Tyson Foods Inc. F2Q08 (Qtr. End 03/31/08) Earnings Call Transcript

Apr.29.08 | About: Tyson Foods (TSN)

Tyson Foods Inc. (NYSE:TSN)

Q2 FY08 Earnings Call

April 28, 2008, 9:00 AM ET

Executives

Ruth Ann Wisener - VP, IR and Assistant Secretary

Richard L. Bond - President and CEO

Wade D. Miquelon - EVP and CFO

Analysts

Farha Aslam - Stephens Incorporated

Timothy Ramey - D.A. Davidson

Kenneth Zaslow - BMO Capital Markets

Diane Geissler - Merrill Lynch

Christine McCracken - Cleveland Research

Pablo Zuanic - JPMorgan

Robert Moskow - Credit Suisse

Ann Gurkin - Davenport and Company

Vincent Andrews - Morgan Stanley

Operator

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

And now, I'd like to turn the call over to your host, Ms. Ruth Ann Wisener. Ma'am, you may begin.

Ruth Ann Wisener - Vice President, Investor Relations and Assistant Secretary

Good morning and thank you for joining us today for Tyson Foods second quarter conference call. With me today are Dick Bond, our President and CEO, and Wade Miquelon, our Chief Financial Officer.

Before we begin to discuss the operating performance for the quarter, I want to remind everyone that some of the things we talk about today may include forward-looking statements. Those statements are based on our view of the world as we know it today, which means things could change so I would encourage you to look at today's press release for a discussion of the risks that the can affect our business.

I'll now turn the call over to Dick Bond.

Richard L. Bond - President and Chief Executive Officer

Thank you, Ruth and good morning and welcome to Tyson Foods second quarter conference call. As you saw on our release this morning, GAAP earnings for the quarter were minus $0.02 a share. However, this result included plant closings and asset impairment charges of $0.08 a share. If you adjust for those, we would have made $0.06 a share in Q2.

Pork delivered its best January through March quarter ever. The Beef segment showed significant improvement over Q1 as well, despite difficulties with our Canadian subsidiary. Beef improved $74 million over the first quarter of this fiscal year including charges of $25 million for plant closings and asset impairments.

The chicken segment still suffers from higher and more volatile grain prices due to increased demand from ethanol producers and international markets driven in part by the weak dollar. On our first quarter call, we predicted grain costs for the fiscal year would exceed $0.5 billion and its now looking like more than $600 million, including the rising cost of wheat, cooking oil and other feed ingredients, additional input costs for the fiscal year could approach as much as $1 billion more than in fiscal '07.

I'll give you more color around the segments later, but I think our second quarter performance demonstrates our multi-protein business model can position us relative to our competition.

Whatever primary competitive advantages, is our expertise in the food industry whether it's in retail or food service. Our customers rely on us, especially in the current economy. Consumers have altered their approach to where they eat and how much they spend, although restaurant traffic overall hasn't changed significantly.

Consumer spending is down, especially in the casual and mid-scale dining. We have been inundated with customer requests to reformulate existing products or develop new ones to drive more value. But whether people eat at home or away from home, or whether they want chicken, beef or pork, Tyson has the depth and breadth of products to meet consumer's changing needs.

Now, I'm going to turn the call over to Wade to talk to you about our financial results for Q2. Wade?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

Thank you, Dick. Overall, I'm very pleased with our results. As stated in Q2 '08, we achieved GAAP earnings of minus $0.02 a share despite ongoing challenges in the business environment. This compares to earnings of $0.19 per share in Q2 '07 and $0.10 per share last quarter.

Q2 '08 results include charges of $0.08 per share for plant closings and asset impairments using a 39% marginal tax rate. Given some of the short-term challenges we've been facing, particularly in higher grain and other input costs, these results illustrate the benefit of having a very diverse multi-protein portfolio.

Volume was roughly flat and pricing per unit was up 2.4%. While we have seen some price increases in chicken and beef, pork pricing was weaker year-over-year primarily as a result of ample short-term supply.

Our year-over-year sales improved for the quarter by 2% or a $111 million on better pricing, and was up roughly 3% netting out the effect of divesting two commodity chicken plants in fiscal year '07.

We finished the quarter at a debt level of around $2.95 billion, which puts our debt-to-capital ratio at 38.3%. This represents a $248 million increase versus the end of Q1 and this debt increase is due to deferral payment timing at the end of Q1 for hogs and cattle, as well as an increase in inventory balance, primarily as a result of appearing for major customer promotions and the timing of shipments to major international locations.

Capital expenditures for Q2 '08 were a $110 million compared to $50 million for Q2 '07. And importantly, for the fiscal year-to-date, we have invested around $100 million in profit improvement projects. That is projects that go beyond our normal requirements of maintenance and facilities.

It should be noted that we are revising our fiscal year '08 capital budget downward to approximately $400 million from our previous estimate of $425 million to $475 million.

Pork performed extremely well and above our normalized target range at almost an 8% operating margin due to continuous strong export sales and ample hog supplies in an environment of higher operating cost.

Our Prepared Food segment performed reasonably well but was slightly below our normalized range with the primary cost being the timing of input cost increases versus price formula and ongoing related price increases.

We started the quarter with significant losses and improved dramatically midway to the quarter as a result of our moves to improve efficiencies via plant restructuring, and also a better overall balance of capacity versus available cattle.

As predicted chicken operating earnings were negative as chicken price increases lag the substantial grain price increases we have seen over the past several months. Specifically for the quarter, the negative grain impact was a $102 million versus Q2 '07.

For the fiscal year as Dick has said, we estimate our corn and soy cost alone will be approximately $600 million higher than year ago prior to some risk management offsets. And when adding other cost increases and other inputs our year-over-year cost base is approaching $1 billion.

While some of these cost increases can be offset via internal cost efficiencies, the vast majority of these will need to be covered via price increases, which we have initiated and we'll continue to work over the next several quarters. Dick will discuss the segments in more detail in a few minutes.

Last quarter we temporarily withdrew our guidance due to the magnitude of input market volatility, timing and anticipated price increases and continued uncertainly in beef. While some issues, for example, beef markets and price increase timing maybe clearer now than three months ago. Grain and other inputs remain very volatile, so we have chosen not to reissue guidance at this time.

I know you're are all aware of the unprecedented volatility we're are seeing in grain and other commodities and as you are all aware of the causes, such as increased risk management positions, significant moves in energy and the like.

