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Pilgrims Pride Corporation (NASDAQ:PPC)

Q4 FY07 Earnings Call

November 13, 2007, 11:00 AM ET

Executives

Gary Rhodes - VP of Corporate Communications and IR

O.B. Goolsby, Jr. - President and CEO

J. Clinton Rivers - COO

Richard A. Cogdill - EVP and CFO

Analysts

Unidentified Analyst - Lehman Brothers

Farha Aslam - Stephens Incorporated

Diane Geissler - Merrill Lynch

Robert Moskow - Credit Suisse

Oliver Wood - Stifel Nicolaus & Co.

Kenneth Zaslow - BMO Capital Markets

Eric Katzman - Deutsche Bank

Unidentified Analyst - Lehman Brothers

Bryan Hunt - Wachovia Securities

Pablo Zuanic - J.P. Morgan

Presentation

Operator

Good morning and welcome to the Pilgrims Pride conference call to review the company’s Financial Results for the Fourth Quarter and Full 2007 Fiscal Year. At the Company’s request, this conference call is being recorded. Please note that slides references during today’s call are available for downloading from the investor relations section of the Company’s website at www.pilgrimspride.com.

Beginning today’s call will be Gary Rhodes, Vice President of Corporate Communications and Investor Relations for Pilgrims Pride. Mr. Rhode?

Gary Rhodes - Vice President of Corporate Communications and Investor Relations

Good morning and thank you for joining us today as we review our financial results for the fourth fiscal quarter and a full fiscal year. Earlier today, we issued a press release that provides an overview of our financial performance for these periods. If you have already have not seen this press release, a copy is available on our website along with other downloadable information.

Joining me on today’s call are O.B. Junior, President and Chief Executive Officer; Clint Rivers, Chief Operating Officer; and Rick Cogdill, Chief Financial Officer.

Before we get started, I would like to remind everyone that today’s call contains certain forward-looking statements. These include our expectations and future results, sales and cost of sales information, pricing and market dynamics. Actual results might differ materially from those projected and these forward-looking statements. Additional, information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained in today’s press release as well as in our in our forward-looking statement and risk factored disclosures contained in our Forms 10-K, 10-Q, and 8-K as filled with the SEC.

I will now turn the call over to O.B to begin our prepared remarks.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Thank you Gary and good morning everyone. Earlier today, we recorded net income of $33.2 million or $0.50 per share on record sales of $2.15 billion for the fourth quarter of fiscal 2007. This compares to net loss for the same period last year. Rick, will go into more detail on the financials in a few minutes, but our improvement from the year ago can be traced to a couple of areas. First of all, industry fundamentals remain solid in the fourth quarter as strong export demand and low cold storage inventories helped sustain positive market pricing trends. Late quarters and wings posted the largest gains raising more than 30% over the same quarter last year, while breast meat in Georgia Dock posted healthy gains up 16% and 18% respectively. That favorable market pricing help to offset $189 million year-over-year increase in feed ingredient cost. Our product mix during the quarter also improved. We were able to upgrade some of our commodity type meat into higher margin value added products. This is a key part of our growth strategy and an area which we have enjoyed good success over the years, particularly after buying other companies.

In addition, our consumer retail segment continue to post solid growth, thanks to increase penetration of super market need indelicacies and our growing role as a category management partner. Our consumer sales team did a fantastic job this year and they deserve a lot of credit for expanding our business and building our brand among retailers. Despite favorable industry fundamentals and year-over-year improvement and profitability, our net earnings for the fourth quarter came in below our own expectations. Operational inefficiencies, labor shortages at several facilities, and higher fuel cost resulted in higher production in freight cost during the quarter.

Automation will be key focus of our capital investment program in fiscal 2008. We believe this investment which includes labor reducing technology will enable us to move more products to our plats efficiently and help to levitate some of the recent issues related to tight labor market and higher input cost. Clint will provide some additional details in a few minutes.

Returning now to industry pricing for a moment, lag quarters and breast meats today are at 41% and 26% respectively compared to a year ago. This is a favorable position versus last year this time as we approach our heavy annual contract renewal period. With exception of breast meat the major market industries today remain above their respective five year moving averages. You can see these trends on slide three.

Looking forward, we anticipate breast meat during this seasonally low demand period to remain just about at or slightly below the five year average. There has been very little if any downward pressure on demand or pricing from Russia’s delisting of nine chicken plans on October, none of which with Pilgrim Pride facilities. We anticipate wings to continue to be strong in a first quarter due to the growing popularity of standalone wing paying restaurants and strong line of sporting events this year. Whole bird pricing is posted strong gains throughout 2007 and at this point, we did not see any reason on a prices we decline any more than they usually do during this part of the season. We are pleased with the positive pricing trends throughout the fourth quarter, especially in a lot of increase feed ingredient and commodity cost that we faced throughout fiscal 2007.

As you can see on slide four, our index of commodity exposure has climbed all time high as this year, led by corn, soybean meal, and wheat, but well supported by energy prices. When compared to the previous fiscal year average prices for corn and soybean meal increase 62% and 22% respectively, which create a strain on profitability for most of the year. Looking ahead, current projections call boiler feed cost increases above I’ve seen this past year. This underscores the importance of this being able to pass along this price increases.

On that note, we have begun the process renegotiating our annual food service contracts. There are number of factors working in our favor this year, including higher market pricing compared to a year ago and lower inventories. At the same time, our customers are facing higher cost in their own businesses also. Not all of those can realistically to be passed along to consumers. To date, I would say that we have gently have been successful in passing along price increases, although, at times not enough to cover all of our increases in our in put cost. Every contract is different and every negotiation is different. In some cases, we’ve added escalator clauses, which the contracts pricing moves up or down and same for feed ingredient cost. That way we have protected our cost increases and the customers protected when our cost decline. Overall, we still have a lot of negotiations and a lot of works to look ahead of us. We will continue to make effort to pass along our additional cost on the remaining contracts.

Moving now to the integration, we continue to make very good progress with former Gold Kist organization. We completed the rollout of SAP to all Gold Kist facilities in just seven months. This was a huge accomplishment in a very short period of time. The project integrated 89 former Gold Kist sites including processing plants, lab operation offices, feed mills, hatcheries, truck shops, third party cold storage facilities, and warehouses. Also during the quarter, we completed the conversion of the Gold Kist Pilgrim system. Overall, it was a very busy quarter.

