Q3 2020 Sanderson Farms Inc Earnings Call
Good day, and welcome to Sanderson farms, Inc. third quarter 2020 conference call.
Today's call is being recorded at this time for opening remarks, and introductions I would like to turn the call over to Mr. Joe Sanderson. Please go ahead Sir.
Thank you.
Good morning.
Welcome to Sanderson farms third quarter conference call.
Converts in my career with me this morning.
Before discussing the corridor, we want to send our thoughts and prayers to our friends neighbors, and Louisiana and Texas, that's idea what the impact of hurricane or.
Oh gosh, the hurricane moved on chores, what are the most powerful.
Never hit the United States.
We know first hand, the challenge is always in the path.
The storm say says they deal what to recovery efforts of the store and we will do everything we can to a shift in that effort.
The store moved onshore east of our Texas facilities, and West of our Hammond, Louisiana operations.
As a result, our assets were spared the brunt of the storm and all of our facilities our operating normally this morning.
We will continue to monitor the crack on the storm.
Josh to operations as war.
[noise] were reported net income for a third fiscal quarter.
32.8 million dollar.
<unk> dollar and 48 cents per share.
This compares to net income of $53.4 million are $2.41 per share during last year's third quarter.
Net income during last year's third fiscal quarter reflected there cruel probable ability for contribution to our E shop or $2.7 million before income tax or 10 cents per share.
Adam income tax there is no each off accrual in this quarter's results.
Oh began this morning's call with few general comments before turning the call overlapped Mike.
Well, making any further comments I'll ask Mike together cautionary statement regarding forward looking statement.
Thank you Joe and good morning, everyone. This morning's call will contain forward looking statements about the business financial condition prospects as a company.
The actual performance or the company could differ materially from that indicate about forward looking statements 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 form 10-Q filed this morning with the FCC.
And in our press release published this morning.
These documents are available on our website at <unk>.
Outcome.
You should not place undue reliance on forward looking statements we make this morning.
Each such statements speaks only as of today, and we might not update or revise our forward looking statements external factors affecting our business is feed grain coal market prices for poultry meet the health of the economy and of course, the Cobiz Nike pandemic among others remain highly uncertain.
Volatile and our view today may be very different from our view a few days from now.
As stated in our kids you filed this morning, the risks and uncertainties for our business related to the Kobin 19 pandemic.
Included continued a worsley absenteeism rates at our facilities labor shortages.
Possible closure wanting more about facilities and it'll be about contract producers to manage their block.
Supply chain disruptions for feed grades brother [noise] changes in customer orders data shifting consumer patterns.
Disruptions and logistics and the disruption chain and the distribution chain for our products liquidity challenges.
And they continuing worsening decline in global commercial activity among other unfavorable conditions.
Thank you Mike [noise].
As I have done in our last two investor calls.
To start by thanking our employees our contract producers our customers, our vendors that consumers, who bar products and the communities in the states in which we operate for their work dedication in person there.
During these unprecedented times in which we find ourselves.
Hi, I'm grateful for them for their health care professionals at first responders on the front lines of this crisis.
For everyone working to protect the health and welfare of all of us.
We continue to make the health safety and welfare of our employees our top priority as we navigate and managed through this pandemic.
And we have previously discussed we developed and implemented many steps to protect our employees all using data centers for disease control guidelines and their advice and counsel of experts in the fields of infectious disease, and local and state health authorities as well.
Learn more about them bars and have to preventive spread our policies will continue to evolve.
After hearing our second fiscal quarter, our results for the third quarter reflect the impact of the extraordinary challenges caused by the cobot 19 pad Dan.
The unprecedented social and economic impact embarks continues to have any United States and the actions of state and local government much taken to contain the spread and the virus.
The resulting poultry market volatility continues to be best illustrated by the market price for jumbo boneless skinless breast meat.
In mid May the quoted boneless.
Price was a dollar and 58 cents per pound and waste show spot lows for well above that.
On the day of our second quarter call that price had moved lower to $1.31 cents per pound.
By mid June according to price were below a dollar per pound.
Before recovering to $1.19 cents per pound in mid August.
And we're trading to dollar and one cents per pound today.
Demand from our largest foodservice customers continues to fluctuate with the opening and closing a foodservice establish much in response to the pandemic.
Weekly orders from our largest foodservice customers during our third fiscal quarter wasn't as low as 68% of normal and as a as 95% of normal.
Average weekly volume order during the third fiscal quarter was 83% of normal.
We expect demand to be uneven as the country struggled to find a new normal which will contribute to the continued price volatility for foodservice products.
Our average sales price per pound, a fresh and frozen chicken sold.
Decreased 3% during the third quarter this fiscal year.
Add to the same period last year.
And with lower about 2.8%.
During the first nine months this year compared to the first nine months of fiscal 2019.
Sequentially realized prices were higher by 8.3%.
Average realized prices for tray pack products during the quarter or higher by 2.4 cents per pound compared to last year's third fiscal quarter.
Hi, about two cents per pound sequentially.
Most of the improvement was attributable to improve mix as our tray pack volumes sold increased 28.5 per cent compared to last year's third quarter and increased 13.3 per share.
Compared to our second fiscal quarter of 2020.
Demand from our retail grocery store customers remain strong in this current environment.
[noise] export markets were under pressure during third quarter and remain under pressure today.
