Tyson Foods, Inc. (TSN) Q4 2012 Earnings Report, Transcript and Summary

Good morning. Welcome to the Tyson Quarterly Investor Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, please disconnect at this time. And now I'd like to turn the call over to Jon Kathol, Vice President of Investor Relations. Sir, you may begin.

Good morning, and thank you for joining us today for Tyson Foods' conference call for the fourth quarter and 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; Dennis Leatherby, Chief Financial Officer; and Jim Lochner, Chief Operating Officer. [Operator Instructions] I'll now turn the call over to Donnie Smith.

Thanks, Jon. Good morning, everybody, and thanks for joining us today. Before we get to our results, I want to say that our hearts go out to everyone in the Northeast affected by Superstorm Sandy, and I'd like to thank the Tyson team members who traveled from 9 different locations, some as far away as Oklahoma, Arkansas, Virginia and Tennessee, to prepare and serve meals at our Meals That Matter feeding sites in Bayonne, New Jersey and Staten Island. Our teams have worked with local volunteers to feed more than 60,000 meals to first responders and storm victims. These team members have it in their hearts to make a difference, and I'm proud to be associated with them. As you saw in our press release this morning, we had a strong fourth quarter and another very good year. In the past 3 years, our EPS has averaged around the $2 mark on an adjusted basis. That's a new base level of performance when you look at this company's EPS over time. I'm very proud of our management team and all our team members. Thinking about what we've accomplished over the last 3 years in a sluggish economy with unfavorable market dynamics and staggering input cost increases, it really is impressive. So I'm going to take a minute and list what I see as many of the important accomplishments: We've produced consecutive record sales 3 years in a row with an 8% compounded annual growth rate. We generated $3.7 billion in operating cash flows, and this is after funding $600 million in working capital increases. We invested nearly $2 billion back in our company through CapEx. We paid down debt by $1.1 billion. We reduced net debt to cap from 34% to 18.4%. That's the lowest level since the IBP acquisition.…

Thank you, Donnie, and good morning, everyone. We reported fourth quarter earnings of $0.51 per share, or $0.55 after adjusting for a $15-million impairment charge on noncore assets. This compares to $0.26 per share a year ago. Reported fiscal 2012 earnings was $1.58 per share, or $1.91 after adjusting for the fourth quarter impairment and a third quarter charge of $167 million related to the early extinguishment of our 2014 notes. The $1.91 adjusted EPS compares to $1.89 adjusted EPS in fiscal 2011. Pretax return on invested capital for the past 12 months was 17.1%. Over the past 3 years, pretax ROIC has averaged just over 19%. Capital expenditures were $160 million for the quarter, bringing the fiscal 2012 total to a record $690 million. These investments reflect numerous capital projects for both our domestic and foreign operations that result in improved productive capabilities, labor efficiencies, yields and sales mix. Our operating cash flow for fiscal 2012 was above $1 billion for a third consecutive year at $1.2 billion. Our effective tax rate for the fourth quarter was 39.9%, or 38% excluding the impairment of noncore assets, which had no tax benefit. For fiscal 2012, our effective tax rate was 37.9%, or 36.7% on an adjusted basis. Including cash of more than $1 billion, net debt was just under $1.4 billion. Total liquidity was $2 billion, well above our targeted range of $1.2 billion to $1.5 billion. Gross debt was just over $2.4 billion, in line with the end of last quarter. As Donnie mentioned, net debt to EBITDA for the last 12 months was 0.8x. On a gross debt to EBITDA basis, this measure was 1.4x. During the fourth quarter, we acquired 3.2 million shares for $50 million under our share repurchase program. On our last call, we said…

