Tyson Foods Inc (NYSE: TSN) Q2 2020 Earnings Call Transcript

Tyson Foods Inc (TSN) Q2 2020 earnings call dated May. 04, 2020

Corporate Participants:

Jon Kathol — Vice President, Investor Relations

Noel White — Chief Executive Officer

Dean Banks — President

Stewart F. Glendinning — Executive Vice President & Chief Financial Officer

Analysts:

Kenneth B. Zaslow — BMO Capital Markets — Analyst

Benjamin Theurer — Barclays — Analyst

Peter Galbo — Bank of America — Analyst

Adam Samuelson — Goldman Sachs — Analyst

Heather Jones — Heather Jones Research — Analyst

Alexia Howard — Bernstein — Analyst

Ken Goldman — JP Morgan — Analyst

Michael Lavery — Piper Jaffray — Analyst

Michael Piken — Cleveland Research — Analyst

Robert Moskow — Credit Suisse Securities — Analyst

Ben Bienvenu — Stephens — Analyst

Presentation:

Operator

Good morning and welcome to the Tyson Foods Second Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jon Kathol, Vice President of Investor Relations. Please go ahead.

Jon Kathol — Vice President, Investor Relations

Good morning and welcome to the Tyson Foods Incorporated earnings conference call for the second quarter of fiscal 2020. On today’s call are Noel White, Chief Executive Officer; Dean Banks, President; and Stewart Glendinning, our Chief Financial Officer. Slides accompanying today’s prepared remarks are available as a supplemental report in the Resource Center of the Tyson investor website at ir.tyson.com. Tyson Foods issued an earnings release this morning, which has been furnished to the SEC on Form 8-K and is available on our website at ir.tyson.com.

Our remarks today include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements reflect current views with respect to future events such as Tyson’s outlook for future performance on sales, margin, earnings growth, and various other aspects of its business. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. I encourage you to read the release issued earlier this morning and our filings with the SEC for a discussion of the risks that can affect our business, including those listed in our 10-Q filed this morning, our most recent annual report on Form 10-K, and our current report on Form 8-K filed March 13, 2020.

I would like to remind everyone that this call is being recorded on Monday, May 4 at 9:00 AM Eastern Time. A replay of today’s call will be available on our website approximately one hour after the conclusion of this call. This broadcast is the property of Tyson Foods and any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of Tyson Foods is strictly prohibited.

Please note that our references to earnings per share, operating income, and operating margin in today’s remarks are on an adjusted basis unless otherwise noted. For reconciliations to our GAAP results, please refer to this morning’s press release.

I’ll now turn the call over to Noel White.

Noel White — Chief Executive Officer

Thank you, Jon, and good morning everyone. We have a lot to cover today, but I want to start by saying how proud I am of our team members and the work they’re doing to help feed America during this difficult time. I’ll then touch briefly on our operations and results. Dean will go into further detail about our current operations and Stewart will handle the financial update from this quarter.

Day in and day out, in the midst of the challenges so many families are facing during this pandemic, our team members are going above and beyond to help us maintain a healthy and stable food supply to our nation and the world. From the bottom of my heart, I want to say thank you to all of them. They’re truly central to everything we are doing right now. Our Number 1 priority is ensuring their health and safety. The only way we can operate this business is for our team members to feel safe, protected, and not fearful of coming to work. It’s why we’ve put in places a host of safeguards and guidelines at all of our facilities to protect our teams. And as we’ve shown in the recent days, we will not hesitate to idle any plant for deep-cleaning when the need arises. Simply put, we will not send any one into our plants to work unless we are confident that it’s safe and to do that, we have transformed how we operate.

Today, if you visit our facilities, you’ll see state-of-the-art health checkpoints at the entrance and inside you’ll see team members wearing proper personal protective equipment, including face mask. You’ll also see tools to help us social distancing. We’ve installed partitions on production lines and in break rooms. And we’ve stepped up our efforts to clean and sterilize everything we can. Education is important part of this effort and we’re doing our best to ensure our team members understand how they can stay safe at work and at home. Soon, team members will have on-site access to COVID-19 testing and other medical care through our new partnership with Matrix Medical Network, a leading provider of mobile health clinics. We also continue to work closely with federal, state, and local health and safety authorities. Last week, as you know, the U.S. government recognizes the essential work our team members do at reaffirming meat and poultry processors as a critical part of America’s infrastructure. The President’s executive order under the Defense Production Act establishes clear lines of authority and consistent standards that will help us continue to provide American families with reliable supply of beef, pork, and poultry.

I’d now like to briefly talk about the state of our operations. Over the last several weeks, we’ve had to idle several facilities temporarily for deep-cleaning and others are not operating at full capacity due to worker shortages. Despite our slow reliance and lower volumes resulting from this pandemic, we believe our core business and financial strength position us well to deliver market share and earnings growth over the long term. And while COVID-19 has been disruptive, we do not believe it changes the outlook for a strong future for Tyson Foods.

Now, a quick summary of the quarterly results. Second quarter sales increased to a record $10.9 billion. That’s an increase of more than 4% over last year. This growth was driven by volume increases of 2.6% and price increases of 1.6%. Our adjusted earnings of $0.77 per share were driven by typical seasonality, soft chicken pricing, and the impacts of COVID-19. In addition, we’ve experienced $115 million in negative derivative mark-to-market adjustments that Dean will discuss in further detail. Important to note that we expect to benefit from the physical offsets associated with these transactions in future periods.

From a global perspective, exports to many parts of the world performed well throughout the period. During the second quarter, we saw particular strength in exports to Japan and Mexico with double-digit increases in our market share. Recent data indicates China is reopening its economy, which is encouraging signal of domestic protein disappearance. Lower levels of supply caused by African swine fever continue to present opportunities to fulfill international demand.

Now let’s talk about the current operating environment. The COVID-19 pandemic in the United States has had a significant impact on our channel mix with increased retail and plummeting foodservice demand. From a supply chain perspective, where possible, our facilities have adapted to new product mixes, which has enabled us to ship millions of pounds per week between channels and has set us apart from many of our competitors. Foodservice customers have also reacted with high levels of innovation and adaptation focusing on take-out and delivery. In fact, some have only seen minimal volume loss. Supermarkets and club stores have been trying to meet heavy demand, and we’ve been able to convert a number of production lines from foodservice to retail to help meet those consumer needs. The direct impacts of the virus have created operational challenges, including absenteeism, reduced production speeds, and selected idling of plants. The scope of our operations continues to provide us with flexibility and redundancy. This is a clear benefit to our Company’s scale.

