Q3 2020 Earnings Call
Ladies and gentlemen, thank you for standing by now what country. The Fibrile Animal Health Corporation, Q.C. Q3, 2020 earnings conference.
This time, all participants are in a list and only node. After the speakers presentation. There will be a question and answer session to ask a question during the session they'll need to press star one on your telephone speech be advice said today's conferences being recorded.
I like to hand, the comfort silvers your host today, Mr. Richard Johnson sure. Please go ahead.
[noise] Oh. Thank you operator, good morning, everyone welcome to our earnings call for our third quarter ended March 31st 2020.
On the call today are Jack Benny time, or Chief Executive Officer on my cell Patriot Johnson, Chief Financial Officer.
Will provide an overview of our quarterly results and then we'll open the lines here questions.
Before we begin few ice housekeeping items that remind you that the earnings press release and financial tables can be found on the investors section of our website P.H.C. Dot com. We're also providing a simultaneous web cast of this morning's call, which can be accessed on the web cast as well.
Today's presentation slides and replay and transcript of the call will also be available on the website later today.
I remarks today will include forward looking statements and actual results could differ materially from those projections.
Burleson description of certain factors that can cause results to differ I refer you to the forward looking statements section on earnings press release I remarks. Today will also include references to certain financial measures, which we're not prepared in accordance with generally accepted accounting principles or U.S. gap I refer you to the non gap financial information.
Section earnings press release for discussion of these measures.
Reconciliation of these non gap financial measures for the most directly comparable <unk> calf measures are included financially pay tables that accompany the press release.
Looking at page three of the web gas.
[noise] it'd be car, we get into the numbers, we want to remind everyone that we present our results on a gap basis and on an adjustment basis are adjusted results.
Exclude acquisition related items unusual or non operational or non recurring items.
Certain other income or expense items, and then the income taxes sex related to any of those pretax adjustments plus any.
Usual or non recurring income tax items themselves, so with that introduction I'd like to turn it over to check that I'm or his introductory comments track.
I think stick and first and foremost we cannot overstayed gratitude for the medical professionals.
Respond as in many of those who are at the front lines biting covert 19, and its effects on our family friends in communities.
I also like to acknowledge the tank all those people touches supermarket work his truck drivers delivery people food processing plant workers, who dating day and provide essential services without whom.
World would not be able to practice is soaked with this was saying this necessary to get ahead of this pandemic.
I mean me immensely pattern hot and by the way that people are fiber. We have responded to the biggest challenge. We face is accompanied without missing a beat our offices throughout the world have transformed habitual ones.
Manufacturing facilities essential to food production had managed to continue producing it unchanged levels.
We have maintained production. Despite numerous measures we have taken to safeguard on people's safety and significantly reduce the risk of infection.
What's this experiences like clear easy tremendous ingenuity and work at that across our company is way of getting as we have we are getting my jobs done in ways. They've just 60 days ago. When it was deemed whiskies undoable.
Examples on numerous from Frigo, Yeah, which borders are open to in order to deliver our products to.
Creating the span of weeks a fibrile online forms and has hosted speakers on topics going in excess of this house in global view is to meeting our customers in the field with all participants safely staying in their pickups and sharing discussion in presentation via mobile hot spots.
For the quarter ended March we able to grow a sales in our core animal health segment by healthy 8%. Despite the pandemic challenges and the lowest sales in China that we have experience all year.
I vaccines into official specialties product continuous showed double digit growth.
While there has been minus one we stocking in China, we did not see any sales of M.F. face into China the quarter due to regulatory changes it took effect January 1st.
Who didn't the quarter was the minimum abandonment from customers looking to build them in Tory at the early stages of the global Lockdown.
With regard to various pipeline the newly introduced products in projects that I've been updating on a quarterly basis, one of the unfortunate truce.
Situations.
Become extremely difficult to launch products in the current environment in those areas where.
We are incumbents this is the benefit.
Definitely seen a pause for the update.
<unk> take launches in customer adoptions, we have her we we are hotter work building tools and processes enable us to promote these new product.
And launches than the current environment than are optimistic that is a social this requirements ease around the globe, we will resume the Pacers success, we will see.
<unk> accelerated.
So benefits to our customers, maybe even more parent then they previously work.
