smithfield food Second Quarter Earnings Transcript2009

• 1. FINAL TRANSCRIPTSFD - Q2 2009 Smithfield Foods Earnings Conference Call Event Date/Time: Dec. 04. 2008 / 9:00AM ETwww.streetevents.comContact Us 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

2. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallCORPORATE PARTICIPANTS Jerry Hostetter Smithfield Foods - IR Larry Pope Smithfield Foods - CEO Bo Manly Smithfield Foods - CFO CONFERENCE CALL PARTICIPANTS Ken Goldman JPMorgan - Analyst Diane Geissler Merrill Lynch - Analyst Ken Zaslow BMO Capital Markets - Analyst Christine Mccracken Cleveland Research Co. - Analyst Tim Ramey D.A. Davidson - Analyst Farha Aslam Stephens Inc. - Analyst PRESENTATION Operator Ladies and gentlemen, thank you for standing by. Welcome to the Smithfield Foods second quarter conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time.(OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded with replay from today at 11:30 a.m. through Thursday December 18, 2008 at midnight. You may access the AT&T replay service by dialing 1-800-475-6701 and entering an access code of 970833. Again those two numbers are 1-800-475-6701 and the access code is 970833.I would now like to turn the conference over to our host, Mr. Jerry Hostetter. Please go ahead. Jerry Hostetter - Smithfield Foods - IR Good morning. Welcome to a conference call to discuss Smithfield Foods fiscal 2009 second quarter results. We would like to caution you that in today's call, there may be forward-looking statements within the meaning of Federal Securities Laws. In light of the risks and uncertainties involved, we encourage you to read the forward-looking information section of the Smithfield Foods Form 10-K for fiscal year 2008. You can access the 10-K and our press release on our website at www.smithfieldfoods.com.Each quarter, there are several analysts waiting to ask questions as our call ends after one hour. We would like to provide the opportunity to as many analysts as possible to ask questions and as a courtesy, we request that you ask only one follow up question so that everyone can participate. And we thank you for that. www.streetevents.comContact Us 1 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 3. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallWith us today are Bo Manly, Chief Financial Officer, Dick Poulson, Executive Vice President and Larry Pope, President and Chief Executive Officer. This is Jerry Hostetter, head of Investor Relations. Larry Pope will begin our presentation with a review of operations. Larry? Larry Pope - Smithfield Foods - CEO Thank you very much, Jerry. And good morning, ladies and gentlemen. While we are in some historic times, as a country and as an industry, and the last six months have been very telling on virtually every CEO and every businessman in every industry in this country and beyond this country. And I can asure you we have felt some of those pressures.I know many of you this morning have a lot of questions. There has been an awful lot written about the industry, about some of the others in our industry, and the recent announcement by Pilgrims Pride; certainly has given rise to a lot of writing. This morning, both through the press release and through this conference call, we hope to answer a lot of those open questions that might be relative to Smithfield Foods.I hope you think this management team is always straightforward and transparent. This morning we plan to be as transparent as we possibly can. Certainly we have competitive information that we are not able to disclose, but to the extent that we can satisfy some of your concerns and answer some of those questions that seem to be lingering out there, we want to make sure with we do that. Bo Manly and myself will probably take more time than is normal in terms of our comments before we take questions in order to address your questions even before you get to them. Certainly we read what's out there and the best way for us to resolve that is to simply give you that information straightforwardly. And then from there, hopefully, those of you do not for some reason get to ask your question will have our question answered during our comment period. That's certainly our intent.Before I go much farther into the segments, let me go through just the basics and talk about the segments. I hope you noticed from the press release that we have changed the format. We have given the highlights of the quarter and some of the pertinent information we thought might be valuable to you right up front at the beginning of the press release, similar to the way some others have been presenting their information in a way that's hopefully more clear and transparent to you. I hope you noticed that. I hope that's helpful to you and makes the information easier to glean as you read through the narrative.In terms of the overall results, net income for the quarter is $4.2 million or $0.03 a share, compared with 17.4 or $0.13 a share last year. You can read the year-to-date numbers for the first six months. The income from continuing operations reflects a $30 million loss or $0.21 a share, compared with $23.4 million or $0.17 a share in the same quarter of last year. You should know that this quarter does include an impairment charge in our European operations. As you may remember from some time back, we have been talking about the fact that we were some restructuring that needed to be done in our western European operations. That is underway.As you know in many of those countries, it is much more difficult to accomplish some of those restructurings and it takes an awful lot more time than you would ordinarily like for it to than in the United States. While it is taking some time for us to present that to you, the fact is that we've had that plan in place for some time. It has just taken a significant amount of time to roll that out.You also realize the beef business is not in these numbers. Mr. Manly will speak more clearly to that. But we are reflecting a discontinued operations gain for the quarter and for the year-to-date which reflects a number of things including the operating results, cattle feeding and the sale of the beef business. I will leave that to Bo as he makes his comments to you. But it is a positive number for both the quarter and the year-to-date.The quarter can essentially be summarized very succinctly in a very quick phrase, it is corn prices, and the impact of corn costs and grain costs on our hog production operations, combined with an oversupply of live hogs that needs to be rectified. Andwww.streetevents.comContact Us 2 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 4. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Callhopefully is being rectified and we are part of that solution. That is a summary of why the results are where they're at. But going -- I will talk about that in much more detail in the hog production group. I would like at this point to walk you through the other segments and then focus on hog production a little -- in just a few minutes.The pork segment which is the slaughtering, the packaged meats business, continues to be a very bright light and a shining light in the Company's operating results. You see that our results were reflecting operating profits of $93.4 million, compared with $62.9 million last year. And our year-to-date results are that same trend. This is a 50% improvement over the same period for the quarter and for the year-to-date.I think for a number of quarters, we have been reporting to you that our pork segment is performing very well. We are extremely pleased with what's going on in that segment of the business. There is no question that there are benefits coming from the export markets that are impacting the industry and our fresh meat results. But as well, the changes we have been making now for a couple of years that I have been talking