Thanks, Dennis, and good morning, everyone. I'll begin with the Prepared Foods segment, which produced $39 million in operating income in the fourth quarter and a 4.8% return on sales. For the year, Prepared Foods had $181 million in operating income and a 5.6% return on sales. Average sales price was up 1.6% on 0.9% lower volume. We are focused on growing this segment, and we recently launched several new products, including frozen handheld snack items, Tyson brand luncheon meats, chicken luncheon meat and hotdogs. We have invested in our Houston plant to improve efficiencies and increase our flexibility for lunchmeat production, which will allow us to grow that business. In addition, we're following the success of Wright Brand Bacon with Wright Brand Fully Cooked Ribs and sliced beef brisket. Wright is a premium brand, and these products are exceptional in quality and flavor. Our R&D, culinary, consumer insight, sales and marketing teams are working closely with our customer base to provide new products and category solutions. In the deli channel, Tyson continues to solidify our position as a leader in consumer and shopper research. For the second year in a row, Progressive Grocer Magazine recognized Tyson Deli as a category captain for deli-prepared foods. This is -- this award is a validation that Tyson Deli excels in the tools and knowledge that grow our customer businesses. Looking ahead in 2013 fiscal year for Prepared Foods segment, we expect our growth to include building on our position as the country's leading foodservice pepperoni producer. And earlier this year, we completed a state-of-the-art expansion of our Council Bluffs, Iowa pepperoni plant. We are also exploring growth opportunities in tortillas and ethnic foods and developing greater presence in the convenience store channel, in addition to our improvements in luncheon meat. Now turning…

[Operator Instructions] Our first question from Ken Zaslow with BMO Capital Markets.

I'm just kind of curious. When you guys laid out your plan of 10% growth for the next 2 years and kind of 2013 numbers, can you talk about -- how much of the industry-specific fundamentals matter, particularly on the Chicken side, versus how much clarity do you have on those, 2013 to 2015?

The underlying fundamentals that would go into our plan would basically be the numbers you see USDA putting out. We look at various different analysts and then kind of average all that. So, yes, if you -- anyways -- so we just use the average of what those analysts were, and it's really, for us, Ken, about pulling the levers that we know we can pull in our business. We mentioned increased operating efficiencies, but -- growing our value-added. We are being successful in price increases. Our customers seem to understand that these higher grain prices are going to require higher prices. We continue to change the structure of a lot of our pricing agreements. Our fixed-price exposure -- annual fixed-price exposure is going to be single digits after the first of the year. So you combine those kind of things and, Ken, that's how we can be so confident about getting better in 2013.

So if the chicken production levels kind of are modestly lower, I'm assuming -- I mean, call it 0% to 1%, you don't -- you see that, that -- your ability to get to normalized numbers over a 2-year period is high or low, I guess, is kind of my question. It doesn't seem like the chicken guys are cutting, and if we stay in this higher feed environment, like, what gets you to the normal level over the next, call it, 12 to 18 months?

Yes. I mean -- well, first of all, if you look at the last couple of quarters, you've had corn in excess of $7 delivered; you've had soybean $450 plus, close to $500 delivered; and our domestic Chicken business had a 5.7% return on sales in Q4 and a 5.1% for the year. So yes. I mean, I think if you look at our 1%, 1.5% down in production, whatever the USDA number is on 2013, and our current view of grain prices, sure. We should be very comfortable, very high confidence level in our ability to deliver these results.

Our next question from Ken Goldman, JPMorgan. Kenneth Goldman - JP Morgan Chase & Co, Research Division: So thanks for giving the 2014 guidance, and now you get everyone asking about 2014, and I'll do the same. But I have a little bit of a different tack. I'm curious because you have a situation where corn futures are suggesting much lower corn prices for your fiscal 14. I can't see a situation where chicken production really goes up a huge amount in that time. So I'm having a very difficult time modeling your Chicken margin in a year like that, where chicken production doesn't go up and corn goes down, modeling anything below your normalized range at all. I'm getting above it. And I know everyone's numbers are different, and I'm not asking for guidance on my model, but why should we expect only 10% that year? Why shouldn't 2014 be a pretty darn good year when it comes to your Chicken margin?

It could be, Ken. For us -- hey, 2014 is a long -- pretty far out there to be talking about. But, yes, I mean, I think at least 10% ought to be in everyone's mind across all of our business. Remember, you -- we got to keep remembering we're a $33-billion multi-protein company, not a $33-billion chicken company, right? But yes, I can't argue with you. Kenneth Goldman - JP Morgan Chase & Co, Research Division: All right. And then one question just on -- when I hear Tyson talking about focusing more on value-added, focusing more on international, I go back to hearing Tyson talk about this 5, 10 years ago. And obviously, there were some good things that came out of that push, but there were some not-so-good things also, right, where the company arguably took its eye off the ball in terms of efficiency in its commodity chicken, beef and pork. And I'm just curious how we as outsiders gain comfort. Obviously, you're a different company now and, Donnie, you've done a great job bringing cost efficiency back to the company. But how do we get comfort that as you start to focus on value-added in international again, that perhaps you don't take your eye off the ball elsewhere?