The upcoming quarter, we are seeing some softening due to pets disruptions our customers are facing with their downstream demanded processing. We also seeing an increasing costs as we look to navigate the logistics of disrupt the supply chain as well as costs associated with reducing the risk of the virus to our manufacturing employees.
<unk> well I sales to date have continued to close expectations, we anticipated decline demand for our products in the gym quarter, and we had the airport pulling our guidance for fiscal year ending in June. The bottom line is that was there too many unknown unknowns for us to confidently predict that we will achieve our paper.
Expectations for the basis.
That.
The deck another quote answering any questions you may have after his remarks.
Thank you <unk>.
So let's start by reviewing the revolt results for our March 2020 quarter.
[noise] consolidated sales were $211 million for the quarter that was a 5 million dollar or two per cent increase versus the same quarter last year.
Increase sales in the animal health business, where partially offset by.
Lower average selling prices and mineral nutrition and slightly decree sales in performance products.
The increase in animal health is driven by nutritional specialties and vaccine products will get into further details regarding segment results later in the presentation.
<unk> net income of $13.5 million decline $1.3 million.
Higher gross profit driven by volume growth in the animal health segment was more than offset by increased S.G.N.A. expenses across the business.
Diluted earnings per share of 33 cents per share for the current quarter was four cents below the same quarter last year.
Let's discuss adjusted results on page six.
So.
First of all look at a net sales in more detail at the individual segments level, but on a consolidated basis, adjusted gross profit increased $5 million or 8%.
When compared to the prior year that was the same amount as the increase in sales. So overall favorable product mix effect for the company.
<unk> increase was driven by sales growth in the animal health segment, primarily volume growth and nutritional specialty and vaccine products.
We did see a slightly lower volumes and M.S.A.'s and other products as a partial offset.
Gross profit in the mineral nutrition segment decreased.
Lower average selling prices and unfavorable product mix more than offset a lower raw material costs a performance products gross profit was comparable to the prior year.
For operating expenses or what we refer to as selling general administrative adjusted S.G.N.A. increase $5.5 million or 13% driven by strategic investments in creaky product development projects in part the effect of the recent hot spray acquisition.
And also.
The effect of variable compensation, returning to more normalize levels.
Hi, adjusted net interest expense increase $300000 a year over year on higher debt levels. Yeah that was for the higher death levels were partially offset by the benefit of lower variable interest rates.
[noise] increment adjusted income tax per SEC perspective.
Effective income tax rate for the quarter was 26.3% that was comparable to the prior year.
Looking more closely at the animal health business.
That salesman hundred and $39 billion increased almost $10 million or 8% compared to the same period last year.
M.S.A.'s and other products net sales were $82.7 billion, a decline of $1.4 million or 2%.
We saw very nice increased demand from our poultry and cattle customers in the United States in Latin America.
Help to largely offset lower volumes in China due to the effects of African swine fever.
Mandate phased regulatory change that began in January 120 20.
Nutritional, especially products net sales were $34.6 million, an increase of 6.4 million or 23%.
We experienced organic volume growth in domestic dairy and poultry markets. In addition, the recent osprey acquisition accounted for approximately half of the year over year sales growth.
Net sales of vaccines were $21.7 million.
Increase $4.8 million or 28% over last year.
And by strong international demand for poultry vaccines as well as a growth in edge of the products that we also produce.
For the segment they trusted either die was $34.6 million for the quarter that was an increase a 1.4 million or 4%.
The increase in gross profit from the strong volume growth at the sales level, particularly nutritional specially a vaccine products.
Was.
Offset by higher S.G.N.A. costs for strategic product development and marketing initiatives plus in party affected the Osprey acquisition, So all and all I.
Yeah that accounted for the increase in profitability in the corner.
Looking at the other segments on page eight minerals nutrition.
<unk> net sales of $56.2 million.
The quarter that was a decline of $4.5 million or 7%.
<unk> lower average selling price is we did see some volume growth in the corridor compared to last year. The lower average selling prices are generally correlated with the movement of underlying raw material costs. However, gross profit declined $800000 year over year yeah.
The decline in average selling prices and pay verbal product mix more than offset the lower cost of goods.
