Q2 2020 Earnings Call
Good day and lock on some Sanderson farms Inc. second quarter Twentytwenty conference calls they've called it being recorded.
For opening remarks, and instructions I'd like turn call over to Mr., Joe Sanderson. Please go ahead Sir.
Thank you.
Good morning, welcome to Sanderson farms second quarter conference call with <unk> second quarter results. This morning, and actually net income of $6.1 million or 28 cents per share for second fiscal quarter 2020 <unk>.
This compares to net income of $40.6 million or dollar an 83 shifts for sure during last years second quarter.
For the quarter include a recognition of about $37.4 million net discrete income tax benefit.
<unk> net operating loss carry back provisions.
<unk>.
Excluding this item net loss for the second fiscal quarter of 2024 straight point 1 million that $31.3 million or dollar 43 cents per share.
Before we begin I will ask Mike to get the cautionary statement regarding forward looking statements.
Good morning, everyone.
This call will contain forward looking statements about the business financial condition and prospects for the company. The actual performance of the company could differ materially from that indicating that the forward.
That's because of various risks and uncertainties. These risks and uncertainties are described in our most recent annual report on form 10-K.
Our quarterly report on you filed this morning, Yes, you see and also when I personally sitting published this morning.
These documents are available on our website and Sanderson farms Dot com.
You should not place undue reliance on forward looking statements we make this.
Each study speaks only yesterday, we might not have figured out we bought a whole bunch segment.
External factors, it's actually not business that you see grain cost market prices for poultry need help with the economy and of course, because at Nike pending among others remain highly uncertain involved in our used today might be very different from our view today.
As stated in our confuse this morning, the risks and uncertainties Frac designs created by the Coca 19.
Include continued a worsening actions he writes at our facilities labor shortages.
Possible closure of one or more about she loves it.
Hi, Annabel view of our contract reaches Tonight slot.
Supply chain disruptions for feed grains weather changes in custom older Didnt shifting consumer pattern.
Disruptions in logistics and distribution change for our products liquidity challenges and they continue in worsening decline in global commercial banks.
Among others.
[noise]. Thank you bye.
I would like to start as I did on April 2nd I don't know rightful checker coal that saying has especially proud I am of our employees, our contract producers and our customers and vendors.
And the communities in states in which we operate for their hard work dedication and perseverance during this unprecedented crises.
Our employees in contract producers are coming to work every day.
To support our ability to produce and deliver strike high quality and affordable chicken products for consumers and our customers.
Like all of us, they're dealing with uncertainty and dang anxiety, but they're coming to work I'm very grateful for that.
Well, so grateful for all the health care professionals first responders and others on the front line of this crisis or working tirelessly to protect public health.
Express except to say to those have been affected by cobot 19, including our employees and their families.
I summarized few on April 2nd some of the actions Weve taken.
In light of the current crisis to protect their health safety and welfare of our employees and I refer you back to though.
We have provided more information about our actions in our 10-Q filed this morning.
Oh steps, which we developed and implemented using the center for disease control guidelines and in consultation with local and state health authorities and experts in the field of infectious disease has evolved and we'll continue to involve if we learn more about this virus and had a vintage spread.
Our approach has been conservative deliberate and based on the advice medical professionals. We will continue to do everything possible to protect the health safety and welfare of our employees and that will remain our top priority as we navigate and managed through their spend damage.
I financial and operating result for the second quarter fiscal 2020 reflect the impact of the extraordinary challenges caused by the covert 19 pandemic.
Yeah, unprecedented social and economic impact of the virus and the related government actions to contain that spread materially affected our business, including our labor force, our sales operations and production levels.
The volatility caused by this event, it's probably best illustrated by the range of market prices. This spring.
Boneless breast meat produced at our plants that target foodservice customers.
Already at market prices for boneless breast meat was seasonally higher in late February and reached a dollar and 35 cents per pound during the fourth week of March.
Last in one month lighter the quoted market price was at ended.
Historic low 74 cents per pound with some realized prices below 50 cents per pound.
However prices trended higher at the end of April if certain parts of the country began to relax restrictions put in place to mitigate the spread of the virus and at Red meat production came under pressure.
That trend continued into may and the quoted market price for boneless breast Richard dollar 58 cents per pound in mid May.
Then as distributors in foodservice establishment refill their inventories prices move lower again.
The current quoted market price for boneless breast.
Today is a dollar and 31 cents per pound.
Our average sale price per pound of fresh and frozen poultry decreased 8.3% during the second quarter. This fiscal year compared to the same period last year.
And with lower about 2.5% through the first half of this fiscal year.
Prior to the first half of last year.
Demand for our prouder shifted among our customer base during the quarter as orders from foodservice customers declined dramatically due to shelter at home orders and widespread closures, what restaurant and other venues where food is consumed away from home.
At the same time order from my Raycare grocery store customer surge.
We were able to shift production from our foodservice problem and try retail program to some extent and overall, we processed 4.2%.
We're proud of during the quarter than we expected to produce when we announced our first quarter results from February 27.
Moving into our third fiscal quarter, we have reduced egg sets relative to our expectations.
We expect and produced 5.9% fewer pounds getting a third fiscal quarter than we projected in February as we shift production into our retail grocery store program and reduce production levels at our plants that process, a larger bird for foodservice customers.
Market prices for tray pack price showed at retail grocery store comps were for steady during the quarter.
But to surge in demand for my retail grocery store customers improved our product mix and volume.
Really I realized prices for tray pack products and Pru just over half a cent per pound sequentially and were up year to date, just under half cent per pound compared to last year.
Export markets were soft during the quarter with the exception of China and for much of the quarter Mexico.
Many of our regular export partner simply don't have the liquidity to purchase product.
