Sanderson Farms, Inc.
Q3 2015 Earnings Call Transcript

Published: 25 Aug 2015

[Operator:]

Good day, everyone and welcome to the Sanderson Farms Third Quarter 2015 Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Joe Sanderson. Please go ahead, sir.

[Joe Frank Sanderson:]

Thank you. Good morning and welcome to Sanderson Farms' third quarter conference call. Lampkin Butts and Mike Cockrell are with me this mooring. We reported net income for our third fiscal quarter of $50.9 million or $2.27 per share. This compares to net income of $76.1 million or $3.30 per share during last year's third quarter. Results for our third fiscal quarter include approximately $20 million net of income taxes and expenses related to our bonus, compensation plans and ESOP are $0.90 per share. Mike will discuss this matter in more detail in a moment. I will begin this morning's call with a few general comments before turning the call over to Lampkin and Mike. Before making any further comments, I will ask Mike to give the cautionary statement regarding forward-looking statements.

[D. Michael Cockrell:]

Thank you, Joe; and good morning, everyone. This morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Examples of forward-looking statements include statements of our belief about future grain and fresh chicken prices, consumer demand, production levels and the supply of fresh chicken products or economic conditions and our expansion plans. The actual performance of the company could differ materially from that indicated by the forward-looking statements, because of various risks and uncertainties. These risks and uncertainties are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2014 as well as subsequent quarterly reports on Form 10-Q filed with the SEC. Our third quarter Form 10-Q was filed this morning. You are cautioned not to place undue reliance on forward-looking statements made this morning and each statement speaks only as of today. We undertake no obligation to update or to revise our forward-looking statements. External factors affecting our business such as feed grain cost, market prices for poultry meat and the overall health of the economy among others remain volatile as always, and our view this morning might differ materially from that a few days from now.

[Joe Frank Sanderson:]

Thank you, Mike. Our results reflect continued strong demand and market prices for fresh chicken sold at retail grocery stores and lower grain cost compared to last year's third quarter, offset by substantially lower market prices for all products produced at our big bird deboning plants other than jumbo wings. The Georgia dock whole bird price remained at near record levels through the quarter, offset by substantially lower prices for boneless breast meat and leg quarters. Food service demand was better during this year's third quarter compared to last year, but the increased demand was more than satisfied by increased industry production and increases in domestic supplies caused by weak export demand. Export demand remains under pressure from several factors including avian influenza related bans, a strong U.S. dollar and lower oil revenues for our export partners dependent on oil revenues to fuel their economies. Grain costs were lower during our third fiscal quarter and the first nine months of the year compared to last fiscal year. If this year's grain crop meets expectations and USDA estimates, we could enjoy benign grain cost in fiscal 2016 as well. Based on what we have priced today and assuming we had priced our remaining needs through the end of the fiscal year at yesterday's closing on the Chicago Board of Trade, our cash cost for feed grain purchase would be approximately $145.8 million lower this fiscal year than last year. These lower costs would translate into approximately $0.04 lower grain cost per pound of chicken processed, once fully priced into our flocks. We have priced our corn needs through September, our soybean meal needs through October, and we have partial coverage through November and December. And we will be on the market for the balance of our needs as we head into the heart of the harvest season. In addition to these lower costs, a good harvest to this year's crop could extend the lower cost into fiscal 2016. While the crop is certainly not yet in the bin and we have priced very little of our fiscal 2016 needs at this time, had we priced all of our fiscal 2016 needs at yesterday's close, our cash grain cost during fiscal 2016 would be $17.5 million lower during the fiscal year, assuming we purchased the same volume in 2016 as in 2015. I'm pleased with our progress in Palestine. The plant is currently moving up to 50% capacity and the plant is scheduled to reach full production during May of 2016. The Palestine big bird deboning plant represents over 15% more production for the company. And when added to the new production at our St. Pauls, North Carolina, facilities will create opportunities for our employees, customers and most importantly for our shareholders. We broke ground in St. Pauls in July and hope to complete the plant by the end of fiscal 2016. At this point, I'll turn the call over to Lampkin for a more detailed discussion of the market and our operations during the quarter.