Gross profit decline coupled with some increase in S.P.N.A. led to a 1.2 million dollar decline in a segment even compared to last year.
Performance products net sales, we're 15.6 million slightly below last year, we saw a slight decline in sales of ingredients for personal care products.
And while gross profit was comparable to the prior gear due to a favorable product mix and as a result segment adjusted either died increased slightly over the prior year 200000 dollar increase.
Corporate expenses were $10.1 million and a quarter a 200000 dollar increase over last year.
Yeah do among among other reasons to increase public company costs.
Capitalization on page nine are gross leverage ratio a debt to either die ratio at March 31st was 3.5 times.
368 million of total death on our balance sheet and 105 million of trailing 12 month adjusted either.
We had 82 million of cash in short term investments the balance sheet at quarter and and for the March quarter, We generated 19 million of cash excluding changes in short term investments and before financing activities.
[noise] turning the page 10, as Jack mentioned during his opening remarks.
Animal production interest industry is currently facing unprecedented demand disruption in production impacts, including its ability to process animals.
All as a direct result of the code at 19 pandemic.
Animal producers are rapidly adjusting the amount of the <unk> animals, and melt being produced and significant price declines at the producer level for all proteins of also contributed to reduce production levels.
We anticipated decline in the band for our products during our quarter in June 2020.
And due to the uncertainties that the pandemic were unable to estimate the overall effects on our operations and financial results in the near term Hennis are resolved. We're withdrawing all previously issued financial guidance for our fiscal year ended June 2020.
We believe the current difficult situational began to normalize and the second half of the calendar year in the industry gradually will return to typical operating levels. We believe we have the financial resources to whether a downturn in our business, we're actively monitoring the ever changing environment and stand ready to take additional operational accidents as.
Necessary to production our financial position.
And that is the conclusion of my prepared remarks, so operator, if you would open it up for questions. Please [noise].
As a reminder to ask a question you will need to press start one on your telephone.
Try your question press, the pound or <unk>.
Standby Willie compiled the CUNY roster.
Our first question comes from well she resigned at Barclays.
Hi, Good morning does biology, thanks, <unk> questions couple of stem from me. Firstly can you help me understand what drove the <unk> talking radiation, which we have seen discord crossing the street there seems to be pretty wide variations between August companies, which had a board.
<unk>, how should we interpret does thanks.
Well I think.
As we say that.
Quite often the pad.
Business is significantly differ from the other companies recording in this industry segment in the companion animal basis.
Quite heavily on distribute is.
It's quite small so the Amanda <unk> in the pipeline is that competitors have with distribute as which has been very much affected.
By the their lack of ability to call on customers.
It is different than ours to them, saying, we call pretty much across the world directly.
Distribute is for logistical reasons. So we don't have that much product in the pipeline and I didn't mention we saw us.
The <unk> Lockdowns went into effect some stuff.
Little bit more but overall, it's a small effect.
Yeah.
<unk>, let it stop but the telephone secondly are you seeing already expect to see an acceleration in the folder to you I've seen in mind that you have which is already strong and I'm asking as a whiz seemed to be seeing as strong shift words people proteins like poetry from the.
Human side as that'd be mine pattern shift.
And if you can take you get this between what do you seen in the U.S. market in the markets things.
So I mean that is a great question and.
Missing some shifts.
You know many of our markets.
The only the only protein of choice is really old tree.
Those very very same market.
Affected by covert in different ways, which is sort of interesting.
A lot of the markets around the world or rely.
The businesses, they're rely on their people working in industries that rely on export it rely on on let's say the United States.
And as as we've been locked down here and not shopping.
And a lot fewer products, which means that the suppliers in the far east or not working if they're not working and they're not paying if they're not paying people are not going out to buy.
Any protein specifically protein poultry. So we're seeing you know those kinda gyrations.
In the United States at clearly one are bad.
Many of the voting products were prepared for restaurants as you read that every day you see that shift.
So.
Declined and I would say well this is not as affected.
By the fact of the damage covert 19 is done too.
You have the slaughter houses.
Sick.
Shut them down.
A real back up again, the poetry industry.
Heard often this week.
You can you can you can control that because.
It's the cycle is under 30 days.
Goes very very quickly.
In the cattle industry, you got room on the on the ranchers to hold the cat a long ago.