Covered related issues and lack of liquidity are creating volatility and all markets.
And the lack of domestic demand for boneless dark meat from foodservice customers in the United States is resulting in more than ample supplies of leg quarters for export markets.
While demand and pricing for chicken cost to China are holding up well, China has ample supplies of dark meat in freezers and movement is slow.
The newly implemented 100% inspection of our container lines and sanitizing of all products imports has created bottlenecks in the news distribution channels.
And political challenges in China remain a concern.
Our chicken supply outlook for the balance of this cat calendar year, it's consistent with U.S.G.H. estimate.
I have a 2.7% increase in chicken production.
During calendar year 2020.
Through July the U.S. da reports that 1.1% Morehead were process compared to year, though.
I have weights are up 1.6 per se.
And total ready to Cook pounds were up 2.8%.
This year has one additional day.
If we adjust today per day basis at process would be a 5.4%.
In total pounds higher by 2.1%.
Total access in the United States were up almost 4% during January and February.
Paired to the year ago period.
Before covered related kuch occurred in March and April.
Actually I had to return to 100% of year ago in late May and have averaged 99% of a year ago for the past six weeks.
Do you Sta father's day highly anticipated supply and demand report for grain on August 12.
The market was expecting a big deal and they've gotten on.
The U.S. Da's estimated 180.4 bushels per acre year for corn increased estimated production to 15.28 billion bushels of corn.
The government estimate U.S. soybean farmers will produce 53.3 bushels per acre yield once you factor it will generate 4.43 billion virtual crop of soybeans.
Yesterday tried to accommodate larger crop estimates by raising its estimates of grain used for feed and grade and sold and the export market.
Even with the increased demand assumptions DST, a increase to carry out about range.
Despite the constructive report.
Nice late season weather issues, including storms in Iowa, and dryness in some areas have college, the grain board to move significantly higher this week.
Well, we agree these weather concerns and less favorable crop condition report.
Well likely college, the U.S. day, U.S. da to lower at Yale estimates in the September report.
Many relay their August demand estimates for exports and fate used for high.
And need to be lowered as well.
Bottom line, we believe that there'll be ample supplies in both corn and soy.
As we move into fiscal 2021.
We have price none of our grain age for fiscal 2021.
We have had repriced our grain needs through September.
Based on these purchases and what we could complete purchases for today.
We expect our grain cost to be approximately $46.8 million lower this fiscal year than last fiscal year.
These lower cost would translate into lower feed cost per pound chicken profit.
0.83 cents per pound this fiscal year compared to <unk> compared to last fiscal year.
We have price none of our fiscal <unk> 2021 age at this time.
But we'll look for opportunities during the coming harvest.
Take a position if prices move lower.
Looking solely at Chicago Board of trade prices for brain.
We could actually price 2020 in.
Needs at board prices very similar to 2020.
So I may have basis growth for 2021 to leverage our higher than during 2020.
Corn basis quotes are currently two cents per bushel higher than what we paid for corn basis in 2020.
Given current U.S.J. estimates and the Hell.
Domestic and worldwide grain balance sheet, we might have an opportunity to me a bit more aggressive pricing our needs as we move into fiscal 2020 law and then as our normal practice.
At this point I'll turn the call over the lampkin for more detailed discussion in the market and our operations during the quarter.
Thank you Joe and good morning, everyone.
Overall market prices Rapoca products were lower during the quarter when compared to our third quarter last year.
Average realized prices for retail fuel pack products during our third quarter were higher when compared to our third quarter of 2019 as a result of improved mix sequentially prices were higher by two cents per pound pricing continues to reflect a strong demand environment, where chicken in retail.
No.
Market prices for products produced at our Big Bird glassware significantly lower.
Book leg quarter prices were down for the quarter compared to last year's third quarter, decreasing 39.1%, reflecting the export market challenges described but do you.
During June overall industry exports abroad, and they were up by half a 1% and volume compared to the same period last year, but were lower by 10.9% in price.
Well the year through June volume is up just over 5%.
Quoting bulk leg quarter prices averaged 24.3 cents per pound during our third quarter. This year versus 39.8 cents per pound during last year's third fiscal quarter.
The current quote for Urner, Barry frozen bulk leg quarters is 20 cents per path.
Realized price lower than Urner, Barry quote is frozen leg quarters to Mexico.
Our largest trading partner are currently trading for 16 to 20 cents for Brown Fob.
Quoted market prices were jumbo wings were also lower during our third quarter compared to last year Jumbo wings averaged $1.54 cents per pound down 13.2% from the average of about 77 cents per pound during last year's third floor.
There are very quote is currently a dollar and 86 cents.
Boneless breast prices were higher during our third quarter, increasing by 3.2% when compared to third quarter a year ago. This year. This years third quarter average around a bit price of $1.18 cents per pound.
Compared to an average of $1.14 cents per pound during last year's third floor.
The data on a very quoted market boneless breast is one dollar and one cents per fan.
The overall was off of these market price changes was a decrease of 2.3 cents per pound in our average sales price for brown.
Ultra drugs old when compared to last year's third cool.
Well, our overall average sales price for poultry products with lower during the third quarter compared to last year. Our feed costs were also low.
Our average big jobs per pound process. During the third quarter was 24 cents per pound, which is down from 25 and a half cent per pound during last year's third fiscal quarter.
We sold 1.22 billion pounds with poke [noise].
