Ruth Ann Wisener - IR Donnie Smith - President & CEO Jim Lochner - COO Dennis Leatherby - CFO

Rob Moskow Vincent Andrews Heather Jones Christina McGlone Farha Aslam Christine McCracken Akshay Jagdale Diane Geissler Ryan Oksenhendler Steven Share Ken Zaslow

Good morning and thank you for standing by. At this time all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host, Ms. Ruth Ann Wisener. Ma'am, you may begin.

Good morning and thank you for joining us today for Tyson Foods' conference call for the first quarter of our 2010 fiscal year. I need to remind you that some of the things we talk about today will include forward-looking statements. Those statements are based on our view of the world as we know it today which could change. I encourage you to look at today's press release for a discussion of the risks that can affect our business. On today's call is Donnie Smith, President and Chief Executive Officer, Jim Lochner, Chief Operating Officer and Dennis Leatherby, Chief Financial Officer. To ensure we get to as many of you as possible please limit yourself to only one question and then get back in the queue if you have another question. Please be aware that we will end the call at promptly 9 o'clock central so our executives can to our shareholder's meeting which begins at 10 am. I'll now turn the call over to Donnie

Earnings were $0.42 a share on sales of $6.6 billion reflecting $314 million in operating income and a 4.7% operating margin. Beef, pork and prepared foods continue to execute well and chicken is starting to show the improvement we have been working towards the last year or so. Our team members are doing a great job staying focused and moving the ball forward week after week. To give you color around demand in the current environment, consumers are still worried about the economy and unemployment although our research indicates they're starting to feel a little better about their economic situation and are hardly as concerned about limiting their restaurant visits. Foodservice demand is forecasted to be down again this year but with a smaller decline than last year. So we're hoping we're seeing the light at the end of the tunnel. I can tell you there is a lot of activity in our Discovery Center around product development to help our national accounts and our distribution customers drive traffic through value and innovation. Consumer products demand remains good and consumer concerns about their grocery spending continue to ease. We're seeing volume growth in fresh chicken, beef and pork. According to independent research by the Perishable Groups, Tyson and Private Label were the only brands of fresh chicken with growth in either dollars or pounds. Turning to our international business, we're still getting our arms around several acquisitions we made last year and unfortunately our strongest and longest standing international business Mexico, has suffered from a deep recession and an unfavorable foreign exchange rate. But operationally Tyson to Mexico continues to perform well. We're pleased with the progress in our operations in China and India. In Brazil, however, we're working to bring two new plants online while the Brazilian poultry industry is struggling. Export market prices were weak throughout the quarter and non-responsive to the strength in the real. Moving to Renewable Products, we've a lot of good news coming from that group but I'm most excited to tell that you on January 18th we reopened a plant that is now producing premium dog treats. The Renewable Products team was able to go from idea to production start up in about six months. That's truly a remarkable accomplishment. Not only will we reap the benefits of the innovative pet products coming out of the plant, but we get the satisfaction of putting people back to work in Independence, Iowa. With that, I'll turn it over to Jim for the segment reports. Jim?