COVID-19-related pressure has affected parts of the industry supply chain, especially pork. However, our diversity of protein provides our customers with options. In addition, our geographic diversity provided important lessons from China, where we first encountered COVID-19-related issues. This includes ways to maintain health and safety of our people, opportunities to pivot to retail, and potential pathways for recovery. We expect current conditions to continue during our third quarter with a gradual recovery beginning in the fourth quarter. However, all this depends on the extent to which businesses and schools are able to reopen. We’re well positioned to operate during this period and to take advantage of increasing demand during the recovery.

Our balance sheet is sound and our liquidity position was strong going into the crisis. It’s been further bolstered by the term loan we closed at the end of Q2 and by focusing on continuing operations and managing costs. Stewart will give you more details. We committed $13 million to support critical needs in our local communities. This includes $2 million in community grants and more than $11 million worth of food and meals donated by the Company since March 11. Over the coming days, we’ll make product donations equal to an additional 100 million meals.

Despite the immediate challenges from COVID-19 and its associated impacts, we’re maintaining a clear focus on the long term. This includes our strategy to grow, deliver, and sustain. Global population and income growth will continue to drive an increased need for protein, and our size, diversity of portfolio, and broad geographic presence will give us an advantage. In addition, there are changes which will undoubtedly remain with us after the crisis. For example, we expect continued higher levels of e-commerce for both grocery and foodservice. Our early investments in this space have allowed us to capitalize on the growth and we expect to benefit further in the future. Our industry is heavily dependent on people, but our Company is investing aggressively in automating the most difficult jobs in our processing plants. Our balance sheet, liquidity, and scale as well as our diverse product portfolio of products and distribution channels position Tyson to benefit from long-term industry dynamics.

Now, I’d like Dean to give us a recap of our business segments.

Dean Banks — President

Thanks, Noel, and good morning everyone. I’d like to start by discussing our response to the pandemic, but I’ll spend the majority of my time discussing channel dynamics, current operating environment, and the long-term outlook for each segment. As Noel discussed, we’ve experienced multiple challenges during our second quarter related to COVID-19. The response by our team members has been nothing short of heroic and it makes me incredibly proud to be part of this great Company. I personally visited many of our impacted facilities and witnessed firsthand the steps we are taking to protect our team. Mobile health departments and the CDC have also toured our facilities and have been extremely complementary of the measures we’ve put in place to protect our team members and community.

The health and safety of our team members remains our top priority. We took early decisive action to provide workspace distancing, PPE, and other protective measures. We’ve had no layoffs or furloughs and have extended a $120 million of bonuses and improved benefits to our frontline team members. This will also allow us to quickly recover once we move past the effects of COVID-19.

Now, let’s discuss some channel dynamics we’ve observed in the wake of COVID-19. Each of our businesses has witnessed a profound shift from foodservice to retail. Our retail business remained strong and our core retail lines posted gains of more than 20% in the last 13 weeks, outpacing total food and beverage, as well as the Top 10 food manufacturers. While panic buying has subsided from extreme levels, we continue to see 15% to 40% volume increases versus last year depending on the category. As a result of these trends, we have successfully increased volume, margin, and share within retail.

Historically, approximately 45% of our total Company sales were to retail, 40% foodservice, and 15% international. During early Q3, we saw our retail sales move to approximately two-thirds of our total Company sales. While we were successful in shifting some of our production from foodservice to retail, not all of our facilities are able to do so. The volume increases in retail have not been sufficient to offset the losses in foodservice, and as a result, we expect negative year-over-year volumes in the second half of fiscal 2020. Operationally, we have faced two meaningful challenges; slowdown down resulting from team member shortages or choices we made to ensure operational safety and temporary closures related to COVID-19 infections. We have continued to pay team members during these slowdowns and closures since maintaining health and continued employment of our team members is important for our longer-term success. As a result, we’ve experienced lower levels of productivity and higher cost of production. This will likely continue in the short term until local infection rates begin to decrease.

Within the e-commerce channel, we’ve witnessed significant sales growth, including a more than 140% month-to-month growth rate in our core business lines sold to a major e-commerce customer. We expect this trend to continue. Going forward, we expect sustained retail sales growth and a slow recovery in our foodservice channel.

Now, let’s take a look at our segments. During the second quarter, our Prepared Foods segment produced an operating margin of 9.2%. Topline growth continued with the seventh straight quarter of volume and dollar share growth. Sales were up 2.6% for the quarter and pricing was up 2.7%. Within the last 13 weeks, total volume, sales, household penetration, and share increased across the core business lines. Historically, 60% of our Prepared Foods sales have been to the retail channel and 40% to foodservice. During Q3, we’ve seen greater than 20% growth in our retail sales. This channel, driven by our strong brands and innovation capabilities, provides our highest growth potential and margin opportunity across our portfolio. In the current environment, our retail-centric products continue to show strength although the current reduction in raw material availability may cause short-term outages. Our ability to flex our production footprint between the foodservice and retail channels is limited. Consequently, we currently believe the full effect of these new consumption patterns will result in a net reduction in volume.

Looking forward, our market insights, channel flexibility, access to raw materials, and growing demand give us long-term optimism. We are responding to the changes in consumer demand by pivoting our brand investments and innovation to more value-oriented offerings and to formats and sizes relevant for rapidly-evolving channel dynamics such as e-commerce acceleration. Our retail businesses and brands are well positioned to deliver sustained growth, even if we enter into a recessionary environment.

Our Beef segment produced an operating margin of 2.7% in the second quarter. Commodity volatility during the quarter resulted in a negative impact of $55 million in derivative mark-to-market adjustments. As Noel mentioned, it’s important to note this amount does not include physical offsets, which may be recognized in future periods. Our Beef business has done an excellent job of pivoting from foodservice to retail and continuing to drive innovation. We found new retail applications for products that have traditionally supplied the foodservice channel, which we believe could generate continued demand even in the post-COVID-19 environment. Beef exports remained strong, posting double-digit increases compared to the same quarter last year, which has exceeded industry growth rates. Export markets are an important outlet for us now and in the future. In the current environment, we see strong demand and ample supply of cattle, but reduced industry processing capacity due to COVID-19 has pressured the supply chain and has reduced overall profitability. Temporary plant closings dramatically increased operating costs and weakened what would otherwise be a strong margin environment.