What's the price of all at historic lows countries to depend on the oil markets.
It's on their economies can't afford to bat chicken.
<unk> volumes in China, where strong during the quarter, China has little competition in the world market. So they had been able to buy product for relatively low prices.
We have been discussing for 18 months the impact African swine fever might have on Chinese demand for protein and that demand has materialized.
Order for products other than chicken posts have softened due in may as Chinese consumers had been slow to return to restaurant and as the pipelines have been failed.
Pricing faith of corn increased slightly during the quarter compared to last year wash broadly milk prices were lower during the quarter.
You asked it D.A. updated its 2019 2020.
Right and balance sheets and published its first look at projected 2020, 2021 crop balance sheets on like 12.
That report confirmed the United States in the world have adequate supplies faint right.
2019, 2020, corn balance sheet remains quite healthy as a pandemic has negatively affected demand for grain, especially for corn used for ethanol.
Estimated carryovers for the next year for this year remain above 2 billion bushels.
Our next year, the U.F.D.A. I assume trendy or combined with 89.6 million harvested acres to get to an ending stocks projection.
8.3 billion bushels at the end of 2021 marketing year.
So I beans are also well supplied.
The ending stocks estimate for 2019 2020 was close to trade estimates at almost 580 million bushels and that represents a near 15% stocks to use ratio.
At a 2020 2021 year the stocks to use ratio fall off to 9.4%, but with 405 million bushels carried into the next year.
So as being balance sheet is healthy.
At the end of the day of course estimates for 2020 2021, do not mean much today, whether trade issues the length of covert related economic slowdowns in another wildcard will affect these estimates and significant ways.
The WASDE report was constructed and absent a weather events. This summer.
We believe we will have an opportunity to price grain at levels below a year ago. So we remain patient.
Giving where futures prices closed yesterday on Chicago Board of trade.
We priced I remaining needs 38 through the end of fiscal year at yesterday's close.
Cash corn and soybean meal prices during fiscal 2020 would be $49.1 million lower than a year ago.
Today's numbers do not include the additional volume grain, we will need work your six year to feed. The addition of chickens, we have on the ground in Tyler.
Lower cost would translate into a decrease in feed costs, a 0.69 cents per pound of chicken prices for the year.
Compared to fiscal 2019 feed cost per pound of chicken process through the first half year average 25.55 cents per pound.
Have we priced our remaining made yesterday they cost per pound would be approximately 23.666 cents per pound in Q3, and 23.25 cents per pound in Q4.
In addition to our costs.
A big closely watching the chicken markets and production numbers weekly AG Sanchez as reported by the U.S.D.A. have trended significantly lower in recent weeks in response to demand destruction, particularly from foodservice customers caused by the cobot 19 crisis.
Chick placements and had trades have also trended materially lower we will continue to do our best imbalance actually fly with customers demand.
Looking forward to second half year I continue to believe grain cost.
Probably lower absent an unfavorable weather event.
The chicken markets could be more volatile than we've ever seen.
On one hand, we expect retail tray pack demand to remain strong as a country slowly recover.
Government restrictions imposed to control the spread of covert 19 for consumers to eight at home and college the material shift in the way they spend food dollars.
In addition, our experience in 2008, Todd rustic consumers cooked nor at home and eat out last year in a recession and periods of high unemployment, so while quarantine or restrictions force them paid at home the shift could continue for some time as they choose to eat at home.
It's ridiculous recession materializes.
Colin on the other hand, the challenge is to pork and beef production are well known and at least over the short term chicken will benefit from higher price and lower supplies red meat and both retail grocery store market and the foods our service market.
All that said, we cannot predict demand from our suit foodservice customers through the summer.
Many of you spent a lot of time reading and learning about what the postcode foodservice.
I might look like but this time, we don't know.
Unfortunately, many family owned restaurants in small chain concept.
Not survive the pandemic exactly what the inventory of foodservice establishment will be over the short term and medium term if anyone's guess, although over the long term I am confident America consumers will want to return the restaurant when it's safe to do so.
And Dave One recent survey found that 49% of American said going out the is the one thing there most looking forward to following the pandemic.
More than hanging out with family and friends.
Among other questions that remain unanswerable unanswerable at this time or how long it will take for the restaurant industry to recover and rebuild and how long will take consumers to become financially able and emotionally willing to return to crowded restaurant.
Following the great recession in 2008, it took several years for spending on food away from home to returned to pre recession levels.
As I described earlier, we had shifted and reduce production through at least to end of fiscal year to reflect current market realities.
However, our management team and board of directors, well be very deliberate and measured as we consider any long term structural changes to our product mix.
One thing I can say for sure. However is that our growth strategy hasn't changed we will continue to grow the cut me exactly how that will look and what mix of products and markets, we target might be different than what we were thinking four months ago, but we will grow the company.
I'm pleased with first years operations in Tyler, Texas.
The successful startup reflects the success of our training program with repairs young managers to run new operations. Those young managers, most likely didnt expect we managing through a friend that pandemic.
But like the managers at our other operations they have done very well.
At this point I'll turn the call overlapped in for a more detailed discussion.
As a market in our operations during the second quarter.
Thank you Joe and good morning, everyone.
As Joe mentioned overall market prices for poultry products were lower during the quarter when compared to our second quarter last year.
Your last prices for chicken products, so retail grocery store customers increased on mix improvement compared to last years second quarter as a result of the surge in demand from those customers.
Realized pricing pricing during the second quarter was flat compared to last year's second quarter.
But it was higher by over half a cent per pound sequentially.
Well, let go to cry bulk leg quarter prices were lower for the quarter compared to last years second quarter, averaging 31.4 cents per pound during our second quarter. This year compared to 34 cents of town last year.
As Joe mentioned export demand with the exception of demand from China.