about now for many quarters are being reflected in these pork segment profits. I want you to make sure as you think about these numbers that is the pork segment is not just the impact of the positive export markets. Our fresh pork margins have been excellent. And in fact are clearly the best fresh pork margins as many others have said in the industry. These are the best fresh pork second quarter margins in the summer that anyone has ever seen. And ours I would tell you were the -- were in line with the industry. In fact I believe that our improvement is better than the industry because of some of the things that we've been doing operationally. We have put in a management team that has focused on the fresh meats side of the business. I think I told you a couple of quarters ago that we have focused on packaged meats which we continue to, and that we were turning our attention towards the fresh meat side of the business. We have been turning our attention in that direction. I am telling you that the impact of that is being reflected through these numbers. And I believe will continue to be reflected in terms of comparisons to others in the industry, I think we are making substantial progress in that area and I am pleased with it; very pleased with it.On the exports side, the industry has just seen some exceptionally good growth. We have seen every bit of that that everyone else has. We all know in the Japanese and Chinese and the Mexicans and the Russians and Korean and the Taiwan business has all been more than double-digit increases for all of us. In some cases, they are triple-digit increases.Some markets we were represented in more strongly than in others. I can tell you that every one of those markets has been exceptionally good for Smithfield. That demand has certainly helped the domestic market in taking some of this product off of the domestic market as we have had more pork to sell. But those markets have helped all of us. I want to talk -- when I talk about my future comments about export markets going forward because I know there's an awful lot out there written about what's going to happen from this point forward. I'll reserve my comments on that until we get there.The packaged meats side of the business which has been a big focus for quite some time, the margins were very solid. They were slightly below last year's record margins when we had a lot of cheap raw material. This year the raw material costs are up significantly on such things as pork trimmings. Those are up. And yet in spite of that, our margins have been very good in that end of the business.We have taken actions to reduce the cost of manufacturing these products, as well as we have instituted sales disciplines in this organization that are bearing fruit in that end of the business. And they will continue to be there. We are not growing the volume. I have mentioned that to you over a year ago, that we were going to focus on making money on the business we sold. That we were going to rationalize out some of this volume that was simply contributions to overhead. The fact that some of our volume in some of our categories is down is not an accident. That is part of a plan. I will tell you that it is part of an ongoing plan that you will see me talk about when we get to third quarter if I don't make some release in advance of that of the continuing efforts that we are doing in that area. I think that we are positioning ourselves extremely well.Categories such as consumer trend changes towards precooked products, particularly in the rib areas, have been extremely good. As well the category of hot dogs, where we have seen declining volumes for some time, has reversed course and the hot dog business is now one of the fastest growing categories for us.www.streetevents.comContact Us 3 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 5. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallThe important point in terms of where we are positioned, Smithfield sell in the value space. We are not at the top of the market. We are in the 80% category, what I call value conscious consumers. We sell products to the everyday consumer and we sale that -- we sell the product when it is being featured. I think that we compete at the manufacturing and the cost -- in the cost of production line, and that is an area where we think we have a core competency of this management team. As the consumers re-evaluate their buying decisions, I think those decisions will be trending toward our product as a way -- in terms -- as opposed to others in the industry.The Company has a highly diversified customer base. We sell many of the major -- we sell every retailer. Some of our largest customers are some that you would expect who are benefiting from this recessionary time. Some of those customers that are seeing the growth; we are seeing that same growth.I think many of you know that the Company is largely a retail company. Our business breaks down about 75% retail versus 25% food service. You know that the food service business for all of us is down 3% or 4% or 5%. Ours is close to 5%, and there is even movements inside of that food service with certain customers and you know the trend that's going on there. As consumers go back to the grocery store to buy as opposed to eating out, they are returning to our core business. We are seeing some of that return in terms of where that product is going.There is no question that the retailers are under pressure in terms of price increases to control those price increases. Certainly we are going to feel some of that pressure from our customers. I am not going to sit here and tell you that we are going to be able to pass through price increases very easily in a -- but we are in a position where I think our cost structures are improving dramatically. I think that there is still plenty of cost to be driven out of our organization in terms of the manufacturing plant floor operations that are underway, back room and duplicate costs that we are incurring that we have focused on. From my standpoint, the changes we have already put in place here this last year and year and a half and two years, are now beginning to go show up in the bottom line. While I know we will see cost pressures from our customers, we are positioned well, I think to continue to supply those customers and continue to supply them profitably in this packaged meats end of the business.On the international side, you will note that the numbers are a bit better than last year, 11 versus 9. We continue to move forward, that is a mixed bag. Our group Smithfield business in western Europe has seen some of the economic impacts of the move away from highly-branded products to its private label. What's known as [primie] PRI or first priced business. We are seeing some pressures on the margins there.Conversely, our eastern European operations are seeing better numbers, as is our Campofrio. I can report to you today that we continue to move forward very nicely toward the merger of the group Smithfield Campofrio deal. That merger is in its final stages.I expect to be reporting to you in the third quarter that that merger has been completed. And our two investments in western Europe will be merged into one. The result of that will be the largest packaged meats company in western Europe with sales in several billion dollars which we have been working on for several years now. Smithfield will be a 30% shareholder in that publicly traded company. To give you some feel for how that is relative to our other investments in the United States, the capitalization of Campofrio is nearly the same market capitalization as Smithfield Foods. The whole Smithfield Foods organization today given where the stock price is at and we will own 37% of that company. I think as that -- given the market positions that we will have in a number of countries from -- in all of the major western European countries, we will have a major market position.We will be positioned very, very well with that merged company. And we will have access to capital into western Europe should we decide to make moves beyond that in the future. Although today, I can report to you that we are not in the midst of looking at any acquisitions by this company. We are in a mode of making the right defensive measures for the Company and protecting the balance sheet. Mr. Manly be speak a great deal more about that.Romania and Poland continue to make progress. That end of the business has seen some pressure. Although last year, we went through the adverse impacts of classical swine fever in our operations and in our plant. That is behind us and we are returningwww.streetevents.comContact Us 4 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 6. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Callthe other direction. Gain grain costs have completely reversed in eastern Europe where they were substantially higher than the United States. We were seeing very poor cost issues in terms of raising costs there. We are seeing the reverse of that as we go forward and that's a very positive.Now, let me turn to hog production. That has certainly been a topic of big concern to everyone in the industry. It is the driver of our cost this quarter. We are seeing very high raising costs; $63 versus $49 last year.We did go out and buy a significant amount of $6 corn this summer, just like many others in our industry did and many others in many other industries with a number of commodities including oil around the world. I am as surprised as anyone on this call that we saw corn prices move from better than $4 last December to $7.50 this summer. Here we are sitting back one year later and corn is trading well below last December's price. I think no one saw this. I thought there was a major concern with the floods in the Midwest this spring and the concern about crop yields, that the worldwide demand that was going on. There was a huge concern among everyone including many people on this call about how are we going protect ourselves against the complete disaster.We did take protective measures. We did buy corn. After the fact that has been a very expensive insurance policy we bought. But it was a decision that was the right decision at that point in time. Looking back, should we have done it? No. Just like so many others who made decisions relative to a number of commodities, it was a decision that should have been left as it was.But regardless of that, our raising costs would have still been up significantly. Corn cost has been up the whole year. Our cost would not have been anywhere near close to last year's levels had we not made that decision. Beyond that, our productivity is very good.We did -- we have cut back our sow herds. As you remember, we made an announcement last February that we were cutting back our sow herds 4% to 5%. As I have reported to you this morning, we have now reduced those herds up 7% and are moving forward. I will talk about that when I look forward.It is a tough environment for us to manage. These markets are literally impossible to perceive. They have been impossible for us to manage through, other than take positions and then go forward from there. I am satisfied with that in terms of how we reacted to it.The final point, in terms of the other category, represents our turkey business. That is the Butterball turkey business which is down significantly, feeling the same impact of these grain costs. As well, we have made reductions in our turkey production going forward, double-digit reductions there. We are positioning that business very well forward and I will talk about that again in my forward-looking statements.It is a tough -- it has been a tough quarter for the Company. It is probably going to be a tough two more quarters for us as this grain cost moves through. But beyond that, the light at the end of the tunnel in my mind is very bright. I am highly encouraged by what I see us doing internally and how I see these markets once we get on the other side of this corn at the end of our fiscal year. I could talk to you about the financial -- a number of financial issues. But rather than do -- me give you that information, Bo Manly has an awful lot more to provide to you. With that being the case, Bo let me turn it over to you and then I will make some comments when you're finished. Bo? Bo Manly - Smithfield Foods - CFO Thank you, Larry. Good morning and holiday wishes to everyone. As a housekeeping reminder, the beef group results were classified as discontinuing operations at the end of our fiscal 2008 year.www.streetevents.comContact Us 5 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 7. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallEarnings for fiscal 2009 ,as Larry had indicated for the second quarter, totaled a profit of $4.2 million or $0.03 per share compared to a profit of $17.4 million or $0.13 per share for the same period a year ago. For the first six months of this fiscal year, Smithfield lost $8.4 million or $0.06 per share compared to a $72 million profit and $0.54 per share for the first six months of fiscal 2008. Earnings from continuing operations for the second quarter totaled a loss of $30 million or $0.21 per share compared to a profit of $23.4 million or $0.17 per share for the same period a year ago. For the first six months, continuing operations lost $58.5 million or $0.42 per share compared to $80 million profit or $0.60 per share for the first six months of fiscal 2008.Earnings from discontinued operations for the second quarter totaled a profit of $34.2 million or $0.24 per share compared to a loss of $6 million or $0.04 per share in the same period a year ago. For the first six months, discontinued operations earned $50.1 million or $0.36 per share compared to $8 million loss or $0.06 per share for the first six months of fiscal 2008.Before I focus on general financial details of the quarter, I would like to skip the normal sequence of the CFO report and go directly to what I will call the big three. These topics include liquidity, covenants and secondarily pensions. I would like to emphasize that we had no better crystal ball than anyone else on this call, but we did foresee many of the headwinds facing our industry and have been aggressively managing these issues for several quarters.We have evaluated and continued to analyze which of our core strategic assets of our business and which are not. This led to the sale of our beef business and feed yards last December and subsequent closure of the deal with JDS at the very end of last quarter. We have added equity to our balance sheet during the first quarter with the sale of stock to Cosco. We also believe that our relationship with them would generate long-term strategic opportunities for Smithfield in China.We have replaced uncommitted lines of credit and bridge loans with long-term debt facilities. We have reduced SG&A through hiring and salary freezes, suspended bonus, curtailed travel, selling aircraft, consolidated corporate marketing functions and other actions. We have dramatically slowed capital expenditures to a rate below depreciation. We have no acquisitions on the table for the first time in quite awhile.We are pushing to find more and more sales synergies and leverage between our operating companies to improve price realizations, lower overhead, and increase capacity utilizations to reduce manufacturing costs. These efforts at the operating company level have been led by George Richter, former CEO of Farmland, in his new roll as President of the Pork Group. George's efforts have begun to bear fruit, particularly as we move into the second half of this fiscal year and into fiscal 2010.Perhaps most importantly, we have not waited for the industry to cure its burdens from overcapacity in light of current