Our IT and HR teams really rose to the challenge. Synergy savings from the integration totaled approximately $43 million in the fourth quarter. Based on that performance, we believe that we have now achieved our annualized run rate of $150 million in cost savings three months ahead of schedule. Our synergy teams will continue to focus on synergy savings and we will continue to strive for efficiency in every aspect of our business.

With that I will turn it over to Clint for some discussion of our operations.

J. Clinton Rivers - Chief Operating Officer

Good morning everyone. As O.B. pointed out our fourth quarter results were negatively affected by increased production and freight costs related to operational inefficiencies, labor shortages in several facilities, and higher fuel costs. A large part of the operating inefficiencies can be attributed to lower bark weights due to the record summer heat in some parts of the south. This hampered to some extent our ability to cover the cost increases with higher production. We also recorded a slight increase in grain cost compared to the third quarter. EMI analytics have publisher of agricultural analysis recently reported on boiler shortages throughout the protein industry. The report noted that several roller producers are dealing with a shortage of workers and that as a result they have been unable to keep up with orders for deep only and other products. The reported noted that there has been tremendous competition for workers among the poultry, agriculture, and proteins industries, and that the failure of meaningful immigration reform this year has hurt the poultry industry’s ability to attract and retain workers.

While turnover is not uncommon in our industry, we encountered above average turnover and labor shortages in several facilities during the fourth quarter. As O.B. said, we are in the process of installing automated equipment in selective plants that will help elevate the worker shortage and increase product through put. We believe this investment in technology also will enable us to move products through our plants more efficiently and reduce the need to use outside processors.

Let me give you an example. By the end of this month, we would have completed the installation of new automated de-boning equipments in one of our larger plants. This investment will eliminate the need for approximately 250 positions and reduce over time. We will be making similar capital investments in other plants over the balance of fiscal 2008 that should ultimately eliminate the need for hundreds of positions most of which are unfilled today. We simply must find ways to operate more efficiently as nearly all of our costs are rising, for example projected feed costs in our industry next year are expected to be even higher than what we have seen in 2007. At current market prices our feed ingredient cost for fiscal 2008 would be approximately $345 million higher than this past year.

To address the increased cost that we will be facing we will redouble our efforts to achieve the best possible live performance from our blocks and increase efficiency in our plants. This will require continued focus from best practices in the management in care of our birds as well as additional capital projects in our plants to streamline operations through automation.

Before I pass the call onto Rick for financial update, I want to share a few brief comments on our productions plans for the first quarter. You will recall that back in July we said that production levels for the fourth fiscal quarter should be basically flat with the year ago and they were. For the first quarter of fiscal 2008, we expect once again to remain essentially flat with year ago levels. For the remainder of the year, we currently anticipate that our year-over-year growth will be inline with USDA’s growth estimates of approximately 3% in 2008. In an uncertainty and feed ingredient cost in the market pricing for our products however we will closely monitor industry fundamentals and the actions of our competitors can be ready to alter our plant production levels if conditions warrant.

I will now turn the call over to Rick who will provide additional details to our financial results. Rick?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Thank you, Clint. The fourth quarter of fiscal 2007 is a third full quarter to include the results of Gold Kist. Accordingly, at times I will be discussing the results of our operations compared to the pro-forma amounts for the prior year periods. This pro-forma amounts attempt to include the full effect of the acquisitions as existed for the entire comparable period. Comparison of current period amounts to prior year previously reported results will also be discussed at the time. As shown on slide five and as O.B. reported we reported net income last night of $0.50 per share for the fourth fiscal quarter. This compares to a loss of $0.11 per share on a reported basis or a loss of $0.25 per share on a pro-forma basis for the same period last year. Included in the fourth quarter of fiscal 2007 were charges of $12 million or $0.11 per share related to the early extinguishment of debt incurred by the Company in connection with the calling of our 9 5/8% bonds which were scheduled to mature in 2011. Also included in the net income for the fourth quarter of fiscal 2006 are nonrecurring U.S. and foreign tax expensed to $25.8 million or $0.39 per share related to our repatriation for the $155 million of foreign earnings last year pursuant to the American Jobs creation act of 2004. Excluding these items, the net income for the fourth quarter of fiscal 2007 would have been $0.61 per share versus $0.28 per share last year on reported basis or $0.13 per share on a pro forma basis.

For the full year of fiscal 2007, we reported net income of $0.71 per share compared to a net loss of $0.51 per share for the same period last year. On a pro forma basis for fiscal 2007 results would have been net income of $0.17 per share compared to a loss of $1.71 for the same period last year. Included in the full year result for 2007 were $26.5 million or $0.24 per share of nonrecurring charges related to early extinguishment of debt incurred by the Company in connection with the financing the most Gold Kist acquisition and the calling of 9 5/8% bonds previously mentioned and included in the fiscal 2006 results was a same one-time foreign tax expense of $25.8 million previously mentioned in the fourth quarter. Excluding these items, our net income for fiscal 2007 would have been $0.95 per share versus a loss of $0.12 a share last year on a reported basis. On a pro forma basis, our fiscal 2007 results would have been a net income of $0.41 per share compared to a loss $1.33 for the same period last year.

Moving now to the sales results, they are shown on slide six, our pro forma sales for the fourth quarter increased 14.3% from a year ago period. These results were primarily driven by improvements in the market pricing and the product mix of our U.S. chicken operations which increased the sales by $206.1 million or 12.9%. On a pro forma basis, our revenue per pound of U.S. chicken sold increased 10.4% versus the same period last year. Market pricing for late quarters were up 31%, wing prices were up 33%, boneless skinless breast up 18% and Georgia dock up 15%.

In Mexico our chicken sales increased by 6.6% as a 26.3% increase in pricing was largely offset by 15.6% decline in sales volumes..

Turning to slide seven, for the full year 2007, we see the net sales increased 10.5% on a pro forma basis, despite a 3.2% reduction in our U.S. chicken production volumes. This increase was primarily due to the improvements in the U.S. and the Mexico chicken sales beginning near the end of second fiscal quarter.