Has been under pressure as other countries deal with the pandemic significantly lower oil prices and currency that.
We began shipping from China in December after the poultry ban in China was lifted and have continued to ship heavy volumes.
Unit orders are expected to move lower as China seems to have retail this pipeline and consumer demand is still being impacted by a restaurant closures and reduce consumer demand as they reopen their economy in China.
Market prices for Jumbo wings were also lower during our second fiscal quarter than last years second quarter Jumbo wings every for dollar in 40 cents per pound.
That's down 23.1% from the average of $1.82 cents per pound during last year's second quarter.
As with boneless breast prices demand and Urner Barry quote for Jumbo wings trended higher in late April and that's in May as co. The nice thing unrelated restrictions began to be recurrent arterberry quote for jumbo wings as $1.58 cents per pound.
Also as Joe mentioned, the market price the boneless breast during our second quarter.
This demonstrates the volatility of this market.
Second quarter started on February 1st with the bonus quota of 87 cents per pound.
Mid March the price was $1.35 before falling through a record low 74 cents with them on April 13.
Taxes in the desire in late April can continue that trend in made today, the aren't very well for jumbo bonuses, a dollar and 31 cents per pound.
Overall market prices were lower on average by 18.2%.
When compared to the second quarter a year ago.
The overall results of these market price changes was a decrease of 6.7 thing cents per pound.
Our average sales price per pound the chicken so compared to last two separate cool.
We sold 1.18 billion pounds, a fresh and frozen poultry during the second quarter.
An increase from the 1.051 billion pounds sold during last years second quarter.
We processed 1.181 billion pounds of breast focus during the quarter.
Up 9% from the 1.0, a 4 billion pounds, we processed during last year's second quarter.
But 52.3 million fat.
Going 30 million fewer pounds than we estimated that.
41% of the powder process it affects lance.
A 9% at our Big Bird plan.
We now expect the process approximately 4.7 athree billion pounds of breast chicken this fiscal year, an increase of approximately 3.7% compared to fiscal 2009 thing.
About 182 million view, a thousand than previously expected and announced in February.
We estimate we will process approximately 1.212 billion pounds in our third fiscal quarter.
And approximately 1.216 billion pounds during the fourth fiscal quarter.
That's the most reflects reductions and exit and the shift of lab or.
From our Big Bird program to our prototype program and are all lower than our February.
The mix of pounds between our big bird and things like plants couldn't ship depending on demand.
Whether bird performance and other factors could affect.
We sold 48 million pounds of process chicken and are prepared chicken plant. So the first after this year compared to 64.7 million pounds through the first half of last year.
The average sales price through the first half of the year was higher by 1.7% compared to last year.
The man from our foodservice customers were prepared chicken were significantly affected by the pandemic in March and April.
We had several weeks when the plant operated only a few days.
Orders that sense improve the states have opened up especially from customers would drive through capability.
And with those an order from new customers orders and they moved back pretty kogan lasting level.
At this point I'll turn call over to Mike.
Thank you.
Net sales for the quarter of $844.7 million for flat at $845.2 million last year and the slight change. The result of an increase in pounds sold offset by the lower selling twice.
The 91.5 million dollar increase in our cost of sale in the quarter ended April 30, as compared to the same three months in fiscal 2000 my team.
Result in higher non fee related cost of goods sold and an increase in poultry pounds sold.
Hundred 28.4 million pounds or 12.2%.
Partially offset by slightly lower feed cost per pound.
Non fee related cost during Q2 were 42.9 cents per processed pounds.
Good 0.4 cents per pound or 6.1% higher than last year second quarter.
Micropulse made up most of that increase in non fee related costs.
Recall that we increased hourly wages five dollar an hour across the board last June which call 88 points during the quarter compared to last year and we increased hourly wages bought another 45 cents per hour per hour effective January one which cost an additional 34 point here in the.
Quarter compared to last year.
Together Kogan related call for the attendance bombs in quarantine pay.
29 point here in the quarter.
The balance of the increase in non being related cost of goods includes increases in packaging they call and can call.
We spent $8.4 million on direct koby related expenses during the second fiscal quarter.
That totaled $4.9 million is included in Cogs and $3.5 million in if you can <unk>.
Cost of sales include $1.9 billion to the attendance bonuses and $1.3 million on items services, such as mass speech, they feel right dividers and break room dividers and the processing power plants outdoor break areas the monitors.
Great nurses enhancing it takes station.
The and asking and they include the balance of the weekly clean sanitation effort at all of our facilities.
As well the purchase of some additional masks and other miscellaneous items.
Looking ahead, we expect most of these additional extensions to continue at least through the ended the fiscal year.
The attendance bonus is set to expire G 26 and less than.
That extends is approximately $1.7 million per month.
We will also continued to provide.
Well, we will continue to be putting all of our facilities each week.
We will continue efforts to encourage soaking discussing at all of our facility.
We have to make these expenses would be approximately $14 million each here in Q3 Q4.
Medicines, we continue to everything we're doing today.
Sure.
John Kody related expenses are likely permanent and steps taken to protect the health safety and welfare by employees become best practice masking faced fuel for example.
We take not only against the coping bars that against economy poll, the seasonal flu another arrow bars.
The other significant commodity related expenses related inefficiencies in our big bird plants calls not reduced volume and higher than normal absenteeism race and overtime and so we've got it wrong on weekends.
We process 73.6 million fewer pounds at our big bird plants here in the second quarter compared divesting. Thanks.
In addition, we reduced volume at our multi Georgia facility for a period of time to manage high had asked can see and absenteeism attacks.
We can pack at both volume and mix.
We estimate the inefficiencies impacted non fee related costs, 1.4, or saying all pound here in the quarter.
