Tyson Foods, Inc. (TSN) Q2 2012 Earnings Report, Transcript and Summary

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the conference over to Mr. Jon Kathol. You may begin.

Good morning, and thank you for joining us today for Tyson Foods Conference call for the second quarter of our 2012 fiscal year. I need to remind you that some of the things we'll talk about today will include forward-looking statements. Those statements are based on our view of the world as we know it now, which could change. I encourage you to look at today's press release for a discussion of the risks that can affect our business. On today's call is Donnie Smith, President and Chief Executive Officer; Jim Lochner, Chief Operating Officer; and Dennis Leatherby, Chief Financial Officer. [Operator Instructions] I'll now turn the call over to Donnie Smith.

Thanks, Jon. Good morning, and thanks for joining us today. Our second quarter earnings were $0.44 a share compared to $0.42 in the second quarter of 2011. Operating income was $302 million, which was about flat to Q2 last year. Sales were up 3.4% versus Q2 a year ago at $8.3 billion. The Pork segment was again above its normalized range with an 8.4% operating margin. Prepared Foods was near the top end of its normalized range with a 5.5% margin, and our Chicken segment returned to normalized earnings sooner than expected with a 5% return on sales in the second quarter. Beef was challenging again this quarter, finishing around breakeven. And Jim will speak to what happened there in his remarks. We're now halfway through what will likely be our third consecutive year of solid earnings. The team is running the business well by focusing on our customers and executing on key performance indicators. We continue improving production efficiencies and management systems, and we're getting a solid return on the capital we've invested in recent years. The work we've done internally is paying off and now, we're beginning to build on that for the long-term success and growth. Externally, key economic indicators continue to recover slowly. Consumers' views about current conditions improved in February and spending jumped to its highest level in 7 months, however, consumer confidence pulled back slightly in March. Consumers appear to be cautious about the economy, but still hopeful. The national gasoline price average fell in April from its recent highs of about $3.92 a gallon, to the current average price of about $3.75 a gallon. The energy department, however, still says fuel prices will peak in May at about $4. Taking all these economic indicators into account, we're cautiously optimistic that the worst is…

Thanks, Donnie, and good morning, everyone. With $115 million in operating income and a return on sales of 8.4%, the Pork segment, again, performed above its normalized range of 6% to 8%. We have accomplished this by staying focused on operating efficiency, product quality and yields, mix management, customer service and taking care of our team members while moving commodity products up the value chain. The Pork segment is currently experiencing some domestic demand pressure in hams, bellies and trimmings. Exports have remained strong in calendar '12 year-over-year. We do expect to see hog supplies up 1% to 2% year-over-year for the balance of our fiscal year. While our Pork margin performance should remain strong through the second half of the year, we do not expect it to be at the levels we achieved in the first 6 months. Our Prepared Foods segment, with $44 million in operating income and 5.5% operating margin, again produced returns in the upper end of its 4% to 6% normalized range. These results reflect improvements in pricing and mix. Growing our Prepared Foods business remains a key growth avenue for the company. For example, today, we're opening our state-of-the-art expansion at our Council Bluffs, Iowa pepperoni plant. We will continue to look for opportunities to acquire or build new assets to expand in several other categories or to increase capacity in existing categories. Recovery in the Chicken segment occurred faster than we expected. As we return to our normalized operating margin range of 5% to 7% in the second quarter, Chicken posted a 5% return on sales with $145 million in operating income after absorbing $65 million in additional feed costs versus Q2 last year. Our team has done a very good job of managing price to cover inputs and we're expecting pricing to…