Slide eight and nine show our EBITDA reconsolidation for the fourth quarter and for the 12 months period of fiscal 2007. Highlights are in $89.6 million improvement in EBITDA this quarter to $146.8 million versus the same period last year on a reported basis. On an adjusted basis, EBITDA was $158.8 million in the fourth quarter of fiscal 2007.

Fourth quarter depreciation expense increased $17.8 million over the prior year quarter, primarily due to the added depreciation expense from the Gold Kist acquisition. For the full year, our EBITDA was $404.8 million versus the $136.8 million for fiscal 2006. Depreciation expense for fiscal 2007 was $198.6 million on the reported periods and $228.2 million on a pro forma basis for fiscal 2007.

For fiscal 2008, we expect depreciation expense to be approximately $225 million. Our net interest expense increased $19.6 million to $30.2 million in the fourth fiscal quarter when compared to the same period last year, due primarily to the debt financing of the Gold Kist acquisition and reduced investment earnings as excess cash was fully committed to such acquisitions.

For the full year our net interest income increased $80.5 million to $121.1 million when compared to the same period last year due to the same reason as mentioned for the quarter.

Moving on to slide 10 and 11 we summarize our operating results for the quarter and for the fiscal year and our operating income in the fourth quarter improved to $110.4 million from a pro forma amount of $27.8 million for the same period last year. This result was primarily from a $52.9 million improvement in our pro forma U.S chicken operations and increase of $17.7 million in our Mexico chicken operations and of $17.3 million increase in our other U.S operations.

With $11.3 million of these operating improvements coming from our reduction in our SG&A expense. Our SG&A expense for the quarter decreased to 4.5% of net sales from a pro forma amount of 5.7% in the same period last year.

Looking at fiscal 2007 on the reported bases, our operating income improved $229.5 million and $232.5 million. On pro forma basis, again, these improvements resulted from improved operations in our U.S chicken business of a $181.9 million, $131.1 million improvement in our Mexico chicken operations and $21.1 million increase from our U.S other operations. With $16.7 million of these operating improvements again coming from our reduction in SG&A. For the year, our SG&A expense decreased to 4.8% of net sales on a pro forma basis versus 5.5% for fiscal 2006.

If we look at our income tax expense for the fiscal fourth quarter of 2007 was abnormally high as 50.7%. Our net income before taxes and this was to primarily to an increase in our contingency reserves and the effective raising our estimate of tax rates that will be an affect when these deferred items are optimally taxed. This also resulted in higher than normal tax rate of 48.7% for the full year of fiscal 2007.

For fiscal 2008, we would anticipate that our affective income tax rate will be in the range of 39% to 41% of net income before taxes, depending on the mix of our earnings between the U.S. and our Mexico operations. And again, this rate is absent any affects if any, that might be associated with recent changes in the tax laws in Mexico which will become affective on January 1, 2008.

As we mentioned during the previous earnings call, our first priority with excess cash flow generated by the business will be focused on paying down debt. You will recall that during the third quarter, we used positive cash flow to reduce debt by $79 million. In the fourth quarter, we reduced debt by additional $400 million, $300 million of which was funded through the sales of our assets securitization facility. This facility which runs through August 2012 allowed us to sell up to $300 million of certain trade receivables on a revolving basis. The remaining $100 million of debt reduction funding came from operating cash flows in the fourth fiscal quarter. These reductions brought our total debt down to $1.32 billion at the end of fiscal 2007, with no significant maturities due until 2015.

Slides 12 and 13 summarize our current debt agreements. The redemption our 9 5/8% bond from September 21, helped reduce our interest securing cost by approximate $11 million on a going forward bases and reduced the weighted average interest rate on an outstanding debt by… to approximately 7.4%. Our annual interest expense going forward is now expected to be approximately $125 million. Our current availability on our debt facilities is approximately $789 million. Slide 14 shows a comparison of our credit ratios and one thing that stands out on the page is the significant decline in our net debt to total capital ratio, which now stands at 51.7% down from just under 60% at the end of the previous quarter. Additionally our fiscal 2007 adjusted EBITDA interest coverage was a healthy 3.6 times and our net debt to EBITDA was down to just over three times versus 5.3 at the end of the preceding quarter.

Turning to capital expenses. On slide 15, our capital expenditures for the fourth quarter and the full year of fiscal 2007 were $36.2 million and $172.3 million respectively. Looking ahead for fiscal 2008 we expect our capital expenditures to be in the range of $225 million to $250 million or roughly inline with our annual depreciation expense. I’ll now turn the call back to O.B for a few comments before our questions.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Thanks Rick. All in all fiscal 2007 was a tremendously challenging year for our company. The acquisition and integration of Gold Kist has commanded a great deal of time, attention and resources over the past 11 months. We believe the disposition to us for stronger growth in the years ahead. It has broadened our geographic reach, expanded our customer base and strengthened our product climate. We tripled our original synergy target and delivered a $150 million in annualized synergies ahead of schedule. While we still have a lot of work ahead of us, our employees deserve a lot of credit for achieving so much so quickly. For that we sincerely thank them. Pilgrims Pride faces a lot of opportunities and challenges in the year ahead. There are a number of factors working in our favor. Current market conditions are much higher then they were a year ago. That should lead to price increases in the majority of Pilgrims annual contracts, which would be negotiated before the end of December. In addition, the export market remains strong as the weak dollar continues to make U.S. poultry attractive to other countries particularly Russia and China. Yet we also see a number of significant operating challenges. The biggest question mark may be the considerable uncertainty over the feeding variety and other commodity costs which have spiked sharply over the past six weeks. Now more than ever is important for us to make sure we are running our business as efficiently as possible and capturing every dollar of our cost savings so we can position our company for sustained profitable growth in the future.

Now, I’ll ask the operator to open up the call for questions. Operator?

Question and Answer

Operator

Thank you. Our first question comes from Razer [inaudible] from Lehman Brothers.

Unidentified Analyst - Lehman Brothers

Good morning.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning Razer.

Unidentified Analyst - Lehman Brothers

Just as far as the supply and demand outlook. Do you think that the supply and demand outlook that you outlined for USDA would allow you to get your pricing to offset these higher input costs?