No look into our expectations, we expected process 8.7, pagan you will be bird plan.
During the third fiscal quarter than previously expected.
And 55, and a happening you will pounds at those plants during Q.
We reduced volumes will increase plant calls those plans, resulting in an increase in non Rebating Cogs.
Any into half per pound them all time.
The 7 million dollar increase in Michigan age business second fiscal quarter compared to last year reflect higher legal fee to be will primarily the litigation higher administrative salaries and 3.5 million koby related expenses Cobiz related expenses and a few navy.
The clean of all of opportunities on weekends.
We expect has seen a $57 million in Q grade and we're modeling to $60 million people.
Based on where we are today management not believing probable the company will be at $12 reasons earnings per share targets to reach a threshold requirement.
Under the company's bonus award program and our estimate estimates for Q3, Q4 equally no pools of loans or the east.
The Corona buyers a relief and economic security appear that was enacted on March 27 2020.
Applicable generally accepted accounting principles required to get back from changes in tax falls to be recognized in the period and into the new Lawlers and that is inaccurate, which for us since our second fiscal quarter.
Most significant convincing them that that will affect us is a provision that created a five year carry back allowance for taxable net operating losses generated in tax years 2018 through 2020.
While we were profitable here in fiscal 2018 in 2019, we generated taxable operating losses as a result, and being able to take advantage of accelerated depreciation rules applicable to our new facilities and other assets. They can use during that period.
The net benefit of this provision.
$7.4 million with recognized during the quarter.
We will apply for learning celebrated refund and expect to receive a refund of approximately $84 million will be into fiscal year.
This will further enhance our liquidity.
Sleeping this onetime discrete tax benefit our attack our effective tax rate during the quarter and the six months ended April 30, 2020, we're starting point too and 26.9% respect.
Our balance sheet and liquidity position a very strong.
We ended ended the second fiscal quarter with $200 million drawn on our revolver and $61.3 million in cash.
Our net debt to cap was 9.2% and October get the cap was 12.7%.
We have $776.9 million available to us under the revolver.
We are very comfortable with our balance sheet and liquidity, we have and believe that both are available to navigate us through this crisis.
We now expect to stand at approximately 216.8 made on Capex parents, we pointed.
In total we expect to spend 15 million to build new hatchery in Mississippi.
We want and a half million dollars on equipment upgrades 11, and a half million dollars on trucks and trailers than in prior years within leach.
Balance of 148.8 million this for regular maintenance, we intend to use cash on hand, and cash flows from operations to fund our capex.
Depreciation and amortization during the first half of the 15 year totaled 75, and a half million dollar.
We expect approximately 155.
Sure.
I do want to mention Sanderson farms is scheduled to host its annual.
And you owns this fall.
From that happens lab, which we hope will open with dinner Thursday Night October 15.
The conference to start at eight Am Friday morning October 16.
The conference this year, we'll be able to wins of course.
In general on Thursday night will be at the same place resolved.
We hope you were eight we hope we are able to host the conference lot and that many of you will join us in the oil and the comp.
If we are unable to do so we will also say books will mean.
You will find information regarding the conference on our when it's all in we will add registration and hotel nations.
For now, though clean safety that.
With that actually we are thrilled with our prepared remarks, you can open the call.
[noise]. Thank you Candice asked the question Keith signal by pressing Star one again that is a one to ask a question on teams limit yourself to one question on one Oh.
We will now take our first question from Ken Goldman of JP Morgan. Please go ahead.
Good morning, and thank you everybody for all the detail now that you provided its very helpful. We appreciate it.
Any cancellations.
Good morning, Joe Hope you under your loved ones are safe.
Thank you I hope you're young.
We are so far and thank you for that.
I know its.
Me too old to give us definitive numbers, but do you have an idea.
At least looking into your third fiscal quarter, what's the split between tray pack and big Bird.
I'll be in terms of pounds.
It.
Sounds it just made the decision to obviously shipped some of that but then when can talk about how mix is still up in the air. So just wondering if he could try and put it down a little bit on some of those numbers for our models.
We we think we're going to be about 58% big bird and 42%.
Right pack own processed pounds.
And we are currently transferring.
Every week.
Some pounds from the Big Bird plant.
To the tray pack plants to be package.
So those are processed pounds, they're not pack pounds. So pat pounds are going be a little and so towns are going be a little bit higher.
Then that.
Battle and were also that includes the Saturday learned yeah, that's going to be 50 842.
I would go with that.
See Atlantic said 1.287 billion pounds 502.2 that is at tray pack 785.3 Big bird.
Okay. Thank you for that.
[music].
And then.
So what are you seeing right now specifically in terms of.
Oh listen away.
Hold on one side, you know I misspoke no problem.
Yeah, that's sees a big bird pounds seven to 4.6.
And tray pack pounds, five or 7.2.
I started Florida, Yeah, that's sort of course.
[noise] foretold at one point, thank you for that too when I was looking at the wrong line I'm sorry.
Okay. Thanks, the collection that type of <unk> I appreciate that.
I think for a follow up.
No.
What do you called them Boneless right now obviously, it's been trending downward in in Urner, Barry what do you expect those prices to bottom and how far below the listed prices are you trading right now.
Quote is 131.
ER and the discount is down to 85 on spot close if you bad excess low just 85.
It's really 85 to 90 and.
Huh 50 cents, but it's 50 cents if you have excess loads.
And there's not as many excess hello.
There have said we're back.
In April there's some but there's not as many today.
Foodservice has a regular foodservice business.
At one point when it was trading for 50.
Food service sales were running 35% to 40% of normal.
And I would say today, they're running 75% to 80% of normal.
So that's why you don't have as many spot loads to sell.
[laughter].
And I'm not talking about just Sanderson I'm talking about probably for the industry.