Ken, that's a great question, and frankly, it's one that we spend a lot of time talking about around here. I think the difference is the foundation that's been built. When we talk about our strategy of accelerate, innovate, cultivate, we always do so based on a platform of fundamental execution -- fundamental executional excellence, operating efficiencies, lean thinking, continuous improvement, that type of thing and leveraging a strong balance sheet. It's taken 3 long, hard years to get our balance sheet back in order. During those 3 years, we knew that we needed to build a strong platform of functional excellence. And we've done that. I mean -- hey, there's always room to improve, and we embrace lean thinking and continuous improvement. So we will never say we're there. But I can tell you that every person at Tyson Foods understands that we cannot ever take our eye off the ball, and we've got to keep that firm foundation in place as we now build on it new platforms, new product offerings. And the thing that gives us, it's an idea of the proper cost structure of that new platform because now, we know what good looks like. So great question. And all I could draw you to is notice the difference in the last 3 years and then layer upon that good cost structure growth in value-added, not only in poultry, but also in our Prepared Foods business. And I think we can start seeing a pretty bright future. Kenneth Goldman - JP Morgan Chase & Co, Research Division: And then one very quick one. I assume, when you talk about 2013 EPS looking similar to 2012, you're talking about a $1.91 base, not the $1.58 GAAP base, right?

Yes, yes, yes.

Our next question from Farha Aslam, Stephens Inc.

And just kind of closer in, in terms of your Beef business, your results were surprisingly good in this quarter, and your guidance is quite strong despite the fact that you've lowered your cattle number outlook. Could you share with us maybe some things that you're doing differently in your Beef business that's allowing you to deliver very solid earnings and provide a very solid outlook despite a contracting cattle supply?

Jim?

Yes. The key is, I had in my prepared remarks, we've put a tremendous amount of effort and focus behind trying to beat the wholesale prices through added value. So it's a combination of specialty trimmed sub-primals, it's in steak cutting, it's in case-ready, it's in pricing analytics, and we spend a lot of time focused on what that forward short-term supply is so we can keep ourselves in balance. And then we also really put a tremendous amount of effort on a lot of metrics driven towards revenue-to-efficiency metrics. So the combination is just running what I'd call a very smart business, knowing that the supply has come down. Ironically, if you look over the last 5 years -- the last 5-year average, by the way, is almost like 1.8%. There's only been 1 year it's been up in 5 years. So that 2% to 3% is about what we've been experiencing the last 5 years. So it's a tremendous amount of detail on a whole bunch of issues and continuing to have that value-added above the wholesale market prices.

That's helpful. And then, Donnie, when you think about your CapEx investments versus acquisitions, what kind of ROIC are you using on CapEx versus acquisitions? And where do you see the most attractive acquisition strategies? And what size of acquisitions are in your target range now?

Okay. So we have a very similar outlook for CapEx as acquisitions, because we kind of look at our capital the same way in both. Typically, and it depends on the project, Farha, internally, we're going to have a couple of hundred, 250 or so that's going to be in basic M&R [ph]. And so above that, in order to keep our capital in line -- once you factor in your weighted average cost of capital, we need to be in that 20% to 25% range on income-producing or cost-savings CapEx. Let me give you a quick example. Down in Houston, we've got a couple of important customers that depend on us in that -- out of that plant for our lunchmeat business. So we're putting about $30 million into that plant now to increase our cooking and slicing technology in order to take care of that business. So that project has a very good return on capital. But then on the acquisition side, I'd tell you that our sweet spot is -- probably, today, in an acquisition that would be $50 million or less. It would be somebody that makes great food in maybe a regional area that we can capitalize on our strengths as we build that business out. Now that's not to say that an acquisition sub-$500 million, $200 plus, whatever, might not be in the mix. But the sweet spot for us right now would probably be in that $50-million range. Does that help?

Yes. So you're not looking for kind of larger, kind of transformational, kind of maybe -- let me take a look -- 2 to like -- more like $4 billion to $5 billion-type transactions, those kind of larger, big moves?

No.

Our next question from Heather Jones, BB&T Capital Markets. Heather L. Jones - BB&T Capital Markets, Research Division: Is it a fair assumption that your fiscal '14 and '15 commentary assumes, for at least fiscal '14, another challenging year in Beef given that you're expecting the tight supplies to become more pronounced in Q3 of '13?