O.B. Goolsby, Jr. - President and Chief Executive Officer

Certainly we would like to see the growth on the lower side of that projected number. In fact there are a number of companies projecting ranges lower than the 3% growth for next year. Some as low as 2%, so I think the feed costs will continue to determine the placement of birds going forward. Certainly the strong export markets are going to help handle any increase.

Unidentified Analyst - Lehman Brothers

I see. And now for the kind of cost increase that you outlined in your comments what type of a price increase do you need along with any cost savings to offset that kind of cost increase?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Well, we're talking about $350 million approximately in feed cost increases, as we look today or £9 billion

O.B. Goolsby, Jr. - President and Chief Executive Officer

Rick, what is that on a…About $0.04 about on there

About $0.04 on all accounts. Of course there are certain pounds you're not going to get increases on. So your primary products have to carry a larger share of it.

Unidentified Analyst - Lehman Brothers

I see. And I know its early days to right now but, [inaudible] negotiation for annual contracts. Is it going in line with your expectations?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I would think for the most part, yes. We're probably about 25% proof and I would say there has not been major surprises. There’s been some disappointments but all in all I think it’s going well.

Unidentified Analyst - Lehman Brothers

Got it. Thank you much.

Operator

Thank you. Our next question comes from Farha Aslam from Stephens Incorporated.

Farha Aslam - Stephens Incorporated

Hi good morning.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning. Farah?

Farha Aslam - Stephens Incorporated

Just some detailed questions. On your feed costs, what percentage of your cost of goods sold for the full year, were feed costs?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I believe its right around 36%. Wasn’t it.

Farha Aslam - Stephens Incorporated

36% of cost of goods sold.

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Yes.

Farha Aslam - Stephens Incorporated

And as you look forward looking at wheat costs and soy oil costs. Have you included that in that $350 million or that would be on top of that?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

The $350 million is primarily corn and soybean meal.

Farha Aslam - Stephens Incorporated

And then… wheat and soy also significant for you. How those being factored into feed service contract?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I mean Farha what we probably do is anytime we go up a bit, we take a look at what our expectations are on replacement cost of those items whether it’s bad or breading soil oil. Our total unit cost of production and that’s how we take a pricing proposal to market. So, clearly, as the feed ingredient cost that driving that’s the lion share of our commodity exposure. But the others are notable as well.

Farha Aslam - Stephens Incorporated

Okay. And when you look at the kind of industry capacity in the further process area, do you feel like where over capacity situation as there are lot of price competition for those further processed items or/and do you see any rationalizing about capacity going forward?

J. Clinton Rivers - Chief Operating Officer

I mean I think that capacity is close to balance certainly it’s a competitive arena still. And there are several companies have added further processing lines over the last several years. And I have been cleared… we have challenges pushing that cost through just as we do in each of our market channels.

Farha Aslam - Stephens Incorporated

And my final question is, why was Mexican volume down?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Lot of that far had to do on the sales volume, had to do with last year because of the economic conditions here in the U.S. a lot of product was moving from the U.S. to our Mexican operation when they were distributing it. So, it’s really more out of sales volume side than anything else. If you look strictly at the quarter-over-quarter on a produced volumes, they were down slightly as well 11% and not as much as total sales volumes.

Farha Aslam - Stephens Incorporated

Okay. Thank. I pass it along. Thank you.

Operator

Thank you. Our next question comes from Diane Geissler of Merrill Lynch.

Diane Geissler - Merrill Lynch

Good morning.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning, Diane.

Diane Geissler - Merrill Lynch

Could you just comment on… quantify how short the quarter was versus your expectations?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Diane, I think what we thought is going into this quarter all things being equal. We would have expected the quarter will come up more inline with the third quarter as pricing and pricing would have held up. Pricing was off slightly as you see in our reported numbers. I think we are up about a half pound on U.S. chicken revenue. Clearly, Mexico was off a little bit as well. They were off about $0.03 a pound on chicken revenue versus the same quarter last year. So, revenue didn’t quite live up to the expectation, but that only accounted for call it $11 million to $12 million of the shortfall. So, the balance was the cost structure and the efficiencies that Clint mentioned.

Diane Geissler - Merrill Lynch

Okay so you were looking for something around $0.90 to $1 is that kind of--?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Yes. I think if revenue would have gone as we had expected we thought we could possibly have done better than the third quarter but all in all I thought the third quarter is what we tried to tell people was kind of our benchmark and we thought it will be more of a revenue play as opposed to more of a cost play that it ended up being.

Diane Geissler - Merrill Lynch

Okay. In terms of some of the challenges you had on the operational side and some of the CapEx you are planning spend, over the course of the next fiscal year. Can you give us an idea about how long do you think it will take to get things the way you need to have them in terms of the labor savings, optimization et cetera?

J. Clinton Rivers - Chief Operating Officer

This is Clint. I will answer that. I would say that in terms of some of the difficulties we have been facing we have probably seen the worst of it and are pulling out of that. So, things are improving there. The automation that we have got going in. Our first plant where we are… the automating de-boning will be occurring in January. We have additional equipment coming in April and we will have couple of additional plants done by that point of time. So, we are totally where we want to be and I would say that it’s going to be sometime in late spring.

Diane Geissler - Merrill Lynch

So it’s certainly by the end of your fiscal year you feel you will be in a position you will have that optimized. Is that the message?

J. Clinton Rivers - Chief Operating Officer

Yes.

Diane Geissler - Merrill Lynch

Okay and then just a little bit more detail on the tax rate. You talked about increasing from your contingency. Could you just explain that a little bit more?

J. Clinton Rivers - Chief Operating Officer

That was a lot of detail I gave but basically we… obviously through acquisitions and different restructurings and various items that you just encounter day to day in business. You have positions at some times you find it necessary to maybe put up a reserve or a contingency reserve in the event the IRS might not see eye to eye with positions that you take. And so those generally find their way on the income statement as what is called contingency reserves. You will see that in just about every tax but not if you look at for public accounting. So there is just a feel that we felt going into next year that we needed to shore up and that really could do the effective rate above the rate that I had said the normalized rate should be.

Diane Geissler - Merrill Lynch

Okay and then the normalized rate going forward is higher than what we have seen for you historically is that again--?