I don't have quite is coming in at twice the discounting isn't quite as heavy as it was back when the ownership setting before.
Oh are expected to go down.
Some more but not anywhere near where it was.
Back then I would also.
No that the first.
Week, when the cut backs.
It is going days, a week ending June 13, which is week after next.
Yeah, that's going to be a that's a that's for.
Burgett or 49 days old.
And then.
The next week.
In two weeks after that.
Well be burj, there would be.
They boenning.
Size. So in the next three to four weeks, you're gonna see fewer and fewer burj processed.
And I do not have a I don't know.
It's ESCO match up with demand or not.
But it is certainly going to they're going be.
Uh huh.
Fewer pounds on the market when those cutbacks yet.
Understood.
Thank you very much.
Thank you can take shape.
We went live take our next question from Heather Jones of Heather Jones Research. Please go ahead. Your line is open.
Good morning, Thank you for taking questions good morning.
I have a clarification so that the town's numbers you guys gave for Q3 between tray pack and big Bird.
Is that.
You mentioned the difference between sold tells US is processed so is that the how is that the break down you're anticipating for small towns.
No that's processed pounds and we're.
That does not include footwear.
That is process that the big where plants, yes, and that includes Saturday runs.
Well, we're pulling birds out on Saturday and process, one way or Heather.
Every other week we're.
In Texas.
We are running Tyler and and drives us and taking some line burj out of Waco, and Palestine and processing.
Either one shift or to shift.
[music].
And that does and Mississippi, where tech and Collins Burj.
And.
And hammonds or Laurel and processing them, and Mccomb and North Carolina, we're taking.
Thank Paul version conscious from them and consistent we do that every other week so our employees don't work.
Every weekend.
I can't do that in Moultrie, because there's not a big bird plant near Macquarie.
And we alternate and.
Products also.
Demand it right it was good but those.
Numbers might gave you include snow Saturday runs in addition to that.
We are.
This might not include did this product, but it should not significant we're taking.
Anywhere from.
20 to.
24 loads a week out of Big Bird player.
And transferring them to be tray pack.
At our tray pack plants every week and that would be boneless thigh meat.
[noise] Drumsticks.
Moving those two products and and their trade in children pray price.
The other tray pack customers that that.
That's not a lot I mean, then I will scheme of things that's not a lot of body.
Mhm mhm.
I understand so you've got this positive mix shift going on from.
Thanks merger tray pack, but also within tray pack like how much is making catchphrases.
Got you guys pricing was materially better than I was anticipated and I tried to.
Account for this pause and a shift but didn't account for it well enough to like.
How much are you guys.
Looking at training and versus what you did last year.
You know how to account for that that are going for it.
But you have to what.
We we normally.
Take take Tyler out of the.
Out of the.
Equation and other plants, we normally get about 50% of our product and a trey.
And.
So right now.
We're getting about 55% to 60% of our product into cry, including Tyler.
ER and a lot of wakes up 60%.
And another factor.
Rich dry.
Prices going up there are no ads. There are no features it's all going out at regular price we cannot support a feature.
We don't have enough volume to support a feature so everything.
Are you getting 55% to 60% of your product in the Trey.
Included in Tyler and none of it's going to feature production.
So that's why your price went to our prices with all of our customers all mode.
Or flat price so our prices are not rising.
Prices are stable, but you're going into tray and you're not having any feature fraction.
That's why the price goes up a little bit yeah, Heather I guess, it's all and most of the Joe's point, it's almost all on me and set mix improvements. This contributed to an increase in twice and no feature.
Yeah, and I noticed fluctuate based on what the comp commodity market is doing well just could you give us a rough number so like if you wouldn't normally putting 50% on its way and now a lot of which 60%.
What is the price disparity.
I mean are we talking about on that 10%, we're talking about a price disparity of like 20, plus at the tail like could you give us a sense of what that Delta.
The difference between assays, a phase boneless breast or Trey.
[noise]. She is here right now seven.
Yeah.
Well boneless breast.
The big number 70 cents opinion.
Okay.
Oh, we got it we have pretty soon down I'm trying to get.
To get that framing if we packet book, it's not worth much more than that.
So coming out and jumbo play.
I would pick it could be worth Medifast engine Dinos yeah.
Okay. Okay. Thank you so much.
Thank you had a [noise].
When they take their next question from Ken Zaslow Bank of Montreal. Please go ahead.
Hey, good morning, everyone.
Loren can.
Oh, hi, watching your pocket typically featured.
And how much of that.
Featuring.
If it's all going to how much of that and how long will it be before you have to teach again.
We don't know we don't know the time that depends on how long this demand stays as found at retail.
A different customers.
Have different add volume.
Some customers that run a lot of high level feature.
Might be 50%.
And then you have some others that are eight DLP everyday low price. So they don't have features.
I would probably averaged 25 for 25%.
You know what a normal year yeah. This seasonal to the main in the fall you're running me professionals in can get rid of.
Yeah.
October November December here, you're running features every week that you'd local.
Well that show so that is so it's I mean that is definitely an additive.
The pricing that maybe we don't see phone is that fair way of saying it 50% you fight.
Anything on feature and it's not.
Yeah, that's definitely I just want to spend in order of magnitude it's.
10% 20 <unk>.
Type of featuring <unk> is it.
Like I know for sure like it's been a big positive on single site in any material move and chicken side or is it left.
And then other pot of satellite.
Got it.
Not isn't material as a mix.
Okay.
Moving.
And any to 55% to 60% into trade more material.
And not having features features are kinda bill fan.
And Matt.
When you get ended deep discounting in October November and December.
That's material, but it is not material in <unk>.
The spring and summer.
When you.
Nobody wants to having said that that is.
That's not material.
Well, what do you hear me.