Third quarter, a 6.3% increase from the 1.15 billion pounds. So during last year's third floor.
We process 1.23 billion pounds of dressed poultry during the quarter.
3.5% from the 1.19 billion pounds, we processed during last year's third floor.
This increase reflects additional production at our Tyler, Texas facility offset barco with related production cuts for the first nine months as of year. We so 3.55 billion pounds of poultry products compared to 3.27 billion pounds were the same period last year in bras.
This is 3.58 billion pounds during this.
Fiscal year compared to 3.33 be last year.
We expect found process during our fourth quarter to be approximately 1.2 billion pounds.
Down compared to the same quarter last year by 5%.
We now expect to process 4.8 billion pounds. This year, an increase of approximately 4% compared to 4.6 billion pounds processed during fiscal 2019.
We sold 27.9 million pounds were prepared chicken products during the quarter down from 35.6 million pounds last year, our average sales price at that facility decreased by 1.7%.
This fall and I'll turn call over to Mike. Thank you Matthew.
Net sales for the quarter totaled $956.5 million and that's up 1.2% from the 945.2 million during the same quarter last year. The increase was the result of lower average sales prices offset by higher volume.
Our cost of sales two three months ended July 31 is compared to the same pretty much during fiscal 2019 increased 5.1% results of the increase in pounds and poultry products, So and an increase in non fee related costs offset by lower feed cost for power.
Process.
<unk> costs in flocks processed decreased 1.4 cents per pound compared to last year's third quarter.
The other hand non fee related cost increased 2.14 cents per pound or 5.2% compared to last year's third quarter.
That increase 28 points was attributable to the one dollar per hour wage increase effective June one of last year.
33 points was attributable to the 45 cents per hour wage increase.
Back to January one a 20 Tweed.
42 points was attributable to the one dollar per hour kobin related attendance bonds and 30 points was attributable to koby quarantine pay.
Other non way why excuse me.
Other non wage koby related expenses of $2.4 million or 20 cents per pound were booked as cost of goods sold during the third quarter and we expect to book a similar amount during the fourth fiscal quarter.
The balance of the increase in non fee related Cogs includes increases in packaging fixed costs and chip cost.
S. DNA expenses during the third fiscal quarter 2020 were $50.6 million compared to 52.2 million for the same quarter last year.
As DNA expenses during last year's third quarter as Joe mentioned included $2.7 million as an accrual for ESOP contribution and we have not made an accrual this year.
Year to date legal fees are higher about $2.8 million and administrative salaries or how are about $2.2 million.
We've also book $8 million in coated related expenses to SDMA this year.
And trainee cost and lower about $3.6 million.
We booked 4.6 million in cobot related SDMA during our third quarter and we expect a similar amount during our fourth fiscal quarter.
Now I'm going to talk more muted about the company's effective tax rate for the nine months ended.
July 31, which was 100.6%.
The nine month period rate reflects a net discrete income tax benefit of approximately $38.1 billion related to the net operating loss carry back provisions allowed by the cares back that allow the company to carry back to previous years net operating losses to those prior years and.
Food taxes paid when the federal income tax rate was 35%.
Addition to care exactly will allow the company to carry back any net operating tax loss for fiscal 2020 to prior years.
We estimate the total benefit of these two provisions to be 58.2 million.
Which approximates our year to date pre tax loss of 57.9 million. Thus the 100% effective tax rate for the nine month period ended July 31.
Excluding the onetime discrete benefit recorded during our second fiscal quarter, our effective tax rate for the current year is still higher than the 21% statutory rate because the cures Act will allow the company to carry back in the net tax operating loss to recover taxes that were previously paid.
35% rate.
Normally hear interim periods, we estimate as best we can our annual estimated tax rate and use that rate when calculating the interim period tax provision.
Given the significant volatility in poultry markets caused by the Covidien IP pandemic.
We're just unable to reliably estimate our annual income tax effective rate.
Therefore, the income tax provision for the third quarter and year to date, which made using the actual effective rate for those periods.
We spent $166 million on capex through the third quarter and we now estimate that our capex for the full year will be approximately $225.1 million, which includes 52.7 million for large scale equipment upgrades and the corresponding building improvements at various processing plants.
$15 million on the new Mississippi, Hatchery, 11, and a half a million dollars on rolling stock and 145.9 million for maintenance and other small onetime projects.
Depreciation and amortization was 115.3 million year to date, and we expect approximately 156 million for the year.
We also declared 21.3 million in dividends through the first three quarters of the year.
And as of today, we have approximately 19.8 million and letters of credit outstanding under our $1 billion committed revolver, and we had 95 million in loans outstanding under the revolver.
The company did receive 84 million in cares Act related tax refunds on July 31 at 42.
And on that day, we use those launch to reduce our outstanding revolver balance.
Our shareholders' equity at July 31 was 1.4 billion, our net debt to cap was 2% and our total debt to cap was 6.4%.
Before we open up the call for questions I want to remind everyone that the company will host a virtual Investor Conference on Friday morning October 16, 22, we.
Details and logistics will be posted on our Investor Relations page soon.
And we'll also publish a press release, when we get closer to the date with those details.
We'll end the call we will in that meeting by noon on Friday, We hope many of you will join us on that virtual me.
Terry that concludes our prepared remarks, and we'll be glad to answer your questions.