Unidentified Company Speaker

I think what we are saying is a little bit higher state effective rates with the expansion of our operations in the more geographic areas that Gold Kist operated versus where we were. So it’s mainly more of a state tax issue than anything else.

Diane Geissler - Merrill Lynch

Okay. All right. And then on your contracting… food service contracting, you have commented in the past about in general you are pleased with the Gold Kist acquisition but one of the things that was a bit of a surprise with some of the longevity of some of the Gold Kist food service contracts. Can you give us a feeling or now that’s its lacking some of those contracts that maybe they signed this time last fall, sort of what percentage of your contracts are… extend longer than a year… kind of leftover underwater contracts?

J. Clinton Rivers - Chief Operating Officer

Most of those will be expiring this year. I can only think of two and they are relatively small volumes that extend one more year. But most of those will expire this December.

Diane Geissler - Merrill Lynch

[inaudible] kind of basing it on current market conditions as opposed to..

J. Clinton Rivers - Chief Operating Officer

That is correct. That’s right.

Diane Geissler - Merrill Lynch

Okay. Those are my questions. Thank you.

J. Clinton Rivers - Chief Operating Officer

Thank you.

Operator

Thank you. Our next question comes from Robert Moskow from Credit Suisse.

Robert Moskow - Credit Suisse

Hi. Thank you.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning.

Robert Moskow - Credit Suisse

Could you explain why not give guidance for fiscal ’08? You have got the cost savings done. It’s an apparently viable business but you have given your guidance in the past. Why not?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Robert, I think we got away from giving guidance maybe six-seven quarters ago. We just thought that we had to do the analyst’s coverage out there in general that were developing appropriate views of the industry and how our performance should be. It is extremely viable and it didn’t seem to be a whole lot of benefit from us going out there and giving our guidance on top of the analyst coverage so. And as you can see it from some of the people in this space that did give guidance. They find it necessary to repetitively change numbers that they put out because of the volatility or give extremely wide ranges.

Robert Moskow - Credit Suisse

Although, then part of the logic is that the coverage has gotten better. How do you feel about the consensus estimate for fiscal ’08?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Excuse me?

Robert Moskow - Credit Suisse

Well, how do you feel about the consensus estimate for fiscal ’08? I mean consensus is now that now 357 on EPS basis. It sounds from the body language that maybe you are not comfortable with that??

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Well, I think what we will have to see is how all the analysts absorb the full year of our results and take into account a lot of the information they have picked up. Recently on the last couple of calls between Tyson yesterday and us today and the market condition continually changes. I don’t know what the date of those consensus estimates are that are out there, but I think they are probably a little bit dated.

Robert Moskow - Credit Suisse

And then regarding your competition, Tyson made some I thought some rather aggressive statements about what it’s willing to do to grow market share, sounded like it had a terrible quarter in terms of chicken volume and lost business. Do you feel like they or anyone else is aggressively trying to get business right now in the food service contract that you are undergoing?

O.B. Goolsby, Jr. - President and Chief Executive Officer

Well, I am not sure there is not a quarter that all of the competition is not aggressively trying to gain market share especially with key strategic accounts and it is very competitive today.

Robert Moskow - Credit Suisse

All right. And then one last thing, there are industry studies out that I imagine that you get to look at that show efficiencies in terms of yield, check the processing. This recent quarter I would imagine your yield efficiencies are down. Where do you think you get to in terms of the rest of the industry, you get above average in terms of fast utilization, yield optimization. Do you have any goals that you could give us?

O.B. Goolsby, Jr. - President and Chief Executive Officer

Well, traditionally we have always been a low cost producer. We had a strong live cost and we have operated well above average and I would expect to do that this next year.

Robert Moskow - Credit Suisse

Does that require a lot of extra effort of Gold Kist facilities that you were--?

O.B. Goolsby, Jr. - President and Chief Executive Officer

Well, I think as Clint mentioned I think the worst is behind us we have some capital investments that we think will help resolve several labor issues at various locations and I think that we will be improving from this point going forward and in those efficiencies. Our lab cost continues to be one of our strengths and that is an area that is currently performing very well.

Robert Moskow - Credit Suisse

Thank you.

Operator

Thank you. Our next question comes from Oliver Wood from Stifel Nicolaus & Company Incorporated.

Oliver Wood - Stifel Nicolaus & Co.

Great. Thanks a lot.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning.

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Good morning.

Oliver Wood - Stifel Nicolaus & Co.

Just a follow up of as far as efficiencies, looking at automated production; does that have a positive or negative impact on yield?

O.B. Goolsby, Jr. - President and Chief Executive Officer

In general, the automated equipments we’ve seen in the past has had a negative impact on yield and that’s why in large part we stay away from that but the equipment that we are looking all through the end is new equipment. We think that there might be some slippage in yield there but until we have it in and running, we won't really know the final answer to that but we think there is potential to come close to what we are doing in manual operations.

Oliver Wood - Stifel Nicolaus & Co.

Okay. We’ll look forward to feedback in the spring on that. Mainly I wanted to ask about Turkey, looks like it had a pretty decent loss in the quarter. Could you give us an area where you have been paring down that business? Do you expect to future reduce the size of exposure to Turkey or just trying in sense of what you are doing there.

O.B. Goolsby, Jr. - President and Chief Executive Officer

I think in terms of what we are today in Turkey is probably is flat as we can get and I think that traditionally Turkey has one or two quarters that they perform well, just did the seasonality of sales given our product mix. So, generally the fall quarter is the best quarter for Turkeys.

J. Clinton Rivers - Chief Operating Officer

Quarter ended December.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Yes.

Oliver Wood - Stifel Nicolaus & Co.

And then final question is just on sort of kicking around production and then how that ties in to margins and is there a certain bogey in terms of… there are 5% margin or 6% margin where you may kind of rethink that 3% number for ’08.

J. Clinton Rivers - Chief Operating Officer

Well I think as we said we are going to continue to look at market conditions but Pilgrim’s has had a history if you go back. We’ve had a history of growing organically in excess of what the industry has grown. Now, that was a lot easier to do when we were a smaller company, but I guess at our current size, we anticipate that we will grow in line with the industry. So, I think as the market has need for additional product through domestic or export needs, you can expect Pilgrims to be one of the leaders and pushing that production in line with what the industry’s growth is.