And the swine industry.
Luck.
You have to get the pigs in the market a certain weight.
And they get heavy air it's a problem for that for the.
Handled.
So.
Population.
Nation.
Exactly.
It's going to happen you don't know exactly what sort of plants going to close tomorrow. This is why so late in the cycle here, we are and the into the first week may end of a quarter is.
It's an eight weeks away, but since you don't know what sort of plants are going to close and with a bottleneck tend to come from which of our customers it'll be affected.
As I said you know.
It was on top of unknowns.
The bigger effect, the United States, I think isn't a hog industry.
Oh, yeah, that'd be slowing down the poultry industry around the world.
You have it affects just in terms of economic stagnation people don't have the money that is not going to buy chicken.
Right.
<unk> with stop.
I still importing.
A lot of pigs, and some chickens from around the world. So.
It's complicated changes a week to week.
As as this disease gets mitigated we'll see.
Normal, but right now.
As I said a week to week, there's a surprise.
Let me check.
My next question is from Kevin <unk> of G. period research.
Hi, Thanks for taking the questions.
Okay, I'm, sorry, I missed a from your comments on on China. So was wondering if you just speaking to kind of what you're seeing they're not only in terms of African swine fever, but also how other countries seems to be emerging from Cove. It and then secondly, just wanted to get a sense. If you see any wong term changes the little livestock industry.
Coming out of cope it or should we think of most of what we're seeing as simply being kind of transitory and reverting back to normal full scale as we get into 2021 or so.
Some take the second for us.
You know I think long term, we will see things retirement.
<unk>.
Pretty much as we know it they'll be changes survivors of this.
Diseases some of some of the people right now raising animals will not be able to afford.
<unk> the losses, they've having in that heavily in the swine business. So I will see consolidation.
But overall as you can as you will understand.
Animals are being produce there are being consumed and if someone doesn't produce from someone else will produce so there might be movement around the world may moving around the various countries, but overall the amount of animals being raise I think will stay the same and we'll go back to the growth pattern, we've seen tied to economic growth.
<unk>.
There's a disruption which is.
Nine anyone's model right, Kevin you're smart guys never.
But your models.
So we'll see how people people will adjust to this.
Some people will come out no won't come out stronger, but and no one really come out smarter because there's nothing you can do.
But I think maybe the changes would be in the slaughter houses will.
In terms going forward there'll be there'll be a a heightened awareness of what could happen.
So might be different ways of.
Keeping people further apart, maybe maybe more robotics, maybe <unk> plans that will be the changes, but the volumes I think we'll return to normal.
That's why China goes you know.
People on trying to calling this living through pet to Pandemics.
So they have their back to their corona virus.
Which is just starting to come out of people just this week.
How to go even slightly Shanghai to Beijing, not going to quarantine in Beijing.
And that's the only been lifted this past week. So they started come out of it people are slowly going back game, where the economy's being affected.
Less money available in families and so they're buying less but it is slowly coming back.
As I said earlier, there is some restocking of <unk>, but it's going slowly because African swine fever is still very much there.
So you have these combination two things at five that affects us.
Oh, we sat back in our development of you know our attempt to make a vaccine.
For African swine fever, because of the corner of R.S. because.
People have not been able to get to the laboratories.
The so the the government is taken over every single testing facility to work on a cure for the Cobra 19. So for them at internationally is is a greater importance than than African swine fever, even though I think economically African swine fever is higher.
So there's a setback you know, but everything eventually well it can be a month to month for three months from moving forward again.
<unk>.
My next question is from Michael Insane, a bank of America.
[noise].
My question here.
I want to follow up on some of your earlier comments on sort of a medium and long term impossible.
Aspect watch like industry in the U.S., primarily focusing on there in Swat as you indicated those seem to be the hardest hit here are you having any changes in terms of conversations with your customers, where they're becoming so pressured by this outbreak that they're changing their purchasing patterns.
Coming more price sensitive or the outer Roy producing the medical motivation of animals, and we understand that the the product to provide the vaccines nutritional specialties they're critical.
Health and wellbeing here, but at some degree when no one the futures prices are down 30% to 40% for these products and you know schools are closed restaurants are closed there's just an economic consideration to be happy so.
