Tyson Foods Class A Earnings Call Insights: Chicken Pricing and Below Normalized Range for Beef
Farha Aslam – Stephens, Inc.: So, our first question is on Chicken. You’ve just finished the foodservice contracting season. Donnie, you had highlighted that only 10% of your contracts are now fixed. Could you just share with us, how you felt about the level of pricing and flexibility you were able to get and what gives you confidence to be able to say that chicken should be in the normalized range in the second half?
Donnie Smith – President and CEO: So, we’re pretty satisfied as we’ve come through our negotiations, not necessarily just on the foodservice side, but also at retail and pricing. It has been very important to us to continue to work down how many annual fixed price agreements we have and as of now, coming into calendar ’13, we’re at 9%, which is, if you’ll remember dramatically less than where we were say four years ago. Farha, we’ve also seen an increase in the amount of product that is so where pricing is tied to some part of the input cost. Grain based pass-throughs, those types of things, which gives us more confidence going into the year, but I’ll tell you too our service, our quality, our innovative capabilities, all of those are part of the selling story and we are getting paid for that. So, we’re pleased. Now a lot of that pricing will be coming into play during this quarter. Some of those contracts don’t roll over until 1st February, 1st March, those kinds of things. So we still have to work through that in this quarter, but that’s what gives us a bit more confidence in our back-half.
Farha Aslam – Stephens, Inc.: And then perhaps a follow-up on Beef, since your last outlook you’ve seen Cargill closed a plant, you’ve seen Japan opened up, but in your release your outlook on Beef was exactly what it was last quarter. Just could you share with us, is it conservatism that’s just keeping your outlook the same or is it something else?
James V. Lochner – COO: It’s conservatism. We somewhat anticipated that sometime during this year we’ll probably see some capacity come out and we’ll see as Japan comes on stream we’re hopeful to get a good share of that variety meet demand and box beef. It is really just conservatism until the market shapes up and we have a better forward view. But it all looks fairly favorable going forward.
Below Normalized Range for Beef
Heather Jones – BB&T Capital Markets: (indiscernible) question on Beef, so I just wanted to confirm, you said in your prepared remarks but I want to make sure I am clear or everyone’s clear on this. But in your guidance on your Q4 call you talked about being below the normalized range. So you’re saying that when you gave that commentary you had anticipated some kind of capacity rationalization?
James V. Lochner – COO: Yes, we just had no idea for sure where that might happen, but over time as that was starting to shape up and we started to see the steer and heifer supply diminish with the cap crops, accelerated by the drought, just knowing that history would likely repeat itself. We thought it would happen, we just did know where.
Heather Jones – BB&T Capital Markets: And then on Chicken, demand has been really strong but if you look at the past couple of months, production has been up pretty substantially and that’s even before we started seeing an expansion in the exits and now we are starting to see some expansion exits. Does that concern you at all or your outlook for more Chicken demand is so robust that you believe overall demand can absorb these kind of production increases.
Donnie Smith – President and CEO: This is Donnie. I use a six week average. So, as we look at the last six weeks poultry slaughter pounds have been 2.7%. Lot of that has been driven by weight, because placements have been at about just shy of 1% up in that time period and slaughter had – has been up 1%. So, we are thinking of about a 1.07 of those slaughter pounds in weight. January is typically a pretty strong month and I think typically you would see weights come down during the month of January. And we run a lot of Saturday’s in January it’s just a good volume month. But let me give you a little bit and this is not breast chicken, but let me give you a little bit of recent data which gives us some optimism going forward. If you look at the last, I’m going to start at 26 weeks, breast chicken pounds are up 2.8%, dollar sales are up 8.5%. If you tighten that up to a 13 week view, pounds are still up 2.7%, dollar sales are up 9.2%. Now, if you go to the last four weeks, breast chicken pounds and this would be sold at retail is up 4.3% and dollar sales were up 10.6%. So, what we’re beginning to think and it will take a little bit more time to flush this out and (Indiscernible) but what we are beginning to think is that with all of these pressures on consumers today maybe we are now seeing a legitimate shift from red meat proteins into chicken and if that’s the case, we’ll be able to absorb the 2.7% slaughter pound increase and still maintain the margins and pricing we need.
A closer look: Tyson Foods Earnings Cheat sheet>>