J. Clinton Rivers - Chief Operating Officer

Also I think if you look at the production cuts that we made in 2007, we were one of the leaders in reducing production and the numbers that we are talking about for ‘08 really are just getting us back close to our 2006 numbers.

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

That’s right. Yes, our Pro-Forma production ended up combined Pilgrim's Gold Kist, we were down 3. 2% and produce pounds for the entire year and so the current target rate with the industry growth at 3% will basically get us back to about where we were for fiscal 2006.

Oliver Wood - Stifel Nicolaus & Co.

Got you. All right. Thanks so much.

Operator

Thank you. Our next question comes from Ken Zaslow from BMO Capital Markets.

Kenneth Zaslow - BMO Capital Markets

Hi. Good morning everyone.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning, Ken.

Kenneth Zaslow - BMO Capital Markets

I guess my first question is, I don’t if you hinted at it or not, I’m just trying to figure out historically or last year you said that for ’08 the margin structure of the low end of 5% to 7% is the right number or are you trying to give implication that that might be the right number. Given the new conditions out there, is that still the right way to think about your margin structure, again outside the tax rate and the interest expense?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Yes, I think next year, it is a little bit early to tell, I mean, we have to really see what is going to happen as these contracts come up for renewal and whether or not we will be successful in passing along that $345 million of incremental cost. That $345 million is a substantial part of our current gross margin this last year so, it is too early to say if we will be able to get to those margins.

Kenneth Zaslow - BMO Capital Markets

Not to try and pin you down a little bit harder but on the 25% of the contract that you did sign, would you say that it is optimistic or less optimistic on that?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I mean I would say that it’s certainly possible based on what we’ve seen through the first 25%

Kenneth Zaslow - BMO Capital Markets

Okay.

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

And I don’t think... Ken, I don’t think this is a... it’s not like Pilgrims Pride, it’s the only company that has got to cover these costs so..

Kenneth Zaslow - BMO Capital Markets

If we not?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I think everybody is out there with the same challenge in mind. So, nobody has a competitive advantage when it comes to buying the corn and the soybean there... I mean the price is... what the price is and we’ve got to get it passed along and I don’t care who they are? They are not in business to lose money, at these kind of levels that would be necessary if we had taken this cost passed along.

Kenneth Zaslow - BMO Capital Markets

And on that answer which is... I agree 100%, is would you suspect that the excessive probably going a little higher than I would have expected but can you start to see that egg sets and chicks placed in total plates would start to come down and will that be rational behavior? Just 3% to 4% or 3% or 2%. It seems like that needs to be cut and do you think there is a tiny... that you would expect that the higher feed cost would pressure other chicken companies to say let’s cut production.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Well, I mean I think everybody is watching the grain markets as closely as we are. And I think probably the industry was a little surprised with the run-up, I think there were some people that expected in or around harvest time for the grain to weaken a little but certainly all of the commodities have been very, very strong and I think people are watching that closely and I think that as an industry we can cut back, we demonstrated that a year ago if conditions dictate it, and certainly looking at corn and soybean meal today it’s hard to imagine, somebody wanting to put down, more than 3%.

Kenneth Zaslow – BMO Capital Markets

And my last question is, in terms of sensitivity to wheat and soybean oil, I know you give it after corn and soybean meal, is there a possibility you give us a summary to new sensitivities for wheat and soybean meal… soybean oil? Just because things are… it can’t do a little bit more and just give us an idea on that?

O.B. Goolsby, Jr. - President and Chief Executive Officer

We can consider doing that, Ken, we will take a look at it but we don’t have that information available.

Kenneth Zaslow – BMO Capital Markets

That’s fine. I just, again just trying to, get a sense of that because I know that the chicken has a breading and all that and just kind of an idea and it doesn’t have been exact but if you could that would be fantastic. Thank you very much.

Operator

Thank you our next question comes from Eric Katzman from Deutsche Bank

Eric Katzman- -Deutsche Bank

Hi good morning everybody.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning.

Eric Katzman- -Deutsche Bank

Few questions, I guess on the operating manufacturing inefficiencies. Is it… was that kind of across the board or was it more on the Gold Kist pieces or on the core Pilgrims Pride pieces?

O.B. Goolsby, Jr. - President and Chief Executive Officer

It was, we had some plants that particularly had some issues with our staffing deficiencies where those inefficiencies were but in terms of the weight loss that we had due to the heat during the summer, that was a little more across the board and may be more in the South East especially and we figured that impact from weight loss alone was about $11 million impact towards this quarter.

Eric Katzman- -Deutsche Bank

So there’s no weave through on some kind of problem in terms of the acquisitions is there?

O.B. Goolsby, Jr. - President and Chief Executive Officer

No.

J. Clinton Rivers - Chief Operating Officer

No.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Mix between legacy Pilgrim and legacy Gold Kist plans.

Eric Katzman- -Deutsche Bank

Okay and then how much of the fact that the croiler agreements on the contracts with food service accounts. How much of the lagged impact or a negative lagged impact is? How much of a problem is that? Are these going to reset every month or they reset every quarter or is it just kind of an annual thing and therefore if the slope of the inflation curve is up you are never kind of catch up with the rise in the underlying input.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Yes, I mean the main contracts that we have been talking about are what we call annual food service contract and it’s a large portion of that business that is pretty much the environment at that point in time that we are about to deal with and so we can take into account what we know today and what we convince the customer needs to be passed along today but if costs go up in February or March, that’s just going to be outside the scope.

Eric Katzman- -Deutsche Bank

I mean wouldn’t it make sense if the industry leader to start renegotiating these contracts in terms of having escalator clauses in them more frequently?

J. Clinton Rivers - Chief Operating Officer

We have tried to do that and we continue to try to push as O.B. mentioned those kind of plus and minus contracts so as costs goes up, there is an escalator and as costs go down there is a de-escalator but really it’s the customer and their buying decisions, they dictate a lot of that, no matter what we try to suggest and so we do try to push that but we don’t have perfect success in trying to get that done.

Eric Katzman- -Deutsche Bank

Okay and then next question on the, are you seeing any mix impact negative from consumers trading down?