Thanks Donnie. This is my first quarter being involved in the chicken business and while the terminology is different, the basics of yields, cost, maximizing revenue are the same as other protein businesses. We've done a good job of optimizing the performance of our fresh meat business, our prepared foods business and I am very pleased with the strides we are making in the chicken business. In the first quarter of fiscal 2010 the chicken segment posted an operating income of $78 million and an operating margin of 3.2% compared to a negative $286 million and a minus 12.8% of first quarter of fiscal 2009. It also compares favorably to our previous quarters margin of 1.2%. Improvement in the chicken segment was driven by better execution in the basics, better yields, mix, live production, controlled spending and labor efficiencies. We improved the return on sales and controlled inventory levels. Volume growth was primarily due to international acquisitions. There is still upside for our chicken business and we'll stay focused on maximizing operational performance. We continue to monitor the rush in import situation and hope for an acceptable resolution. But keep in mind we've reduced our chicken sales to Russia by nearly half from 2008 to 2009. Our sales to Russia accounted for only 10% of our international sales last year. I'm pleased with our mix management in late quarters and expect it to continue to get better. Moving on to the B segment, operating income was $119 million with a 4.4% operating margin. This compares to breakeven results in Q1 '09 and a 4% return in Q4 of '09 excluding a goodwill impairment charge in Q4 of '09. We continue our focus on improving operating cost and maximizing revenue through mix and domestic and international sales channels. The pork segment had another very strong quarter with $62 million in operating income and a 7.6% operating margin versus $55 million and 6.3% in Q1 of '09 and 5.5% in Q4 of '09. Our pork business performed extremely well. We maintained a strong revenue to operating cost relationship. Sales of our branded and premium pork products also contributed to performance. The prepared food segment made $55 million or 7.7% this quarter. This compares to Q1 '09 results of $35 million and 4.7%. In Q4 its 5.3%. We were pleased with our overall capacity utilization, sales mix and product management across the various product lines in businesses within our prepared food segments. The success of beef, pork and prepared food segments was pretty basic, continued hard work and focus on execution. Our chicken group has the same focus and it is reflected in this quarter's results. I expect to see execution continue to improve going forward. On considering the outlook for our industry, it's important to focus on domestic availability of protein rather than production numbers alone. Domestic availability takes in to account production, carcass weights, inventories exports and imports. When you combine all those measurements you'll see the amount of the four major proteins has declined since 2008 and are projected to decline further in 2010. We haven't had a two year decline in protein availability in United States in the past 40 years. Even though food service domestic spend is forecasted to be down again in 2010 we are seeing data supporting increasing retail protein disappearance. Export demand for beef and pork is stronger than a year ago as well. As you know, decreased total supply should be favorable for pricing. We're poised to take advantage of the market opportunities and we're better positioned to deal with changing market conditions. Our team members are doing a great job and 2010 is off to a good start. I want to thank all of our team members for their effort and focus on the business. I'll now turn it over to Dennis who will give you more details on the results for the quarter.

Thank you, Jim and good morning everyone. As stated in our press release in Q1 we reported earnings of $0.42 per share compared to a $0.27 per share loss in Q1 '09. Here are our few highlights in our Q1 results. Operating cash flow exceeded $0.5 billion which drove a reduction in net debt by $400 million to just under $1.9 billion. Our commitment to further reduce debt is also reflected in our repurchase of bonds. In our first quarter of fiscal 2010, we bought back $64 million of bonds and since the end of Q1 we have purchased an additional $306 million of bonds which is further described in our 10-Q we filed this morning. On a cumulative basis, we have repurchased $663 million of bonds since last March and our plan is to continue to be opportunistic in these efforts. Total cash at the end of Q1 including restricted cash exceeded $1.5 billion, an increase of almost $340 million from Q4. Total liquidity including restricted cash increased over $2 billion. Total debt to capitalization at the end of the quarter was 43% and on a net debt basis, debt to cap now stands at 29%. Inventory days and accounts receivable improvements continue their favorable trends and we expect that to continue. Capital expenditures were $113 million compared to $84 million in Q1 '09. Our effective tax rate for Q1 was 33%. This rate reflects benefits recorded as a result of tax audit resolutions and statue of limitations, explorations in Q1. So here is an update on a few key metrics for your financial models. Expect revenues for the fiscal year to be in the $27.5 billion to $28 billion range, up from $27 billion in the previous call. Net interest expense should be approximately $325 million for fiscal 2010, which includes the premiums we paid on bond buybacks to-date and the respective future interest savings on those bonds that we paid off. The buybacks and retirements we made to-date in fiscal 2010 will reduce net interest expense to approximately $74 million per quarter beginning in Q3. Depreciation and amortization will be approximately $500 million and our effective tax-rate for the full year will be in the range of 36% to 37%. To the Tyson team, thank you for the great progress you have made. It's certainly a lot more fun to come to work these days and it's obvious in the halls around here that I am not the only person who feels this way. We have a great team; we have great people, a great plan, and a renewed sense of purpose that I believe positions us well for even more success in the future. Donnie?