We think that we can continue to navigate through the margins. We do expect the supply -- the calf crop projection for '12 continues to tell us that we'll continue to see that supply reduction. And again, as I answered earlier, that's the continued emphasis on trying to add value across the board, and we did drop our market share. We really worked hard at adding the value and working on overall gross margin. I can't project what will happen across the board in the industry, but our plants do sit where the better feedlots appear to be. And we've seen the last Cattle on Feed flow back kind of into that Nebraska, Iowa region. Heather L. Jones - BB&T Capital Markets, Research Division: But when I'm looking at '14, and you all are talking about 10% growth, I guess, first of all, Donnie said previously, it does seem like Chicken should be better. You're cutting interest expense and your international business is improving. So you're not assuming any meaningful improvement in Beef in '14 versus '13 to get to that 10% growth.

That's right. Correct.

Correct. Yes. Heather L. Jones - BB&T Capital Markets, Research Division: Okay. And on Chicken, you all talk about your national breadth, your value-added offering, your customer service. Just wondering, though, if you could give us some sector specifics. Because if you listen to the commentary out there from some large end users, but there's also some commentary from some competitors, it's been fairly subdued on the amount of pricing that people have been able to get on fixed contracts, it seems like, whereas you all sound fairly confident. So was wondering if you could give us some more specifics as to why you're confident and why you may have fared better than others in securing price increases.

Okay. Good question. So a couple of things. We think we have 3 things to leverage: raw materials; resources; and very importantly, relationships. Over the last 3 years, we've rebuilt a lot of customer relationships that were suffering. And frankly, we've done that by providing the kind of quality, service and the innovative capability that our customers need to grow their business. One thing, too, that we've not done is we've not cut our R&D expense. So we've been working on new packaging, new cooking technologies, new ingredient technologies. And these kind of things, as our customers see them, they see us as a supply partner that they definitely need to keep in the mix. And based on the fact we're not giving them any excuses not to do business with us, we like the fact that we're getting the kind of price that we need commensurate to the value that we're adding to their business. In terms of new platforms, as we move forward, we'll be adding products in our Better For You line. Some of those may be using whole grain breading, gluten-free type products. I think you'll also see us making some strides in ethnic -- in our ethnic offerings in Mexican food, in Asian. Jim mentioned in his call or in his script our handheld category, and we're adding some innovation into our handheld category. So several different lines of products that we'll be introducing this year or upgrading our product mix or adding some incremental innovation to -- that will continue to drive value. And our focus is on adding value to our customers' business. And as we do that, they pay us for the value we add. So we stay focused on that. So I think those are a few of the reasons that might give us some confidence in our ability to cover that incremental cost of, say, round numbers, $600 million that's coming at us this year.

Our next question from Ryan Oksenhendler, Bank of America.

I guess just a follow-up on -- to Heather's question. It seems like protein per capita consumption has been declining in the U.S. over the last several years. So in order to grow your value-added business, it seems like you'd have to take some market share. So I guess, what gives you the confidence that you can do that and continue to take the pricing? And it seems like over the last few decades, that every time you've seen the incremental margins in this industry, you've always been priced away by competitors. And what gives you the -- so what give you the confidence that over the next few years your value-added business, you won't see that margin erosion from competitors taking pricing?

Sure. It comes down to the customers' choice, and customers typically choose those who can bring the type of innovation into their business that they need in order to grow their business. So like I mentioned before, we've not cut our R&D expense. As a matter of fact, we've added to it a little bit. We've added to the ranks of our marketing teams. And so we're in front of customers, helping them with solutions that will grow their business. And so when there's a choice of who to use as your supply partner, as long as you don't have quality and service issues, most will choose that innovative partner that can help them grow their business. That seems to be the case with us. Also, let's not minimize the value of our buy-versus-grow strategy. Because in a pricing discussion, we're not selling any excess on the market today. And frankly, there's been a few opportunities toward an RFP, although we would have liked to have continued to be that customer's supply partner, we've walked out of the RFP just because the pricing got too cheap. And as long as you're buying your raw material, in our case, primarily breast meat, although not exclusively breast meat -- as long as you're buying that raw material and you're not excess product, then you're able to hold on to your price stream. So I think the value of our buy-versus-grow strategy also allows us to be more effective in a pricing discussion.