Great. We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you're speakerphone, please pick up your hands out before Presley keys.
But anytime your question has been addressed and you'd like to withdraw your question. Please press Star then too.
Did you ask about you limit yourself to one question with one follow up at this time, we will pause momentarily to assemble our roster.
The first question will be from Heather Jones of Heather Jones research.
Good morning, how are you guys good morning.
Good morning doing well.
[music].
Good I am thank you.
I guess my first question is.
The question a lot Kamen.
Significantly below was expecting and I think below what you guys were projecting at the time of your Q2 call I'm. Just wondering if you could help us understand what drove that and what we should expect for Q4.
[noise] Ah we expect about the same in Q4, Heather I don't think it'll go up or down significantly one way or the other my feet thick of anything that would impact it.
Right now, we're estimating 51 and a half million dollars.
For the quarter fourth quarter.
Huh.
Yes.
I'm, sorry, 53, and a half I misread that three and a half for the fourth quarter net increases other mdna by a little bit.
The administrative salaries stay about the same.
I don't expect it to change significantly from that.
What 10 all other.
Who that's what was down yeah, what was well.
Traveling travel.
Got it.
Travel continues to be limited Heather across all of our locations. We are picking up a little bit more now but is still.
Significantly limited compared to last year.
Okay.
Right.
Yeah.
And then my follow up question is I know I got I ask you guys. This on your Q2 call, but just given the environment.
Seems like it makes sense to ask that again.
So you've had these plans that you have shifted towards.
More retail tray pack business.
As we're sitting here today, just wondering how you're thinking about your footprint right now like are you considering.
Shifting any further assets to tray pack or if you could give us your most up today. Thank you gain on.
Product mix.
Where are you would like to take that in the next couple of quarters.
However, we really we haven't made any permanent shift.
We did.
We did a really beginning.
When the pandemic began.
We did take some inventory lab inventory from our big bird debone in complexes.
And because of their proximity to attract back plant, we would run that.
That bird at a younger age in a trade back plant. So we shifted our mix.
That way it was not permanent.
We continue to look yet.
Whether or not we should.
Maybe take one.
Of our smaller plants to Oh tray pack bird weight, we're still looking into it.
Your your stuff you said, you're still looking at that.
Yes.
How do you want me remember when we took a hazelhurst an hamlin down to.
Section three quarter pounds.
Were looking at that.
Probably wouldn't make sense to do it until after the holidays.
The man.
Probably.
Wanes after labor day, so it wouldn't make sense.
For than.
But.
And it depends on sales.
If our sales continue to grow in tray pack and.
Uh huh.
We might still do that.
And right now absentees are getting better.
You need all your tray pack plants to have full attendance and good attendants, if you're going to be bringing.
Product and from another plant Oh, we last couple of much we've had a lot of.
Absent pays that Oh plants.
And that does seem to be improving now seemed like were over the peak.
And but if you're going to be switching to plan over and bringing in a lot of product you need to have a good attendance and ample employees.
And then you need to be on the upswing and demand.
And that won't happen until after the holidays.
And I, just I had a follow up to that so I thought I remembered you guys, saying you would shift as much as you could because you didn't you basically run maxed out on tray pack packaging and my Miss remembering or have you been able to figure out a way around that if you were to make this change.
No.
We are pretty much maxed out today, well have to add some equipment in the plants.
I don't know it probably won't be all five tray pack plans.
But I don't know where.
Three plants or.
If we were to switch yeah.
Probably two or three plants will have to add some.
On the loading.
And some packaging space.
And maybe some pretty price equipment.
We had that and when we.
Converted before but a lot of that equipment mode that went to Tyler.
When Tyler started a so we'll have to put that.
<unk> back in those plans.
If we're going to convert a.
Deep on plant.
Section three quarter pound chickens.
Okay perfect. Thank you so much I appreciate it thank you.
The next question will be from Ken Goldman of JP Morgan.
Hi, good morning.
Good morning high.
Hey, guys hope you're doing well.
Yes.
On the S DNA side again.
There was a marketing expense this quarter, we haven't seen a marketing expense yet this year I was a little bit surprised that there was one just given the relative lack of demand right now but.
Maybe there's something unique in there if you could just fill us in on why there was marketing this quarter.
And what the outlook is for that going forward that would be that would be helpful.
Yeah.
Yeah, you know in the past the me, let me look at something New Theres nothing is definitely the way it went through where crew our marketing expense all during the year.
And ER.
I'm looking at it right now and it is actually.
The advertising expense is down.
A $200000 for the third quarter compared to second quarter.
Did you is there something.
Yes.
Yeah.
What are you looking at the end he's looking at that year to date is up one point fools not in or what.
I don't need to hold up to call on this we can follow up with this off low kind of big deal Yeah, I don't want to hold everyone up here.
And then I wanted to ask about.
Your outlook in terms of the timing for tray pack prices on the wholesale level youre level to to get a little bit better just if you could update us a little bit on the status of negotiations your outlook into the fall and winter that would be that would be great.
Art contract.
Our.
What happened all year long expire at different times.
And I don't know got three going on right now.
Sorry, I've ever been negotiated right now.
Probably take back in January 1st with the and then others will happen all during the year March April May I would say that will be minimal.
Adjustments.
Yeah.
Each one of them are different we would not look for where we're pretty much.
Where some exceptions.