This volatility could ultimately demote quarterly volatility in earnings, in particular to fairly sizable mark-to-market positions that we may be carrying at any particular point in time. Ironically, while downward price movements in grain is positive for the long-term health and earnings of the business, short-term downward moves in grain could lead to sizable negative quarterly earnings, due to mark-to-market changes and similar outstanding positions.

Further, compounding future short-term P&L volatility, certain commodity daily price movement limits have recently been increased. For perspective, if we were to have only 10,000 outstanding corn contracts at any particular point in time, four days of consecutive limit-up or limit-down moves will generate a $110 million in absolute P&L swing for mark-to-market accounting. This equates to roughly plus or minus $0.19 per share over those four days and those theoretical number of positions.

Last quarter, we mentioned grain would have a much bigger impact in Q2 than Q1, due to the timing of major rise in input cost, as well as related P&L inventory flow through effects. We will continue to see this cost step up in effect in Q3 and Q4 as well, as more impact from the price increases continue to mitigate this effect.

In summary, we said in our last conference call that we believe our second quarter would likely be our most challenging and we still believe that to be true.

In closing, I remain very confident about the prospects for Tyson Foods. Our core strategies are right, and we continue to execute them with excellence. The markets are adjusting and we will continue to turn challenges into opportunities and expand our lead as the world's number one provider of protein and protein solutions.

And now I'll pass on to Dick for the review of the segments.

Richard L. Bond - President and Chief Executive Officer

Thanks, Wade. Now, I will give you some more detail on our segments and our other groups within our business.

The chicken segment has been difficult, but we've have managed it reasonably well under the circumstances. We are getting pricing, but it isn't keeping pace with inputs. We need some help from the underlying markets, for example breast meat and leg quarters.

We believe this will happen, but it could be near the end of the fiscal year, before we have a positive run rate in chicken. We are seeing the emergence of chicken as a breakfast trend in quick service restaurants. This is very promising from a consumption standpoint, because it doesn't cannibalize lunch and dinner consumption. National chains are promoting chicken heavily which is certainly beneficial for Tyson.

In consumer products chicken, according to Nielson data, we've had a 28% dollar-volume increase in our Boxed Chicken products as a result of Any'tizers and nearly 13% in bagged products. We also have had very successful daily promotions around football and college basketball games in February and March.

On the production side of the chicken business, the past several months we've have been working diligently to improve our cost structure. We are doing this primarily through three avenues; red meat mix, improving yield and increasing flexibility within our planes. Our goal by the end of the year is to have 10% of our mix in big birds and we are accomplishing this by converting three poultry complexes to bigger birds with plans for more next year.

There are dozens of exciting innovative profit improvement projects underway, around yield improvement and plant flexibility to reduce the amount of chicken moved, among our plants. We are spending about a $130 million in capital improvements over the course of this fiscal year with a projected annualized savings double our investment and we expect to continue investing in 2009, as we optimize poultry plants throughout the company.

As we've gone through the process of evaluating our plans and improving our cost structure, we've had to make some changes. As we announced in February, we're closing a plant in Wilkesboro, North Carolina that produced our roasted chicken products. This was our further processing plant, therefore, it didn't affect our overall chicken output.

And that brings me to the issue of chicken supply. Many of you have been asking about our production plans. Our plan is the same, is to balance our production to meet the needs of our customers. And right now, our demand is good. And in some channels is just playing outstanding. Therefore, we currently don't have any plans to reduce production.

Moving to the beef segment; I'm really pleased with the turn around we've had. Beef improved $74 million over the first quarter of this year excluding charges of $25 million for plant closings and asset impairments, beef would have had almost a $100 million quarter-to-quarter improvement.

This is even more significant considering Q2 is usually our most difficult for beef. Capacity utilization was approximately 77% and according to USDA data, our spread was notably better than the industry average. We are pleased South Korea will be opening up to our exports.

The USTR negotiating team did a great job in achieving acceptance of all ages of cattle. I'm confident the team will move quickly to reach a comparable agreement with Japan, hopefully over the next six months.

Restructuring of our operations in Emporia, Kansas was very difficult for our team members and the community, but it was definitely the right thing to do. We're now seeing the improved efficiencies we expected.

Overall, supply and demand have been in reasonably good balance for the past several weeks. I think beef will continue to improve, and our capacity utilization should move into the 80s. We're resuming exports to South Korea, and we are heading into the grilling season.

Now onto pork, I mentioned this earlier, but I want to reiterate how well our pork segment has performed for the first half of fiscal '08. We had unusually good margins due to favorable market conditions in addition to our own internal focus on efficiency.

Our capacity utilization was 90%, and our spread per hogs was significantly better than the industry average. I want to acknowledge the great work our Fresh Meat's group has done with the pork business.

I'm pleased to say Tyson Foods will be the exclusive pork supplier for the US military commissaries in the US and Puerto Rico. This is the first time one supplier will have all the business, and that's the testament to our product quality and service.

As in the side, although related to government contracts, Tyson's ethics and compliance programs was ranked 21st out of thousand of the largest federal government contractor programs by Ethisphere Institute, a national organization dedicated to ethics in business.

Coming back to the pork segment, I think going forward pork will continue its great performance, although it probably won't be as strong as the first half of the year. In the prepared food segment, price and volume had a negative impact. Overall input cost remained relatively flat. Grain prices affected our tortilla and pizza crust businesses, but we're partially offset by a lower pork prices for pizza toppings, baking, and other pork products.

We have two big success stories coming out of prepared foods. One is for a National Quick-Service Restaurant chain that challenged us to develop a range of new burger ideas. Test marketing went to so well, the new burger using a sauce and concept we developed, launched at the end of March.

Another national account customer is using our sauce in one of its new pasta offerings currently in heavy promotions. These are excellent examples of our culinary and customer development teams working with our customers in the discovery center to come up with interesting new products and build incremental sales. In the third quarter, I expect prepared foods will have results similar to second quarter performance due to rising input costs and volatility.

In our international business second quarter box beef volume was up 46.5% granted from a small base compared to the same period last year, while box pork was up nearly 25%. The weak U.S. dollar is making protein a good value and is opening potential new export markets for chicken. This is helping our geographic diversification of light quarters and reducing our reliance on the Russian market.

In February, we announced the creation of the Jiangsu Tyson Foods, a joint venture with a Chinese poultry company. We are working on two additional integrated poultry opportunities in Asia, as well as, two in Brazil. Looking ahead total international sales are projected at $3.7 billion for the year, which is 23% above fiscal '07.