I just want to reiterate what Dennis said. I visited with team members all over the country, in every segment of our business, and our team is excited and optimistic and the reason is obvious. Serving customers and making money is a lot of fun. Our team members have worked hard, stayed focused and weathered a long rough storm, and I am happy they get to enjoy these good times together as a winning team. I often tell our team, we have the right team, the right plan, and the right to win. I believe that, they believe that, and if you don't already, pretty soon I think you will believe that. Looking ahead, Q2 is typically a weak quarter for us, but we're off to a good start. We expect our beef and pork segments to be off slightly compared to our strong first quarter. Although higher pork prices will benefit Tyson overall, the increased input costs will have a negative impact on our prepared foods segment until price increases can take effect. We expect our chicken segment to continue and improve driven by our internal operational improvements and improvement in industry fundamentals. For the remainder of the fiscal year, we're just going to stay focused on getting steady improvement in chicken while holding the line in our other segments. By with doing that, we will be in good shape for 2011 and beyond. Operator, we're ready to take questions.

(Operator Instructions). The first question comes from Rob Moskow. Your line is open.

I wanted to ask maybe just longer term now that your chicken businesses seems to be getting back up to speed again, can you said that you're positioned to deal with market conditions in the market volatility? Can you give us a little more specifics on what's happening at your production facilities, so that you're more nimble and in the event that maybe declining dark meat prices over the next month or two? How are you going to be able to react to that, so that we have higher highs and higher lows?

Let me answer that Rob, this is Jim. The key thing that the chicken segments is really focused on is just basic key performance indicators, live production cost improvement, yield improvement, mix improvement, inventory management, SG&A management. And the continuous focus and continuous improvement using external benchmarking as well as internal benchmarking continues to drive that improved execution. So I would agree that the highs should be higher and the lows should be higher.

And you have talked a lot about the switch to maybe emphasizing more big bird production. Is that a factor also here or? And I remember you had some execution problems during that production start up in the September quarter, has that resolved?

The mix hasn't been that dramatic between bird types and we will work through the details associated with the previously announced change overs. So I guess we will take the next question.

The next question comes from Ann Gurkin. Your line is open.

Just wanted to follow along. We understand you are increasing production in some regions and your competitor yesterday was commenting that they're going to increase production ahead of the industry and perhaps bring back an idle plant. I was just curious your outlook for the back half of calendar 2010 with this production ramping up. Is the demand strong enough to absorb this increased capacity or are we going to see a price competitive war erupt as competitors try to gain market share? Can you just help me understand that?

Ann, this is Donnie. Back in the fall, we cut back just last fall in Q1, which is a bit atypical for us, but what we wanted to do was make sure that we ended Q1 with a really good inventory position, which we did. Now, we are running pretty close to full now which, by the way, is a great help with line efficiencies, labor efficiencies, and that type of thing, so even though our production pounds increase, we'll be up around 2% or 3%. Remember, what we have done is we're replacing the sales that we took out of inventory last year, so our sales pounds will probably be up some, but I don't want to you to get alarmed on the production pounds issue because we sold those pounds that we have increased we sold those very same pounds last year out of inventory.

Let me add a little more to that. When you look at the macro supply issues, 54 million laying hens forecasted would be difficult to increase dramatically to be able to cover that anyhow. This year particularly we'll be in that lag ramp-up phase, which will be dictated how fast that occurs by the overall segment profitability. But when you look at those numbers, it is pretty dramatic, particularly when you compare it to '08 and '07.

The next question comes from Vincent Andrews. Your line is open.

My question would just be on the strengthening dollar. Exports is always a topic of conversation and I know to date the strengthening of the dollar (inaudible) developed currencies, but how do you think that could impact exports? Is that something you're concerned about?