We're pretty much on market and ER, we don't want our customers paying over the market, we want our customers pay market prices.
And.
We we have some exceptions with some products.
That need to be improved but a as you can.
Well, what we reported.
Well, we're in pretty good shape on pricing.
A.
Few exceptions.
But if the market is somewhat based and maybe it'd be I'm thinking about this wrong at the market is somewhat based on contracts.
Some of your competitors that are locked in or not necessarily renegotiated right now.
Aren't you, giving up some potential upside on your pricing just because demand is so much better for your products right now I I, just I would just imagine that.
Some more.
Some additional pricing would be warranted given the higher demand out there I understand what you're saying about not wanting to be above market, but.
If you renegotiating now in your competitors or not.
You know that there should be some advantage to you right now I would assume.
Ken our overall.
When you look at all of our tray pack prices as a whole.
Very competitive in good shape.
There are few accounts when a few items in there that are.
It or not.
And we'll we'll try to fix those as we go through these.
RFP, yes, we'll try to if anything.
Less than what it should be will drive fixed.
But again.
Even though there's good demand.
There's also a lot of competition.
Always and Ah Ah.
You can.
Yeah, you know and you still don't you won't you watch your customers.
Our customers have competitors as well.
And we want our customers can be competitive win.
So we.
Where we have.
Some prices or not so good that's what we need to fix.
And.
[laughter], that's what we'll be working on.
Got it thank you.
Thank you cannot take on now and changed the prices, we went back and looked at the second quarters. Q then the second quarter, we did not you're exactly why we didnt break out advertising expense as a single line up line item. It was included in all other SGN they.
We don't we're not doing anything.
Material. There you know, we're not spending as much as we have in past years and don't anticipate that we all that number is going to say.
Consistent for the next few quarters I would expect I'm looking at fourth quarter right now and we and we estimate the same for the fourth quarter is in the third quarter destined for four.
Got it so it was just the allocation into all of their versus its own I'd again, you so much.
Sorry, I misunderstood that mono and I must not have been clear. Thank you.
The next question is from Michael Piken Cleveland Research.
Yeah, Hi, just wanted to dig a little bit more into the cobot spending.
I missed some of the numbers was I think you said something about you spent about 4.69 buzz that S. DNA only in like what was your total amount of covert safety spending that you've spent for the quarter and year to date, including confidence Jeanette.
The total during the quarter 50.9 million.
And we anticipate a similar amount when they get a little bit more than that in the fourth fiscal quarter year to date, you add the 50.9 through the 8.2.
20, sorry, yeah. Thank you 23 $24 million.
Turning to put all that in [laughter] does that include.
The wage increase that includes cleaning up the plants all the people you need the additional nursing in medical staffs, the equipment to take temperatures and that kind of thing.
Yeah, the barriers in the and the breakthroughs and other common areas plan in the Black Knight and you have variance in the plants in some places.
I guess you know what my question is here what are your competitors.
Recently indicated they spent about 170 million in obviously are there a.
A little bit more than twice as big as you, but they've spent 170 million in a quarter or do you guys have more things automated or I guess, what was what sort of accounts for the delta between kind of what they're spending versus you guys is it automation is it just your wages were higher to begin.
Right or do you have any sort of sense for that or how you compared to let's say industry.
Well he's got to think that nerdy [laughter] crawfish readymade, that's probably red meat fourth into yeah. That's that's got their red meat plants, and all that and they are there that that that's a whole different ballgame I think thats apples to oranges, yeah, that's not.
And that and chickens I'm, assuming that news very similar to what we did.
So I'm guessing, but when you sort of red meat plants in there you have.
Totally different type of situation.
I don't know.
I think but barriers we cannot put barriers.
And they boenning and specialty.
So they were shields in food is still calls for those right where shields instead, we layer.
And.
We did at barriers and labor saving and some other places and first process.
That's that's apples to oranges, when you're talking about red meat versus poultry.
Yes, no I understand your dad indicated well anyway, but it was the chicken was a meaningful portion of it but anyway. I guess, you know shifting gears I'm, if we could talk a little bit about kind of the leg quarter remark at a little bit more and I know you said some recent sales were.
Down to Mexico at 16 to 20 sound. Some I guess I'm wondering you know from your perspective are you able to produce as much debone dark need at this point with the workers were turning it cannot help improve the mix going forward and how much of that hurting the dark meat prices. The fact that there is maybe loss but.
What do you to produce the bone dark meat or we nearing a bottom there in your opinion that thanks.
The bottom on what.
Headquarters.
Oh.
Uh huh.
We're approaching it [laughter], let me give me an okay. Let me give you an overview and lapping can fill in some detail.
[noise] we are.
Producing or more and more dark meat or they bone dark meat.
Were not.
Were not.
We're not producing.
Well, we're almost to our and Matt maxed out with equipment, we have.
At.
And that is definitely happen arm, our mix Oh, we have two more plants.
But we wont to automate.
But we're not going to right now.
We have prior to sale.
And so we're going to hold off on those last two plants to automate.
No go switch over to leg quarters.
We don't know what the bottom is on leg quarters it feels like a.
Oh wait maybe close to the bottom on leg quarters.
Nobody knows what that is a well report.
We show no dark meat and to China for June or July.
Our August.
ER that we have sold some drumsticks and some leg quarters.
And to China.
And the last two weeks.
[laughter].
[laughter] same price that we're selling into Mexico.