As a result of the shutdowns, cattle producers are met with much lower processing demand for their fed cattle. We’ve recognized how this impacts our producer community and are anxious to safely resume operations at our facilities to provide them with an outlet for their cattle. Looking forward, we expect clinical supplies of cattle coupled with strong demand for beef, both domestically and via export. Our relationships with producers, industry-leading production capabilities, and customer-centric solutions give us confidence in the long-term outlook for this business.

Moving to our Pork segment, strong demand, solid operational execution, and ample hog supplies led to a 7.3% operating margin in Q2. As we transition to a ractopamine-free hog supply, our ability to sell pork to the global markets is expanded, as new capability has been met with increasing global demand as African swine fever continues to reduce pork supplies in Asia. Year-over-year increases of pork to China were up significantly for the quarter and we expect strong demand to continue as China recovers from this COVID-19 lockdown. In the current environment, we see strong demand and ample supply of hogs, but reduced industry processing capacity of nearly 50% due to COVID-19 has pressured the supply chain and dramatically reduced overall profitability. As pork plants across the country have continued to shut down, hog producers are met with much lower processor demand for their market-ready hogs. We recognize how this impacts our producer community and are anxious to safely resume operations at our facilities to provide them with an outlet for their hogs. Looking ahead, we see large supplies of livestock and strong demand, driven by a global shortage of pork. We continue to believe the impact of African swine fever in Asia could generate significant future margin potential.

Our Chicken segment produced an operating margin of 2.9% in the second quarter. Operating income was negatively affected by a $40 million increase in net feed ingredient costs and negative derivative mark-to-market adjustments. This, along with weaker pricing from increased domestic availability of chicken, has offset the benefits of our operational improvement initiatives. Weaker pricing dynamics have persisted into the third quarter. Our Chicken segment has higher foodservice exposure than Beef, Pork, and Prepared Foods. We’ve responded to demand shifts caused by COVID-19 by adjusting parts of our production capacity from foodservice to retail, but higher retail volumes have not entirely offset the lost volumes from foodservice. Additionally, this channel shift has resulted in lower-margin realization as volumes have moved to lower-margin products. Also, worker shortages have reduced overall plant efficiency, resulting in higher production costs. Due to large domestic supplies, coupled with reduced foodservice consumption, we believe our chicken operations are likely to incur losses in the back half of the year. Profit trends will improve as foodservice activity recovers.

Turning to our International business, our China operations were impacted by COVID-19 more than any other region during the second quarter. Despite this, our China team produced record sales and operating income as production was shifted to meet rising retail demand. While China is recovering, other geographies where we produce or sell are being impact negatively by COVID-19, especially since our International business has historically had a high level of exposure to the foodservice channel. We expect to see a slow recovery across each of our geographies as demand patterns normalize. The profitability will be impacted negatively in the short term.

In closing, our businesses across the enterprise are adapting to the dramatic changes brought about by COVID-19 and the response of our team has provided consumers continued access to a safe and affordable food supply. Short-term challenges do not diminish our beliefs in the Company’s long-term outlook. Our unique business model, diverse portfolio, and industry-leading scale will make us stronger and more resilient.

Before I hand over to Stewart to take us through the financials, I’d like to thank our 141,000 team members who continue to support our mission of feeding the world. Their health and safety are critical to that mission. Over to you, Stewart.

Stewart F. Glendinning — Executive Vice President & Chief Financial Officer

Thanks, Dean, and good morning everyone. I hope you and your families are all staying healthy and safe. I’ll start my remarks this morning by calling out a few highlights from our performance for the quarter. As Noel mentioned, our second quarter results included earnings of $0.77 per share and operating income of $501 million. Our adjusted results excluded a $110 million non-operating gain or $0.23 per share as we executed the termination of two frozen pension plans by purchasing annuities for the participants. Due to the assets held in the plants, this did not result in a significant cash outflow. We have now exited four pension plans in the last two years as we continue to minimize volatility and cash flow risks associated with pension plans.

Sales in Q2 were up over 4% to nearly $10.9 billion, with a 4.6% return on sales. Average sales price for the quarter was up 1.6%. Year-to-date operating cash flows were $1.3 billion. As Noel mentioned earlier, our balance sheet is sound and our liquidity position was strong going into the crisis. On March 27, we successfully entered into a term loan agreement of $1.5 billion and we borrowed these funds in the first week of our third quarter. This loan insures financial flexibility and enables us to navigate potential uncertainties in the capital markets by alleviating our reliance on the commercial paper market that typically serves as our primary means of short-term liquidity. Our liquidity on March 28, including the undrawn term loan, was $2.5 billion, and was higher still as of the end of April.

During the quarter, we continued to experience some operational effects from our recent ERP system implementation, which impacted margins by roughly $30 million in the quarter. About half of this was discounted sales with the remainder related to inventory write downs and donations. We believe that we have turned the corner on this issue and expect the incremental costs to ramp down throughout Q3, before returning to historical run rates in Q4. Because of this shift from foodservice to retail, we are closely managing our foodservice-related inventories to minimize any losses, and of course, we are working to ensure that our outstanding accounts receivables are collected in this higher-risk environment.

Including cash of $437 million, net debt was $11.7 billion and net debt-to-adjusted EBITDA was 2.9 times for the 12 months ending March 28. Net interest expense was $116 million for the quarter and capital expenditures were $312 million. We continue to target an overall capex return of approximately twice our cost of capital. In the second quarter, we repurchased 700,000 shares for $64 million. Weighted average shares outstanding were approximately 365 million in the quarter. Our effective tax rate was 25.8% in the second quarter. Depreciation and amortization was $293 million [Phonetic].

Dean has articulated the qualitative aspects of our outlook, which should give you some indication of how we expect our businesses to perform for the balance of the fiscal year. Due to the uncertainty of the COVID-19 impacts, the degree of absenteeism and the temporary closure of some of our facilities, we are currently unable to provide segment operating margin guidance.