world economics and pork demand. We took a leadership role in herd reduction in the US last winter. We have currently implemented a 7% reduction in our domestic herd. And are moving to a 10% reduction before the end of the fiscal year. While this has reduced some pig marketings in this fiscal year, the full impact of the reduction of pig marketings will result next year. Frankly, we are disappointed that more of our competitors in live production in the US have not been equally as aggressive.We have clearly not maintained an attitude of business as usual. We have actively managing our balance sheet. Specifically, as of October 26, the end of the fiscal 2009 second quarter, we had available liquidity of $920 million. This reflects the collection of proceeds from the beef transaction in the week prior to quarter close. As of yesterday, December 3, we had available liquidity of $895 million.In addition to our cash availability, we are entering our seasonal period of greatest cash generation. As we speak, we are at the height of our ham season. We are turning millions of pounds of finished ham to the inventory, to receivables, to cash over the next 45 days. This will generate approximately $100 million in additional cash.We will market the majority of our cattle inventories over the next few months and anticipate generating $50 million in cash each of the next few quarters. As we sell and replace hogs who have eaten the high priced corn with pigs eating cheaper corn, we can ring out another $50 million of cash out of swine production working capital over the remainder of the year. We will continue managing capital expenditures below depreciation for the foreseeable future. Let me say, in the strongest terms thatwww.streetevents.comContact Us 6 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 8. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Callwe have more than sufficient liquidity to provide for all of our capital needs comfortably for the balance of this fiscal year and through fiscal 2010.The second big item -- the second item on the big three list is covenant compliance. We are very disappointed that rumors have gone as so far as to predict our imminent demise. We are currently comfortable -- comfortably in compliance with all applicable covenants and waivers. We are projecting that we will continue to be comfortably in compliance with all relevant covenants through the end of this fiscal year.As those that follow the art of covenant compliance are undoubtedly aware, we currently have a waiver under our US revolver with relief from a 3.0 to 1 EBITDA interest coverage ratio to a 2.0 to 1 ratio. This waiver is effective through the end of this fiscal year. Our projections indicate that we are very comfortable with maintaining compliance with a 3.0 to 1 ratio in the second half of fiscal 2010.With the trailing 12 month nature of the covenant calculation, we are projecting a very close compliance with the 3.0 coverage ratio in the first half of fiscal 2010. We are projecting that if there's a major deterioration in cost or demand from our current forecast, it may be necessary to seek an extension of current waivers in the first six months of the fiscal year. While the first half of fiscal 2010 seems a long way off and a lot of water will flow under the bridge, we are not comfortable in light of the present environment to wait and see if the markets prove us right and we are able to maintain compliance through fiscal 2010.Contrary to conventional wisdom, which says do not ask your banker for something you do not need absolutely until you absolutely need it, we have elected to engage several major players in our bank group in ongoing discussions on this specific topic. We want to put this issue behind us well in advance of the point in time when we will know if we need the extension of the current waiver or not. We think this action is firmly in the best interest of the Company, the shareholders and our lenders. We believe an extension if needed can be obtained.The final element of the big three is the status of Smithfield pension programs. At the end of fiscal 2008, the fair value of our pension assets were $847 million and 83% fully funded versus projected obligations of slightly over $1 billion. Our estimated pension expense for fiscal 2009 is $30 million while the prior three-year average expense was $28 million. The average funding for the prior three years has been $32 million.The final pension calculation for fiscal 2009 will be determined by the asset values at 12/31/09. The asset values in the plan have suffered during recent deterioration and the equity and real estate markets. Analysis by our pension consultants indicates that our incremental funding requirement could be as high as $62 million for the balance of the fiscal year to catch up to anticipated shortfalls in plan asset values. We firmly believe we have more than adequate liquidity to be able to comfortably fund the projected incremental pension requirements. A great deal of press has been devoted to extremely burdensome pension obligations that could threaten companies with large unfunded pension requirements and low liquidity levels. We do not believe we are in this category and believe the Government will modify funding requirements to help companies weather this issue. Government actions in this regard could lesson the incremental funding requirements we have projected.I have provided perhaps more information than we normally would on such a call. But we feel that more transparency is better and feel confident the Company has or will make provisions to come through the current hog cycle and world economic conditions with a stronger balance sheet, improved competitive cost structure and a high degree of focus on our core business.Now, I would like to return to the normal financial discussions. Dollar sales for fiscal 2009 second quarter total $3.1 billion, compared to $2.7 billion last year, a 15% increase. Sales in the pork segment increased 10% in the second quarter compared to the same period a year ago. Likewise hog production, other segments showed sales increases. Increased sales resulted primarily from higher hog prices as well as turkey, fresh pork and packaged meats.The international segment sales increased 47% in the second quarter compared to a year ago. This increase was due to higher per unit prices, increased value in foreign currencies.www.streetevents.comContact Us 7 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 9. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallSelling and general administrative expenses were $209.7 million in fiscal 2009 second quarter. This compared to $216.6 million in the year prior, a decrease of 3%. Management began applying pressure to lower SG&A late in fiscal 2008. These initiatives, many of which I mentioned earlier, are beginning to bear fruit.To focus for a moment on the corporate profit segment, in addition to what Larry indicated, the corporate segment shows an increase in expense from $18.2 million a year ago to $33.3 million this last quarter. This increase expense of $15 million is due to several factors including a $9 million foreign exchange loss, a $3 million loss on assets values of life insurance and $4 million in miscellaneous one-time write offs and reversals. Foreign exchange is the main driver in the year-to-date results as well.Interest expense for the quarter was $52.1 million, $3.8 million more than the same quarter in fiscal 2008. The average interest rate for this quarter was 4.3% compared to 5.7% in the second quarter of fiscal 2008. The rate decline was offset by higher average borrowings during the quarter, resulting in higher overall interest expense. Given a static interest environment, management believes lower debt levels result in lower interest expenses going forward.As we mentioned in the 10-Q, Smithfield takes advantage of hedge