So that is new and Oh.
They're very sensitive about price just like everybody else.
But it has open back up a little bit.
Everybody nobody knows what's going on in China.
Oh, we suspect that.
People in China are very cautious about going back up to eight.
Because of covert concerns.
We suspect that they're very cautious about spending money.
Or just like they are in the United States.
ER, we suspect that the importers are cautious about because of large inventories about bringing a lot of product fan.
We believe that.
They are still prefer pork.
Rather than frozen imported chicken.
For all of those raisins, that's important chicken has not taken.
Taking a foothold yet.
Uh huh.
We.
We don't know what that has not evolved.
As rapidly as we thought.
It was going to.
We still think that might be possible.
But it hadn't disparate hadn't opened up wide open for chicken.
Going into China.
Are they brought a lot in at first I, just haven't hasn't moved and we don't know all the reasons why nobody knows what.
Exactly going on in China.
Lampkin why don't you give them a run down more about export.
Well [noise].
The.
Regarding China of course, we read in the press like you do Michael that.
The GDP growing in China, the economy's back.
And maybe 2% growth instead of double digits for China, but.
When we talk to the him for orders that we deal with that are in China.
They say their business is not back to know, there's particularly their restaurant business is not back to no.
Of course that is that's impacting demand for these chicken products.
The [noise] the Corona viruses impacting us in every export market, we shipped to just like it is in United States.
So demand is low for those countries we shifted.
And.
Sure.
The supply of leg quarters being packed in United States. It's just it's just too much supply for two little demand.
The.
Less supply could fix that or the vaccine and these economies.
One here in the United States plus these countries, we export too.
That that could get back to normal normal demand better demand.
If we if the vaccine is developed and is successful.
But that and Joe mentioned this in his remarks because the.
The the boneless dark meat is being the bond is not being consumed in the United States that creates more leg quarters for the export more [noise].
Okay. Thank you.
Thank you.
The next question will come from Ben third of Barclays.
Hey, good morning, guys. Thanks for taking my question Hope hope, you're all well Banco one.
Dig a little bit into your like medium term production out next if I remember right pre coded Oh, you were expecting that this year's production is going to be something like nine of the off 10% higher odd in 2019, obviously because of the Tyler facility.
Lower at that now and and if I take a look at your projection for the fourth quarter were end up most likely the year somewhere up 5% instead of 10, so half way, but looking into fiscal 2021, and just assuming for now that we still are going to have some some cobot impact how do you feel about production.
Levels and the more medium term and how do you think this is going to play out on your side and how is the industry going to to think of overall production levels into what is your been fiscal 21.
Well.
You know we have our Oh, we we have reduced our headcount at a big bird plants by 100000 had per week.
At the big plants in 50000 had per week at my three small plants.
We're going to leave that intact.
Until we see some change and demand.
Ed and food Church Mark.
Wait.
And my mind, that's not going to happen until there's vaccine.
ER and and.
Well well stay on that path.
We might even as we spoke earlier, we could take one of those plants and convert a small plan converted to track that.
And.
Don't know, if that's going to happen or not yet.
Hi, Ben if you look at I don't know what the industry is gonna do.
If you look at Chick placements.
The last several weeks.
And compare that to.
Chick placements.
Back in February.
2020.
Chick placements are down three to four to 5 million at per week.
And I don't compare until a year ago I compare I'm told when they were at their peak in February.
And so they're running 180 fab roughly 185 million had.
And at their peak tear run 190 to 191 million.
Roughly 5 million had a week.
That have been reduced.
And a if you look at pullet placements the last very much a they're running about.
I really run under 100%.
The last three months.
Sure.
And it appears to me there's no way to know this.
That a and then I also it if you have a.
If you look at industry data.
Uh huh.
We believe that at least a third of the industry.
Been losing money for.
For a long time now.
Yeah, so and.
I've talked about maybe since November.
And.
So.
The way it appears to me maybe.
That Uh huh.
Some restraint.
As a taking hold and yeah. You know once you get past Labor day demand has got a decline.
And.
So I think there might be some strike or because of Washington.
And Ah So I know we are.
We think it's going to take a back saying to get markets back to normal.
So we're not gonna.
We're not going home.
We're not going to accept fall until.
We see some response out of our foodservice Mark.
Okay Perfect and then my my follow up is just about you've talked about the export markets and how obviously your impacted and have a level lower demand there as well just similar because of all the cobot situation.
With that same Tom I was wondering were seeing relatively strong export levels for your compete for competing proteins.
Beef and pork just wanted to understand a little bit what you're seeing on the domestic market because market red meat big ships out in terms of.
Demand for chicken feature for chicken, particularly in retail, which obviously currently matters more and how you think maybe beyond labor day and little bit on the demand side.
Well wait where we're not.
We're not booking any any retail features to speak of.
Because we couldn't cover it.
Yeah.
Uh huh.
If somebody were to feature.
Or any of our products, we could not cover a feature right now.
So we we had.
No features to speak of.
And.
ER and chicken.
We have been reading about forward bookings.
Beef and don't pole and no one of the.
One of the reporting.
Some of the reporting literature, we again and that has picked up after may.
And so we do expect to see some pork and beef features coming ahead.
We know there's a lot of.
Pork and a lot of beef and the pipeline.
And ER, we expect to say that featured.
We kind of expected the prices we continue to believe pork is going to be exported.