J. Clinton Rivers - Chief Operating Officer

I mean at this point we have not, we have seen continued growth in the rebounding of our industry which does put more breast meat on the market, the strength in the export markets have kept the dark meat extremely strong compared to historical levels but I think if you look at retail ads, if you look at food service promotions at Mature R’s [ph], they are still promoting a lot of breast meat sandwiches and high end products so, at least at this point in time. We do still have strong deep presses which favor any cut of chicken, so that’s to our advantage.

Eric Katzman- -Deutsche Bank

Okay and then last question, I’ll pass it on. As you kind of Rick A.C. noted you have done a good job in bringing down debt, your… booked at the capital and the coverage ratios are pretty good, to the extent where does the free cash flow go as the stock weakens, I mean is it… is there more acquisition activity given the pressures, is it continued debt pay down or at this point does it make more sense to buy back stock?

O.B. Goolsby, Jr. - President and Chief Executive Officer

Yes. I think right now where we are on a debt to capital we are still not where we would like to be in the target. We’d like to get debt down below 45% so that will still be our primary focus. But I guess it depends on how weaker your stock price were to get, I mean where it is today, at under $24, it’s obviously getting beat pretty hard the last couple of days. So, we will continue to watch it.

Eric Katzman – Deutsche Bank

Okay. So it’s not set in stone, it’s all debt pay down?

O.B. Goolsby, Jr. - President and Chief Executive Officer

No it’s not. Nothing is set in stone, we could take any recommendation to our board. We haven’t been active in the past in buying back our stock. But again I mean that’s not to say that that’s off the table either.

Eric Katzman – Deutsche Bank

Okay. Thank you.

Operator

Thank you. Our next question comes from Chris Bradsow [ph] from Lehman Brothers.

Unidentified Analyst – Lehman Brothers

Good morning.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning.

Unidentified Analyst – Lehman Brothers

There’s really been a lot of change since last year but in all respect what we are seeing today is really not that dissimilar from last November in that feed costs are pointing higher and now there is some concerns maybe about production discipline in the industry. A year ago it was really you and Tyson that took the lead and shouldered the burden for production discipline. And it seems like in retrospect that maybe the bottom 50% of the industry took advantage of that increasing production at maybe a 3% rate or so. I still personalize just wondering if that… if there is a statement and secondly for ‘08, the joints seems to be a little bit different you and Tyson both participating in the industry growth and to my question is, as of today you believe that smaller processors are hearing the message that this year you are not going to be subsidizing their profitability?

O.B. Goolsby, Jr. - President and Chief Executive Officer

Well, I think your first statement was very accurate and if you look at the announced production cuts of what was meant Gold Kist, ourselves and Tyson and that accounted for most of the cut and you did see a lot of rest of industry increase production. And we are addressing our production numbers based upon our sales and sales demand. We also have to look at our fixed costs in our plants. We reduced production in some plants significantly. We still have plants today that are running four days every other week and so we have to get back to a more normalized basis, so that our cost structure, is competitive.

Unidentified Analyst – Lehman Brothers

And then to follow up on that as well, I have been thinking about the dynamic of a larger processor versus a smaller processor. Now they, some labor shortage concern. Just curious of the country’s laws, if you find them kind of structuring away that larger corporations are more at a disadvantage than maybe some of the mom and pop whether it would be a function of closer monitoring or just stricter codes and with it becoming more of an issue. I guess how are you thinking about that?

O.B. Goolsby, Jr. - President and Chief Executive Officer

There’s definitely advantages with some non public companies. Some smaller companies out there. There are pros and cons of being public. We have access to capital, but we also come under a very strict set of rules and regulations. And at times that can be a disadvantage.

Unidentified Analyst – Lehman Brothers

And I know [inaudible] has the new wake of plant coming on line are you seeing, and I know you have a prepared food plant in wake of fairly good size are you experiencing any difficulties in that particular plant from the [inaudible] plant at this point.

O.B. Goolsby, Jr. - President and Chief Executive Officer

From a labor standpoint?

Unidentified Analyst – Lehman Brothers

Yes.

O.B. Goolsby, Jr. - President and Chief Executive Officer

That has not been a major problem here for us.

Unidentified Analyst – Lehman Brothers

Thank you.

Operator

Thank you. Our next question comes from Bryan Hunt from Wachovia Securities.

Bryan Hunt - Wachovia Securities

Thank you. I was wondering if you could just talk about your automation investment a little bit more. One, what type of auto ID you expect on those investments over a pay back period. And two, based on your automation of plans through the end of the fiscal year. Where do you feel like you’ll stack up relative to your peer group as a percent of pounds that are flowing through automated processes? Then I have a follow up question.

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Well, in terms of the ROI on the equipment that we're putting in. we're looking at less than two-year type of paybacks. To occur later in terms of what percentage we have going through compared to our peers. I wouldn’t be able to guess at that. We could try and get you some information on it but today I would not want to speculate.

Bryan Hunt - Wachovia Securities

Okay. And then my other question is based on you're contracting for food service so far and then your like 25% of the process or to the process so far but based on what you've done. Do you believe you've gained some share over and above the acquired volumes from Gold Kist?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

It’s probably too early to tell. I mean in some cases we've lost some share and some others we've gained but I think it’s still too early for us to know that for certain.

Bryan Hunt - Wachovia Securities

And what do you feel the biggest sticking point is in losing a contract. I mean I imagine that its not service its just purely price driven.

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I mean generally it’s price driven, I mean, depending upon the amount of overlap that we might have when we acquired Gold Kist with a certain account and I can think of one account where we had about 70% of the business, Gold Kist had 30% so we ended up with a 100% and the accountant wasn’t comfortable with that. So we lost some market share there but there were very, very few of those but generally as a price issue.

O.B. Goolsby, Jr. - President and Chief Executive Officer

I think if you look overall on a pro forma basis our prepared food volumes were actually up about 10% so that included Gold Kist for all last year ’06 and into all in all last year so there might be some mix here and there between some accounts are not as successful. But overall that line of business has continued to grow.

Bryan Hunt - Wachovia Securities

Okay. Thank you.

Operator

Thank you. Our final question comes from Pablo Zuanic from JP Morgan.