Certainly the strength or weakness of the dollar does influence the interest and the pricing. However, I look at the big picture and look at the lack of protein, or the protein supplies being down, production being down. And our export interest particularly in Pork was so strong through Q1 and Beef was very strong and Chicken really hasn't changed. I look, in the countries that need the protein, source it. EU is down, Canada is down, and Brazil pulled back in Chicken production. So although the strengthening dollar would imply that we should have decreased interest and that may have some reflection in price, the ability to source that internationally is limited simply going back to the fact that profitability across the world in protein production through the '07, '08 timeframe really curtailed supplies. And again you can't just turn a switch and increase those supplies that fast.

The next question comes from Heather Jones. Your line is open.

Just quick question on Prepared Foods. You talk about tightness in Q2 but then your clauses in your contracts should kick in. Are we talking about significant sequential deterioration, several hundred basis points, or just slight deterioration?

I am going to answer that by saying slight. What we had was a very rapid run up in belly and ham prices. Normally you would have a seasonal decline in hams that didn't occur. Again, it goes back to the availability and the strong export interest in that particular commodity category. And secondly bellies were also at surprisingly high levels with strong bacon demand. Since we're not terribly out front in our pricing but there is a lag simply in that correction, so we expect, we and others have noticed an increase, tried to pass through those prices, and that lag will have a slight impact on that return.

And have you put in similar mechanisms in your fixed price chicken contracts, if feed prices shot up for whatever reason, to be able to quickly move those through into fixed price chicken contracts?

Yes, over time, and that comes back to the mix and working that as best we can. We pull them back in and try to reduce our exposure to annual fixed forward pricing.

Next question comes from Ken Goldman. Your line is open.

Just a question I'm thinking head for chicken. There is always the puts and takes in pricing and feed costs and non-feed costs. How should we think quantitatively when modeling your chicken margins about percentage of chicken costs from non-feed this quarter versus maybe a year ago? Just help us understand what percent maybe of your improvement was from those reduction of fixed costs or non-feed costs?

I don't have that percentage calculated, but I would say as I've talked about our improved execution, obviously yield is on the revenue side. When I talked about reduce and improved live cost, improved SG&A, and improved cost from handling less inventory, because that translates into less movement, less cold storage costs etcetera. So I didn't calculate that exact percentage, but there are significant components and just pure execution on cost. As you know, the simplest EBIT model is revenue versus cost, and we're focusing heavily on both ends of that equation.

The next question comes from Christina McGlone, your line is open.

Jim, I wanted to understand the beef volumes were so strong, why were they that strong?

The volume, are you referring to purely the head or the pounds? I am not quite [Multiple Speakers]

You said volume was up 7.1%.

That would be pounds.

Our pounds were up. We've really focused our group into maximizing revenue, minimizing costs, looking at our mixes, and our goal is not market share per se but to try to maximize our operating income and we do a really good job of looking out ahead what cattle are available, and what our demand structure looks like, and we did increase our capacity utilization over the prior quarter from a year ago. So it comes back, they are just basics, I was surprised actually that the volume when I look at it, wasn't that high over last year.

It is, because the demand environment seems kind of moderate, so it was stronger than I expected, and then just follow-up question on China with the anti-dumping duties from last night, what is that? Tyson does have, it looks like the lowest amount that was applied. What does that mean for you? I mean could you still get your, the product there, the lower price, then domestic prices or will that lead to some possibility?

We're still assessing that since we just really saw a notification, and we had not had a chance yet this morning to start to sort out all the issues associated with the potential anti-dumping so in other words, we're not sure yet.

Your next question comes from [Tim Rainey] your line is open.

Jim, cattle supplies are supposed to tighten up a little bit, but are weights going to be better at sort of extension of Christina's question and how do you feel about margins and capacity utilization in a slightly tighter supply environment?

Tim, the supply as I've been saying all along really has decreased normally at the 1% rate. Carcass weights are up, I always like to do the math here and go if carcass weights were the same as when the cow herd was $35 million, I hate to see swat cattle prices would look like because if you just do that math at 88% less weight, 10-15 years ago, actually that's fairly equivalent now. The head decreased, as you know and most know that we took some of our inefficient plant capacity out over last four to five years, and so the total infrastructure of slaughter capacity to the cow herd is in reasonable shape yet. Our focus is really just on pure execution. Our plants sit in very good regions where cattle are fed, and we are seeing more cattle being fed up in the upper Midwest in the Nebraska-Iowa area than we have before, and I would suspect that the peripheral areas outside the close proximity to grain were higher cost per grains will occur, will be the ones that curtail feeding, so I am not really alarmed over the big picture on this.