Are you seeing any meaningful shift in terms of purchased patterns behaviors of of customers. I'm. Just wondering you know could that have a a slightly more long term impact as you said, there's gonna be disruption here in turn over in your customer base somebody took a while stuff to come back.
So I think the answer the short answer is I don't think there'd be a long term in back.
Those little bit longer answer is that let's let's analyze what is happening.
So.
You know you you would you invested you in Derry in there.
Productive animals, and they need to be fed every day and he needs to be kept healthy the problem is one or volume.
So can you.
Limit your heard it doesn't make any sense of whether it's dairy or pigs or cat to keep and investing in the animal are you ready put a lot of money into that animal and then to lose money. So you know again milk is one thing, but looking at papers are you basing so much money and yet.
At the you paid for ready with losses, when you know to sell it.
To the packinghouse.
The answer is no, but you're not going to go ahead and.
And.
Destroy your big investment just because you, losing some short term money when you're going to do is you're going to slow growth.
<unk>. So you what you will change what you're feeding you will change I mean, the products that we in our competitors. So.
Enhance the ability the animal to stay healthy end to grow faster and it'd be more productive.
Now.
If you're losing money why spend money to do that you don't need more am coming out of the gate because that doesn't help right. Now. So you can do everything you can to lower your cost.
And too slow growth she'll change what you put in but that's not a longtime answer your long Tim.
To make money this basis.
<unk> keep your animals as productive as possible. So we get it short term if I'm, losing $15 animal do I wound lose 16 or 17 trials is 14 or 13, so and I think that's the thinking.
Our customers are very smart.
A long time, they have never seen anything like this is we happen.
So they'll adjust but this is a short term adjustment they will depopulate seeing that across chickens was king that definitely across the hog industry.
Seen in a little bit in some markets around the cattle industry.
But then I'll come back and as it always does.
That's quite on the really appreciate the task sort of a similar big picture question on international markets outside of the U.S. I think a lot of the news we've seen what slaughterhouse closures.
Some of those near term impacts really primarily focused on the U.S. right you're not seeing the same using it actually I think I've thought to do with the so if the state of the make up of the of the Oh U.S. wire stuck industry.
Especially black famine in Western Europe are you seeing any or do you anticipate seen any any impacts their beyond sort of the economic conditions and recessionary impact or is it fair to say the bad market has held up pretty well what are we better than the U.S.
I think you're seeing some disrupted disruptions I think the U.S., while not early to this covert game I think it's definitely early on in South America is.
So you're saying some of the some of the some of the similar effect down there.
I think some of the advantages and say, Brazil. It was the one of the biggest export is pretty and hogs.
As well as Mexico of hogs is they're trying to keep spine China's bought more this year than they bought last year I think the inventories in China or frozen enjoys a a running out so trying to stepped up its purchases.
Especially as they come out of.
So.
Some of their exports is better on the other hand, when you have this kind of shut down would you had across the world.
People don't earn money I mean, it's out of you know, we talking I'd say through reading the papers unemployment is up to this but people are getting paid with unemployment insurance that is not the case around the world. So you have less money.
You can eat less.
So the expensive food so there is effects.
Typical economic recession like effects.
Right <unk> people get back to work the fact that they're going to go back to eating so that's that's a little bit of.
No no known here how long the recession is going to be in these countries. How quickly. The U.S. comes back the U.S. is the economic driver over the world as the Chinese on the other side. So these are <unk>.
You have to do modeling these all the hard <unk> modeling you got to figure out but it's.
But getting the strong companies will survive and overall, we will come back to the norm and I think we will come back to the growth just going to be maybe a little bit longer than we expected.
Correct.
We didn't want to last one for Richard but it can just colloquially also the balance sheet on your thoughts going forward I know you recognize this there's a lot of moving pieces on the environment and how you want to sort of control spend but it Ain't comments you can make on on the leverage on the balance sheet and also your commitment to the dividend.
I'm going to pass it back to Dick Okay. You know as you can imagine went on the same room here. So it's like.
No no real pick up something.
Yeah, I I got it [noise].
Right we've.
We're we're we're comfortable with our liquidity we have.
But at the end of March we had.
Between bank liquidity and catch on the balance sheet, we had something in 150 million dollar range. So.