Great. And could you just -- a quick follow-up then. Can you give us an idea of how much of your business is currently value-added versus commodity and what the difference in margins are -- look like?

Yes. So what we've done, in Donnie King's business, primarily, our poultry and Prepared Foods business, we've actually -- as we look at our segments, we have some business units inside those segments. And we've kind of called certain business units commodity business units because a lot of their mix is commodity. Not all, but a lot. And then other business units are in the more value-added category. And I'd say, today, in Donnie King's business, and that's probably around a $15-billion business or so, your 60 -- low 60s percent is the value-added piece of that. Now our task over time is to have more and more of the sales in his business as being value-added. Now let me hasten on to say that we also have value-added categories in Beef and Pork as well, and then our international business will continue to grow. And as we get those -- more and more company-owned birds and away from these wholesale markets that we're so dependent on today, our margins will improve substantially in our international business, too. So when you put all that together, Ryan, I think that's how you get to that, call it, 3.5% growth for the total, is that you're really growing your value-added segments and your international segment a lot faster.

Our next question from Tim Ramey, D.A. Davidson. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Donnie, I was interested in the comment where you talked about the spread between your domestic margin and your consolidated poultry margin. If I did the math right, and that's always suspect, it looks like you might have lost somewhere in the range of $40 million in the quarter and maybe $120 million plus for the year, and they're in the start-up operations in China and Brazil. Is that -- am I getting to that correctly?

Directionally, you're right. It was about $105 million for the year, and about $15 million of that was the write-off that we mentioned. So call it right at $90 million on an operating basis, end of the year. Timothy S. Ramey - D.A. Davidson & Co., Research Division: So that's bullish from the standpoint of "Hopefully, we can minimize those losses over time." Do you have a sense of how that looks in fiscal '13? And also, I assume that would be bullish for your tax rate over time as you perhaps get to utilize some of those losses down the road. Can you comment on that?

Yes. Tim, you're dead on. Our current plan calls for us to reduce those losses by 80% in FY '13 and then for the business to continue at that growth rate and be positive in '14 and beyond. As we look at our international business, about 25% of the chicken that's going to market today is out of company-owned housing. And so the product offering we have and the price spread between that product offering and the wholesale offering, which our wholesale offering is based on market birds, that spread is at or above what our pro forma was when we began our international approach. So the bottom line is we just can't get there fast enough, and it's all about getting chicken houses built. We've got a great quality offering. The food safety is there that we're looking for. So all the pieces are in place; it really is just a matter of getting as much of that production into company-owned housing as we can, as fast as we can. So take 80% of that $90 million this year and add that, and then keep that growth rate going into '14 and '15. And you'll -- the math you'll probably see out there that you might question is, "Wait a minute. That kind of looks like you're in maybe low double-digit earnings in your poultry business in China," and that's right. We don't -- Brazil is a little bit more mature and frankly, we've got more work to do to get into more of a value-added mix in Brazil. But we have added a new sales leader in our Brazilian poultry business, and we continue to back them up with great R&D resources there and out of the U.S. So we feel comfortable we're going to get there, but our margin expectations would be a little better in -- well, would be better in China than in Brazil.

Tim, on your tax rate question, you're right. Our effective tax rate will go down over time because of the jurisdictions that we're in, and the foreign markets have substantially lower tax rates. So that would favorably affect our overall effective tax rate. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Great. And -- I mean, that all is terrific, and I can see that making positive momentum in '13, but -- I mean, it is a big step function from $330 million to $600 million of incremental costs. Can you break down kind of how you see that flowing through the P&L, in terms of you would recover x% of that through pricing and x% through cost reductions and x% through mix? Or -- is there a way to kind of help us think about how you could recover some or all of that?

Yes, sure. Let me give you an idea of the categories first. And so number one, we mentioned another incremental $100 million in poultry and Prepared Foods operational improvements. We got -- was it $113 million or $115 million this year, guys?

$115 million.