Thank you, Jim, and good morning, everyone. As Donnie mentioned in his remarks, we reported Q2 earnings of $0.44 per share. Return on invested capital for the last 12 months was 14.4%. Capital expenditures were $162 million for the quarter and totaled $344 million for the first 6 months of fiscal 2012. We continue to invest in numerous capital projects for our domestic and foreign operations. These projects will result in improved productive capabilities and drive labor efficiencies, improve yields and sales mix. Our operating cash flow for the first 6 months remains strong at $454 million. Including cash of more than $700 million, net debt was just under $1.5 billion. Total liquidity was $1.7 billion, well above our targeted range of $1.2 billion to $1.5 billion. Gross debt remained at $2.2 billion. Gross debt-to-EBITDA for the last 12 months was 1.4x. On a net debt-to-EBITDA basis, this measure was 1.0x. During the second quarter, we acquired 3.6 million shares for $70 million under our share repurchase program. Over the past 4 quarters, we have repurchased 15.1 million shares since we reactivated this program, representing a reduction of about 4% of our outstanding shares. Over time, we expect to continue repurchasing shares. Last week, our board expanded the share repurchase authorization by 35 million shares, increasing the total remaining authorization to just over 42 million shares. Our average diluted shares outstanding for the second quarter was 373 million. The dilutive share effect totaling $5 million for options and $4 million for convertible bonds will fluctuate depending on our stock price performance. Our effective tax rate for Q2 was 35.3%. So here is an update on the outlook for fiscal 2012. Revenues are expected to approximate $34 billion, driven largely by raw material price increases and continued tight domestic protein availability.…

[Operator Instructions] Our first question today is from Tim Ramey with D.A. Davidson. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Jim, unless I missed it, you gave a little bit of an outlook on how you expected margins to look on every segment but Beef. Did I miss something there or was that an intentional omission?

I thought Donnie had actually had it in his remarks, but Beef margins have, in the last couple of weeks, turned nicely. And if I replay it back into Q2, we had those Beef margins turn where the relationship of revenue to cattle costs was back in line kind of through February or mid part of February and early March, and then they really corrected after the LFTB controversy hit where we saw that really rapid decline in Beef wholesale prices. Again, I said that was probably steeper than I can ever recall at $120 a head. Now if we looked forward, with they -- have come back in the last couple of weeks, it took a while for that correction. And we do see adequate supplies because you have to look back. The industry has really processed dramatically fewer animals through -- January through March. That also happened in April. And we also looked back in October through December, we processed considerably fewer. Against my calculation in that first 6 months, we're seeing 700,000 fewer head processed, which tells me that the supply should be very adequate for the balance of this year. And the key will be in margins, if we expect to be able to hold on to this revenue to cattle cost relationship going forward. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Great. And then as a quick housekeeping, Should -- I mean, I'm surprised that the earnings presentation doesn't say $0.45. It looks like we were really $0.415 for the first quarter, I think, or -- anyway, the bottom line is that we rounded down for 2 quarters in a row. Sorry to nitpick on that, but...

You're right, Tim. We're being conservative on that.

Our next question is from Christine McCracken from Cleveland Research.

Nice job on the quarter, especially given everything they keep throwing at you. In any case, Jim, you mentioned on the Beef side that your slaughter volumes were down more than the industry. And it's obviously already at pretty low levels. I'm just wondering, as you look into maybe a little beyond the end of your fiscal year and looking at the retention that we're seeing on the heifer side, are you expecting to be able to manage through that continued kind of decline in slaughter volumes as things maybe tighten up with heifers, and then maybe tighter cattle supplies as you head in fiscal '13?

Well, fiscal '13, as you know, fed steer and heifer supply will really -- the base number on that was 2011 calf crop which was still 35.7. We didn't see that decline will be this year's calf crop in 2012. And typically, you roundabout a 2-year lag so about 73%. If heifer retentions, since we usually process about 9.5 million to 10 million heifers, we could see 400,000 to 500,000 come out of the 2013 number. But again, you have to look at the fact that the feeder cattle imports are also running more than they were a year ago. And what we've seen is the shift in because basically the crush has been very negative. So you've seen less cattle being placed in the smaller feedlots, which again is favorable to most of our locations that sit where there's very dense feedlots. So the supply will tighten and then we'll have to see as this calf crop in 2012, how much heifer retention's there. You have seen fewer beef cows processed and you've got a little bit of a conflicting message on the heifer retention when you look at the April on feed number, which actually shows 4% over. So I would expect though that we'll see heifer retentions start to rebound as we go through the year, if we have adequate moisture in those cow states.

So is it your expectation then that feeder cattle imports will continue to be at these levels, because it looks like the cattle supplies in Mexico and Canada are getting a little tighter?

Well, I'm looking at the year-over-year number, which is roughly, in the last 6 months, running about 100,000. And so as their cow herds would decline, obviously, we'd see less, but the feeder cattle price in the U.S. has been very supportive to pull those cows out of Canada and Mexico.