And finally, our Renewable Products group delivered a record quarter in operating income, primarily from rendering operations. I'd like to give you an update on where we are with renewable fuels. As you might know, our strategic alliance with ConocoPhillips began producing next generation renewable diesel in December.

We have been averaging around 300 barrels a day and have tested up to 1000 barrels per day and now we're jointly developing scale up plans for more output. On the construction of our dynamic fuels plant, the site environmental work is nearly complete, final engineering is nearing completion and equipment requiring a long lead time has been ordered. In addition, we have applied for a taxed advantage, growth goal opportunity zone, financing for the State of Louisiana which would offer favorable interest terms for the project.

Before we take your questions, I want to say a few more things about the grain markets. Our annual cost of corn and soybean meal expenditures have doubled from $1 billion to $2 billion since 2006. We can't raise prices fast enough to keep up with the rising cost of our inputs.

Consumers are concerned about the prices they're paying now, but the cost we and other producers in all food chains are currently incurring are only beginning to be passed on to the consumers. It's going to get much worse, if we continue down this path of diverting corn to ethanol production. Higher food cost is one of the many unintended consequences of the corn based ethanol mandates and subsidies the U.S government put in place in 2007.

The intensions were good, reduce our dependence on petroleum and encourage the use of environmentally beneficial fuel. Unfortunately, that isn't what's happening. 2007 ethanol production will replace only 3% of the US oil imports. The fact is we can't grow enough corn in this country to make a damped in our petroleum dependency.

It takes a bushel of corn to produce 2.75 gallons of ethanol. The government mandates the use of 9 billion gallons of ethanol in 2008. That will take 3.2 billion bushels of corn or close to 30% of the expected crop. The entire world's grain crops could replace only 5% of global oil products.

Diverting corn to ethanol doesn't make economic sense. The cost to produced gallon of ethanol is twice what it cost to produce a gallon of gas. Ethanol has created over $12 billion in US household income, but it costs the rest of the economy $24.5 billion, a two-to-one cost for only $1 gained.

I read a report last month that explained how US biofuel policy has failed on two major criteria of public policy, efficiency and equity. It is inefficient because it raises the price on feedstocks to artificially higher levels, which increases costs for other uses such as food. It is inequitable because higher food costs disproportionately affect the people who can least afford it.

Essentially, it's a regressive tax on the poor, and not only the poor in America. Ethanol mandates in subsidies along with tariffs on ethanol imports are causing a world food crisis.

Shortages and higher prices mean many people around the world are spending the majority or all of their income on food. Those who can't are starving. The number of peoples suffering from hunger has been predicted to decline from 800 million to 625 million by 2025. But because of our current ethanol policy, it is now expected to decline to 1.2 billion.

Hunger relief is a cause near and dear to us at Tyson. It has been the primary focus of our company's public service and charitable giving. It is terribly discouraging to see hunger suddenly get worse when we've been working a years to combat this problem.

As for the environment, the land, energy, water and fertilizer needed to make ethanol more than offset any environmental gains. Ethanol production is having a negative impact on the environment in many ways and I'm sure you've seen this in the news over the past few months. To stop this snowball effect on unintending consequences, Congress must putt an end to our misguided ethanol policy now.

I'll get down off my soapbox now and wrap this up. Everyday I come to work and see smart, talented, dedicated people striving to do the best in class in innovation, customer service, efficiency and profitability. Considering the economy and the volatile markets, I think they are doing a great job. You may not be able to see the results at this time, but I believe we continue to lay the groundwork for impressive things to come.

So I give my thanks to all the Tyson team members for their work and to all our shareholders, who continue to see the long-term potential for Tyson Foods.

And now I'll turn the call over to Marcella for questions.

Question and Answer

Operator

Thank you, sir. We can now begin the question-and-answer session. [Operator Instructions]

Our first question comes from Farha Aslam. Your line is open. Stephens Incorporated

Farha Aslam - Stephens Incorporated

Thank you. Good morning.

Richard L. Bond - President and Chief Executive Officer

Good Morning

Farha Aslam - Stephens Incorporated

Congratulations on a great quarter considering the environment.

Richard L. Bond - President and Chief Executive Officer

Thank you.

Farha Aslam - Stephens Incorporated

I have some question, first on chicken. I think you had mentioned, you were spending $130 million to improve your chicken operations?

Richard L. Bond - President and Chief Executive Officer

Yes.

Farha Aslam - Stephens Incorporated

And is that all this year?

Richard L. Bond - President and Chief Executive Officer

Yes. That will be spent this year… approved and spent in this fiscal year.

Farha Aslam - Stephens Incorporated

So then… and you said that you expect 2x benefits. So, kind of going into next year, we could double that and say, kind of that's would be the cost savings your chicken division would realize?

Richard L. Bond - President and Chief Executive Officer

We would expect the benefits unless other things change. We would expect the benefits of these expenditures to be twice what we expect, I mean we're not going to get them all in once for, but over time that $130 million will be $260 million in potential savings.

Farha Aslam - Stephens Incorporated

And so, when you think about normalized margins in chicken, you've historically said they are kind of around 5% to 7%, would that change it or just kind of help you meet that given the current grain environment?

Richard L. Bond - President and Chief Executive Officer

I would tell you that that doesn't necessarily change it. It will help us meet. It maybe help us get to the higher end of the range, but I would not want to say that that should change our chicken segment earnings to a different level.

Farha Aslam - Stephens Incorporated

Okay. And..

Richard L. Bond - President and Chief Executive Officer

Farha are you there?

Operator

One moment please. Go ahead Ms. Farha Aslam.

Farha Aslam - Stephens Incorporated

Hi, Dick.

Richard L. Bond - President and Chief Executive Officer

I am here.

Farha Aslam - Stephens Incorporated

Okay, great. Just, kind of what you think about pricing for chicken going into the summer? How much of that, almost billion dollar hit that Europe high take for this year do you think you can offset with pricing?

Richard L. Bond - President and Chief Executive Officer

Yeah, that's a great question and one that, we really don't have any answer for. Because as I said, part of this is going to rely on the underlying markets, like the quoted commodity markets for breast meat, and leg quarters, and wings, and tenders. And we don't really know at this point how quickly or how much those underlying markets are going to go up.