$115 million this year, which was short of our $125-million target. But our team worked hard, and so we see another $100 million coming there. The international improvements, that's going to be, what, $70 million, $80 million, something like that. That's a big number. Hey, reduced interest expense is going to help on the EPS basis. We are getting price and mix improvements. We've got a lunchmeat that we will be fixing this year, and I mentioned a little earlier in the call some CapEx going into an important part of that business. We will probably see, we think, less market disruption issues this year, for example. I don't have in the plan another LFTB issue, and that cost us some money. And also, we probably could have done a better job in Q1 and the very, very early stages of Q2 last year on our managing of the choice select spread. I mentioned some other missteps in our domestic business, frankly, in Q1 and Q2. We left quite a bit of money on the table in our wing business, followed by, by the way, an encore presentation in Q3 with messing up on our buy-versus-grow and being a little too dependent on the outside markets, which got us above the law of diminishing returns on our breast meat trim. And that cost us quite a bit of money. So -- and then again, coming to the new market -- coming to the market with these new platforms. So there are quite a few levers to pull there, Tim. And you add all that up and we bridge the gap. So that's how we're seeing the year.

Our next question from Akshay Jagdale, KeyBanc Capital Markets.

So starting with Chicken, just wanted to focus on the short term first. So can you give us your latest thoughts on what your view is on production levels and the industry's ability to pass on higher feed costs?

So for our planned years, we have like a 1%, 1.5% decrease in production. Whatever the USDA's showing, that's what we're using. Now on our ability to be able to pass along that increased cost, our buy-versus-grow strategy really does reduce our exposure to the volatility in the commodity pricing, the commodity pieces of this business. So when you take that and you combine that with our mix changes and our ability to take price increases, I don't -- we're not going to be dependent on the market necessarily for our future. It really is about reducing our exposure to the commodity side with our buy-versus-grow strategy and improving our value-added mix.

Okay. So if I was to -- I'm interpreting your commentary on fiscal '13 as being previously, you just said you were going to be profitable. Now you're saying profitable, but could be below normalized range. So I'm viewing that as previously, you were saying 0% to 1%, and now you're saying maybe 0% to 7%. I don't -- is that the right way to think about it?

Yes, yes, yes. You're thinking about it right. Absolutely.

Okay, great. And then just longer term -- again, I appreciate all the color. So first of all, when you talked about a new base, is the right way to think about it, as Tyson's going to earn $1.90 despite any challenges thrown their way? So is that sort of a bottom EPS number? Because you did have some significant challenges that you dealt with in the last 2 years: higher grain cost, LFTB. I mean, I could go on and on. So is that a better way to think about it? Is that sort of a baseline that you feel comfortable you can do in any environment?

Yes.

Okay, great. And then in terms of growth, you talked about 2 major levers on your top line. And I'm just looking at 10% growth off of whatever EBIT you had this year, and it's $120 million-ish, I think, for fiscal '14. I could get that number just out of your China business, and so it seems like the growth that you're modeling is going to come, even if the rest of your business, other than international and value-added, doesn't grow at all. Is that sort of a good way to think about it as well?

Yes. There's always a few things that happen that are unexpected in any given year. And as I said here today, it's hard to tell what unexpected things are going to hit us in '14. But we feel comfortable that with the foundation we've laid and the balance sheet we've got and the team we have in place, that we're going to be able to not just overcome the hills and the challenges that come, but also be able to grow our business and grow our EPS with all the levers we have to pull, and with the innovation that we can bring to the market. So yes, I think you're thinking about it right.

And just on China, I think, previously -- I may be wrong, but previously, you had said China should be within sort of a normal range of earnings by fiscal '14. Is that now pushed back to '15, if I'm reading it correctly? Or still...

Yes, we meant -- I'm sorry, we meant by the end '14, which you would see fully in the '15 year. Now, Akshay, that is dependent on us staying on track with our current housing plan, but I see no reason to believe we won't do that. So yes.

Okay. And one last one. So why did you -- again, I appreciate you giving us this guidance, but I'm just trying to get into your head here. Why did you feel there was a need to make these positive sort of long-term comments now? Like, why now? And what's the biggest risk to Tyson sort of not being able to grow from here on, from an earnings perspective, in your opinion?