I believe last thing I saw.
Beef exports were not really.
Oh.
Pork was heavily export I don't believe they make was export in.
The last report I show very much but.
But we do expect me to export pork exports and poor features can be prominent this fall.
Okay.
Perfect. Thank you very much.
Thank you.
The next question will be from Peter Gaba with Bank of America.
Hey, guys. Good morning, Thanks for taking the questions.
Morning Theater.
Hi, George I, just wanted to get some clarification on what are your comments from earlier, you know about potential conversion of either Hammond or Hazelhurst. When you said after the holidays, where are you speaking you wouldn't consider it until after labor day or maybe not until after the Thanksgiving Christmas timeframe.
After Thanksgiving Christmas.
We will have low demand.
Lower demand during the holiday season.
For all of our products and or if we were to convert shopped and it would be.
After the holiday season.
Got it that's helpful and and then Joe just you've spoken a lot about foodservice and thinking it's going to take you know a vaccine obviously to get people more comfortable but.
Just maybe in the short term over the next.
Just six months in a world or we don't have a vaccine you know when the weather is you're going to start to turn.
How are your conversations with with your Big Foodservice customers you know are around the potential that.
Once everybody goes back inside and you don't have options for for outdoor dining, particularly in parts of the northeast just just what that's going to mean you know the potential the double dip in the food service side [laughter], thanks very much.
I think it's on now.
I don't I don't think it's where where new York is.
Significant market for us northeast.
They're not really purchasing very much now I don't there's very little Oh from California, California is not easy.
I don't think it's gone.
Matter it might matter it at a matter and our traditional markets.
From the in a in the Midwest or the southeast southwest.
And when the weather gets I should say Kate serve outdoors.
You could say.
No the depth and demand.
Knock on effect Austin, Texas.
Our Oh, our Houston, but it'll affect dash.
Dallas, Dallas has Warner and.
Probably won't affect Florida, but it'll affect Atlanta.
And national.
And Chicago, we ship every one of those markets.
It'll affect a salt Lake and Las Vegas.
Won't affect Phoenix.
But it'll it'll happen no different places, but we're not ship in much the L.A. right now.
Our San Francisco or New York.
ER, so it'll be that'll be.
Different spot.
Got it that's that's helpful. Thanks, Thanks, very much guys.
You bet.
The next question will be from Ken Zaslow of bank of Montreal.
Hi, good morning, everyone.
Morning can.
Just one quick question on clarification, when you said one third of the.
Plants are losing is that one third plants one third companies.
What is the way.
That's companies.
How many.
Companies.
And that has.
That has been true.
Really since November and we don't know you know we don't have same companies are not the child anonymous. So we don't really know who it is or.
As Jewish.
Then going on for a pretty long time now.
But do you think the liquidity in the industries.
Strong enough that he can continue to prolong any sort of.
You know extensive cod is that what you're kind of thing or do you think that the magnitude of the losses are gonna be particularly when you go into the.
Fall and winter when I take the previous comment really was that you know foodservice is going to find a fall off a little bit as you know cold weather its little hard to.
Eat out what's your thinking on that.
Well I have no I have no idea about liquidity.
And I have no idea about <unk>.
Who or what and ER.
But.
[music].
They love something going on for long time.
And.
Oh demand for all chicken after labor day declines.
Yes.
And.
I don't.
Thank you, it's going to get better after labor day.
And.
You know people, they're not eat chicken.
For Thanksgiving.
And they do not eight it for Christmas.
And they wait our customers and we love them to dad, and I think they love Bush.
But they don't even talk to us and November and they should.
And they're talking to the Ham and the Turkey Paypal.
And NAV the day after Christmas.
Where their best friends, they all want to run boneless breast into girlfriends doors.
But a much we get past labor day.
You know.
Every one of you know what happens to chicken after labor day.
And we're gonna grow chickens, very well why there's don't go down low humidity.
And check ins are going get bigger.
And you know what happened.
Yep.
Yeah, just on the export I know, we've talked about China a lot.
What's your take on Mexico, I I have gotten mixed reviews. There on you know if it's probably just moving there I get a sense that there.
Over 19 is a little bit worse than the U.S., it's kinda, having a little bit of an impact on their economy, and you know there imports or our exports of like Cordis then what's your take on that.
And I'll leave it.
I agree with that Oh, we have some their long term and very good customers and in Mexico.
And we're still shipping them.
But.
We believe that.
They're suffering.
From a the bar.
And that country.
It doesn't get a lot of crash.
But.
And there are some liquidity issues.
Particularly in the Foodservice arena.
Uh huh.
There and between the two of those.
And they're being inundated with leg quarters I mean.
People in a process in the U.S. or inundating that country would.
Like orders because so many of the other markets.
Kazakhstan.
The Middle East Cuba.
Our not buying right now.
Or not buying anything near the body.
Uh huh.
And.
So Mexico was.
Getting a lot of offer.
But cove. It is we understand is.
Presenting a significant challenge.
In Mexico right now.
I think the legs will be backed up in Mexico, what do you think that being consumed and that's not going to create a problem in three to six months or and I'll leave. It there. Thank you very much at that stage price is everybody consumed.
Great I appreciate the well guys.
Thank you.
Next question is from Adam Samuelson of Goldman Sachs.
Ah yes. Thanks, Thanks for taking my question everybody.
