acquisition. And then we are also leveraging the Smithfield customer base to the extent that we have customers with long standing relationships here in the U.S. people like McDonalds, YUM Brands, Subway et cetera that have operations in China. We are trying to determine what we can do to help their efforts and grow their business in that country based upon many of the synergies and unique opportunities that we have with the WH platform.

Ken Sullivan

Karen just to be clear, to be clear on what drove our export increase in Q1, you asked the question at the offset about new markets and we talked about Russia. Russia is not driving the Q1 increase; Russia is open to us really in the second quarter. So that volume increase was even before the Russian market really open to us.

Unidentified Analyst

Great, I am so sorry. For China to quick follow-up, what percentage of the product that you are distributing in China is actually sourced out of China versus global other resources?

Bo Manly

You are saying of the imports?

Unidentified Analyst

Sorry, of the products that you are selling in China, how much of that is sourced locally versus sourced globally?

Bo Manly

All of the material that we have talked about is moving from the United States to China.

Unidentified Analyst

It is, great. And I promise final question. What are your thoughts on acquisitions right now and how should we think about working capital for the year or is that just a moving target? And sorry okay, final, final question….

Bo Manly

Karen, you are squeezing quite a number in there, but go ahead.

Unidentified Analyst

You guys didn’t have a conference call last quarter, so it’s your fault. What have grain caused constitute lock in for the year?

Ken Sullivan

Okay. Let’s try and handle those in quick fashion, in order. In terms of acquisitions; Smithfield is always looking, what we are looking to grow our focus right now though is on debt reduction. But that's not to say that we have our eyes closed and don't look externally for growth opportunities. We look at it, but we will be judicious in what we do in that regard.

In terms of working capital you are right, Karen. It is a bit of a moving target. Obviously, we've got seasonal needs and that it will have inflow throughout the year. I think we're in a period now where we're -- I don't expect a significant build until really some of the fall months.

So, I'm not sure I can give you any specific direction on that particularly given our hedging portfolio on what some of the margin requirements that come out of that or again to be clear that the margin requirements from a hedging portfolio are a positive thing. We took the opportunity to lock in profits simply that as the markets move we've got to move some, little bit of money around to adjust forward.

Unidentified Analyst

Okay. Karru is daring me to squeeze one more in there. So in your filings that you plan on putting today, will we pro forma financials that will enable us to model out actual. Will you give historical performance in there?

Bo Manly

Historical pro forma, I'm not sure…

Unidentified Analyst

Meaning for the new calendar shift here for the quarter, historical quarter pro forma.

Ken Sullivan

What you will see in there is a comparison of the March, the January to March period. We're not going to provide a forward-looking 2014 pro forma.

Unidentified Analyst

That's fine. But will we have historical references?

Ken Sullivan

Yes, you will.

Unidentified Analyst

Awesome. Thank you very much guys. Sorry, I appreciate the patience.

Ken Sullivan

Okay.

Operator

And we do have a follow-up from Mr. Hunt with Wells Fargo. Please go ahead.

Kevin McClure - Wells Fargo

Hi, this is Kevin again. Thanks for taking the follow-up. Bo, thank you for the comments on the synergy opportunities, but could you remind us maybe what percentage of the pork you produce is exported today and what the target export percentages under the new WH umbrella? Thank you.

Bo Manly

Today it's, excuse me, in Q1 it was about 23%. And we don't have a specific goal for export percentage; it’s really an opportunistic situation for us, if we can make more money in the export markets versus our domestic markets and it overseas. But we are always conscious of having the need to supply our domestic customers here. So, the domestic customers obviously take rest in terms of trying to serve them. WH Group, they've got some very strong goals in terms of where they think they can take this project somewhat in the packaged meats operation. They think that that can be a major part of their portfolio in the future; and where the fresh meat operations move will depend upon relative prices between the two marketplaces.

Kevin McClure - Wells Fargo

Got it, okay. And final question for me, it looks like you guys will be solidly profitable this year in terms of free cash flow and looking into our crystal ball of course things can change here to there but also in fiscal 2015 as well. And you've very little pre-payable debt on your balance sheet. So acquisitions you referenced is something that could be a use of that cash. But I'm curious, if you evaluate your opportunities and you're not pleased with the valuations, or do you feel like these targets aren’t strategic fits with the organization, would you consider maybe tendering for bonds or what would you do, would you continue to cash in the balance sheet or would you evaluate of the market tenders? Thank you.

Ken Sullivan

Yes. I am not sure I will tell you even if we had an idea of tendering some bonds, in fact I know I wouldn’t. But look you’re right; our expectation is that cash flows will be good. Right now we do have debt that we can repay. We have $300 million of debt that we can repay in the near-term.

In addition we’ve got some pension obligations that need servicing and we can put some additional money to work there. And so we’ve got a plan for our capital and the acquisition front is something that again we will be opportunistic, but we would also be judicious about. So I don’t think you should be contemplating that we’ll all start going to go lever up with the big acquisition.

Unidentified Analyst

Got it. I appreciate your time. Thank you.

Operator

No other questions queuing up at this time.

Ken Sullivan

Okay. Thank you.

Keira Lombardo

Operator you could please end the call and provide the replay information. Thank you.

Operator

Yes. Ladies and gentlemen, this conference will be available for replay starting at 10 AM this morning and running through May 28th at midnight. You may access the AT&T Executive Playback Service at anytime by dialing 1800-475-6701 and entering the access code of 326218. International participants may dial 320-365-3844. Those numbers again are 1800-475-6701, International participants please dial 320-365-3844 and once again the access code is 326218. And that does conclude our conference for today. We thank you for your participation and using the AT&T Executive Teleconference. You may now disconnect.

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