Our next question is from Heather Jones with BB&T Capital Markets. Heather L. Jones - BB&T Capital Markets, Research Division: My question is for Beef and Pork. Since Q1 of your fiscal '10, we've seen Tyson outpace hedgers at just calculation of industry margins by about 15 a head in Pork and 55 to 65 a head in Beef, and there's been about -- there's been an upward bias to your trend. I guess my question is what 2 to 3 factors are most critical in driving that out-performance? And more importantly, do you believe there's an opportunity to widen that further in a significant way, say 5 to 10 a head?

Well, you've put me on a spot when you quantitated the second part of that question. Heather L. Jones - BB&T Capital Markets, Research Division: I was trying to corner you into answering me.

I do think there's upside, and that's what we work on everyday because we're looking at how to really value up the mix and then -- in fresh meat, you really have to say that the bulk of those price quotes are on commodity or second value-added raw products. Our whole thrust has always been to try to understand where we can add value to the customers by taking more bone, more trim, more case-ready trim, more retail ready-trimmed sub-primals, and we obviously charge, so we look at a return on labor. The industry will continue to evolve, it has over a long period of time. But with higher freight costs, you're going to see, I think, a more rapid transformation to more value-added raw products. And that's one of the ways that we've done that. I think we will continue to see upside. But the other 3 -- 2 to 3 factors that we really focused on, some of it's location. Our plants do sit where the livestock, quantities are, that gives us a freight advantage on the buy, gives us a shrink advantage for yield. And then we're looking again at -- always our efficiency and how we really manage the mix. And another thing we do is really look at our pricing mechanism, try to get as much on formula, take the least amount of fixed forward selling risk that we can, so there's a variety of things. I know you don't like always the answer, it's simple blocking and tackling on focused on basics. But there's probably over 80 metrics that our teams really look at from a combination of plant efficiency, labor efficiency, yields, mix, value-added mixes, pricing metrics. We index ourselves every way that we possibly can and that's why we drive that differential. Heather L. Jones - BB&T Capital Markets, Research Division: The most important takeaway I should take from this is that you do think there's further upside to widen that out-performance?

Our goal every quarter and every year is to add to that margin differential on the revenue. Our job, the way we look at our position in life and Beef and Pork is to add as much revenue to the product as we can because we do know that the revenue and the livestock cost will stay in a pretty good correlation for the most part over time, and we want to maximize the revenue to the overall category.

Our next question is from Ken Goldman with JPMorgan. Kenneth Goldman - JP Morgan Chase & Co, Research Division: [indiscernible] reported a nice jump in boneless, skinless breast prices last week and I know some of that's seasonal. But their commentary about breasts was a little bit more constructive than it usually is. And I've heard of some buyers looking for say 100 loads only able to get 60 or so, is this what you're seeing in the boneless market, too? And if so, how sustainable of a trend into the summer do you think it will be?

Ken, this is Donnie. It feels like that this firmness will probably continue a little bit longer maybe on even into the summer. The thing we keep our eye on, keep our eye on gas prices, we keep an eye on the hopeful but sluggish economic recovery. And I think that's probably got as much to do with it if anything, and I'm not sure how accurately we can predict that. But I can -- we can predict this. Jim mentioned in his comments our buy versus growth strategy. We've been able to buy -- we balance to the nearest whole bird increment and then buy the parts that we need. A lot of that's been breast meat, the meat's been available. And I think as things firm up, then there may be a little bit less meat available. But frankly, all that was kind of built into our plan as summer demand picked up. So honestly, it's working just like we expected it to and we feel really good about how that's going to play itself out for us this summer. Kenneth Goldman - JP Morgan Chase & Co, Research Division: And then sticking with chicken, and forgive me if you addressed this already, but can you talk a little bit about your forward buying on beans. I think the last time you spoke on hedging, you mentioned you were fairly close to the market on grains. But I didn't hear a whole lot about soybean meal and of course, the price of that commodity has risen a lot.

Yes, that's great question. The South American production is down versus what we expected it a couple -- 3 months ago. And then another factor in our DDGs, a lot of the ethanol producers are pressed in those DDGs to get the corn oil out, which is going into renewable fuels. And that, of course, once you take the energy out of that it’s a pretty high -- the protein fiber ratio gets to the point that you really don't feed it in simple-stomach diets at near the ratio. So that has caused, I think, an increase in feeding. Meals shot up dramatically. I think futures, I didn’t look this morning, but late last week, they're around 430 a ton. We're about 4 to 5 weeks out, something like that. We stay pretty conservative and we're, by the way, about the same place in corn. And so, we do keep an eye on that. We've got pretty decent bases coverage out through the summer, so we feel pretty good about where we are. And you've got to remember, it looks like we've got a huge new crop coming. Lots of uncertainty yet, but you sure don't want to be too long going into that cliff period where you're going to start bringing a big new crop into the marketplace.