Competitive proteins side are you feeling like what competitive set it's the available Ethan Hawke is becoming a little bit more competitive it's staying very tight or accelerating in terms of the challenges are still possible. What do you hear a family of customers.
Well.
I just look at the numbers in there.
[music].
Uh huh.
If you look at had numbers, there's still 100000 had a day short.
Processing.
Okay.
And they're still shore processing they.
I think.
They've made some progress but.
I kind of believe that's gone they have while before.
You know they were processing 495000 had a day in hogs and they're right at 400000 here today now.
And.
I think.
I don't have that number I don't cattle there so I.
I don't.
I don't know where they are all cattle, but we think there 15% to 20%.
And processing.
Cattle.
And.
I do not think.
For a lot of raising they're going to get back to those normal levels.
Oh, Wow and I think you you're going to say south slaughtered you're going to shake grass fed.
Stairs and had first for awhile and.
The prices just to grocery stores are very high Oh, they in Poland, and I think that's going to be what the stock while.
And.
I don't think all the chicken plants or.
Back to.
Cool slaughter and product, which they're getting close to slaughter, but they're not close to product.
And.
Without restaurant.
Andy.
At running 50% capacity and some of the you know one of the one of the.
Biggest markets for foodservice yourself.
And there is a whole killed or doing any kind of business.
And nobody traveling.
And I think that to our third largesse largest market share.
And schools, they're not open and that's a big market segment for upstream.
So.
I dish.
It's a week and book as well.
You asked me about Beijing pull that that's what we think and as long as that cares Act money is available.
And.
Okay.
I think.
I don't think it's going be anytime soon before.
Their production it back where it was grateful and once you go.
Oh My last question, what do you think the industry expectations. Our money what are your expectations industrial production chicken, obviously, you just applying your numbers as well [noise].
Hi vehicle that lays out of the major theme here and I'll leave it there are no I really appreciate it.
Thank you can I just have no clue about what.
Well at the industry is going to go into do.
The college of what.
Just commented own about.
The various market segments.
Oh, we sell to through our our customers.
The restaurants hotels the schools.
We're where we have cut back because of that.
And because.
Are they uncertainty of.
The fall and what Dr. fast you said about up another round of this perhaps in October and November.
No I have no idea of what anybody else is how they're evaluating.
Their position.
Thank you enough stay safe deal with animals can you too.
We'll now take our next question from Peter in Kabul Funk of Alaska. Please go ahead.
Hey, guys. Thank you for taking the question and hope all as well.
Thank you Peter.
Hi, Joe I, just wanted to get kind of your your thoughts. Obviously you know you guys had the production cutbacks split in the past couple of weeks. It you know the headset state as you've seen kind of sequential re acceleration back up north of 230 billion eggs.
Just just curious kind of how married that against your comments to Ken's question that that the industry isn't gonna got kind of get ahead of itself by reacting supply.
We should think about that beyond that.
Production cuts that have happened.
Big.
Yeah.
You know I don't know what other people are thinking and and and what they're doing.
That's still nine or 10 million eggs fewer than what were they were placing and I don't know what market segment to attend either we really don't have.
Actually after that.
[noise].
I think.
There was an initial knee jerk reaction to what the market did in April may.
And then it went back that's coming back down.
But.
For the reasons I've already said, we're going to.
At least do what we're doing right now.
And Ah, we will evaluate it going forward.
If you go back to 2008.
And so you put foodservice did and what are.
The American consumer did.
It was [laughter].
[laughter] 20.
17, 18 19.
Before they really started going back.
He actually.
Unemployment.
I had to drop.
Consumer.
They had to be confident again.
Had to have disposable income.
We don't see that.
Right now nobody.
She is at in next couple of years.
Where do we have a lot to get corrected in their economy and.
My quoted the 46% of people want to go out to eat.
Well what about the other 50%.
[noise] they want to see their families.
Yeah.
So we.
Ah that that's problem I have.
Not to 46 percentage to other 50% and the restaurants that are open or 50% capacity.
If you look at foodservice landscape.
The northeast is not open yet.
Really.
And you had restaurants that are open or 50% capacity and then the west coast, there's not really open yet.
And.
So there's a lot of foodservice just not that I mentioned in hotels, which is a third largish segment of foodservice.
And so there's a lot of it not in play.
So.
But I have no idea of what other people are thinking in doing and.
About age.
Got it Okay. No. That's that's that's helpful bike and I was just looking for a little bit a clarification. I think you would say you know Colgate wood cost kind of in Threeq and Fourq, you would be about a penny and a half per pound with that.
A year over year basis versus you know persons to Q and that and then anything you can do to help us quantify just the impact from a from chicken pause in the second quarter as well. Thanks.
Yeah.
Yeah, those that so that's what an absolute costs over just any differences or Brian lower volume at the plant.
And that's versus lashing, yes, definitely that's that's versus what we thought we were going to do on normal by that were reported in February.
He asked about also ask about chicken polishing the Charlotte waterfront quarter. It was about what we said it yeah.
[noise] 15.
The thing that you get into second quarter.
Got it okay. Thanks, thanks very much.
Thank you face off these things they said.
When they take their next question from Adam Samuelson of Goldman Sachs. Please go ahead.
Hi, yes. Thank you could have good morning, everyone.
Morning, Adam.
So a lot of Groundsmen Palmer, maybe I.
Export market show Atlanta Nike.
Thank you Tom It was worth taking them from China has slowed down so how do you public framed the.
We export market over next couple of months in kind of the check to collect coworkers.
Adam and all that Lance can do this but.
You know when we were with U.
10 days ago.
China had not slowed down.
And I mean, it wasn't by Friday.
After.
We should go.
Ah we discovered that it had a.
Slowed down a bunch.