We know they are going to go up, we just don't know the rate. So, I am reluctant to tell you that we are going to recover x%, but I would tell you through efficiencies, through risk management efforts, and through pricing, our goal is to try and offset this, as much as we can and as I said, I think by towards the end of Q4, we will be in a positive run rate.

Farha Aslam - Stephens Incorporated

Right. And my final question is with the farm bills, did you get any clarity on country of origin, labeling particularly as it relates to beef and pork?

Richard L. Bond - President and Chief Executive Officer

No, we don't have any clarity yet as far as I know. They are still negotiating even as we speak on the final of what a farm bill might look like. So no, there has not been anything definitive as of yet, at least to the best of my knowledge.

Farha Aslam - Stephens Incorporated

Great, thank you very much.

Richard L. Bond - President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Tim Ramey of D.A. Davidson. Sir your line is open.

Timothy Ramey - D.A. Davidson

Good morning, Dick and Wade.

Richard L. Bond - President and Chief Executive Officer

Good morning.

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

Good morning.

Timothy Ramey - D.A. Davidson

I'm trying to figure out to think about this in is… I think you've essentially told us that pork supplies will decline and when if we see that and we see hog prices rising and pork prices rising and probably the same scenario for beef. So that sort of drags along your biggest segment and I think this what you're just saying Dick, but I'm trying to get you to maybe to elaborate on it.

So there is the impact of pricing but there is also the impact of competing proteins and what that will do to chicken prices? Am I getting that right?

Richard L. Bond - President and Chief Executive Officer

Well. I think you are right. I mean this grain inputs are hitting everybody. The producers whether you are in chicken, beef or pork right now are… have taken a huge, huge loss, well. Eventually that's going have to change and every odd boats are going to come to a new level of tide water because oil prices have to go up.

So, I think the chicken typically, is one of your better values from the standpoint of protein and generally speaking if there are trade-offs, often times, you will trade chicken. Much revived if I've have answer your question, though.

Timothy Ramey - D.A. Davidson

I think that's right. I mean, obviously, you are not backward integrated in any meaningful way in beef and pork. So you don't directly bear those costs. But there is a lot of leverage in beef and pork prices given what's happening with the liquidation it seems.

Richard L. Bond - President and Chief Executive Officer

I concur with you.

Timothy Ramey - D.A. Davidson

Okay.

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

The international markets too, just the continued opening and the fact that U.S. protein is a great value, is going to meet your… you are going to see more of more of the supply overseas, which will provide pricing support at home.

Timothy Ramey - D.A. Davidson

Great. A Wade. Did you say, if there was any mark-to-market hedge impact in the Q2?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

We did not say specifically. I mean obviously, you can see the overall hedge positions, but lots of time the offset ends up in COGS, so you can't tell the true balance of it.

Timothy Ramey - D.A. Davidson

And you are not going to tell us?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

We're not going to. I mean obviously as you know we've always hedged some, but not ever hedged fully and we don't like to disclose the exact position.

Timothy Ramey - D.A. Davidson

Okay. And Dick, you've talked a bit about the fuels, what might… 300 to 1,000 barrels a day is pretty meaningless, but what might have these say year from now?

Richard L. Bond - President and Chief Executive Officer

Well, if the economies continue to make sense, I mean our goal was to get up to about 12,000 barrels. In order to do that, we need to go to three different Conoco refineries to get that done. I'm not sure of the pace of that, I do believe that we will some substantial changes. So, I think we'll be at 12,000 in a year, probably not, but I would say we've got a good chance of being well over 50% of the way within a year.

Timothy Ramey - D.A. Davidson

Thanks very much.

Richard L. Bond - President and Chief Executive Officer

Thanks, Tim.

Operator

The next question comes from Ken Zaslow, BMO Capital Markets.

Kenneth Zaslow - BMO Capital Markets

Hey, good morning everyone.

Richard L. Bond - President and Chief Executive Officer

Good morning.

Kenneth Zaslow - BMO Capital Markets

Hey, Dick, your tone has changed rather dramatically since February at CAGNY. Can you just give us a little idea of, I mean, your tone has really just changed from kind of being very subdued to seemingly a lot more positive. What are you seeing that's making you that positive?

Richard L. Bond - President and Chief Executive Officer

I think there is a number of things. One, I think beef is… really has any opportunity to do well going forward. I think, that was a big drain. If you think about Q1, I mean Q1 beef lost $85 million. So, the $100 million change around from Q1 to Q2 will make anybody a little bit more rosy. Secondly, I think it was very surprised or happily surprised at how well our pork segment did as well. So I think those two are very, very positive and I think they'll both do well going forward here for the balance of the year.

Chicken is something that we're going to have to deal with. We knew, we were going to have to deal with the grains and the volatility in grains, and I think that we are managing that well and I am really very pleased with the progress that we're making from an operational efficiency standpoint, as well as our sales and marketing people both innovating and working on getting prices up were appropriate.

Kenneth Zaslow - BMO Capital Markets

And, two points that you kind of mentioned in that. In your cost structure side of it, how do you asses or how could we asses, how much better you are doing relative to your industry, and where have you been, and where you're going, in terms of your cost structure relative to your industry? Because, I think you said on your beef side, as well as your chicken side you outperformed the industry? How could we get a better sense of that?

Richard L. Bond - President and Chief Executive Officer

Actually, I said on beef and on pork, we were better than the industry spreads, which would really be a gross margin type of a statement. And, you can't do that because, you can look at our results, you can look at the spreads for beef and pork that are printed. So, you can come to that same conclusion yourselves.

On chicken as I said, last quarter we have gone back to utilizing agro stats, and I think that's been a big help to us to identify where our strengths and weaknesses are and it allows us to focus on those weaknesses and where we need to improve. I go back and say, I'm lot more optimistic, probably not as somber, feel good, feel better about going forward.

Kenneth Zaslow - BMO Capital Markets

Okay, and then in terms of South Korea, I know, there's a lot of factors around it, but if you find this in isolation, purely as an event, excluding the change in cattle supplies, change in beef prices, how much would that impact your beef packer margins or your beef margin, if we just take that in isolation?

Richard L. Bond - President and Chief Executive Officer

If you…

Kenneth Zaslow - BMO Capital Markets

Just, the impact of South Korea, opening up on the Offal products, obviously, you get a lot more money on your Offal, you got a lot more money certain meat, such as, go to South Korea specifically, how much would that enhance your margin structure, if you just were to take it in isolation?