Your next question is from Christina McGlone with Deutsche Bank.

I guess, Donnie, first question, if Chicken was better than you thought kind of one quarter earlier and achieved normalized margins, why wouldn't it be better than normalized this summer?

It could be. There is certainly the possibility that it would. As we look at our year and you look at all of the segments combined, it looks like to us Pork's probably going to end the year at a little better than normalized. Chicken can sure get there, expect it to. Again, the only caution in my comment at all about Chicken is this economic recovery. It looks like to us, slaughter pounds are going to be down about 4% for the year, so the environment is about right. But the demand picture, what's $4 gas going to do to disposable household income and what effect that might be, it could -- might tame it down a little bit at the end. In our press release, we mentioned that Beef ought to be in the range in the fourth quarter, and then our Prepared Foods business will be in the range. So we feel good about how this summer is shaping up for us. It ought to be a strong back half for us.

Okay. And a follow-up on Beef. So fourth quarter is normalized even though margins right now appear to be very strong. Was it just that April was so weak that that's why you can't be normalized in the third quarter and how should we think about the fiscal third quarter in Beef for margin?

April was bad in the first couple of weeks, before that price of cattle corrected down with that revenue decline, and so that's the only caution on Q3. But in the last couple of weeks, we've been very pleased as that revenue livestock cost spread has widened.

Your next question is from Lindsay Drucker Mann with Goldman Sachs.

I just wasn't sure, maybe I missed it, but have you actually quantified what you expect feed costs to be up year-over-year this fiscal year if we were to spread or mark everything to market as of today?

It's in the $250 million to $260 million category. Somewhere -- that'll be a ballpark range. I don't know if we specifically put that in the press release, but it's going to be about that range. Year-to-date it's $285 million.

Okay. And you also mentioned in the press release that there's other non-feed costs that were inflationary in the period. Can you just talk a little more about those?

Yes, a lot of your animal byproducts, all of that trades off, soybean meal, a lot of ratios, your feed fats, for example, are an energy source. And as corn's trades up and down, so do those sources. So just when you put all that stuff together, you're going to get -- the vast majority of that cost is going to be in corn and soy. But fat, animal byproducts and all of those things can -- will come to play, too, because they all feed off those 2 markets.

Okay. And you guys have been speaking a bit more about as the turnaround restructuring story of Tyson is clearly full force and we’re talking a little bit more about growth opportunities in the future, you spend more time talking about both the international opportunity and the value-add opportunity. I was wondering if you were prepared to maybe put some more numbers around, for example, accretion potential in your China expansion or how you think things like the new additions in Prepared Foods that you guys mentioned today may ultimately add to earnings? Just a little more color around the real earnings opportunity there as we start to think longer-term?

That's a great point. Obviously, our international and value-added segments are intended to be the acceleration for our growth, a little bit on China. Our model there is really around company-owned, company-controlled live production and food safety and quality and supply chain integrity. I think we said in the last quarter that by 2014, we'll be at about 3 million head a week there, which, hey, is less than 10%, I guess, of what we're doing in the U.S. But still that'll be the equivalent of 3 pretty decent sized U.S. complexes. We are seeing our entrants into those markets, not only in the Food Service but also at retail. We have Tyson-branded chicken at retail to-date which is small. These plants are just start ups and we're just getting started, but so far so good. In value-added, whether it's poultry or Prepared Foods, we see a lot of opportunity. We've done a lot in the last, really, a couple of years. As you mentioned, our quality, our service, and our innovation are really driving customer loyalty and we're getting paid for it. And as our customers continue to struggle in this economy to find ways to drive traffic to their store or to their restaurant, they're looking to us for that new product innovation and leadership, a greater presence in value-added chicken, whether it's breaded or non-cooked. It's certainly in our future and there's lots of opportunity for us in Prepared Foods and all of the categories. We've made great strides in the last couple of quarters in our lunchmeat business. We've got great opportunities there. We did all for a right brand dinner sausage in the marketplace, off to a good start there. We've got a new pepperoni plant and our folks are out currently very aggressively selling that product. And so we've got tons of potential. It's a little bit too early, I think, to start getting into a whole lot of detail specifically about what each one of those would do to earnings, but the potential's there and you've certainly read us correctly that we're going to be aggressively growing our business.