And which still not price.
June.
ER and but we don't think China is going to take.
A very much progress if any.
For gene I'll, let lance can fill in the.
Pieces I just didnt.
I didn't mean to mislead you.
ER about China, but.
At the time, we were speaking without China was going to be normal.
And Oh I'm old Lampkin.
Ah.
Phil in on export market in general and chat in particular.
Yes, Adam or Jim is there [noise].
For exports is very unsettled.
And it's primarily because China is gonna be out of the market in June and Cuba.
And then you still have some obstacles in other countries from Perona virus currency and also cheap goal.
We are we sold a lot of product in money for 21 cents pooled go into different countries, we have price a little bit in June at 25, So that's a little better than maybe but it's not.
The 30 cents that we were we were hoping to get we'd have books on the 25 a share.
China is out because they well so much product.
So much on the way so much is gotten there and they were anticipating their economy reopening, which it has but it's just the restaurants are not back to any thing close to normal so they got huge Jim doors based on the current demand in China. They just they.
I, just don't need or [noise].
It's only as much product.
Hopefully that'll improve is.
China economy, and restaurants do better.
Oh, I'm I'll, just mention Mexico breakthrough in Mexico sort of like the United States, Mexico for leg quarters, they need 'em for retail grocery stores, but they don't live for restaurants, we think Mexico will be in the mid twenties.
We weve, even with China close we do expect to continue should ship in chicken Paul.
To China, we don't see that falling off we.
Oh, we made $50 million into second quarter.
Paul sales were expecting to by 20 million in third quarter, and 20 million before cool.
Yeah, that's a that's the difference.
And and rendering birth packing and shipping into China.
Okay.
It was.
<unk>.
Cash flow problem for that causes a stone.
Market conditions in college, Donna slowly improving some product is moving in.
Not not back to normal, but it's getting but that's something else has changed a little bit shrinks, we talk to 10 days ago.
Ah, Kazakhstan, which was doing nothing is.
Coming back a little bit.
And then the other thing.
In June you've also got as Joe mentioned earlier, you get to the middle of junior.
Oh, you processed pounds are going be less so there'll be less.
That's a product competing to export.
Right. So that's that's very helpful color and then just a.
Clarification question do you think about kind of 21, I think you previously kinda articulated that pounds processed next year will be about 5.1 billion and I believe that would reflect kind of fill rates with Tyler.
<unk> percent.
I mean as you sit here today is it reasonable to think especially.
Later part of calendar 20 that we might comment a little bit short of that just given.
Given where the industry sitting today and consistent Jim with an environment.
We had run a schedule mailing war, you're right I mean would go back to full production everywhere normal schedule. That's the 5.1, bill and that is accurate, but we haven't made decisions and process schedule past cycles.
I'm like say something dramatic.
Occur.
Two.
Yeah that goes back on minimum mix as well the 5.1 billion assumes that we probably have spent that's got you got to see all your restaurants up and running and everything back to normal.
Vaccine or yeah, it would take something yeah.
Well, it's good to get us back here the bottling plant.
Good question, we'll have some color around that and all access that all I'm, saying that you.
Okay all right.
Yeah, that's a that's super helpful. I bought a great Dane says that.
Yes.
Thank you Adam when they take.
When I take our next question from Ben Hur of Barclays. Please go ahead.
Yes, good morning, Joel I'm, Mike and I'm can help you are doing well.
Thank you Dan.
Oh.
Yeah. One question on a quick follow up so you've you've mentioned that he's obviously be shifting a lot into a into retail off from foodservice have you considered.
During some of your commentary you made about the slow recovery and the issues with hotels schools in July.
Potentially invest for for ability to to shift from more from foodservice into retail or that's not something you've been considering right now.
Are you talking bat.
Okay, perfect, saying a plant.
Yes.
Yeah, we are we have a let's get.
There are three different scenarios.
That are doing that.
And we're still contemplating and.
Looking at it it's not.
And easy thing to do our plants or.
Or.
Geographically located for the market or the plants were built.
Some of your advanced at our plants and.
There's a huge difference.
In a day Boenning plant in a tray pack plant.
It's a it's doable.
Ah but ah.
It's not ideal.
But we are looking at that.
That plants or bill.
The way they are.
And where they are.
From marketing raises.
And if you take one of those plants.
ER and converting.
Are you going give up.
That marketing regime and Ah.
That Ah.
That's that's a dilemma and.
But we are we are looking at that very closely.
Okay, perfect and then actually within that topic as a follow up.
Within food service prior to the outbreak and how does it currently stand cute people to break down what used to be hotels would use to be schools, what used to be QSR, and then maybe ever more casual dining and how does that look today and how do you still.
Thanks. This is going to look a further down the down the fiscal year at least.
Well, we don't know what we wish we show to a number of different.
Foodservice.
Distributor broadline distributors and they in turn sale too.
Oh, those and end users and we do not know what their product mix was I guess you know generally.
From market data that a restaurant.
So I can't remember number two segment is change and as you know restaurant and a couple of them. Okay second minimus third et cetera for maybe a hospitals cafeterias nursing home nursing home schools.
Oh sure beggars nurses, but in it but in every one of those not then this is for our customers business it'd be like Cisco U.S. Foodservice PSG Reinhart.
Oh, those people that week sale.
They are there any customers.
ER.
Our that mark that that's their customers and wait I don't really I mean, we raised it.
I knew that hotels were.
The one year, there's check next year the third restaurant your number one.
And.
Uh huh.
But.
I mean, it's ER and rent and Oh pay off you're not doing anything like that even open.
Yeah.
Okay perfect well, thank you very much and good luck.
Thank you very much did you say second interviews.
Thanks.
Well now take our next question from Michael Piken off he said to me Sir. Please go ahead.