Pablo Zuanic - J.P. Morgan

Good morning everyone.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Good morning.

Pablo Zuanic - J.P. Morgan

Though I have to say Rick and OB that I guess, I had planned to for use my questions. One, about the industry outlook. But the results really raised some serious questions at the micro level and obviously you've touched on them but from my point of view. I’m looking at an 11% gross margin in the third quarter and today you report 9.5%. Staffing issues, weight loss due to the summer. I believe that those were the issues that were also an issue in the June quarter. Then I look at the industry data. Average pricing when I look at, when I try to look from poultry driven per pound in the September quarter versus June was up about half a penny. And my numbers of course were also actually down about half a penny so the growth margins that you reported. The decline sequentially was a total disconnect from industry trends. And again I’m hearing that you've been very efficient and quick in terms of reaping the synergies from Gold Kist. But, on the other hand. You had these other issues at the operating levels. So I’m just wondering, I mean the question is more general here, but I was looking for the recovering industry trends. To help PBC and now based on what you've reported today I’m wondering whether you will lag that recovery because some of the issues at the micro level. What any one clarification is that staffing issues and weight loss due to the hot summer. That’s something that’s beyond your control obviously but what are the things that are within your control that damage reported and could improve it down the road.

Unidentified Company Representative

I mean certainly the staffing issues created a lot of extra cost. We had to use outside processors to de-boning some of our product that we could not be down internally and that created a lot of trade and yield loss in moving that product around. We even in terms of stating for the processing plans we had to use outside co packers to produce product and so that was a major problem for us in the quarter, which was somewhat shared by the rest of the industry but, may be due to our locations we had a bigger piece of it.

Pablo Zuanic - J.P. Morgan

And there was not an issue in the June quarter?

J. Clinton Rivers - Chief Operating Officer

It really mutters itself…

O.B. Goolsby, Jr. - President and Chief Executive Officer

It primarily was the September quarter…

Pablo Zuanic - J.P. Morgan

And the way…

O.B. Goolsby, Jr. - President and Chief Executive Officer

And Pablo as Clint mentioned I mean, he think that we've been through the worst of it but I would say that the quarters that we’re in will probably be on par in terms of operating efficiencies with the last quarter and we are on the way out of it so by the time like Diane asked earlier by the time you get to the end of year. We think we’ll be out of this situation but it’s more of getting out a it the next two quarter’s to the point of where we want to be.

Pablo Zuanic - J.P. Morgan

Yes. I understand although at the end of today, well as you know, spreads in the December quarter do get little bit lower then in the September quarter but that’s at the industry level. And then there a question of the revenue per pound level. I mean your revenue per pound was down sequentially in September and again looking at the spot pricing data in my composite show that revenue per pound should have been up about half penny to a penny and that makes a big difference in your numbers but why would revenue per pound have been down sequentially what PPC in September?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Yes. We were down like I said about half ton a pound.

Pablo Zuanic - J.P. Morgan

Which is about $0.08.OEPS.

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I guess I’m trying to look at what you are looking at when you mention, I mean the, clearly we had some decrease. We had wings that were down about 5% quarter-over-quarter. We had boneless skinless breast, which was about down 2%. Our late quarters were up a penny and half and Georgia Dock was up about same about a penny and half. So, overall the market mix was a mix between some products been down as much as 5% and other being up 2% to 3%. So net-net I think the whole mix of the commodity side was not as favorable as what your math might be showing.

Pablo Zuanic - J.P. Morgan

Okay. But net in terms of revenue per pound you’re saying that you were not… your trend was not very different from the rest of the industry there, that’s what we arguing?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I can’t really tell for certain, I don’t believe. So it seems to have fallen in line with the markets prices primarily and clearly there’s the fix price contracts which will be nothing about really till this year but again wings down $0.07 a pound on the Ernerberry [ph], bone-ins, breast down $0.04. I would say to the extent you are selling any products into those markets your prices were down.

Pablo Zuanic - J.P. Morgan

Okay. And then just one last one on the industry level. I understand that here and now you and Tyson are increasing production 2% or 3% but again to the day last year when the two leaders decided to cut production, it was because of high feed costs and because all traits were negative and right now traits are not negative, yet but you have a big pressure on the feed side. I am not understanding why the Dutch company would not want to announce a production cut, but right now?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Well, I think each company has to look at their own numbers and make that decision but as I said, we are, we will monitor that as the year progresses. Our growth is back end loaded. This first quarter we will be flat with a year ago and as I said I think we have to get our cost back inline by giving to a more normalized level. I think that the export markets will continue to help the industry, to handle the growth that is projected and the growth may command less than 3%.

Pablo Zuanic - J.P. Morgan

And just one last one and then I will be out. On the export markets in the bunch could you give us some idea what the contracts are right now? Can you comment on that? I mean what’s the income from the Russian ban and 17 plants. Where in the court do they know there is a contract so as one or two months old?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

I mean we see light quarters, the export market is in the low 40’s which is for this time of year, very good, we are booking product anywhere from 60 days to 90 days out. The Russian delisting has not had any impact that we can see on that market. That market is still… there are plenty of plants to supply their needs and we have many plans that we can supply that product, China, the rest of the country is still moving well, but seasonally even for the export market this quarter is not one of the strongest quarters.

Pablo Zuanic - J.P. Morgan

Thank you.

Operator

Thank you. We do have a question from Robert Moskow from Credit Suisse

Robert Moskow- -Credit Suisse

Hi, just to put… I think you just said that you expected this quarter to be flat versus a year ago. Did you mean that on sales basis or were you also concentrating on a profit basis there?

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

What I thought I said is we suspect this quarter to be flat with the third quarter

Richard A. Cogdill - Executive Vice President and Chief Financial Officer

Food production. The current quarter, our pounds produced will be flat with year ago numbers.

Robert Moskow- -Credit Suisse

On a pro forma basis? Okay, thank you.

Operator

Thank you. And so there are no further question in the queue at this time.

O.B. Goolsby, Jr. - President and Chief Executive Officer

Thank you very much.

Operator

Thank you. This thus conclude our teleconference for the day. You may now disconnect.

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Source: Pilgrims Pride Corporation F4Q07(Qtr End 9/30/2007) Earnings Call Transcript
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