Okay. And then just last thing, a little bit more noise about what Russia's WTO accession might mean. Can you just give a view on what you think that might mean for exports of Pork and Chicken in particular?

Russia does have a goal set, this is Jim, on trying to get self-sufficient in both Poultry and Pork production. They won't be able to get quite caught up in Beef. But as of late, they've been strong importers of U.S. Beef and U.S. Pork. So if they get into WTO, I don't look at that -- that's all upside is the way I look at it. But the key thing on what -- we always watch world production numbers and try to make sure that we're optimizing our sales relative to what's going on in the world and search for the highest revenue component that we can find.

Our next question is from Akshay Jagdale with KeyBanc Capital Markets.

I want to follow up a little bit on Beef. So I noticed that your supply projection for your fiscal year for steer fed cattle supplies is down from what it was previously. I'm guessing that's because of what you've seen so far this year, and that just means that they'll be more available in your next fiscal year. Can you talk a little bit about that, Jim?

Certainly can. If we look at our fiscal year, we were projecting in the 1% to 2%. And if you look again at our first 7 months of our fiscal year, we're down just short of 699,000 head year-over-year, and I didn't adjust for any difference in days on that. Which would imply that we should have more cattle available at the back half, but the key is demand is very fragile to all of this supply. So I don't expect that and we're watching it very carefully ourselves, that we don't push more meat on the market than the market can absorb. We try to make sure that we hold prices as best we can, which would suggest that we'll push cattle past our fiscal year into our first quarter of 2013. And the beauty of Beef and the supply chain is you do have a number of options in the way that you feed and manage them to try to hit different marketing windows. And I'm thinking that we'll see more cattle pushed out into 2013. The key number, going forward again, is what is 2012 calf crop that's 2014 supply. So we'll buffer out as best we can and we're looking at that on a continual basis as well. But it is very interesting that we process that many fewer head in the first 7 months of our fiscal year.

So Jim, there's obviously a lot of negative headlines on Beef as you know. And it seems like, at least from the investor side, there's concerns about '13. Now you've said fiscal '13, you don't expect supplies to be a major issue. Can you -- I mean, when would you be sort of comfortable enough to say something about margins for fiscal '13? I mean, I know it's a dynamic situation, but assuming demand's relatively stable, shouldn't we have a pretty good environment for Beef margins in '13?

I thought we should have in '12, but it didn't work out that way in Q1 and Q2. So we had a couple of strange issues, one on last -- on Q1, the demand pushed for high-quality cattle, pushed that spread up. And then in Q2, when you have this much demand destruction for an unwarranted publicity on beef and it was surprising how much that put pressure on ground Beef and trim and then the rest of the cuts. But absent any of those, and I don't foresee anything more happening on Beef on the negative side from a demand standpoint other than basically the normal economic factors, and the fact that I think we could push a few more fed steers and heifers out in front of us. 2013 could be a very decent year. I'm more concerned about the out front year 2014, particularly with this year's calf crop and the cowherd that was down almost 1 million heads last year. So that's the concern, and then how much heifer retention will occur, between now and then will take fed steers and heifers up. So we've got a lot of moving parts to call before we can get too far out front on calling what we think will happen in 2013.

Okay, that's helpful. And just on Chicken, if I may, just following up on some earlier question. So has profitability been better each month throughout this year? I mean, has it sort of been moving up pretty consistently?

Yes. I'm trying to think real quick...

Yes. [indiscernible] Again, it's improved every month.

Right. So then just -- I mean, you’ll caution, you mentioned, in terms of the possibility of margins being above normal at some point this year. Your caution is just on demand, right? But, let's say, demand is relatively stable to even up over the next 6 months, I mean, what kind of potential does Chicken have?