Okay. Good question. So number one is we felt like -- that we needed to build some credibility. Because as we go out and talk to investors, '08 and '09 continues to come up. Well, I think 3 years of solid results in the face of, gosh, in the last 2 years, $1 billion of incremental grain cost and all of the things that we mentioned on our list in the script prove that we have laid a solid foundation. But it's not about just having a solid foundation; it's about building a house, right? And so the way -- what we got to do is we've got to accelerate our growth, and we've talked about doing that in value-added, we've talked about doing that in the Prepared Foods segment and in our international. And a big component of that is having the right innovative capability, not just in new products, but also in processes and analytics and packaging and ingredients and those kinds of things. We have those resources, and now it's time to put them to use. So we think we have the credibility because we've built a 3-year foundation, and part of our culture says we're going to do what we say we're going to do. Well, you got to say you're going to do something in order to do what you say you're going to do. So now we've said what we're going to do and, over the next 3 years in this horizon, then we'll do what we say we're going to do. So that's really what it's been about, Akshay.

Our next question from Christine McCracken, Cleveland Research.

Jim, you mentioned that we're going to see these tighter beef supplies over the next year. That doesn't come as a huge shock, I don't think, to anyone. But where we're -- we seem to be hitting a bit of a wall is on prices, both here in the U.S. and in export markets, from a demand perspective. Seems to be some pushback by consumers, and I'm wondering -- as it relates to your strategy as you sell into the market, you have a strong premium program here in the U.S., for example, and now you've got the expanded access to Japan coming. It seems like -- can you talk about how you think about recouping some of that pricing with cattle costs moving higher in the next year?

Well, first of all, generally, if you look back in history, cattle cost and revenue are very highly related. So as the cut-out and drop credit moves up and down, the cattle cost over time will get fairly correlated back to that. So I always remind people that we make money in a spread business like beef packing and the slope could change. And then on top of that -- and that USDA reported cut-out is the strongest relationship; thus, our whole thrust to always try to beat that relationship through value-added pricing, timing, et cetera. I don't know that the price -- we've heard repeated years that we're going to hit the ceiling, and we seem to break through it into higher overall cut-out every year, which simply says to me that even though we've had some demand destruction, what we're seeing is that the supply reduction really is at a slightly faster rate than the demand destruction because we keep moving to higher prices. At what point that hits a true ceiling, I don't know. My theory is simply that people who want to buy beef, buy beef, and the price point isn't the major deterrent. And ground beef is a staple, and ground beef pricing has continued to go up year-over-year. So the short answer is, I don't know that we're going to see a true price ceiling, and our job is to navigate through that in the spread business.

Is -- expanded access to Japan and better export pricing, is that in your outlook for '13?

Actually, we do think that, that will be supportive to pricing, but it's not necessarily built into our -- in how we look at fiscal '13's operating income. Just like cost access, we don't really look at that as anything other than it affects the slope of the change, so...

Any impact from plant closures anticipated over the next year?

No, other than we continue to see and we continue to operate our plants at fewer hours. So we're just focused on really what our immediate supply base is, and we try to make sure that we plan our work according to what that forward supply looks like it's going to be out in the 4- to 8-week zone.

Our next question from Diane Geissler, CLSA. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: I wanted to ask about the open-market purchases of product and what you think that provided in terms of earnings this year. And then to the extent that you're looking at next year being total industry production flat to down slightly, what you think the availability will be next year on the open market. And then also, kind of part 2 of that question, is you cited in your release that there were incremental grow-out operating costs of $50 million for the full year. I just wanted to know what those were. And also, what's the outlook on -- are you just going to see those reverse? Or is that higher labor or higher energy? Or what really that encompassed?

Okay. I think I got it. So first of all, on the outside purchases, we were running around 60 loads a week or so, give or take 5, something like that. It's hard to say what the true dollar value of that is other than this: we don't have excess to sell, which always sells a whole -- well, frankly, it sells at what we buy this outside meat for, and I'd a lot rather be buying it because we're buying below cost and selling it. And then number two is you get incremental price courage because you've already adjusted your cost -- plant cost footprint to a couple of complexes of breast meat below where you are, and by the way, we have a good cost structure even though we run it at below -- well below plated capacity. So that's how we look at the outside purchases. As far as going forward, I see no reason to believe that the meat won't be out there. And again, it's a buy-versus-grow strategy. If meat starts drying up and we need more, we can adjust. But I see no reason to believe that the amount of meat that we'll be looking for on the outside market won't still be there. As to the other costs in our grow-out cost, it's primarily 2 things: grower cost, which went up; and our chick cost, which went up. Now I'll hasten on to say there were fairly good improvements in a lot of the other costs like feed conversion and our -- some of the other aspects of our live production. Our live production team in poultry has done a fabulous job, but those 2 cost factors did go up. So I hope that helps. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: Okay, terrific. And then I wanted to ask one question on the balance sheet. To the extent that -- I think you're fairly well termed out in kind of where you want to be, so I know you've got incremental working capital needs this year, but to the extent that you're sort of done with the debt paydown, what is your priority in terms of cash usage? Is it -- I know you increased your dividend and you have a special dividend and you bought in shares, but can you just prioritize?