accounting treatment on a selected basis when possible to account for risk management activities. Management believes that hedge treatment most accurately reflects the fundamentals and timing of our business. The loss from continuing operations for this period includes a pretax gain of $38.2 million from all hedging activities during the quarter. Included in that $38 million gain is approximately $108 million in mark-to-market gains, principally related to hog hedges for future periods that flow through the second quarter P&L.We experienced hedging losses on our grain position during the past quarter as well. We anticipate future hedging losses principally from open grain hedges and forward purchase contracts will impact hog growing cost in the third and fourth quarters. This will result in a $6 plus per bushel grain cost through the end of the fiscal year. This highlights the inconsistency of hedge accounting and operating objectives, and economics of providing price protection in future periods of inputs and outputs. We are able to carry a hedge position on grain to the P&L of the future period in which grain is purchased. Whereas we are forced to mark-to-market -- the financial impact of a hog hedge in the current period, regardless of when that hog will be sold.Looking at the balance sheet for a moment, our total debt with capital leases and notes payable were $3.5 billion at the end of the fiscal quarter of 2009. This compares to $3.9 billion at the beginning of the fiscal year. These reductions reflect management's efforts to improve the balance sheet through asset sales, aggressively managing capital expenditures, issuance of equity and prepayment of debt. Depreciation and amortization for the quarter was $68.3 million, compared to $67.4 million last year.The Company has put considerable constraints on capital spending since the beginning of the calendar year. Capital spending continues to decline each quarter. Capital spending in the first quarter of fiscal 2009 was $83 million, and $32 million in the most recent quarter. Capital expenditures for the first six months of 2009 were $115 million, compared today $229 million in the same six months of fiscal 2008. Management intends to keep capital expenditures at or below depreciation levels for the foreseeable future. We expect full year depreciation to total $270 million.The Company's effective tax rate for fiscal 2009 second quarter was 41% versus 37% in the same period in fiscal 2008. The variation in effective rate is due to the receipt of several tax credits in the quarter and treatment of FIN 48 discrete items that had the effect of increasing the effective tax rate in a period of loss and reduces the effective tax rate in the period of income. For the full year, we expect the effective tax rate to range from between 34% to 36%.The Company's debt-to-EBITDA ratio was 7.4 to 1 for the 12-month period ending October, 2008 versus 5.8 to 1 for the full fiscal year ending in April of 2008. The debt-to-capitalization ratio was 54% for the quarter, down from 56% at the end of the first quarter of fiscal 2009. We continue to strive to a debt-to-capitalization ratio of 50%.As I mentioned earlier, we are in compliance with all covenants. We are projecting that we will continue to be in compliance with all of the relevant covenants through the end of the fiscal year. The basic weighted average number of shares outstanding www.streetevents.comContact Us 8 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 10. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Callfor the second quarter was 141.5 million shares, up from 134.3 million shares at the end of the second quarter of fiscal '09, reflecting the Cosco share purchase during the first quarter of this year.Let me conclude my remarks today by saying that Smithfield has initiated a host of actions to improve sales margins, lower manufacturing costs and cut overhead. We have shed noncore assets. We have dramatically shrunk capital expenditure. We have created greater liquidity and a stronger business base in western Europe through the Campofrio Group/Smithfield merger. We have lowered our debt levels, sold equity, increased available liquidity. We have aggressively taken actions to insure covenant compliance for the next two years. We have more than adequate resources to fully comply with all pension requirements. And we have been an industry-leader in the reduction of swine production capacity. We are very optimistic that these actions will dramatically improve our fiscal performance in fiscal 2010 and beyond.Thank you very much for your time and attention. I will turn it back to Larry. Larry Pope - Smithfield Foods - CEO Thank you, Bo. I hope you all took that as a very complete and informative narrative from Bo. I think that gives the answers to a lot of questions.As I think about this this past quarter, I am not pleased as much as anyone else is. But I am satisfied, we are doing something about the situation. We are not just sitting and waiting as others have done for something to change or hoping someone else will make the conditions improve. Bo just outlined a number of actions that we are taking from a company standpoint and I want to reinforce what he said. Many of those actions were taken long before the environment of the last 60 or 90 days.The sow reductions Bo talked about started last February when we made the announcement of 4% to 5% and we are now at 7% at the end of the quarter. We are at 8% at the end of November and we will be at 10% by the end of January. These actions have to be taken well in advance, and we anticipated this nearly one year ago.We made the decision several months ago to -- in compliance with the country of origin labeling to say that we would only process US born and raised animals as a way to help this industry. We have reduced our turkey production a number of months ago. On a meat processing front, more than two years ago we started the process of analyzing our plants and rationalizing how we went to market. We made a management change in terms of the structure of our operating companies back this past May, long before we knew any of this situation might be there.In July we made the tough decision to go to market, to raise both debt and equity when our stock had dropped from a $25 to $30 range to $18. We still went to market, raised the debt, issued the equity in order to protect this balance sheet. We made the decision to sell the beef business one year ago. It took a bit longer to get it documented, but we made the decision. In fact, I was commenting to you a year and a half ago about our position in the beef business. That was made nearly a year ago.As Bo indicated, we started capital spending reductions long ago. It takes a long time to slow down the big train, but that train has slowed dramatically. By the time we get to the need, we have radically reduced the level of our capital spending. And as Bo indicated, we will continue to maintain a tight rein on capital spending until we see this thing reverse. We did make one decision in terms of buying corn which now looking back as I said, was an expensive insurance policy. But the offset to that is we hedged some of the hogs as well. It isn't a one-for-one relationship and it doesn't cover up the corn impact, but it does act as an offset.Beyond that, our meat processing business has helped offset from the margins in that; the cost we've incurred on the hog production. We do have vertical integration in effect and it is working. So our losses are not nearly what they should have been.www.streetevents.comContact Us 9 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 11. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallAs I look back over the past year, I take a lot of comfort in the fact that we anticipated things in advance. We took a lot of actions that now are starting to bear fruit, even as others are debating to take action. We knew this long before a financial crisis hit just 60 days ago. We have proactively moved on several fronts to improve the industry, our position, and our financial health. I am proud of what we have done in this management team. I think those who follow the Company know this is the nature of this management team.Looking forward, it is going be a tough two more quarters. We have got to chew through this $6 corn that we bought this summer. It is going to be coming through our costs and we are not going to see a significant cost reduction in our raising costs for the next two quarters. They may be a surprise to many of you. It is the nature of feeding hogs over long periods of time.On the export front, there's a lot of questions out there. We continue to see a very bright export market in spite of the fact that others are reporting that the export markets are essentially closed. We don't see that. Our Japanese business is very robust. Our Chinese business is strong, as is Mexico and Korea.There is -- the Russian markets are closed for the moment. Although there is talk even this week as many of you know, about them doubling the quota going in in terms of pork. That is a market to yet be determined. It is not the biggest market for us, as it is in the poultry business. It is just another market for us and we don't have to have the Russian business.Beyond that, US -- the herd reductions in Canada and the EU have been substantially higher than the US. Those are our two export competitors. We should be very competitive from a supply standpoint and the prices in Europe are dramatically higher than they are in the United States; pork prices. Again, we should be very competitive.The futures markets say that this thing is going to clear by next summer. Live production is going to be down, we anticipate. I expect our continued improvement of our operating costs to be reflected in the meat processing. Campofrio will be a publicly traded entity we'll be under at that point. And I look forward to fiscal 2010 as a very good period for the Company. We are in the food business. If this recession takes holds, it should come to us more than it does anyone else. We are in the basic business of feeding average Americans, and pork is moderately priced. As the recession hits some, it should hit us no more or less than others. But we will have to see how that goes. From my standpoint, I think the management team has taken as many actions as possible to protect our shareholders and to give the opportunities for us to reward you going forward. At this point, we'll take questions. Operator? Jerry Hostetter - Smithfield Foods - IR Operator, please, we're ready to take questions. QUESTIONS AND ANSWERS Operator Great. Thank you. (OPERATOR INSTRUCTIONS). One moment please for the first question. We will go to the line Ken Goldman with J.P. Morgan. Ken Goldman - JPMorgan - Analyst Good morning.www.streetevents.comContact Us10 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 12. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallLarry Pope - Smithfield Foods - CEO Hi, Ken. Ken Goldman - JPMorgan - Analyst First, I do appreciate that you are being more aggressive than some of your competitors, in terms of cutting the herd and in terms of taking the covenant risk right on before it even happens. I think that's the right way of doing it and I wish everyone else would do it that way. I do have a question about covenants. How confident are you that if you do need a waiver, you can get one? How deep into the process of discussions with bankers are you? When can we expect to hear a yea or nay on that process? Larry Pope - Smithfield Foods - CEO Bo, you want to take that question? Bo Manly - Smithfield Foods - CFO Certainly. As you can all appreciate, absolutes are hard to provide anybody at this point in time. But we have been engaged in this process for almost -- over a month, recognizing some of the issues that have been brought up for the industry.We are benefited, I believe by I think some of the better people in our space so to speak. I will speak particularly to production farm credit that has almost 50% of the revolver which their mandate is to supply credit to the agricultural community. And they've been very supportive of this and we are very confident that we will be able to get the waivers if necessary. We've had those discussions. They're continually ongoing.It could be frankly as much as 60 to 90 days before it ultimately gets revolved. You never really know until you actually get somebody's signature on the page, but we don't look at it as a huge hurdle. Our numbers are still very good looking forward in term of projections and very consistent with our lenders outlooks in the future as well. There's pretty good agreement there all the way around. Ken Goldman - JPMorgan - Analyst You are seeing the right thing; the stock is up 5% now. Thanks very much. Larry Pope - Smithfield Foods - CEO Wow. I'm not tracking the stock, but I hope that is good news. Maybe this market's going to excel. Operator Next we go to the line of Diane Geissler of Merrill Lynch. Please go ahead. Diane Geissler - Merrill Lynch - Analyst Good morning.www.streetevents.comContact Us11 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 13. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Call Larry Pope - Smithfield Foods - CEO Morning, Diane. Diane Geissler - Merrill Lynch - Analyst Reiterate the comments here about the candor; I really appreciate that and find it very helpful. On the $6 corn that's going to run in through the P&L here, I just want to make sure I understand your comments regarding the hedging on the corn versus the hedging on the hogs. Is it accurate to say that whatever gain that you've booked on the hogs, you took this quarter? Then the grain hedges will continue to be negative in the third and fourth quarter and that's at play? Or if you could just maybe a little bit more detail on the difference between the two? Larry Pope - Smithfield Foods - CEO Diane, let me answer that as transparently as I can can. The answer is yes. That is the nature of the hedge account which can all of us dislike. Yes, our hedging profits on hogs has been reflected in the quarter conversely. We do have the grain hedge coming through that will be impacted. That's why I am telling you our costs will not be down significantly in the next two quarters.The other point I'd make is an awful lot of this grain loss has been funded. These are margin calls as you know on the commodities market. We funded an awful lot of that. Some we have full repurchase commitments. But to the extent we have commodity hedges out there, as you know, those commodity hedges come due everyday. We have funded, from a liquidity standpoint -- our cash costs going forward will not equal our reported raising costs because we have already funded it. Diane Geissler - Merrill Lynch - Analyst Okay. Terrific. And then just a follow up, how should we think about then what the absolute prices received on the hogs is in the back half of year? Larry Pope - Smithfield Foods - CEO My goodness gracious, why don't you tell me? I'd be -- Diane Geissler - Merrill Lynch - Analyst You do this for a living. I sit at a desk in New York City and look at computer screens all day. Larry Pope - Smithfield Foods - CEO Usually hogs start to rally at this time of the year. I'm optimistic in terms of where our hog prices are going from here. I will tell you as I think I have made -- I think I said that in my press release. If I didn't, I will tell you now.We are continuing to monitor these markets and protect this company. I'm not going out there now by telling you I think the futures markets are a little undervalued where I think the real market is going to be. That's my thought, doesn't mean it is right. If these markets rally, and it seems like they couldn't go much lower, we will look at the futures markets in terms of hedging opportunities going forward. We have a cheap hog market today and generally as you go forward -- the hog market rally and I think you know that. www.streetevents.comContact Us12 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 14. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Call Diane Geissler - Merrill Lynch - Analyst Thank you very much. Operator The next question comes from the line of Ken Zaslow of BMO Capital Markets. Please go ahead. Ken Zaslow - BMO Capital Markets - Analyst Hi, everyone. Larry Pope - Smithfield Foods - CEO Hi, Ken. Ken Zaslow - BMO Capital Markets - Analyst In your press release, you put out that hog production should be -- turn profitable in first quarter of fiscal 2010. If I look at the hog futures and the corn futures and in light of your full disclosure, what type of margins would that actually imply for you guys in that order? It seems like it would be pretty high. Larry Pope - Smithfield Foods - CEO It is not as high as you think, Ken. It would be profitable. I think as you go -- the issue is that you have got this trailing corn thing that keeps on giving or taking either way. Even as you eat through $6 corn, you are still going to have some of this thing. I think we are going have solid margins as we get into the quarter but they're not -- you should not take the pure futures and the pure cash market because that will probably give you better than $20 margins. I don't think the early part of the quarter is going to be that.But what is happening is we are working through this process. I think what should be the other side of that is I think meat processing margins should be pretty good, too. That's part of my turning -- hog production is going to turn profitable. What you are going to have is also the meat processing business I think could make the -- is going be very solid, too. I know we always focus on corn and hogs. I spend an awful lot of time focusing on where we are going in the packaged meats and the processed meats side of the business. Ken Zaslow - BMO Capital Markets - Analyst You wouldn't be surprised if that indicates about a $10 to $15 per head-type profitability, it sounds like. Is that not fair? Larry Pope - Smithfield Foods - CEO It could. Yes. It could.www.streetevents.comContact Us13 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 15. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallKen Zaslow - BMO Capital Markets - Analyst When you go to your bankers and they worry about the covenants, and I know the market's worried about the covenants. Can you just show them that and say, we are going to be profitable and we're going to be able to pay back our loans. Larry Pope - Smithfield Foods - CEO Ken, I think we have -- Ken Zaslow - BMO Capital Markets - Analyst Is that how it works? Larry Pope - Smithfield Foods - CEO That's exactly how we plan to do it. They can see the markets like we can. We have smart people. We have smart people in our bank group. Absolutely, we are going to say, guys here is where we have been. The problem which Bo outlined very clearly is that we have this trailing 12-months calculation. So the earnings that we are producing even this quarter are already in next year's calculation. That's the nature of the calculation, but I think our bankers -- we are in a far better position than the vast majority of many industries in this country who are going to have to go see their bankers. Our future looks good. Other people are going into the recession. As you know in the hog production business, we have already been through the recession. Ken Zaslow - BMO Capital Markets - Analyst Just as a housekeeping question, what should we expect for diluted shares outstanding in interest expense? Larry Pope - Smithfield Foods - CEO Bo, do you have any -- ? Bo Manly - Smithfield Foods - CFO Diluted shares outstanding, we're still looking at 141 million shares outstanding. Interest expense, I think we are looking at $209 million for the year. Larry Pope - Smithfield Foods - CEO Why don't you let somebody else ask a question here while Bo tries to get that answer and answer before we get off the call. How about that. Ken Zaslow - BMO Capital Markets - Analyst Thank you very much.www.streetevents.comContact Us14 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 16. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallBo Manly - Smithfield Foods - CFO The note I have is looking at the debt reductions that have taken place as far as principle is concerned, we are looking for -- around $191 million in interest expense, a little bit lower than what I told you. Ken Zaslow - BMO Capital Markets - Analyst For next fiscal year? Bo Manly - Smithfield Foods - CFO Yes. For the trailing 12 months. Ken Zaslow - BMO Capital Markets - Analyst Oh, the trailing 12 months. I am looking for going toward -- Bo Manly - Smithfield Foods - CFO We will get back to you if that's possible. Ken Zaslow - BMO Capital Markets - Analyst That would be great. Thank you. Bo Manly - Smithfield Foods - CFO We will do that. Thank you. Operator Next we go to the line of Christine Mccracken with Cleveland Research. Please go ahead. Christine Mccracken - Cleveland Research Co. - Analyst Thanks. Larry Pope - Smithfield Foods - CEO Good morning, Christine. Christine Mccracken - Cleveland Research Co. - Analyst Just on the hog supply, there's been a pretty dramatic drop in the number of hogs we are getting in from Canada, tied to this country of origin labeling issue. I am just wondering, as you look at your plant, are you seeing any dramatic supply constraints www.streetevents.comContact Us15 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 17. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Calland/or maybe benefits and other plants where you maybe have an advantage of your competitors and being able to source hogs whereas they might not be able to? Larry Pope - Smithfield Foods - CEO I wish I could tell you that we were having trouble getting hogs. We are not having a lot of trouble getting hogs today. We are -- the industry has got lots of supply today.That's going really surface because we haven't changed our country of origin requirements here. I believe it is the end of March when we have said that we would not take any more -- what would be essentially feeder pigs from Canada. Because we gave the contract growers and our suppliers time to work through the inventory that they would have already bought feeder pigs. We thought that was only fair. We really haven't seen that impact of the Canadian reduction, at least on from the country of origin side.In terms of supply, I will tell you what -- these hogs move around and we are getting hogs everyday in the plant with really no issue today. I wish I could tell you we were, but we are not having trouble getting them. Christine Mccracken - Cleveland Research Co. - Analyst If you look at the number of slaughter hogs that is have come in -- Larry Pope - Smithfield Foods - CEO Yes. Christine Mccracken - Cleveland Research Co. - Analyst Down about 60% I think. There's definitely been an impact on overall supply. I am just wondering where it is showing up. Larry Pope - Smithfield Foods - CEO I think you've had pretty strong productivity in the domestic herds here. The reductions people have, including us, have not yet fully taken effect here. I don't think that you are seeing all of these -- you are seeing them on slaughter hogs. Clearly you are seeing that, but you are not seeing it from the Canadian side -- on the feeder pigs. They're still coming in. We are still seeing -- I think production productivity is offset that for now. Bo Manly - Smithfield Foods - CFO Christine, I think -- at least the way we look at it. We would factor in about a six-month lag time between the point -- see any reduction or increase in Canadian imports back in the slaughter side of the business. If you look at the pattern that we saw last spring and early summer, we are just about to get the impact of these big reductions from Canada starting to roll through. I would say as we get further into December and certainly as we move into our third quarter, we will start to see those as you are vocalizing that we should. Christine Mccracken - Cleveland Research Co. - Analyst All right. I will leave it there. Thanks.www.streetevents.comContact Us16 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 18. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Call Larry Pope - Smithfield Foods - CEO Thank, Christine. Operator And our next question comes from the line of Tim Ramey with D.A. Davidson. Please go ahead. Tim Ramey - D.A. Davidson - Analyst Let me just echo the comments of others that we appreciate the candor. The stock is up 25%. That flies in the face of some others who have been more opaque. You are doing -- you didn't give us good news today, but we like the candor. One of the questions I had was that as we get into a tighter covenant and liquidity situation, is that going to affect your ability to hedge and have you backed away from some of those forward purchases? Or how is that playing out in the marketplace for you? Larry Pope - Smithfield Foods - CEO Let me -- I will answer the easy one and Bo can answer more specifically. The cash requirements associated with these hedging positions, as you know, can be material although we have got an awful lot. We have a lot of liquidity.One of the things that we have -- we have looked more at is the forward purchase commitments which are really off the commodities market. That simply goes out to the grain suppliers and you buy the grain and you don' even have -- it is just a forward purchase commitment. But, no. I would tell you, no. We think that we have got plenty of liquidity. If these markets present themselves where we can protect ourselves on the raising side, we would you will be just as interested in taking some of those positions.This is not the tim to not look at these markets because we are looking at -- I don't know where corn is going. If I were to make a prediction now -- there's a formula between oil and corn. You tell me where oil is going and I can almost tell you where corn is going, it appears. No. We would not look away from the commodities. We have started to look more and -- have started more with forward purchase commitments. Tim Ramey - D.A. Davidson - Analyst Thanks much. As you think about the earnings power of the Company, you have backed away and sold a few things. You have also talked about cutting your costs and focusing on more blocking and tackling types of things. What would you say about the change in the earnings power of the Company in a theoretical normal l cycle? Larry Pope - Smithfield Foods - CEO Now, you've just asked me to make -- Bo, you want to -- ? Bo Manly - Smithfield Foods - CFO Let's look specifically at what we exited in terms of the beef business. We have seen tremendous roller coasters in terms of beef profitability, of plant level. We have seen even greater roller coasters in profitability of the feedyards. I think frankly from an earnings stabilization, it will be beneficial to us in terms of a big portion of the assets that we exited in terms of consistency of www.streetevents.comContact Us17 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 19. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Callearnings going forward. I look at the things that George Richter is doing to look at improving sales realization, reducing manufacturing costs and reducing overhead as being all very, very accretive to our pork bottom line and very exciting. Larry Pope - Smithfield Foods - CEO And you asked the question, Tim, how much is that. That -- some respect, Bo would probably tell you, the beef business hasn't made us a lot of money over the years. It's had great years and it's -- both directions. Great profits and great losses. The cattle raising has not been a good business for us to be in. But I think that we are -- I will tell you this.We don't make predictions. But the things we are doing now and we have been doing, I want to say that again, are significant. They're showing up in this pork segment. I think they're significant. Bo Manly - Smithfield Foods - CFO Frankly, our timing to exit the beef processing side of the business; we'll look back five years from now and say, it was fortuitous that we got out -- where we think these trends are going to be. Larry Pope - Smithfield Foods - CEO You guys have made a number of comments about the fact that our profit returns don't relative to sales don't compare profitably with some of our competitors. I hope I'll be able to report to you as we go forward quarter after quarter, our numbers are going to get comparatively better and better. I hope I will be able to tell you that. Tim Ramey - D.A. Davidson - Analyst Thanks much. Jerry Hostetter - Smithfield Foods - IR We have time for one more question, please. Operator Thank you. That comes from the line of Farha Aslam of Stephens Inc. Please go ahead. Larry Pope - Smithfield Foods - CEO Hi, Farha. Farha Aslam - Stephens Inc. - Analyst Hi. Just following along with Tim's question. Given that commodity markets have been so volatile, could you share with us your thoughts on what normalized margins would be in hog profits per head?www.streetevents.comContact Us18 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 20. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference CallLarry Pope - Smithfield Foods - CEO Yes. I think that if you look back over long periods of time, Farha, it is at $10 to $15 a head. I'd say, it is $0.04 to $0.05 to $0.06 a pound, is what that industry has yielded over, gosh, about a dozen year, 15 years. Bo Manly - Smithfield Foods - CFO Certainly not what it was 20 years ago. Larry Pope - Smithfield Foods - CEO No, it was even better. Bo Manly - Smithfield Foods - CFO The expansion took place and we have normalized earnings in a much tighter range. Larry Pope - Smithfield Foods - CEO It is going to be closer to the $10 range going forward than I think it is the $15 or more. That probably doesn't speak well for us if you know what I mean. I think that industry consolidated to the point that there's not going to be as wide of a range as there was in the past. I hope that answers it. It is as honestly as I can give it to you. Farha Aslam - Stephens Inc. - Analyst Do you think fresh meats and packaged meats are still going to be about $0.01 to $0.02 a pound for fresh meats and packaged meats are still going to be $0.04 to $0.07 a pound? Larry Pope - Smithfield Foods - CEO Yes. I do. What did you put on fresh meat? Farha Aslam - Stephens Inc. - Analyst I put $0.01 to $0.02 a pound on fresh meat. Bo Manly - Smithfield Foods - CFO Yes. I hope that I would tell you that they're going be better than that. I think they're going to be better than that on the fresh meat side; the changes we have made. I would hope that I would tell you the package meats is going to be on the higher end of that number than the lower end of the number. You can tell how bullish I am on that side of the business, Farha. Farha Aslam - Stephens Inc. - Analyst That's very helpful. Thank you.www.streetevents.comContact Us19 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 21. FINAL TRANSCRIPTDec. 04. 2008 / 9:00AM, SFD - Q2 2009 Smithfield Foods Earnings Conference Call Jerry Hostetter - Smithfield Foods - IR Our time is up. We appreciate everyone for joining us today. And we hope you have a good day. Thank you. Operator That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.DISCLAIMERThomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-lookingstatements are based upon current expectations and involve risks and uncertainties. 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