Morning.
Good morning, So so I just go back to the foodservice CAD progression a little bit and you gave color earlier I think you said demand from your foodservice customers varies between 68, and thank you said, 93% of the prior year I'm in the fiscal third quarter.
You could give us kind of what that look like.
July and how we're trending.
Through August soon in the most recent weeks and hi, how you think.
I mean does that spike up in June and then is it plateaued isn't come back down just help us think about.
What that what that when I looked like from through the month.
Yes, we had [noise].
When we start when the in March and April.
When we looked at our largest distributors there their orders were all.
50, 560%.
And that last April.
They started getting better in my maybe they were orders were all.
5.1% was the best still all 5%, but that was the best.
And then by the time and get to June this back to 30%, 20% all.
Ah July was 20%, 22%, 22% all.
And in August is.
Little better than 10 personnel.
So obviously March and April was the worst.
There's still tell them, what Tim what Oh Westwood by week.
By weak August was.
11% down, 11.4% down 6.8% down 8.5% that the mix wasn't little different tell and tell them about do you had boneless breast broken out.
Yeah, I got again.
Now this is for a large foodservice distributor.
They're boneless breast.
Oh for all for for the week of August 20 seconds.
Compared to average volume in February.
2020.
Boneless breast was down 21.3%.
And.
Wings.
That was up 1.1% dry wings were up 1.8% holdings were up three points, so they're making those changes Adam.
As what we've been we've studied <unk>.
What was happening inside their orders and.
Not owns our total.
Your tone cases are down, but they're not buying as much boneless breast, thereby Washington tenders.
And.
That means is going to bars, it's not going to restaurant.
Yeah for some reason then.
I don't know all the answers to this but.
Since March the wings and tenders have held the.
But.
Prices are going up and boneless breast is going back I think it's easier to prepare and pick up a box a wager nuggets as opposed to component.
Yeah, Yeah, Yeah, and try and you've got some of these when concepts are handling take yeah. That's right.
Very very well yeah.
So and.
So we've done some analysis on the.
Mix and and then another thing that happened.
As when the government or enhanced unemployment went away or we think that has affected.
ER people going out to eight and are not even going out they just buying takeout.
That's happened since July 31, as well that's affected the price abolish we believe.
And then your dad is a month anyway.
Oh, that's awesome. So incredibly helpful color I'll leave it there thanks and do all right yeah.
The next question will be from Robert Moskow of Credit Suisse.
Hi, I I don't know what a everyone's watching on TV on those bars.
Maybe a online gaming competitions [laughter] [laughter] father watching something.
Yeah.
Yeah, I just want to make sure I model.
Fourth quarter in the right Ral.
Because I I would've thought that one of the benefits to your third quarter was that you when the industry cut back on eggs cut back on placements three months prior that must have helped a commodity prices in the quarter.
But if I if I look at the same lag effect for fourth quarter, and the way I model and I'm I'm, having trouble getting you back to breakeven.
I think your question a little better than I thought so maybe that helps but.
I I imagine sequentially, you'd have a weaker quarter and for us.
I am I thinking about the the timing of those egg sets, you know going from negative 5% to negative 1%.
And and what that means you know as you're Lucky the October quarter for yourself.
Well.
I would not.
So with access I would look at Chick placements.
Raising that say that as but calls and look at the U.S. Oh.
Don't look at nighttime state.
Because right now, there's a big variants and Hatchability.
And Oh.
I've gotten where I don't look at a U.S.D.A.
Because of that hatch belting is there's a big gap in hatch.
Egg sets anesthetic compare them to a year ago compare them to February.
2020.
And I'll give you that to pay what is going home.
And I don't know what fourth quarter Scone look like.
[music].
But it looks like to me that some people had made some decisions.
And this reminds me in the summer or what was some 2011.
In addition is the first tentative.
Reduction.
And yeah remember what happened in June 2011, if you don't go back and look at it.
And then there was another reduction.
Later on.
And another reduction after that and just looks like to me that the first reductions happened.
And it just happened at a different time.
But 2011 would be a good.
Indicator.
Of what's happening right.
Sounds encouraging.
Sequentially, though your your October quarter seasonally tends to be a weaker quarter then the July quarter.
I mean, if there is a reduction could you could it be enough to.
I I guess change the direction of that normal Oh seasonality.
Well I would suggest you look at arterberry leg quarters and boneless breast.
Today and compare them to what they were in.
June and July.
And that will tell you a lot.
I mean boneless breast is a dollar one today and it average what did the average.
And the corridor.
[noise] quoted earlier.
It had no at average dollar 19, or dollar 18 or shop.
Actually down.
During the quarter averaged $1.80 $1.18 today, it's a dollar one yeah like order to averaged would.
Quarters, we foresee and today, they're 20.
Yeah, and the trading for less than that so I think it's safe to assume.
But right now today.
It looks like to mid fourth quarter might be weaker than the third quarter.
I will mention tenders are fan and tray pack is bad.
And our grain.
Grain is gonna be up [laughter].
Probably a little lower than it was in the third quarter.
Got it.
Okay very good thank you.
Thank you very much.
And this concludes our question and answer session Oh, now I turn the conference back over to James Anderson for any closing remarks.
Good. Thank you for spending time, thus this morning, well at Florida reporting or in right at year end result for you in December stay safe and healthy.
The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect have a great day.