Richard L. Bond - President and Chief Executive Officer

You know the answer to that is one it'll vary, but I'm going to give you a range and this would be revenue, now there might be, there is some cost that might offset this, but we would expect somewhere between $12 and $18 ahead in additional revenue from South Korea on all head.

Kenneth Zaslow - BMO Capital Markets

Okay

Richard L. Bond - President and Chief Executive Officer

And that won't be day one. That would be when we get back up to 2003, three BSC levels, that will be, that should be expected impact.

Kenneth Zaslow - BMO Capital Markets

Okay. And, my last question is, in the corner, your beef factor margin seemed to be much stronger in February, than January- March, how is the run rate running right now? Is it above or below the quarter at this point?

Richard L. Bond - President and Chief Executive Officer

Well, right now, I would tell you that… in the first week or so of the April, were a little bit not as good as parts of February and March, but here recently, they've probably gotten back closer to those kinds of levels that we saw.

Kenneth Zaslow - BMO Capital Markets

Great. I appreciate it.

Richard L. Bond - President and Chief Executive Officer

Thanks Ken.

Operator

Your next question comes from Diane Geissler of Merrill Lynch.

Diane Geissler - Merrill Lynch

Good morning.

Richard L. Bond - President and Chief Executive Officer

Morning.

Diane Geissler - Merrill Lynch

Just a question on your comments on the production side for chicken… you know, I kind of look at… I hear what you're saying about matching your supply with demand, you obviously have a good book of business, especially with what you've done on the R&D side and product development, but also just taking your comments about, you know, we're looking for pricing coming from the industry etcetera, and I… you know I'm having… struggling a little bit trying to bring those two together, because obviously you're a large player within the industry.

Wouldn't it seem wise at this point, given we're moving into the peak demand side where you generally see the best pricing to kind of tighten up supply a little bit, particularly with what your competitors have said, PPC and some of the smaller players, so that you can see that burst in acceleration in pricing that you normally get in the summer rather than just kind of taking demand. I'm just getting concerned that you're, it's kind of a demand at any price, which is obviously not a position of strength. Could you comment on that a little bit?

Richard L. Bond - President and Chief Executive Officer

Well, you know Diane, I look back and I'd just say, over the course of the last three or four or five years, when margins got difficult, we were the ones that did some adjusting, and when we adjusted, the rest of the industry just filled right back in behind us in this and there were no changes except by us.

And I guess at some point in time you say, we've closed a number of facilities, we've done what we can overtime to contribute and we are done contributing. We believe we've got a good book of business as you said and we believe that where we are is where we want to stay.

Diane Geissler - Merrill Lynch

Do you think it would be fair to say that because you have other a sole protein company and that you have other businesses that seem to be performing well, I mean obviously beef much better than what I was looking for given the industry conditions we saw at the end of '07, and obviously pork, an exceptional quarter in pork that you're willing to kind of use of position of strength in those divisions just sort of pushback chicken a little bit harder, to see if you can get a little bit more disciplined from the smaller players is that you quarter--?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

I don't know if I'd say using the position of strength, I think what we said along is we're going to match our supply and demand. We're not going to cut beyond that and then go out and buy open market meat to subsidize other people's growth.

We're not going to be stupid either. And I'll produce what we have good quality demand force. So I think that's simple as it is. We're just making sure that we supply with our own products, good quality demand, nothing more, nothing less.

Diane Geissler - Merrill Lynch

Okay, would you expect--?

Richard L. Bond - President and Chief Executive Officer

I'd add to that to say that we are a diversified protein seed. I mean we participate in all three proteins. And I think it only makes sense for us to optimize each particular protein as we go forward. So being a multi-protein, as I said in my earlier comments is a good thing at this point in time.

Diane Geissler - Merrill Lynch

Okay. Would say you think production… your production this year when we look back for fiscal '08 would be up 2%, up 3% flat?

Richard L. Bond - President and Chief Executive Officer

I don't think we've disclosed what that number is. I can tell you it won't be down.

Diane Geissler - Merrill Lynch

Well, just you know in the past you had said, we expect to be up with the industry and we think the industry is going to be upward whatever at 3% and then I think it can mean, walk back from that a little bit but…

Richard L. Bond - President and Chief Executive Officer

You are right. I think the industry has changed. Diane, I don't think the industry will be up that much anymore, we have seen some sizable declines here lately in egg sets and placements. So, we're going to be up a little bit but probably not a significant amount, not as much as we might have once anticipated.

Diane Geissler - Merrill Lynch

Okay. All right. And I guess, on the… Wade, some of your comments about the mark-to-market and just dealing with a large hedge position and what that can do to you, specially if you have changes in prices at the end of the quarter and kind of setting guidance et cetera, could you just… could you walk us through kind of $0.19 swing on a hedge position that you… I think you said 10,000 contracts is that, would that be a typical position for you?

I realize you are just giving it to us to illustrate but I guess I am just trying to get my hands around kind of what is the true level of volatility from, from your mark-to-markets for the quarter?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

I would say that in general it would be at least that much.

Diane Geissler - Merrill Lynch

At least that much.

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

Yes, I mean, as I said we're never going to be fully hedged and we're never going to be fully empty as well. But that would be in general and my opposition, especially when you add in the impact of other items we might hedge such as, soy, wheat, et cetera.

Diane Geissler - Merrill Lynch

Do you think that, sort of given the way of accounting, as in you are not the only company that I have heard this from, who deals with hedges? Do you think that we should just go forward expecting you're not going to reinstate guidance at any point?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

No, I mean, I wouldn't say that necessarily. I just think, right now, again, this volatility is something that this market has never seen. If you look at the number of limit-up, limit-down days over the past quarter or two, it's fairly unimpressive and that the bans have widened here. But I wouldn't say that this is fact though. I think we're working our way through it and figuring out how to drive more and more about pricing agreements to push more and more of the risk downstream. That could also change it as well.

So, I think we'll see. But I am just wondering about perspective because really we need to do first and foremost what's right for the business and we do have this huge exposure. So hedging to some degree, especially where we have fixed agreements is the right thing do. And the accounting matter is something separate.

Diane Geissler - Merrill Lynch

Right. But wouldn't you say it's fair to say that we're going to see this level of volatility for the next, I don't know how many quarters, but it doesn't seem like it is going to abate at anytime soon, based on what we see in the markets today in terms of gain volatility?