Next question comes from Farha Aslam, your line is open.

Jim in poultry, the changes you're making in terms of mix, live costs, etcetera, would you be able to quantify roughly what type of savings or improvements in EBIT you're looking for out of those efforts?

Farha this is Dennis. One thing that we do around here on our security badges a lot of us put pennies on there, and roughly a penny of improvement in any of those factors is worth $100 million, and what we're going after is those pennies.

I would add one thing, the Chicken segment, our operations, our sale, I was really impressed with how driven they are on KPIs and the new KPIs they put in over the last year-and-a-half, two years, and they were so far on their way and just really driving, and looking for not just pennies but tons of pennies and fractions of pennies because of the multiples there, and as Dennis said that is the driving mantra, look for everything, and so we are just going to try to push and make sure we get up into the range and stay in the range.

Hey Farha, this is Donnie, let me kind of wrap this part up. It's hard for us to forecast the timing of the impact of operational changes. Now, our job in continual operational improvement is really never finished. First thing we've got to do is we've got to more consistently generate operating margins in that 5% to 7% range, which we should do this year. This quarter was certainly a step in the right direction given the market conditions, grain up and pricing fairly soft for Q1. Now operational changes, they just don't happen overnight and our operational changes are going to come in waves. There is some impact in our Q1 numbers, and we're operating even better now. So we'll see more improvement as we move through 2010 and we're using our capital to set up 2011 well. Some projects that we're working on now won't actually begin until early 2011 because we don't want to negatively impact our customer service during the grilling season, for example in our fresh chicken segment. So, hopefully that adds a good bit of color around what we are doing.

That's helpful, and Donnie maybe just a follow up. Across your segments, the Beef segment was exceptionally strong compared to your longer term targets, sort of 2.5% to 3%. Could you just share with us what your targets are now on for EBIT and how consistently you feel that Tyson can meet those targets?

Well I'll say it this way Farha. Normalized ranges become normalized over time, and we're pleased with how well some of our segments have done and obviously we still got more and more improvement to make in our Chicken segment, but our goal certainly is to get all of these segments into the ranges that we've historically set out for them, and then we certainly wouldn't stop there. If there were continual operation improvements we want to continue to do that. So, I am not saying we're going to set new target ranges for each of our segments now. We got to get through normalized to build a new normalized, but I can tell you this team is focused on servicing our customers, growing our business, and maximizing our operational efficiencies, and along the way I think our investors are going to like those results.

The next question comes from Christine McCracken. Your line is open.

Jim just to take another stab at Christina's question on beef volumes, because when I look at beef industry volumes as a whole for the quarter they are only up 1%. Could you explain what exactly happened there? Is that out of inventory or…

No, simply a combination of carcass weight and head and process more than we did in Q1 of '09 and essentially we tried to set up to improve. What I'm trying to say is we really try to run five day and we really work at daily efficiency. And we've improved daily efficiency and we try to make sure that we have the product sold and we target that five-day. I knew that we had run more head in the carcass weight because the revenues themselves were down year-over-year. But we really don't set out with a game plan on a quarter. We just really run every week and try to maximize the revenue and keep our costs in line and take what it gives us. There is no magic. That is what I'm trying to tell you. That's just the weekly game plan.

And as these cattle supplies and hog supplies in the short run get tighter and subsequently the meat prices move higher, what are your expectations around export demand on a higher price and as you look at domestic demand, could you see that maybe helping out on your chicken business as beef and pork values go higher?