Oh very adequate liquidity.
Where we are conserving cash wherever possible at the same time, where we're continuing run our operations more or less normally I and we.
We.
We are we've announced just a couple of days ago. The routine dividend payable later in June. So why are we are committed to the dividend subject imports too you know future developments, but.
Committed to the dividend and capital spending will continue to spend on on the very high priority items, well throttle back where we can where it doesn't.
Where it doesn't slow down the the growth of the business.
[noise]. My next question is from errand right of credit Suisse.
Great. Thank you. This is haley aren't there and this morning.
I was wondering that you touched on that that that earlier by you could give a little more color and to the impact across the relevant and more businesses.
Lines.
As it relates to the closer to the meat processing facilities and when you think <unk> yeah. That's Uh Huh question to answer and also my second question could you speak to hire businesses, particularly costs and that they just have performed in past recessionary environment than how quickly.
Typically see recovery. Thank you.
Yeah.
So you know.
We were eating that you're reading some of these.
Some of these processing plants are we opening now it's a question of them getting.
Labor is that is not sick and is willing to come in but we're starting to see some of these factories, we open that will remove the bottleneck but.
The problem is you could imagine is if you are taking in and just take I guess invent some plant, but taking in 10000 pigs today.
You don't do that for two weeks, what happens was pays where does it back up to and.
<unk> isn't it reasonable catching up.
So that is created the the problem and dislocation from any of our customers, but we do say.
These plants reopened.
Prices normalizing for them and the <unk> signed the flow through so it really depends.
I'm control of a disease and no one seems to be able to control. So I can't protect when predict when there's gonna be a vaccine but.
Oh, then all these factories in mind or their employees right closely they don't have to say would get duties as well as I can.
I have to look at.
How they what they're doing now they're doing and it's gonna take time, but there were enough sort of planets United States. This thing doesn't go to zero.
And it keeps moving around.
I think that's.
Yeah, so that sorry, what was the second question again.
I was going to need to eat yeah. How your businesses have performed in recessionary environment in the past and how quickly you typically see recovery, particularly across on my face.
So.
You know sort of on a on a continuing sorta well bit well line.
We're not wearing essential.
Business.
So you know <unk>.
Think of yourself I mean, you know things are things.
Things are dynamic I'm foot people being laid off in the financial markets et cetera et cetera.
You have a job and.
You will continue to buy have you cut back in the choice of meat, you're you're eating.
Have you may be experimented with some.
You know.
Non meeting some whatever organically some vegetable meat.
Yeah, you might you might try that but it's more expensive. So I think in a recession people return to the basics.
And if they and they like they made the people people tend not to.
Try to go backwards and yes, you can you will downgrade, maybe instead of having the state you'll have some pain, because having having that you'll have you'll have poultry, but <unk>.
Floats in that sort of floats in between.
I think.
<unk>, depending on what countries around the world, but I think that will come back as a recession you know <unk> you know sort of besides.
I mean going forward here.
So I'm I'm I'm optimistic on the industry I'm optimistic in opposition in the industry.
And this will be it's a big hiccup <unk> non.
Unforeseen hiccup, but we will we will get to it.
Great. Thank you so much helpful.
Our next question is from David Westenberger, Good Hime Securities.
Hi, I'm. Thanks for taking a question. So then I realized there's a lot of moving parts of it. This way we we've covered here. So I just want to kind of ask on on the supply chain dynamics. You know you have school closures restaurant closures meat packing plants being you know closing down is there any.
Specific spot <unk> in knows that's maybe more important than others and the supply chain that we need to worry about so for example, if if we say you know restaurant and meat packing going well, but schools are still closed door no restaurants are so close but meat packing and it's it's still going on you know <unk>, what's the the the parts that are more sensitive.
Then maybe others.
No <unk>, if you sort of break too with schools close.
This last liquid milk.
Being consumed that doesn't mean his life liquid milk being produce right you got the cow and your milk. It every day.
So something that is going to be converted to cheese on that can be compared to milk powder and some of that support by the government.
And will be given out I mean.
The fact is that that milk in schools is part of a very very important nutritional package.
And we need to worry about that we need to worry about.
Kids getting.
Meals so.
I think that will be that's a blip.
And that could be expensive for the produce.