Now, I’d like to provide some additional commentary on our outlook. Keep in mind that fiscal 2020 is a 53-week year. However, we have adjusted our outlook to be comparable to 52 weeks. Net interest expense should approximate $470 million. We project capex spending of approximately $1.2 billion for the fiscal year, as we progress with building additional processing capacity for case-ready fresh chicken, beef, and pork. This is a reduction of more than $100 million from our previous guidance. We may elect to slow down parts of our capex spending where appropriate to ensure adequate liquidity. Having said that, we expect liquidity in the back half of the year to remain well above our minimum liquidity target of $1 billion, especially after the issuance of the $1.5 billion term loan. Our capital allocation will continue to prioritize debt reduction. This includes approximately $1 billion of senior note maturities during Q3 and Q4. We do not expect to repurchase shares in the back half of the year except for minor repurchases related to an employee stock ownership plan. We currently expect our adjusted effective tax rate to be around 23%. We expect to deliver profit in the back half of the year, assuming that we can continue to operate and supply our plants.

Q3 has begun with higher levels of volatility. Early in the quarter, we saw huge volume pulls in our retail channel. This demand partially offset declines in our foodservice channel. In recent weeks, we’ve seen a leveling off followed by another surge in retail demand, but as Dean has said, the volume shift from foodservice to retail is likely to be a net negative. The major challenge facing us currently is the degree to which our plants are able to operate. All plants are experiencing varying levels of crewing. We will continue to operate our plants with team member health and safety as a top priority. As you can imagine, the slowdowns and temporary closures related to the pandemic drive higher production costs, and we expect to see those until we resume under more normal conditions. Also, our COVID-19 risk mitigation activities have added costs on the broad range of safety measures we have implemented and continue to support. Despite this, we continue to focus on financial fitness and that has partially offset some of these impacts. We will continue to seek out opportunities to remove unnecessary costs from our business.

To sum it up, our long-term outlook remains positive. Our diversified business model allows us to react to changes created by major events like COVID-19 and African swine fever. Our balance sheet, liquidity, scale, and diversified portfolio of businesses remain strong, and should provide some level of protection as we move through the year. We will continue to drive the long-term growth in all parts of our business as we execute against our strategic plan with a constant focus on maximizing long-term value for shareholders.

That concludes our prepared remarks. Operator, we are ready to begin Q&A.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ken Zaslow of Bank of Montreal. Please go ahead.

Kenneth B. Zaslow — BMO Capital Markets — Analyst

Hey, good morning everyone. I hope you and your families are being safe.

Noel White — Chief Executive Officer

Thanks, again.

Kenneth B. Zaslow — BMO Capital Markets — Analyst

So let me just ask one question and then I have a follow-up. One is, can you frame the status of your — of Tyson’s operations in each division and the associated costs, so which divisions are operating at what levels and how you’re complying with getting people back to work, absenteeism? Can you give us a lot of color on that? That’s kind of one of the pressing questions.

Dean Banks — President

Sure, Ken. First thing I want to say, and I’m sure you know this, team member safety remains our top priority and we’re sparing no expense to keep them safe. We are fully complying and have been interacting with the government authorities, including the USDA, the CDC, OSHA, and even county and local governments, and we’ve had intermittent outages from time to time as it’s been necessary to make sure that our team members are kept absolutely safe. The expenses related to these closures, I’ll start with PPE. We’ve invested substantially in our protective equipment for our team members, including things like chartering planes to supply masks even before they were mandated by the CDC, we’ve bought some quite expensive thermal scanners to make sure that we can check temperatures for our team members coming in and out of our plants. Another expense is the inefficiency of the plants, driven by the slowing or idling the plants, while they’re being checked and while our team members are being tested.

Another priority of ours is to keep food on the table of our consumers. And so that includes running and recovering plants at lower capacities from time being, but also running them with over time and additional costs to make sure that whenever we can run them in control, we can put food on the American tables. One expense I can’t quantify for you is the $120 million in thank you bonuses we’ve provided to our team members during this time for the hard work. And again, team member safety being our top priority, it is hard to predict the extent of these costs over time.

Kenneth B. Zaslow — BMO Capital Markets — Analyst

But can you talk about the utilization — I mean, what plants are coming back online, which plants are off, what percentage of your plants are off? Kind of give us — kind of a status of the progression of where you are on your operations on that side.

Noel White — Chief Executive Officer

Yeah, Ken, it’s Noel. It’s very dynamic. I would say that on the Pork side of our business, we did take down our Logansport pork plant, we took down our Waterloo plant. Perry was closed for a short period of time. And each one of those plants are in the process of either coming back up or finishing the testing of all of our team members. On the Beef side of our business, we took down Dakota City, which is a large facility for us this past weekend. We’re working with local county, state, and federal officials to bring it back up. We took down our Pasco, Washington plant two weeks ago to go through the entire testing protocol. Those test results we are receiving back through the weekend. So, there has been various impacts, Ken. We will take the plant down for a period of time and the period of time is varied anywhere from a few days to a couple of weeks. That give you a sense?

Kenneth B. Zaslow — BMO Capital Markets — Analyst

Yeah, it does. And then my follow-up question is, you guys wrote in the press release that you think chicken prices will not go up. Let me just frame this and help me understand where I’m wrong, we have less chicken production, we have less beef production, we have less pork production, we potentially will have less hogs, we potentially might have less cattle, and we do still have a shortage of protein globally, how do you expect chicken prices to not go up in that scenario? What am I missing? And then I get the demand shift, but I think that’s more fluid.

Noel White — Chief Executive Officer

Ken, it really depends on the assumptions and our assumptions is that the plants will come back up as we go through Q3 and Q4, and it’s really the impact of each one of those; poultry plants, pork plants, beef plants. Total animals available, as you know, it’s up year-over-year, 4% plus. So, we are assuming that these plants, not only ours, but others will in fact go down for a period of time and then reopen. So we are actually looking an increase in total protein available as we go through the balance of Q3, Q4.

Dean Banks — President

And Ken, I would just add that mix plays a really strong role in this. As you probably know, a substantial portion of our business has been in foodservice, which is down and our retail business is up, as we mentioned in the call. Those do not perfectly counterbalance and so that will also have an impact on our long-term blended sales price.

Kenneth B. Zaslow — BMO Capital Markets — Analyst

Great. Thank you very much.

Noel White — Chief Executive Officer

Thank you, Ken.

Operator

Our next question comes from Ben Theurer of Barclays. Please go ahead.