Yes. The big picture I think that's so interesting is when you look at cold storage collectively across four proteins year-over-year down 19% and you look at particularly the peak year of '08 production because I think looking at things year-over-year can be dangerous, but go look at the peak production years in domestic availability years of '07 and '08, and '10's forecast by most people's accounts are down substantially. And this is a very rare event to see per capita consumption because all four proteins dropping from that peak and I rely on a variety of different people's estimates, and make adjustments for what we see but some of them are in the 7% to 8% decline since that peak and that's a fairly substantial reduction in protein simply because the profitability during that '07 - '08 timeframe across all of those segments did its job. It reduced supply. And the same thing happened in other major protein producing parts of the world. China is the one that's difficult to get numbers but absent China you look at the same thing in the EU, you look at the same thing in Canada. And then Brazil is going through a change in their production in chicken. So that's the big picture. Sometimes we get hung up into looking at the year-over-year, month-over-month but the big trend line is reduced protein, which we've been saying was going to happen. So that's why I think export demand will be very strong. And if the economy starts to increase, and demand in most areas the big year adjustment in down demand was '09 compared to '08 and most of these demand plains look like they might rebound. So again against tighter supplies that's what the picture looks like.

The next question comes from Akshay Jagdale. Your line is open.

Congratulations on a good quarter. Jim, just wanted to talk a little bit more about beef and normalized earnings and also some seasonality. In the past you have said about $25 a head is what normalized is in terms of dollars a head. This quarter my calculations are about $67 a head. And one question related to that is in 1Q you never had such a strong performance before on beef. So what is it in terms of seasonality that we may be missing? And the second question is what has changed structurally in Tyson's business model in beef as well as in the industry such that you've gone from losing money as an industry and as a company about two or three years ago to now moving to $20 - $30 - $40 a head run rate over the last twelve months? So I know that's a lot of questions, but all related to beef.

I'm trying to figure out where to start answering that one but again, it comes back when you look at the structure and you put your internal focus and deal with things in your own control. So you continually look at how do you maximize revenue through mix, how do you work through your customers to be the go-to supplier, you work on service, you work on quality, you work on innovation with them and you really work on your cost structure and you work on your supply chain. The key component is we're pleased with those improvements that we've seen that the team has made and they all know their metrics. They all know their KPI's. So there is no one silver bullet there and you go back and look at our Q4 '09 numbers, we had a very good run rate. Last year Q1 and Q2 were a really rough transition because we had such a dramatic drop in revenue happening and as you know it is a spread. Our job is to maximize the revenue for the producers every day, but the market does its job and the cattle costs usually follow the revenue. Id' like to be able to give you some real specifics but it is so many small plays of continuous improvement working on things. So I apologize if that doesn't give you a real concrete answer, but it is just focus on a tremendous amount of key performance indicators that drive operating margin. Thanks for your question though but it's a tough one to answer in a short period of time without saying in general.

We'll follow-up after the call on that one but just one more, if I may for Donnie on chicken. Can you just talk about your view on foodservice demand? Your comments were very positive on the chicken industry relative to Pilgrim's Pride who reported earnings yesterday. Can you just talk a little bit about your outlook for demand? It seemed like you were positive on chicken based on inventories and supply but can you give us some insights into what your expectations are for demand and any color on channel would be helpful.

Okay, sure. In our prepared comments I mentioned that we still expect foodservice demand to be down in 2010, but not at the same rate as we saw in 2009 or the latter part of 2008. To give you a little bit more specifics and I'm probably going to focus more on maybe on Technomic information. We use their research. And as I read their research, they're thinking that the foodservice segment will probably be down about 3% in 2010 focused heavily more in the first half of 2010 than maybe in the back half which is about half of the rate of decline in foodservice demand in 2009 versus 2008. So I don't want you to confuse a slower rate of decline with optimism but we do think that perhaps in the latter part of 2010 this foodservice thing has a chance to stabilize. Now, I think we all need to bear in mind that's based on unemployment and several things that we don't know yet today. So we'll just see how this thing plays out but that's what we're thinking.

The next question comes from Diane Geissler. Your line is open.