Richard L. Bond - President and Chief Executive Officer

I think you're right. Grain volatility is going to continue, but I think, what will make me more comfortable about given guidance is if that's the only huge variable we have to deal with, I mean, this whole idea of when we can get pricing, how many more bushels of corn are going to go into ethanol.

I mean there are some other factors that, I think if we can get some better vision around some of these other things, I think, just volatility in grains alone… I am not sure that will keep up from given guidance. But my goal would be, is to give guidance. Again, we said we were going to temporarily suspend it and once we have a clear view and can knock out some of these variables, we will work to do that again.

Diane Geissler - Merrill Lynch

Okay, all right. Well, I appreciate your commentary on that. Thank you.

Richard L. Bond - President and Chief Executive Officer

Thanks Diane.

Operator

Next question comes from Christine McCracken, Cleveland Research.

Christine McCracken - Cleveland Research

Good morning.

Richard L. Bond - President and Chief Executive Officer

Good morning

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

Morning.

Christine McCracken - Cleveland Research

Hey Dick, I was a little surprised of your comments in beef, clearly in the near- term with the Emporia plant closure you're doing a lot better there. And there is plentiful supplies in the near-term. But if you look forward and given the losses in the feeding industries, that they are seeing and the big drop in placements last month and probably an even bigger, most certainly a bigger drop in the next month, how are you so positive on the outlook for beef into later this year maybe into '09?

Richard L. Bond - President and Chief Executive Officer

Well, Christine, my original comments were really around Q3 and into more into the balance of this fiscal year. I never really did speak of fiscal '09. However, I will tell you that I think that from the standpoint of the efficiency and being as good a operator as we can possibly be, we're going to be in that position for fiscal '09.

Now, what's going to happen with the underlying gross margins spreads and how much will supply decline? Nobody really knows the answer to that question here at it this point.

Christine McCracken - Cleveland Research

But, if you do expect a contraction, further contraction in the herd and you already looking at well, somewhat of an imbalance in the industry with packing capacity, specifically, wouldn't this make the situation worse and get us back right where we were, that's why you guys took the proactive step of shutting Emporia?

Richard L. Bond - President and Chief Executive Officer

No. I don't think so. If you look at some of the other positives, yes, I think overall in the long run, prices are going to have to be higher, there's not two ways about it. But I think if you take South Korea, you add in the fact that I feel very confident that we will see Japan, hopefully follow suit here, like I said within the next four to six months. I mean I think there is some positive things out there that can offset a slight decline in volume.

I mean whenever you see a decline in volume, you don't see multiple, percentage points decline. Its usually a rather guarded and small decline that occurs. So, I think the industry can live with that, and I think we can live with it.

Christine McCracken - Cleveland Research

All right. Just then in chicken then you talked about your push towards big bird de-boning and clearly the economics there makes sense in the long run, but in terms of the breast meat market as it stands today is in my view below where it's historically been seasonally and from a kind of a supply-demand balance.

I'm wondering, did you look at the breast meat market and think that you're going to see again a nice resurgence on production cuts, or is it that the economics there for you, kind of justified that movement to big bird de-boning?

Richard L. Bond - President and Chief Executive Officer

I think it's a combination of another things… of a number of things. One, it's improved technology and what you can do with bigger bird breast meat and how you can portion it. Two, it's what we can do from a customer perspective. Three, there is no doubt that the cost economics of a larger bird are better than that of the smaller bird.

So I think it's a combination of efficiencies, plant efficiencies, customer demand, technology, all those things are what contributes to moving, at least in our case to that 10% by the end of the year, and probably no doubt moving up a little bit more in fiscal '09.

Christine McCracken - Cleveland Research

Do you think though that you are going to get the breast meat pricing back up or is it that you expect to see a kind of offset, because you are clearing adding more pounds of breast meat to the market during an already weak period? So I'm wondering, when you look forward, do you expect to see pricing and other price offsetting breast meat or do you really expect breast meat prices to rebound?

Richard L. Bond - President and Chief Executive Officer

I do expect breast meat prices to rebound significantly from where they are today. I mean breast meat prices are in the mid-140s and they are going to have to rebound, they will rebound. They always are higher during the summer. They are starting from a lower level, but I do believe that breast meat prices will go up substantially during this year's busiest demand season.

Christine McCracken - Cleveland Research

Okay and just one final question. You are looking at the sizable losses that you guys talked about in several parts of the industry have these high feed costs. When you look at your supply as a packer, do you expect to step up I guess in terms of guaranteeing that your producers stay in business or is it that you think you're going to be the packer, the first choice or the packer that's still going to be around, basically.

I'm just curios how you'll expect to see that until, specifically in hogs and cattle as the price contracts. First of all, how do you guarantee supply, because a lot of this small producers that supply your plants, are the ones that are going to be under most pressure.

Richard L. Bond - President and Chief Executive Officer

Christine, I would say that number one, we do have a lot of agreements with our hog producers in terms of committed supply. I don't believe. We're probably going to process somewhere between 110 million and 115 million hogs, 110 million, 115 million hogs this year, which will be an all time record even though the back half of the year might be on the downward side, which I believe it will.

But, I don't foresee us having a problem getting the hogs for our facility, nor do I see us have a problem getting cattle to our facility anytime in the future or we'll always be able to source cattle and hogs.

Christine McCracken - Cleveland Research

All right, all the best, thanks.

Operator

The next question is from Pablo Zuanic of J.P. Morgan.

Pablo Zuanic - JPMorgan

Good Morning everyone.

Richard L. Bond - President and Chief Executive Officer

Good Morning Pablo

Pablo Zuanic - JPMorgan

Dick, can you just explain on the Canadian situation, I mean, you're saying that your beef spreads in the U.S were above the market spreads, but I have actually calculated spreads, so we're on $24 per head for the quarter, and that I think your EBIT based on my volume assumptions, you're only about $8.

So, how bad are things in Canada, if you can give us some color there and is there any sign of improvement? And, if you can give some color in terms of what your U.S spreads were, that will be useful also.

Richard L. Bond - President and Chief Executive Officer

I'll talk a second about Canada. You know, there is a declining number of cattle that are going to be available for slaughter in Canada. That, I mean, that is a problem. It's going to be a continuing problem.

The other problem that we are having in Canada is labor. We are still short labor to run the plant on an efficient basis. So, we really have two problems, one, a short supply of cattle, and two, a very short supply of labor.