Hi, Thanks for taking the question I just wasn't take a little bit deeper in terms of but you have agreed or fall I know, there's a lot of cuts to hug. Since you know Howard how are you guys thinking about yeah, the breeder flock and well in terms of not only you know potentially cutting production, but also the type of mix.
How about in terms wall.
Thanks.
Well, we would not we never have reduced breeder flock a wave of shale, we were selling hand early right now.
Keep our age the correct number but.
We've always kept our breeder flock intact and.
Ah.
Right now we haven't seen.
If you look at U.S.J. numbers, you have seen any change in.
Braiders lavish yes, D.A. has revised.
Well it twice as much.
Ah two over the last full of placement, which the January and March they revising downward.
Had a pretty good number in April well see a favor badger yet or.
But.
I think there.
Thanks to industry might be putting that more breeders because of.
Mortality of the Braiders.
And mcauslan mortality of the change.
Paint mortality is running very high.
Ah Ah much higher than normal.
And I'll show, you mortality or the ball exercise.
And you're right we play in English.
It's very low level the hands are not producing very many age.
It's it's better I mean, I've never seen it just slow.
And I'll, let me I don't think a couple of.
They're not using.
Antibiotic shown the Polish.
ER and.
And the breeders they've gone to a very difficult to manage so they're not getting the.
Hey, John.
So I think part of the.
Raising your say post licensure elevated dish Mexico.
Makes up for the.
Hatch ability and the right away.
So I guess it is a follow up if we can decipher you know these lower possibilities or how much of the simple.
The problems with the breeders versus just people don't get more because of market economics. If you can break those two things off and then also we start making these transitions do you expect the hatchability relates to improve it we're gonna be moving towards a younger breeder flock.
But with the.
The hatchability.
Yeah.
It's important breaking age and never put them in any patterns economic show up in your hat.
But that may be why you're though.
If you pull something out of anything maybe but not revenue and never knows yet.
It has nothing to do I think that really happened at first story, we've tried to cover that side I think Paypal.
Big <unk> the first three week Chilean after that that takes and shut.
And.
That would have affected the hedge I mean, if you look at U.S. Diego the last three weeks, it's been below 80% and that's historically low I think it is I'm not I'm not.
Certain that check IRI I'm I don't I don't know that that's accurate I don't know why but I.
I don't boy that's accurate.
But you could you know it showing up in the difference between.
Hey sets and Chick placements chick placements are running.
After she was 95% your though for the last six weeks.
Excess or little higher than that.
Okay accessories day of 10 million.
Below what they were at their peak.
Yep.
Yes.
Everyone 39 to 39, two fold in there to study moving there.
Yes, if you don't know what market checking again.
You don't know such big bird or it's certainly not Trikes package made a quick sure I mean small bird.
And I have no idea.
How much.
He was going through small bird I don't know fashion down so.
Oh, sorry, if its coburn parch or.
Big Bird.
Well that helped my convict confusion so [laughter].
Thanks.
Thank you Mike.
See them they take our next question from Ben Ben Vinyasa Stephens, Inc. Please go ahead.
Hi, good morning, Thanks for taking my question.
Lauren Dan.
I want to just one quick one for me obviously foodservice demand is it's kind of a key factor that you're monitoring with respect to your decision to re accelerate production and shift your mix back to what would be normal distribution of culture.
Pounds per means but how much of the gating factor is labor still at this point and visibility into when you stop since he is on factors like that.
Oh.
Library is really not.
A big factor with us.
We have a days and weeks.
A week, where we have more absentees than normal we're running about 600 absentees a day.
More than normal.
We will have 100 225 or.
Infection.
Cases that we'll be out and then.
We normally have two to four people.
Maybe fab that work in close proximity that case it will be.
Sent home with pay.
Bofi inspection and the people that work in close proximity to them.
Our home was paid for two weeks.
So we'll run 500 600 more absent trees a day.
Their normal with this Ah.
Uh huh.
Corona virus.
We're also.
We were hired about over 400 people away.
ER and show Labor has other than those additional absent trees.
We're running all our plant full or we may not neighbor run exactly the right product mix every day.
Ah, but Ah labor is not.
Oh are huge issue.
Okay. Thanks, I wish you well and good luck this summer.
Thank you much man.
Leaving that take our final question from Robert Moskow of Credit Suisse. Please go ahead.
Hey, guys I'm wondering if the Jake.
The board this is Jay comparable I think well.
Just a quick question on on retail pricing yeah. He is priceless until sticking with its food service I guess you know.
What percent of your retail business you know is based on the market pricing.
I'm just trying to figure out I guess, you know if it if the shift to retail will make a tougher for the industrial type as prices as you know total production comes down or any any help there so we should affect it.
Sure.
Our prices with a retail customers or.
Our mainly flat price for the year.
And there fuses.
Couldn't move, but it's Adam probably 50 customers that probably 10% to.
Couldn't move or make up a bracket change.
But the vast majority are flat price for the year.
And they do not change or what the Urner Barry for example.
All of the foodservice customers move with Urner Barry.
But not the retail accounts are flat price.
And the.
The only reason.
That.
That retail pricing changes.
As with.
<unk> mix and lack of feature prices and Eric.
Right now.
Our product mix is better.
And there is no feature pricing.
So that's why our are right now our.
Retail pricing is a little bit better then.
No.
Got it under said thank you.
Thank you very much.
Hi, Brian well Mike.
Yes, there are no further questions I'd like on the bus team for closing remarks.
Good. Thank you all for spending time with US This morning, and we'll look forward to reporting our.
Third quarter results are and I wish thank you and they say.
[laughter] computes the call. Thank you for your participation you may now disconnect.
[noise].
Hmm.
[music].
Hmm.
[music].