Congratulations. Hey, I want to ask about your cash flow which was pretty strong this quarter. I see there was a big pickup in the benefit from working capital changes and I just want to know is this part of the whole we want to be more efficient and we're going to run our balance sheet and our cash flow the way we are running our operations? And the second part of my question which is related is really to the extent that you would see improvements in cash flows throughout the remainder of the year, what's your focus? Are you going to continue to pay down debt? Are you going to use it for international acquisitions? Is it going to be for additional CapEx in your owned operations? What are your priorities?

Sure, great questions, Diane. As far as working capital goes, Donnie and Jim and the teams have done a great job of managing inventory to the appropriate levels for each of their respective businesses which has generated quite a bit of cash. On top of that we've really managed our receivables very well. I think the improvement is on the order of magnitude of about $500 million over the past year relative to our working capital turns in the past. So that's a commitment we've made to ourselves to generate cash. As far as the use of cash goes, our priorities are going to be, first, to reinvest in our business. We have a number of opportunities in a couple of our segments to improve efficiencies and be more responsive to our customers and add flexibilities to the plant. They're really good return projects with minimal risks. So we're going to keep focusing on those kinds of projects. And then, secondly, we would focus on buying back more debt to the extent we can. We have already done quite a bit. Beyond that, acquisitions were really not in the market right now. We're focused on what we're doing and trying to get better.

Your next question comes from Ryan Oksenhendler. Your line is open.

Question on feed costs, I know you guys said last quarter you're probably more on a spot basis, but you have seen corn move down significantly. Has your hedging strategy changed at all over the last few weeks?

No, not significantly. I mean we'll stay on the market. We are enjoying right now the benefits of this huge increase in the corn crop as we saw. One point you might want to bear in mind, the way that corn works through the inventory, that's not so much of an immediate impact, or won't be so much of an immediate impact on our Q2 as it will in improvement in Q3 and Q4. But, now we're going to stay hand to mouth, stay pretty close to the market, like we have said in the past.

One follow-up, I guess you talked last quarter about some startup costs in international and some weakness there. Was that a drag on the first quarter at all?

Yes, a little bit.

A little bit, okay. Then how much more do you think that's going to be a drag? Is that going to get better throughout the year?

I would say the situation in Brazil isn't going to improve and we're hopeful of Mexico will and then we're into some startup in China. So we've got some investment in startup costs in those that we'll have some negative impact, but we're investing for the future.

Next question comes from Steven Share. Your line is open.

Good morning. I wanted to touch on capital expenditures a little bit. I think the guidance was $600 million on the last call, and I didn't hear anything now. Curious if $600 million is still the number. And then secondly maybe you could update us on where that spending is going, specifically Dynamic Fuels, where is that project.

Yes. The guidance is still $600 million. We have under spent, really, in the last couple of years, for obvious reasons, and as a result we've got several projects that we need to do that we believe will help contribute to our results in 2011 and beyond. So we're going to probably over spend. Typically we like to keep our CapEx spending something close to amortization and depreciation, but we're likely to over spend in this year with good strong cash position and having under spent for a couple of years. We're going to invest in our business a bit. I would say on the Dynamic Fuels and that type of thing, we're on track to do what we said in previous calls, so that stuff remains the same, and probably going to spend a little bit more in our domestic business.

Let me add one thing. We have a backlog, and our operations people have excellent projects with very low risk, very good returns, and we'll be managing through that backlog because they will all add to our ability to maximize revenues, minimize costs. So we're going to get after that very aggressively.

Could you maybe break that $600 million down as far as what you would say is pure maintenance versus the projects you mentioned that have a real good expansion and good return on investment?

I wouldn't say any of them have expansion. What they are is continuous improvement on process for either finding more efficient labor or improvement in yield or yield management, or it might be some new processes that capture more protein parts throughout a variety of all the segments we're in. About roughly out of this year I will guess that about half will be what I call improvement projects and half in investment or required for maintenance or repair type of projects. We didn't really curtail those that much. We slowed down because you always have to fix what you need to fix to keep your plants running. It will ebb and flow depending upon the circumstances, but our thrust is really to go after and identify very strong return projects that keep us competitive.