Benjamin Theurer — Barclays — Analyst

Yeah. Good morning, everyone and thanks [Phonetic] from my side. Hope you’re all safe and sound. So I’d like to actually follow-up on the chicken situation. So in the past, we’ve always seen in your case little less volatility just because of the way you price through and I understand that foodservice is substantially under pressure and you can’t offset that for retail, but could you walk us a little through your relationship with the different customers, be it in retail and foodservice, what you’re seeing on the featuring side, and how you think of pricing those products towards back half of your fiscal year?

Dean Banks — President

Sure. Our retail customers have been phenomenally supportive and we continue to work with them as we always would and we’re not planning to take price increase there. As it relates to foodservice specifically, we have seen some of our customers really get decimated due to the COVID crisis and closure of restaurants, limited supply in delis and sort of thing. We have seen some of our customers, specifically QSRs, recover very well. Their model of having take-out food and drive-throughs have really allowed them to be resilient and continue to thrive in the market.

Benjamin Theurer — Barclays — Analyst

Okay. And then my follow-up is more of a medium, long-term question. So clearly, and you’ve mentioned it in your prepared remarks, there is currently a significant decrease in demand from a processing point of view on pork and beef, which obviously causes all the farmers to basically stick with the animals. What is your expectation in terms of capital hog supply looking out a couple of years from now and in terms of potential reaction from farmers on the loss-making? And how are you actually paying your suppliers, the farmers when you buy off? Do you really get the benefit of the low live cost — live cattle and live hog prices right now? Or do you not see that much of a benefit coming through because you’d rather look long term and want to support the farmers in the short-term to basically secure supply in the medium, long-term?

Noel White — Chief Executive Officer

Yes, Ben. Let me say, first of all, we believe it’s critically important that our livestock suppliers strive and continue to be profitable. So we are doing everything possible to process as many animals as possible to make sure that there is a market for those animals. Longer-term outlook, Ben, is truly dependent on the closures of plants over the course of the next 60 days to 90 days. There has been a backlog of inventory that’s developed with both hogs and cattle, and that will continue if plant closures continue at the pace that we’re at right now.

Longer term, I would say that on pork, it really depends on the degree of liquidation that we see over the course of the next 90 days. So, if as an example, the weaned or baby pigs are, in fact, euthanized, that will have an impact sometime later this calendar year. If the sows of the mothers are liquidated, then that has longer-term implications that goes out over the course of the next 12 months to 24 months. We’re not seeing the same thing happen on — with cattle yet. A lot of the cattle are still in pasture or been on feed for a number of days. The weight is increasing, but it’s not at the critical point as the pork is at this point.

Benjamin Theurer — Barclays — Analyst

Okay, perfect. Understood. Thank you very much.

Operator

Our next question comes from Peter Galbo of Bank of America. Please go ahead.

Peter Galbo — Bank of America — Analyst

Hey guys, good morning. Thanks for taking the question. Just wanted to follow-up actually on Ken’s initial question just around the cost. Obviously, it’s helpful to have the detail on the $120 million in bonuses, and Dean, you outlined a number of other costs in terms of medical equipment or PPE masks. I mean, is there any way, at least at this point, to quantify that? And to the extent that you’re willing to say, on a go-forward basis, I mean, some of these costs are going to be recurring. I mean, is it fair to assume that there is now structurally higher costs in the business and we’ve kind of changed from a paradigm standpoint in terms of the equipment we need in plants for employees?

Dean Banks — President

So, I’ll just mention a few things here is that as this disease is progressing, as we’ve learned more, anything that we can find or discover that can improve safety in our facilities, we are doing. And when it comes to the long-term structural cost of the business, there are some things that we’re installing now, for example, these thermal scanners that will — we will leave installed and they’ll provide even benefit whenever we move into the next flu season to just help our team members better understand, they’re starting to develop sickness early and that sort of thing. But no, it’s not possible to really quantify or put a number on what those costs are going to look like related to COVID-19.

Peter Galbo — Bank of America — Analyst

Got it, okay. And one of the other things you guys spoke about was automation, moving to put as much automation into plant as much as you can, as quickly as you can. Can you maybe just rank order for us among the four kind of top segments from top to bottom most automated, the least automated and to that extent, is it 25% of the operations are automated, 50% of the operations are automated? Any color there would be helpful.

Dean Banks — President

I think it’s difficult to describe in a lot of ways because some of our plants have expensive scaled equipment for things like producing ground beef and sausage, and that sort of thing. We do have some robotic automation in things like pelletizing and that sort of thing. The thing that I would stress is that automation provides really a lot of things, but one of the things that I would stress is flexibility. Where we had installed some Multivac vacuum packaging systems for products like beef and pork, what we’ve seen is that those businesses’ ability to very quickly shift those products from retail — from foodservice to retail, which has been really, really beneficial to those businesses, but it’s difficult to really put a percentage on automation across each of the business units.

Operator

Our next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Adam Samuelson — Goldman Sachs — Analyst

Yeah, thanks, good morning everyone. So I guess my first question goes on, in the prepared remarks, I believe the comment was the expectation of the Chicken business would be operating at losses for the balance of the fiscal year. And I’m just trying to maybe break that apart a little bit and it ties into some of Ken’s questioning, just can you help us think about that from a kind of commodity price outlook versus volume, versus mix, versus operating cost? Just help us think about how we’re going from where we’ve been on margins to losses and just think about the drivers, so that we can watch the market evolve and assess your performance against it.

Noel White — Chief Executive Officer

Sure. The — that — you’re accurate, that was in the prepared remarks. Based on what we see right now in the marketplace, as I mentioned on an earlier question that we are in fact expecting an increase in protein suppliers through the balance of this, at least, fiscal year, likely calendar year. And with that, there will likely be, as there has been in the last few months, an oversupply of poultry in the market. Total number of animals available has not changed at this point. So, whether it’s beef, pork, or chicken, we’re looking at increased supply. So, most recently in the market over the course of last couple weeks, there have been some shortages in some specific categories. However, in total, as we go into Q4, we expect supplies to be increasing and therefore not any pricing recovery.