You ought to feel good about it. It's hard to say what this good demand mean and that kind of thing, right? So I'm going to say we have the potential as the environment stands today to end the year in the range in Chicken. And so what that's going to mean is a strong back half. We had a 1.5 or so for Q1. We've got a 5 for Q2, so do the math. We've got to be well up into the upside of the range later. We're facing some -- the possibilities of some pretty strong QSR chicken promotions this summer. We think that's going to be advantageous to us. So hey, my cautionary note is what, if anything, is $4 gas going to do and that kind of thing. But if that stuff doesn't happen, we're positioned very well for the year.

And just one last one on Chicken more sort of medium to long-term. One of your competitors always has made a bet on sort of exporting the back half of the Chicken, while it seems like your positioned well even if some of the demand in the U.S. increases on dark meat, I mean it seems like your investing to add value to the back half of the Chicken, even in the U.S. I mean, is that -- are you taking a bet either way, I mean -- or are you going and you're just increasing flexibility in your plans to take advantage of either situation? I mean, just trying to clarify.

Well yes, we're taking a bet. And we see there's an opportunity domestically to grow dark meat sales in lots of forms. In areas that have had a traditional Beef and Pork meat bought, whether it's a sausage, pepperoni, et cetera, et cetera. Dark meat chicken has a play there in lunchmeat, there's obviously great opportunity there. So yes, we are definitely moving value-added dark meat domestically and internationally, too. I mean, we keep an eye on all those markets constantly. We have a very diverse selling program and lots of different geographies. And we think that gives us the best opportunity to drive the best whole bird return for every bird we grow.

Our next question is from Farha Aslam with Stephens.

I have a question on the retail market. From what we see in our data, retailers are really keeping the price of particularly Pork and Beef exceptionally high and really expanding out those retail margins, and that's pressuring profitability of the protein producers. And could you talk about what you expect demand going forward at retail if you expect pricing to moderate at all this summer? And how you expect those margins for processors and yourself in Pork and Beef to progress as the summer goes by?

You're right. Higher retails have dropped volume. As I mentioned a little earlier in the call, Beef down 9%. Ground Beef, of course, a lot of that had to do with LFTB was down 7%, Pork down 3%, Chicken flat. Frankly don't expect a whole lot of change. We seem to be seeing a little bit of resistance at a composite cut out of about 90 plus. So that may stem some pricing. But as for us, we have all that factored in and the margins that we're talking about and feel pretty good that at the end of the day, we're going to be able to deliver above what we're saying.

You still think $2 is possible even with a tough retail environment?

We've got work to do. But yes, it's possible.

One comment on retail is that last year, as those wholesale prices inflated and they lagged pushing retail, this year they're trying to get ahead of it. It's as simple as the market's doing its job. And the retailer has costs, too, and they have margin expectations. So they're passing on the wholesale prices, and if it decreases pounds then it adjust wholesale prices. I mean, that's the way the market works.

Yes, the biggest pounds are down in the categories where we spread business. So we adjust to that.

Do you expect livestocks in terms of cattle and hog prices to reflect that retail demand over the back half of your year?

Repeat your question?

So the back half of the year, given where cattle prices are and hog prices are, you think you can make your target margins and hit $2 despite the tough retail pricing environment?

Yes. Yes.

Okay. And then just my second question is you've announced an increase in your share repurchase program, could you just share with us how aggressively you plan to execute that program and if you have any time horizons in mind for share repurchase?

The reason we increased the authorization is we were down to 7 million shares, and we acquired 15 million over the last 12 months so we needed to increase the authorization. As far as the rate of purchases, that really isn't going to change too much. We're focused on our liquidity. We need a lot of liquidity in our business. And we also have a couple of big maturities coming up in the next 2 years. So with $1.7 billion in liquidity, that's more than sufficient to cover those maturities and run our business well. So we'll just -- we'll let our liquidity determine how much we buy each quarter and we'll respond accordingly.

Okay. So no time horizon that you've established?

No.

Our next question is from Robert Moskow with Credit Suisse. Robert Moskow - Crédit Suisse AG, Research Division: I think everything has been asked and more. So about the 2, I guess, pieces of debt that are coming due, can you give us the timing on that? And what do you think that might do to your interest expense? Do you expect to refinance? Can we look at fiscal '13 interest expense as going lower right now?