But.
Produced it hasn't way no choice they can depopulate.
They can send more dairy cows into hamburgers, but.
They overall and not that really changed what they do which is.
<unk> do smoke.
Beyond that you know there is changes and you know if you if you both your business.
You are packing house business that was serving only food chain, you know food chain and not not the supermarket's, you'll hustling right now because you don't know how long. This is going to last but you will we package you know come up with ways.
You know of of getting more cuts that will work well it could sell well into supermarkets because people are buying more.
Paying more foods at home so there's a there's an adjustment.
It earlier.
There is no bunch of smarter people than farmers.
Ah.
Great customers that way people and they will find ways modifying what they're doing one to supply their products to the customers.
And get through this.
Okay. So is it fair to say that you know on on the value chain of of animal to play there maybe is no specific one that that scares you more than others and sat fair to say, they're all kinda equally involved in in the.
You know as it as as it pertains to eat to your business.
<unk> pertaining to everyone's business I think the the.
The species that is and the industry. This most affected here because way.
It worked in United States and you'll have no choice is is is the hog industry.
So I think this suffering the most.
Everybody else has the ability to lower production or to depopulate to hold onto the animals and to get through the same for months.
Once a month.
Right. Okay. So then maybe can you talk about their life cycles of animals and and in terms of a return to normal see I mean, we are looking at you know <unk> playing out for maybe.
Six months or the the summer might you know have a little bit of a return to normal see maybe maybe not who knows we over all trying to figure that thing out, but the lifecycles <unk> of the different animals are different I mean, I can imagine that paltry, it's going to come back quite quickly do we need to look at maybe cattle beef cattle.
As being something that's a little bit more something we need to worry about playing to 2021, just given the fact that the you know cows, probably you know a couple of years before it's it's slaughtered. So just kind of <unk>. If you can help us to think about life cycle of the animal and and how this kind of disruption might playing to to.
The next year.
So I mean, you're absolutely right. So if you make a decision to produce less poultry now you can correct that in five weeks.
Five weeks.
You can make a decision you Wanna depopulate.
You are high production that could be changed and five to six months.
If you want to make decision that you want to you know depopulate and have pure animals coming into your feedlot.
How business, that's I mean, it's going to affect your production for two years from now.
So it's it's not so much it's it's probably the short term is probably the results of when does this come back and then when you being position to supply.
I think.
What all this tells me because we don't know when there'll be a fact enough solution to Kobe.
<unk>.
<unk>.
And everyone is guessing that overall the result of all this I believe is that the consumer price for protein is going to go up.
Because of the losses because of the way things are going to change because his can be fewer animals available to satisfy that demand a year or two years from now.
Right. Okay to just the last one I think into prepared comment you said, it's good for the the in comments.
You know when we talk to food producers we do.
And that there is a very <unk> formulaic approach into the way. They buy so you know I I'm, a little bit I guess, Mike already asked this and it in a different kind of way, but I I I'm still a little bit unclear on why would always helped the incumbent given the fact that there so formulaic in the way that.
They they they approach medicine, so I would think on on a lower price you would actually see you swap out a product. So just <unk> I don't watch when a tiny bit more clarity there <unk>.
I think so what I was trying to say is that let's assume you develop a new product.
As we do as all of US do all the time.
And you have to get it to the field you want somebody to try it on.
You know.
On 5000 10000 animals.
So you Gotta you have to get into the P.L. has to be explained you have to get the nutritionists and the vets involved where you can't do that right now because you can't make the sales calls he can make the presentations.
So it is for many eight people are buying what they know when they know works for them, but they have the inability to go look at new things that will work better for that.
God, Okay, Oh, it's more on the line of testing new products. Okay. Thank you very much.
Once again to ask a question. Please press start then one.
[noise] and we have no further questions at this time do you have any closing remarks.
Dick Ah, we'll just say thank you [noise] to everyone on the call. This morning. Thank you for listening and we look forward to talking again, when we update you on our your end results, which will be right I write about the end of August I don't believe we have a spin.
Date, yet, but there about so until then everyone the well hey site and thank you for a pickup for listening.
And everyone to stay healthy and take care of yourself.
[noise] <unk> today's program humane and disconnect.
Yeah.
[music].