Adam Samuelson — Goldman Sachs — Analyst

Okay. And then I guess my follow-up is it’s more broad across the business. In the face of some pretty unprecedented kind of volume and throughput issues that you’re facing around labor availability, can you just help frame in the businesses kind of the percent of costs that are fixed? I mean, in this period, I presume labor is going to be the single biggest fixed cost just to help us think about the volume decrementals that you’d be experiencing in the face of the throughput challenges that you have.

Noel White — Chief Executive Officer

Each plant will differ. So it’s hard to give you a precise number. I can tell you it’s significant in the millions of dollars per week in some of our larger facilities such as some of our beef and pork operations, poultry not to the same extent, but still expensive, and then we have a number of plants that we operate in our Prepared Foods space that we’ve not seen a big impact and we certainly hope that continues. So each plant is a little bit different depending on which plant we need to take down and how long.

Adam Samuelson — Goldman Sachs — Analyst

Okay. I’ll pass it on. Thank you.

Operator

Our next question comes from Heather Jones of Heather Jones Research LLC. Please go ahead.

Heather Jones — Heather Jones Research — Analyst

Good morning. Thanks for taking the questions. I want to follow up on the chicken pricing comment. So, is that a Tyson-specific comment? And also, you mentioned mix, but is there also an element of you guys have costs plus contracts and clearly, fee costs are down. So, is that a component and — for that comment as well?

Noel White — Chief Executive Officer

Well, any time we make any comments, Heather, it is specific to Tyson. Obviously, we don’t know what others in the industry are going to do. All we can do is look at industry data. So yes, the outlook is specific to us, and we can look at excess, we can look at replacements, we can look at a lot of different numbers, and we have no sense what others going to do, that’s purely our outlook at this point in time.

Heather Jones — Heather Jones Research — Analyst

To my question, does that include some effect to cost plus contracts given lower feed?

Noel White — Chief Executive Officer

Cost plus, lower — that would be passed through in the cost-plus contracts, yes. Alternatively, if costs go up, price goes up. Cost inputs go down, price goes down.

Heather Jones — Heather Jones Research — Analyst

Okay. My follow-up question is on the production side or volume side, I should say, I realize on the beef and pork side is going to be a function of how soon you guys are able to get those up and fully running, but on the chicken side, how should we be thinking about volumes on that front for the back half?

Noel White — Chief Executive Officer

Different plants have been impacted to different extents. I would say, Heather, that so far we have had some disruption at a couple of our facilities that we’ve taken them down for a relatively short period of time, days, or week. And we don’t know obviously what the effect is going to be in the future. We are and will continue to work with all of the local county, state, and federal officials to make sure that our team members are safe. So at this point, we’ve not seen a tremendous impact on our poultry business and obviously we don’t know what that’s going to look like over the course of the next three months to six months.

Heather Jones — Heather Jones Research — Analyst

So you aren’t able to ballpark what your chicken volumes will be up or down year-on-year in the back half?

Noel White — Chief Executive Officer

Just total production, we think, will be up, as I mentioned earlier.

Heather Jones — Heather Jones Research — Analyst

Okay, thank you.

Operator

Our next question comes from Alexia Howard of Bernstein. Please go ahead.

Alexia Howard — Bernstein — Analyst

Good morning, everyone.

Noel White — Chief Executive Officer

Good morning.

Dean Banks — President

Good morning.

Alexia Howard — Bernstein — Analyst

Okay. So, I guess my first — well, my question is, are you able to go segment by segment and tell us roughly what the mix is between foodservice and retail and then give us an idea of how much the retail is down at the moment post the panic buying period, so I guess April versus obviously, foodservice, how much is back down and retail, how much is that part across Beef and Chicken and Prepared Foods as well? And then I have a follow-up.

Noel White — Chief Executive Officer

Okay. Alexia, I don’t have the numbers at hand by specific poultry group. However, as Dean said in his remarks, retail is up, it’s up sharply and it depends on the week, it depends on the month but think in terms of 30% to 40% up. Foodservice is recovering, I would say, and each — within foodservice itself, each sector is down varying degrees. So, down in rough numbers, 25% to 30% on foodservice in total, but it does vary substantially depending on the type of the foodservice establishment.

Stewart F. Glendinning — Executive Vice President & Chief Financial Officer

If you take a look at our segment data in the Q, you get some sense of what are historic numbers have looked like by channel. So that doesn’t give it you by segment, but it will give you a good sense of what the various volumes are and the exposure to foodservice. If you apply some of the percentages that Noel has suggested to that, I think it will give you a sense that bear in mind that when you look at that, one of those channels is industrial and part of that is going to be foodservice. So, we sell on to somebody else, but then our process is for foodservice. But I think that’s the best place to look.

Alexia Howard — Bernstein — Analyst

Great, that’s very helpful. Thank you. And then the follow-up, obviously, you can’t give guidance for the next quarter, but you’re third of the way into it and you mentioned that chicken profits will likely be, I think, negative in the back half of the year. Can you give us any sort of idea of how things are looking so far in the third quarter? Thank you.

Noel White — Chief Executive Officer

Alexia, I’d say, it’s too early for us to do that. And like I said, it is very fluid. So, on a given day and given week, it can change substantially. So, I’m not comfortable in making any comments today.

Alexia Howard — Bernstein — Analyst

Okay, thank you very much. I’ll pass it on.

Noel White — Chief Executive Officer

Thank you.

Operator

Our next question comes from Ken Goldman of JP Morgan. Please go ahead. Ken, your line is open on our end, are you muted on your end?

Ken Goldman — JP Morgan — Analyst

Yeah, I sure was muted. Sorry about that. Let’s try that again. I wanted to dig in on the comment that you expect chicken production to be up in the back half of your fiscal year. I think that’s a critical point here because we’re already seeing excess weigh down. We’re seeing chicks placed numbers — chick placement number is down even more. So there’s eggs being cracked. There are some at least rumors about some in the industry ordering fewer pullets and maybe killing off heavy hens at a faster rate. If that’s already happening, and I’m asking me if it is as far as you can tell, and if the industry is margin-negative, why would the industry increase production in the back half of the year? I understand part of it is because plants are coming back online, I do get that, but I don’t quite get why we would assume that, given all what’s happening already, that industry production wouldn’t be a little bit less than what we thought previously. Maybe I could just pause there and hear what you say about that. Thanks.