As I've talked before, you know, we have had a number of different countries help in supplying labor into Canada, but it is still a very, very difficult time, not so much keeping the people, but just getting the number of people that we need to operate that plant efficiently.

So, our operating costs were a lot higher than what I would have hoped they would be. Now we're working on these problems, and we are working to resolve these problems in a number of different ways. But it's going to be a slow process to bring our operating costs back in line in Canada.

Canada was a major detractor to our overall beef segment. I'm not going to quantify that but they were a major detractor to our earnings.

Pablo Zuanic - JPMorgan

Okay, but at least, do you want to give us a sense of what according to your market spreads? I had calculated $24 spreads for the quarter. What do you have for the market? You don't have to tell us your spreads.

Richard L. Bond - President and Chief Executive Officer

I can't give you that number off the top of my head. I do know that I'm a little surprised that that number would be that high for the whole quarter, given the early first two or three weeks of January being what they were but I can't comment or I don't have that number in front of me.

Pablo Zuanic - JPMorgan

That's fine and just a follow-up. There is another view out there regarding beef, I mean, you have said that the industry needs to cut down capacity by another 10,000 to 14,000 heads per day, but other people argue that perhaps it's not so much about shutting down plants, but more about running more five day week shifts or suppose to six day shifts, which I think were very prevalent in the second half of '07.

What do you think about that and could we say that the improvements in beef spreads are not just because we're shutdown in Emporia, but also because other companies have moved to five day shifts and have remained at five day shits even in April.

Richard L. Bond - President and Chief Executive Officer

I can't comment on what other people are doing whether they are running five or six days, I mean, I think we are here to try and provide good qualities, products and service and make some money in the process and that's what our goals is and that's how we need to react in the marketplace, and probably I really don't want to comment on what our competition is or isn't doing.

Pablo Zuanic - JPMorgan

Okay. But you still believe the industry needs to cut down capacity by 10,000 to 14,000 heads per day?

Richard L. Bond - President and Chief Executive Officer

Remember, I said 10 to 14 and that was before Emporia, so you really ought to be, like it'll be 6 to 10 at this point.

Pablo Zuanic - JPMorgan

Okay and just a couple of follow ups. Okay great news regarding Korea, but in a market of tight cattle supplies doesn't their rancher, the cattle ranchers of the feedlot operators benefited not more than the packer?

Richard L. Bond - President and Chief Executive Officer

Well, I think that depends, if you are in a very, very short supply situation, which we're certainly not. Yes, typically the feedlot operator and/or the rancher both those segments will have a tendency to do that. Because there is a shortage of cattle and all the processors want to keep their plants running at least at minimum hours.

So, yes, in a period of extreme shortage, which again, I don't believe we are in today, nor do I believe we're going to be in extreme short position anytime soon. That would be true.

Pablo Zuanic - JPMorgan

Okay. And just a last follow-up. Now, regarding chicken, the numbers that are available, we kind of expected, I mean, obviously we all know about grains, but I am trying to figure out in the past you talked about 70% value-added products, there 70% being commodity, but correct me if I am wrong, we understand your value-added model is that it's either cost plus or fixed price. And the fixed price portion, you hedge the grains pretty much for reservation of a contract.

So when we see this volatility quarter-to-quarter, obviously would have to be on the commodity side, which is only 70%. But is that analysis correct or there is some risk on the fixed price contracts?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

I would say that 70-30 in right, but in terms of the 70% being cost plus or fixed with hedge, that's not right. We have literally dozens of permutations on how we price. And many times it is dependent upon aisle of the channel, specifically, who you are bidding against to get the business. And therefore, you know, what the rules of engagement are on that particular bid.

We would in general have probably a higher percent of things like cost plus and value add, but by no means does that mean if there is not, spot-based or market pricing in that component.

Pablo Zuanic - JPMorgan

Okay.

Richard L. Bond - President and Chief Executive Officer

Well, Pablo, there is a number of products, all are further value-added products in chicken like our boxed and bag products, that's basically sold off of a price list. And you can only raise your price list so much, so there is a lot of other, as Wade said, ways that we have to go to market here. It's not as simplistic as just costs box and fixed price.

Pablo Zuanic - JPMorgan

Okay. And just on… related to that and I'll finish off. When I here other restaurants like Buffalo Wild Wings and some other restaurants of their, they give guidance on their costs for chicken and they say, at least one of them have said, up 5% in chicken in '07 and another 5% in '08. I mean if I take corn going from $2 to $6 in percentage term, I calculated you guys would need about a 16%, 18% increase. And what the restaurant already saying, it's only their cost over those two years is only up 10%.

So will it be fair to say that on the restaurant trade, the chicken industry is still way lagging the cost increase? Is that a fair characterization or not really?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

Well, I guess, I would say, the first thing is no need [ph] in price increases in the teens and total is probably not a bad guess. But I would also say that, I don' know, which restaurants and how to predict, but thus far it has been lagging. But in terms of works going in next 6 to 12 months, is really going to be function of how much supply tightens up here to some extent. I don't think anybody can fully predict that.

Pablo Zuanic - JPMorgan

Okay. And Wade, one last one if I may and I'll pass it on. When I talked with your expertise here on pork and corns, I am confused by the way the export market is closing and futures are moving. I mean, supposedly, the data from US shows that exports to China are increasing, growing, accounting for the bulk of the export growth in pork. But on other hand, the hog spot prices haven't really moved that.

So, we have the demand, but it hasn't really had an effect on prices. I suppose it's because of lower supply, but the other… so bottomline is that the exports are not really pulling the spot price market. On the other hand, I look at futures, these months out pointing to $30 higher lean prices, about 80 compared to 50 right now roughly and that historically the carry over [ph] should be only about $10 higher, not $30 higher.

So what am I missing there? I mean my conclusion would be that, okay, exports are up but you they are not moving spot prices. Hogs will now make an impact for hog cutbacks, will not make an impact for another 18 months. So future price probably is just too high and it should be only about $10 higher, a supposed to $13 Thanks.

Richard L. Bond - President and Chief Executive Officer

I would answer that by saying one that the spot market for hogs in the last two to three weeks has gone up at least $10 on a lean hog basis. So the spot price for hogs has increased in the last two to three weeks, rather significantly and I think going forward I can't say that the future's are overpriced or underpriced. But they are what they are and either the market will come up or the future's will come down.