Fiscal '13 interest expense will be pretty much the same. There were -- 2 maturities or actually in the early part of fiscal 2014 so the big drop will come mostly -- a big jump will occur in '14 and then in '15, it'll be a really big jump of more than $100 million. In terms of how we're going to handle it, at some point in the future, we'll fund part of it with a bond offering or some other kind of capital raise. I'm not sure when we're going to do that since we have enough liquidity today. Robert Moskow - Crédit Suisse AG, Research Division: All right. It just seems like the way I model it, you're going to have a lot of cash flow building up on your balance sheet -- a lot of cash building up, and if you're going to wait all the way until '14. So getting back to Farha's question, is there any sense of urgency to -- is there any thought anyway to increasing the share repurchase authorization beyond $35 million?

No, at this point, no. But hey, love having the options that great cash flow gives you. We've announced, I think, very recently, our expansion in Sedalia, Missouri. We've spent about just something shy of $50 million in Council Bluffs on our pepperoni dry sausage plant. We've got great opportunity within our business to continue to grow and get into new categories. And it gives us great resources to be able to grow our business. Now we've also got great options in buying back stock, debt reductions, acquisitions when they come about, all those type of things. So what we're trying to do is give ourselves options and you can see that those options are piling up. Robert Moskow - Crédit Suisse AG, Research Division: Can I ask one follow-up. You mentioned lunchmeat and sausage, there is a pure play domestic lunchmeat and sausage company that's going to have an analyst day coming up. Why get into lunchmeat and sausage now? You've been in it before, why the strategic push now?

Well, we have been for quite some time. I mean, when IBP bought up all of the businesses that made up Foodbrands America, a lot of those businesses, several plants were lunchmeat and sausage. It's a good business, a good category. We have in our lunchmeat business, we've not performed like we should. Our team has done a great job getting that business turned around and getting our cost structure right. And we found that we can compete in that category. We're good at it. Our customers depend on us. We're a pretty large private label lunchmeat supplier today and sell a lot of own-brand lunchmeat, deli meats, that type of thing. So we've been in it, we're pretty good at it and we're going to grow it.

Your next question is from Ken Zaslow with BMO.

So obviously, the fiscal year is an arbitrary date. Pretty much everybody has different dates. But if I look at your guidance or your implied guidance, your run rate is much above the $2 run rate, right? Because you're -- the first half of the year is below that. Is there anything that takes you off that run rate above the $2 number beyond 2012 and 2013?

No, not really.

Yes, that's what I thought. The second question I have is in terms of the Chicken margin structure. This year it's $125 million in savings. What are you guys looking for in terms of your next leg of savings into 2013 and beyond? Is there more programs then being instituted with the CapEx funding? Can you talk about that?

A little early yet. Our folks will begin planning the 2000 fiscal year late this month, early June. And we will have our savings projections and those types of things in the August, September time period. We always asked our businesses to have that in front of us before we begin the fiscal year. So you’re about a quarter early. We do see potential down the road, but it's a little bit too early to quantify.

But we should expect to see another -- some sort of program into 2013 of...

Every segment of our business, we are always looking for ways to maximize our operating efficiencies and continue to drive our business performance through executional excellence.

And just final question, you don't consider this year a good operating environment year or do you?

No. No. I mean, we -- let's just take a segment. Take Chicken, for example, I mean, last year it probably absorbed 800-plus in corn and then maybe another 200 in other Prepared Foods and another couple hundred in raw material increases. This year, you're probably going to absorb 250 million, 300 million more, plus obviously you've had LFTB and all these other issues that have come up in the Beef segment. So no, this has been far from an ideal operating environment.

Q2 felt like we just got beat up every week on an issue. I mean, it was something every week and we came through it. Well when it was all said and done, fairly well.

Our next question is from Vincent Andrews with Morgan Stanley.

Can you just talk a little bit about how you're Chicken results compare to what you see in Agri Stats? Just trying to get a sense of how much your self-help stuff and so forth is helping.

We do look at multiple benchmarking services. I would tell you that our performance has continued to improve. Now there's always ups and downs month-to-month. Frankly there's a couple of things in Q2 that we were a little bit disappointed in, in our Chicken segment but the team did a great job and pulled it out. So we're at or approaching top quartile performance. And of course, we have a multitude of plants probably 30-something locations that factor into our average, 32 I think. So to have an average of 32 locations in the top 1/3, top quartile of that is pretty solid performance.