Noel White — Chief Executive Officer

Yeah. Ken, that very well could be the case. We look at the public data just like you do. We’re starting to see indications that there have been some capex. We don’t know what others are doing, but given the profit structure right now, I’d say that certainly could be the case, we don’t know. But I think that, as you know, in poultry business, it can’t change much quicker than what it would be or wouldn’t for pork and beef. So I think the premise that you’re proposing could in fact play out that way.

Ken Goldman — JP Morgan — Analyst

Okay. And then my follow-up — thank you for that. My follow-up is on a little bit about the nature of the industry, whereby labor is such a big part of the cost basis and when you think about other production facility, like if I walk around the Hershey plant or a Kellogg plant, I mean there’s nobody that you can see except a couple of people making sure that the boxes are falling off the lines. If I look right at chicken plant, it’s wall to wall people. And I know you guys are doing everything you can to prevent this from being a problem to your plant, but as we think about going forward, how do we potentially reduce the number of people in your plants? Is there a way — I know the industry has tried for years to get better at automation, is it more of a priority now for you and for the industry to automate some of these production factors? Or is it just something that the nature of meat is that you can’t do it, it’s more specialized part by part? So, I’m hoping that makes sense. Just curious for what your thoughts there and what the opportunity is.

Noel White — Chief Executive Officer

Well, Ken, as I mentioned, probably close to a year ago that we started investing fairly heavily in technology automation and that hasn’t changed. We continue to invest in that segment. I do think that over the course of time that the amount of automation will in fact continue to increase, particularly in some of the more difficult jobs and positions. I can tell you that, we as an example, we’ve invested significant amount of money, I would say, in our attempt to minimize in any foreign objects where we’re using vision technologies to try and identify and we’re working in the debone area within poultry. We have a number of initiatives within beef and pork. So, I believe it’s not only us as a Company, I think the industry will continue to look for solves through automation. So, I think it will probably — it will likely accelerate from this point.

Ken Goldman — JP Morgan — Analyst

Great, thanks so much.

Noel White — Chief Executive Officer

Thank you.

Operator

Our next question comes from Michael Lavery of Piper Sandler. Please go ahead.

Michael Lavery — Piper Jaffray — Analyst

Thank you. Good morning.

Noel White — Chief Executive Officer

Good morning.

Michael Lavery — Piper Jaffray — Analyst

You do have good channel splits even by segment, in your full year filings. And so, just curious within foodservice, you mentioned that a range of performances of how those customers are doing. Can you give us a sense of who’s faring the best and how you just forecast given how they compare and just what some of that landscape looks like?

Dean Banks — President

Hi, this is Dean. We’re not going be able to comment on a customer-by-customer basis. What we are hoping for is a relatively U-shaped curve — long U-shaped curve coming out of this crisis, which will be really beneficial for the small business owner restaurants and distributors. We’d love to see their business really start to recover in the coming quarters, especially if states start to open up. As it relates to whose faring best, as I said before, QSR customers are really those that are outperforming because of the flexibility of their model in both historical ability to either deliver through click and collect, take-out, drive through, etc.

Michael Lavery — Piper Jaffray — Analyst

Okay, that’s helpful. And just as a follow-up back on chicken, just curious maybe how much visibility you have in specifically things like what amount of the pressure on margins is one-time, say the worker bonuses, for example? And just should we expect losses in both quarters? I know you’re talking about it in aggregate. Just any sense of maybe, given at least what you know now, how you think that plays out.

Stewart F. Glendinning — Executive Vice President & Chief Financial Officer

Yeah, look, I mean, we’re not going to give quarter-by-quarter. We wanted to make sure that we highlight at the back half of the year and I think, look, if you stand back and look at chicken for a second, just say, first of all, there is a net negative in volume. Second, there is a margin impact as a result of switching from foodservice. And third, you’ve got some incremental costs, which relate both to some of the one-time worker costs and also more inefficiency in the plants as we try to run them in this environment. Those last two are big numbers and I do not think that those are with us permanent.

Michael Lavery — Piper Jaffray — Analyst

Okay, great. That’s helpful. Thank you very much.

Operator

Our next question comes from Michael Piken of Cleveland Research. Please go ahead.

Michael Piken — Cleveland Research — Analyst

Yeah, hi. I just wanted to get your sense in terms of — I know you mentioned that some of the hogs are being backed up or whatever, but by the time, let’s say all the workers came back with all the social distancing and things needed to maintain workers’ safety, I mean, what do you think is either in industry or your capacity utilization rate that we could expect in pork and at the beef plants relative to maybe where it was pre-COVID-19? Can you get back to kind of those same daily kill rates that we saw three months ago?

Noel White — Chief Executive Officer

Assuming that the plants continue to operate, Michael?

Michael Piken — Cleveland Research — Analyst

Yes, assuming the plants are operating. Let’s say, the workers are willing to show up due to the safety, like could we get back to where — I mean, could we be doing 2.8 million hogs a week?

Noel White — Chief Executive Officer

The answer will be yes, that over the course of the last number of years, pork industry has been growing between 2% and 4% a year. The industry infrastructure is set up to deal with that number of hogs. So yes, we can certainly get back to those type of numbers.

Michael Piken — Cleveland Research — Analyst

Okay. And then I know you mentioned in your prepared remarks that beef has a potential to be quite profitable in the back half of the year, but you didn’t really comment too much on pork. Is it just because the operating rates are lower in pork that you were less confident on that side of the business? Or was I reading the remarks wrong or the lack of commentary?

Noel White — Chief Executive Officer

No, there is nothing intended by the lack of commentary, Michael. If the plants get back up and running, as we expect them to be, we would expect the margin structure within pork to continue at a fairly healthy numbers. Year-to-date, we’re just short of 11% return on sales. For Q2, it is lower at 7%. So, I think that it’s certainly possible that we will be able to maintain those type of numbers as we look forward.

Michael Piken — Cleveland Research — Analyst

Okay, thanks.

Operator

Our next question comes from Rob Moskow of Credit Suisse. Please go ahead.

Robert Moskow — Credit Suisse Securities — Analyst

All right, thanks. A couple of questions. I think, Noel, you just said that you think the industry could get back to 2.8 million takes per week if attendance improves, but you’re also implementing more social restrictions in the plants and more safety precautions, and I got to imagine that that slows down facilities as well. So, is it possible to break down your incremental costs and your utilization rates based on what you’re seeing in terms of attendance right now and then also in terms of the safety measures you need to put in place, because I kind of imagine the safety measures are going to be with us for a while?