One or the other is going to happen, that gap will close as we get to those current months. But as we see that number of hogs decline at some point in time, the hog prices will continue to go up. How high they are going to go, I think it is a function of supply and demand and if we continue to see very good export and good demand domestically. And I don't know whether it's too high or not too high. But definitely hog prices are going to continue to go up.

Pablo Zuanic - JPMorgan

Thank you.

Operator

Robert Moskow of Credit Suisse. You may ask your question.

Robert Moskow - Credit Suisse

Hi. Thank you. Most have been answered. But have you quantified approximately what you think the ongoing benefits to your margins is, as a result of the closure to Emporia, aside from the headcount reductions from personnel standpoint?

Richard L. Bond - President and Chief Executive Officer

Rob, we have not done anything externally with that. We are still moving things around as you saw here recently last Friday or the Friday before, we announced, we were closed in a little further processing a plant in York, Nebraska. We're incorporating a lot of what we were doing there in Emporia.

So, I mean it's hard to say at this point exactly what the areas I know that we gained some operational efficiencies. And I know it was the right decision for us to do, but I'm not ready to try to quantify that for you at this point in time.

Robert Moskow - Credit Suisse

And the influence of the price of cattle in that region?

Richard L. Bond - President and Chief Executive Officer

I don't know the answer to that. I mean I really don't. Cattle prices have moved around a lot since we did that. They went down, they've come back up. Certainly, there is less capacity, now whether that has had a significant impart or not, I don't know.

Robert Moskow - Credit Suisse

Okay. And then lastly, on the chicken side, a lot of the contracts you were negotiating in the fall kind of got pushed back into 2008. Aare those all completely done, and as a result of them being pushed back a little, were you able to get higher pricing or not?

Richard L. Bond - President and Chief Executive Officer

Actually we are always renegotiating and negotiating contracts. Most of those ones that were done back in the December, January period we basically having to live and deal with them. But, I guess, I would answer the question by no. I don't think anything that we did or our customers did has radically changed from what a normal year is in terms of how that works.

Robert Moskow - Credit Suisse

Okay. Thank you very much.

Richard L. Bond - President and Chief Executive Officer

Thank you.

Operator

The next question is from of Ann Gurkin of Davenport and Company.

Ann Gurkin - Davenport and Company

Good morning.

Richard L. Bond - President and Chief Executive Officer

Morning, Ann.

Ann Gurkin - Davenport and Company

Just wanted to find out how beef margins have done in April so far?

Richard L. Bond - President and Chief Executive Officer

As I said earlier, we are fairly comparable with some of the kind of mid-February to March kind of levels…

Ann Gurkin - Davenport and Company

Okay.

Richard L. Bond - President and Chief Executive Officer

…which have been reasonable.

Ann Gurkin - Davenport and Company

Right. Any change to your commitment to the beef business?

Richard L. Bond - President and Chief Executive Officer

Any change. No, absolutely no change. We're committed to the beef business and the pork business.

Ann Gurkin - Davenport and Company

Great. And then Wade, can we get a tax rate for the year?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

I think you can use, I would say, there is some moving parts, so it was totally to give definitively. But, you could use probably that 36, 37 for now as a proxy.

Ann Gurkin - Davenport and Company

Great. That's all I have got. Thanks.

Richard L. Bond - President and Chief Executive Officer

Thank you.

Operator

Vincent Andrews of Morgan Stanley, you may ask your question.

Richard L. Bond - President and Chief Executive Officer

And with an easy one.

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

That's it.

Operator

Mr. Andrews, can you check your mute button please.

Vincent Andrews - Morgan Stanley

Sorry. Hi, there, sorry about that. How should we think about the dollar as it relates to grain prices in exports, in other words the weaker dollar is helping you on export demand, but it obviously hurting you from a corn and soybean price demand, if you believe that that's also part of the reason why those prices are higher. So, my question I guess, is if the dollar are reverse the demand, or starts to do something like that what do you thing happens to export demand?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

I think the first thing you said is right. In things like fuel, and grains and other things are becoming increasingly more kind of global currency based and therefore they do go up on the weak dollar. But apples-to-apples versus someone else they've got the same cost and then of course we have the domestic things like labor, which end up being cheaper.

So, but I still think there is a lots of room to run. We're seeing unprecedented demand for protein out of the U.S., and I think even a moderate moves in currency are going to change that dramatically.

Richard L. Bond - President and Chief Executive Officer

Actually, the weak dollar has helped the reversal of some sense would probably not impact greatly, but it has helped definitely, the weak dollar is definitely helping from an export perspective on protein.

Vincent Andrews - Morgan Stanley

Okay, and Wade, was there, I know the grain cost went from $500 million to $600 million, but then you also put out this $1 billion number of total cost, so that implies $400 million of non-grain related cost. Was there a comparable number to that what you gave before?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

I think that we have said, I recall, what we had said before when we're saying 500, we were saying it will total about 800.

Vincent Andrews - Morgan Stanley

Okay

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

Other wheat, vitamins and a variety of other things.

Richard L. Bond - President and Chief Executive Officer

Soya and a lot of different things.

Vincent Andrews - Morgan Stanley

Sure. And then also, I don't know if you can answer this because it might imply some guidance, but do you think it will be free cash flow positive for the full year?

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

Yeah, I would. Well, I'd hesitate to say just because again, I don't want to reveal my guidance.

Vincent Andrews - Morgan Stanley

Okay and then the decline in CapEx. What is that exactly a function of?

Richard L. Bond - President and Chief Executive Officer

I mean, that's the function of our earnings. Just trying to say that yeah, we're going to spend 425 to 475, but we elected to cut that back to 400 to, based on our earnings profile that where we are today? So, I think it's conservative, I think it's what we need to do is make sure that we manage our investment properly and that's what we're going to do.

Wade D. Miquelon - Executive Vice President and Chief Financial Officer

I don't think we feel that we've cut any projects that we're really, really right to do for a long term as a result.

Vincent Andrews - Morgan Stanley

Okay, thank you, I'll pass it on.

Richard L. Bond - President and Chief Executive Officer

Thank you

Operator

There are no further questions in the queue.

Richard L. Bond - President and Chief Executive Officer

Well, we all thank you for listening and participating this morning. I think that from a company perspective, again I want to thank the Tyson team members who are doing a great job, very dedicated hardworking group, and we will see you all soon, and thanks for your interest in Tyson Foods.

Operator

This will conclude today's conference call. Thank you for your participation. You may disconnect your lines at this time.

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