And maybe just as a follow-up to that, could you discuss sort of where the lowest quartile is? And I guess what I'm just trying to understand is that your margins are obviously back where they are. And you think that they could get better going forward. You also talked about maybe there being a big corn crop coming and you sounded a little more positive on breast meat, which has sort of been one of the things that's holding back margins. And we are seeing -- I know you think production's going to be down 4% this year, but we are seeing -- sequentially egg sets are increasing. So I guess I'm just wondering, maybe over the next 12 months, are you at all concerned that we're going to get back into an environment where supply is going to start increasing again in a meaningful way or is the bulk of the industry just not at a point yet where that's even worth worrying about?

Well, just one quick point of clarification. Sets and placements aren't necessarily increasing but the comparator versus a year ago is tightening up because of when we began to cut back last year. So the...

A year ago we were at 208. Last week, we dropped it down back down like a 190...

200 to 198. But hey, I really don't want talk about our performance. We have seen great increases in our live performance, our team has done a very good job. We continue to make great progress in our labor efficiencies, line efficiencies. Our yields are better. Just all aspects of our conversion costs continue to improve partly because of the capital that we've been able to spend. But also our folks are very innovative and they're constantly pressing on analytics and finding new ways to innovate processes to continue to outpace the others. And we’ve built great customer loyalty. We continue to expand on that. We want to be seen as our customers' go-to supplier and I think that is also a very key component. So it's a very balanced approach. It's a combination of lots of things that have come together and we've got, I think, great opportunity, looking forward.

And our next question is from a Tim Ramey with D.A. Davidson. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Donnie, just a follow-up. I've heard you say case ready was doing well, and every couple of years we get excited about case ready, I'm wondering if it's time for something happening there in particular or if this just was kind of a one-off?

Steady growth, business does well. We're -- hey, we're very good at case-ready beef and pork. And their value-added line is doing well and adding to their business. That's a great team around a great business. The retailers view it as an important part of making sure that their sales presence in their category stays and stays healthy. And our team has done a super job, not only in terms of the quality of the product offering, but also in the service. Our on-time delivery, our order fill rates are just, just phenomenal. So we've got a great team around that business and it continues to grow progressively. Timothy S. Ramey - D.A. Davidson & Co., Research Division: And I remember you making comments maybe last quarter about how Memorial Day weekend last year was a disappointment. And I assume that you'd know a lot about what the Memorial Day order book looks like right now or it's coming together right now. Can you characterize the year-over-year on that?

Certainly better than last year. And it's interesting because gas prices, gasoline prices actually peaked higher than they did a year ago sooner, about by maybe 6 weeks or so. And in terms of an average have taken more disposable income out of consumers products for longer this year and yet it feels like to us, the Memorial Day weekend should certainly outpace last year's by a pretty good margin. So we feel good going into the summer grilling season. I can't tell you -- Pork demand's a little bit slow. But again, it's a spread business and the other categories are doing fine. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Is the positive weather -- has that been a factor for kind of getting grilling season going early?

Yes it's got to help.

And our final question today is from Ann Gurkin with Davenport. Ann H. Gurkin - Davenport & Company, LLC, Research Division: I wanted to follow up on what you just referenced, the slower near-term demand for Pork. Do you know what's behind that?

Let me jump in a little bit on that. The retail has been down slightly, but your biggest wholesale drops have been in bellies, which basically, I do think market did its job there. High-priced bacon actually decreased consumption, et cetera, so that put pressure on the belly complex. The biggest disappointment though overall is hams, and export ham stayed up fine and it was domestic consumption of ham products that came down putting pressure on that. And then trimmings actually have also had a major hit on the wholesale side, which I think is a combination of the beef trim correction that we saw from LFTB, as well as the fact that pigs have been very heavy and there's been ample supply and we've probably seen a pull back and have seen a pull back in some of the Food Service consumption on pizza products that support that market. Ann H. Gurkin - Davenport & Company, LLC, Research Division: Okay. And then you referenced in your comments about overall industry for chicken production to be down 4% still for the year. What is Tyson's -- what is your production right now for Chicken? Estimate?

We'll be down that or just a tad more. And thanks for joining us today and for your continued support of our company. I'm excited about the opportunities ahead of us in the second half of fiscal '12 and beyond. And I'm confident in our team's ability to execute against our plan. Thank you for joining us, and have a great day.

Thank you. This does conclude today's conference. Thank you for participating. You may disconnect at this time.