Next question comes from Ken Zaslow. Your line is open.

Jim, I am assuming when you take over the role of COO, it takes you time to get up to speed on the chicken, the whole chicken business. Can you talk about where you are in the life cycle of understanding the chicken business and when do you think you will have a meaningful impact on the business? Just give us a little bit of a timeline of how you're going around and looking at all the businesses. What are you doing?

First of all, I came in and, as I said earlier, I was extremely impressed with the focus that the Chicken segment and the people had. The first week I sat through all the operations meeting, and I said these guys got their KPIs down and they're focused. So I am getting familiar with the operations and the flow, the subtle little details of how you maximize revenue, how you go look for yields. But I am learning from them. I am not teaching them anything. So and my forte is really is always back in just building good systems so that the management of information and the management of continuous improvement becomes the norm and not a new game, so it is a continuous process. This involvement in the Chicken improvement in the Chicken segment's performance and execution was all started long before this quarter, so and we'll just continue to drive it. We have very good people, same in all the segments. We're really challenging each other across business units to find continuous improvement, and we're chasing the fastest runner, so to speak, and everywhere. That's what makes it fun. When you deal with the detailed drivers that drive operating margins, the margins take care of themselves. So that's the key thrust we're on. That maybe didn't answer it specifically but in general terms we have really good process improvement mentality going on across. And that's not just in operations that's also in sales, that's also in service, that's also in evaluating pricing and procurement. I am certain I am missing some of the key components. Shared services, renewed, looking at all their contributions to continuous improvement either in revenue or costs. Again, a tremendous team that's adding a lot of value in a lot of places.

Great. And Donnie just real quick, did you mean to say this year you're going to have Chicken margins between 5% and 7%? I think you said it in one of your answers, I think to Farha's question. I just want to make sure you meant that.

He did.

It is not something you guys normally give in terms of numbers and all of a sudden like boom, I just heard that number and I said wow, cool. Thank you very much.

We bet you, remember, it is not a guidance, it's a range. And, yeah, I meant it.

The next question comes from Robert Moskow. Your line is open.

Just a quick follow-up. Did you say that you thought that operating margins could be 5% to 7% in chicken this year?

You all are starting to pile on now. Yes.

The next question is from [Tim Ramey]. Your line is open.

Well now does that mean it's for snapshot in time or the full year, Donnie? I guess that's probably the last question on that. And then I do have a follow-up because that wasn't what I was going to ask.

Yeah, but I am not even going to give you the chance, Tim. We're looking at a full year. We're looking at the year in the range. Absolutely our team, we have a great team and they're focused and I have got all the confidence in the world they're going to be able to deliver on what they say they are going to do.

If I can ask the question I was going to ask.

No chance. Next caller.

Go ahead, Tim, I will give it to you.

Just on the foodservice outlook, I mean I am sure you guys have as good a look into what's really happening there as Technomics or anybody else. What do you see at least in terms of the mix between QSR and casual dining? Can you give us any kind of look under the hood of what seems to be doing better or worse in foodservice?

The trends have actually been relatively consistent. It's just the numbers are getting a little less dramatic. QSR is still doing better than full service. The QSR seems to have been hurt a little bit more late in the calendar year '09. They were a little bit, I am not going to say recession proof, but we didn't see much of a decline in QSR during the first half of '09. Towards the latter part of '09 it really started to flatten out and decrease a little bit for those folks. And casual dining, full service and casual has been hit pretty hard. So what we see for 2010 is we would look for the QSR to be a bit flat, and then the casual dining to continue to struggle a bit more than what the QSR is. But again it seems to us that the rate of decline is going to slow. Now, I may have mistakenly given an impression that we see a rosy environment in front of us, but we do see it easing up a bit from what it has been like. I hope that answers your question.

I would now like to turn it back over to Ruth Ann Wisener.

Thank you so much for your interest and your questions today. We're now going to end the call so management can head over to our shareholders meeting. IR, of course, will be around our offices today if you have any follow-up questions. Again, thanks and have a good weekend.

Thanks, everyone.

Thank you.

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