Noel White — Chief Executive Officer

Yes, I think that’s a fair assumption, Rob. I think that the slowdown in speeds and production throughput, Rob, it’s — we’ve done everything possible to protect all of our team members, all of our employees, including social distancing, and I’d say it’s too soon to tell at this point, if in fact that’s a permanent structural change, where we would have to slow down all lines to have the social distancing that’s needed. So we can’t quantify specifically what that might mean going forward. We’re still working through on — with all the — both the state and federal officials as to what that might look like going forward.

Robert Moskow — Credit Suisse Securities — Analyst

Well, you’re doing it right now, aren’t you? I mean, you’re saying that you’re taking all these precautions right now. It’s obviously the right thing to do. Have you made any estimates as to the degree to which that slows down the facilities and reduces utilization?

Noel White — Chief Executive Officer

We know specifically what that means right now, Rob, but we’re a Company that continuously innovates and works on better processes and that continues to be the case. So I don’t think it’s accurate to think that what we’re doing today necessarily has to be the case, let’s say, 12 months from now.

Robert Moskow — Credit Suisse Securities — Analyst

Okay. And then a follow-up, you said that chicken margins are likely to be negative in the back half. Is it possible there to kind of isolate the degree in which that has to do with just excess supplies on the market versus incremental operating costs at the plants for safety and also the absenteeism?

Stewart F. Glendinning — Executive Vice President & Chief Financial Officer

Rob, Stewart here. So first of all, we didn’t say that margins will be negative. We said that Chicken would likely be unprofitable in the back half of the year. And I think just a couple of questions ago, I sort of framed that. There is a combination of factors and the only one that I didn’t point to just because it’s ongoing is weaker pricing. But if you go back and just look at those factors, the ongoing weaker pricing that we’ve seen, the negative impact of loss of volume, the mix shift between foodservice and retail, and then, of course, just the efficiency levels in the plant, which have been impacted by worker availability, by some of the measures that we’ve taken, and then, of course, the bonuses, I mean, that sort of frames out the picture in Chicken. I can’t give you any more detail than that.

Robert Moskow — Credit Suisse Securities — Analyst

Stewart, can you help me understand what you meant by unprofitable then? If it’s not negative margins, what has been?

Stewart F. Glendinning — Executive Vice President & Chief Financial Officer

Well, I mean — I’ve assumed when you said margin, then you were thinking about gross margin, but if you think about operating margin, then that’s true. I was just saying it’s going be unprofitable at the operating income level.

Robert Moskow — Credit Suisse Securities — Analyst

In that case, we’re both in line. That’s what I meant. Okay.

Stewart F. Glendinning — Executive Vice President & Chief Financial Officer

Yeah. Okay. We’re lined up.

Operator

Our next question will come from Ben Bienvenu of Stephens. Please go ahead.

Ben Bienvenu — Stephens — Analyst

Hey, good morning guys.

Noel White — Chief Executive Officer

Good morning.

Ben Bienvenu — Stephens — Analyst

I want to ask about the executive order. I think it was helpful in standardizing the processes and procedures around which you guys would open across various states and counties and facilities across the industry. I’m wondering what else it does? I think there’s been some reference to potentially deferring PPE costs and liabilities. If you could elaborate on kind of the benefits of what that executive order brings to you guys and the rest of the industry from a cost perspective, as well as clarifying the operating procedures?

Dean Banks — President

Hi, this is Dean. I’ll stress — your first point is really cannot be understated. So, it cannot be overstated. The uniformity with which our plants are governed really being dictated by the experts, the CDC, the OSHA, the USDA, is critical for us to both maintain industry standards high. We’ve actually had a few of our plants visited by folks like state government health officials and the CDC and they’ve actually asked to work with not only food industry is coming back online, but also other industries to show them how we’ve taken care of our team members. The second point about PPE, we moved very, very quickly early in the process to secure PPE for our team members, but those go quickly in our business and so, the other benefit of the executive order is really to make sure that we have long-term abundant supplies depending upon how long this pandemic ultimately last, things like masks, hairnets, etc. We’ve gone so far and sometimes just gave out masks to team members so that they can operate in their community where they know that there may be some latent disease so that they can operate safely in the community and not bring that back into the plant.

So, those are really the two main benefits of the order.

Ben Bienvenu — Stephens — Analyst

Okay. And you made some illusions to export and how those have fared year-to-date and kind of your outlook a bit, but I’m curious, I know it varies by protein segment, but do we need to see higher crude oil prices and a weaker relative dollar and more stable global environment in the context of COVID to see exports improve or do you think that we can see significant improvements in exports exclusive of those factors?

Noel White — Chief Executive Officer

I think we can see them exclusive of those factors, Ben. It’s — exports year-to-date have been strong, interest continues to be strong despite very low oil prices. So, the global fundamentals that we were looking at six months to 12 months ago haven’t changed that global protein demand still continues to grow at about 2% rate. Production volume is not increasing at the same level. United States historically has been a low-cost supplier of protein, beef, pork, and chicken to global markets. So we don’t see that changing and the demand that we’ve seen over the course of the last 30 days to 60 days I think just reinforces that and that’s why we’re encouraged on a long-term basis of the outlook. That hasn’t changed. We have the headwinds and challenges in front of us right now that we deal with. But as long as we make sure that our team members are safe in our plants, that’s priority Number 1. Priority Number 2 is making sure that this Company is positioned for the long term over the course of the next 10 years, 20 years, 50 years to continue to be successful. So, we’re not only dealing with the short term, but we also are deeply — we’re deeply — we view the long-term on a — taking very, very seriously.

Ben Bienvenu — Stephens — Analyst

Okay, thanks. Be well and best of luck.

Noel White — Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Noel White for any closing remarks.

Noel White — Chief Executive Officer

Thank you for your time today. One of the hallmarks of Tyson is turning insights into actions. The current environment presents significant opportunities for our Company as we assess and react to changes in the consumer landscape. We’ll leverage our resources and infrastructure as we continue our role as a leader in food production. Let me conclude by saying that the responsibility of leading our nation goes beyond any one business. Working together, we’re confident we can mitigate the spread of COVID-19 in our communities, keep it away from our plants, and help the food supply chain intact. Please stay safe and we look forward to talk to you soon.

Operator

[Operator Closing Remarks]