Sure. It's Dennis. As always, it's growth focused, so that's going to be for CapEx around our existing businesses. And then it's going to be acquisitions, potentially around value-added and international. And then it would be around returning cash to shareholders in the form of stock buybacks and dividends. Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division: Okay. And what's left on your share authorization?

Over 30 million shares.

Our next question from Robert Moskow, Credit Suisse. Robert Moskow - Crédit Suisse AG, Research Division: I wanted to ask about the definition of value-added. As you extend more and more into it or grow value-added more, I think that there is a risk that you get distracted from your core mission of being a low-cost or a very efficient commodity processor. Can you give us a bit more clarity on how much of that value-added is what I would describe as like consumer packaged goods-type of product? You mentioned lunchmeat and hotdogs and even frozen handheld items. Can you give us a sense of like, what are the sales of those types of items that are maybe -- that maybe require a different skill set, like a consumer marketing skill set versus the rest of value add that might be more of a -- more commoditized?

Sure. In poultry, you need to be thinking of further processed; value-added; cooked, whether it's breaded or not; or fire fried, whether it's breaded or not, type items. In the other Prepared Foods segment, certainly, our lunchmeat offerings, pizza toppings, soup, sausage and side dishes, items that either have -- contain bread or are in a tortilla. For example, we're the nation's second-largest tortilla manufacturer. So those type of items. Sandwich meats -- movement in all of those type areas and be thinking, too, of meat as an ingredient, not necessarily just a meat item. So it's really a lot more around a packaged food-type offering. And let me hasten on to say we have added complement in our marketing ranks, in our poultry and Prepared Foods businesses, and we've got a great talented group that understands the value they need to add and how they need to position it in the marketplace under multiple brands. We do have the Tyson brand, Jim mentioned the Wright brand in his script, and we have several other brands that we use in our value-added offering. So, Jim, you want to add anything to that?

Yes. The only thing I'd add is we're very attentive to not losing focus on the basics, and we really preach very hard about the 40-60 rule. You got to be looking forward, but you can't spend all your time looking forward and not take care of your basics. But on the contrary, you can't spend all your time in your basics and not look forward. So we call it the management balance rule, which is the 40-60 rule, because I think your point is well taken, and we certainly have read enough history and know our own history that you can never lose sight of that basic balance. And so we will keep our focus on the basics. Don't -- you can be assured of that. Robert Moskow - Crédit Suisse AG, Research Division: Donnie, can you help me understand, like with Hormel and Oscar and Hillshire all kind of slugging it out in sandwich meats and hotdogs, what's the role of the Tyson brand for the retailer? Like what gap is that filling in the merchandising set?

Yes. We typically, in the Tyson brand, have a mid-tier offering. By the way, 5, 6 lines of chicken lunchmeat, which are doing very well where they're offered today, and then we complement that of course with other traditional lunchmeat items. So a mid-tier offering typically on the Tyson brand. And we're also a large private label lunchmeat supplier. So as you hear a bit about the share battle between the brands and private label, we pack a lot of private label lunchmeat.

The only thing I'd add to that is the raw material inflation we've seen over time has been our opportunity to diversify that portfolio with chicken as a base material and to add more value to our raw materials.

Our final question from Tim Tiberio, Miller Tabak. Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division: If I could go back to the comments around acquisitions, are you currently seeing more attractive opportunities in the international versus domestic markets? And then my second question, going back to your comments on the value-added growth in the international markets, do you think that you will need to make more acquisitions, especially on the distribution side, to really make a real dent in those markets over the next few years?

Tim, those are great questions. But I tell you, I'm a little uncomfortable talking very much about the opportunities. We -- I can tell you this. We do have a bit of activity in both international and domestic markets. But as far as getting very specific about those, I just don't feel comfortable commenting about that. I want to thank everyone for joining us today, and I hope everybody has a very happy Thanksgiving. We'll see you later.

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