[Lampkin Butts:]

Thank you, Joe; and good morning. Overall market prices for poultry products were lower during the quarter when compared to our third quarter last year. One exception to that was the Georgia dock whole bird price, which during our third quarter averaged $1.16 per pound compared to a $1.11 per pound averaged during last year's third quarter. The Georgia dock price for this week is a $1.155 per pound, which compares to $1.1275 per pound for the same week last year. The Georgia dock price continues to reflect good demand for chicken in retail grocery stores. Bulk leg quarter prices were down significantly for the quarter compared to last year's third quarter, decreasing 47.8%. Realized prices were lower. Through the first half of the calendar year, overall industry exports of chicken parts were down 9.9% compared to the same period last year and we're down 17.5% in value. Quoted bulk leg quarter price is averaged $0.2572 per pound during our third quarter of this year versus $0.4927 per pound during last year's third quarter. Urner Barry bulk leg quarters are currently quoted at $0.21 per pound. We expect leg quarter prices to remain under pressure for as long as export demand remains soft. As Joe mentioned, several factors are likely to remain in place for the foreseeable future. Prices for jumbo wings improved during our third fiscal quarter. Jumbo wings averaged $1.48 per pound, up 29.5% from the average of $1.14 during last year's third quarter. The Urner Barry quote is currently $1.45 per pound. Boneless breast prices were lower during our third quarter, decreasing by 25.4% when compared to the third quarter a year ago. This year's third quarter average Urner Barry price of $1.48 per pound compares to an average of $1.98 per pound during last year's third quarter. Today, the Urner Barry quoted market for boneless breast is $1.53 per pound. The overall result of these market price changes was a decrease of $0.16 per pound in our average sales price per pound of poultry products sold when compared to last year's third quarter. While our average sales price for poultry products decreased, we enjoyed an almost $0.09 per pound advantage from lower grain prices. Our average feed cost per pound processed during the third quarter was $0.272 per pound, down from $0.361 per pound during last year's third quarter. We sold 899.7 million pounds of poultry during our third fiscal quarter, a 50.3% increase from the 780.6 million pounds sold during last year's third quarter. We processed 889.2 million pounds of dressed poultry during the quarter, up 15.4% from the 770.4 million pounds we processed during last year's third quarter. For the first nine months of the year, we sold 2.52 billion pounds of poultry products compared to 227 billion pounds for the same period last year; and processed 2.53 billion pounds this year compared to 2.26 billion pounds last year. We expect pounds processed during our fourth fiscal quarter to be approximately 888.3 million pounds, up compared to the same quarter last year by 11.5%. We now expect to process 3.42 billion pounds this year, an increase of approximately 11.7% compared to 3.06 billion pounds processed during fiscal 2014. We sold 24.1 million pounds of prepared chicken products at our Foods Division during the quarter, up from 21.7 million pounds last year. Our average sales price at Foods increased 0.5%. At this point, I'll turn the call over to Mike.

[D. Michael Cockrell:]

Thank you, Lampkin. Net sales for the quarter were $739.9 million, and that's down 3.7% from the $768.4 million during the same quarter last year. The decrease was result of a decrease in the average sales price of poultry products offset by increased volume and slightly higher sales prices for prepared chicken. Our cost of sales for the three months ended July 31 as compared to the same three months last year increased 0.95%. Our lower feed costs were offset by the increase in pounds of poultry products sold in the third quarter as compared to the same quarter a year ago. Feed cost and flocks processed decreased almost $0.09 per pound compared to last year's third quarter and feed cost accounted for 42.8% of our cost of poultry products sold during the quarter. By comparison, feed cost accounted for 49.5% of our cost of poultry sold in the last year's third quarter. SG&A expenses for the third quarter of 2015 were $47.3 million, that was up from $45.7 million for the same quarter last year. Year-to-date SG&A expenses include $11 million accrued for an ESOP contribution and that's the same amount that we had accrued through the nine months last year. We expect to accrue approximately $4 million for the ESOP during our fourth fiscal quarter. I'll remind everyone that under our bonus award program, the details of which can be found in an 8-K filed January 21, 2015, most salaried employees at the company will earn up to 25% of their salary as a bonus if our earnings per share targets set out in the program are reached. And certain key managers will earn even a higher percentage. I'll give you some numbers surrounding this plan. The plan's maximum award will be earned if the top EPS target of $8.97 per share is reached. All EPS targets are calculated net of any bonus award payments. And if the top target is met, the bonus award program will cost approximately $26 million. Approximately $9.8 million of that would be booked as SG&A expenses and approximately $16.5 million would be booked as cost of goods sold. We are on track to achieve the top bonus target, so we began accruing for that eventuality during the third quarter. SG&A expenses during the quarter include $7.3 million for a possible payout under the bonus award program, and our cost of goods sold include a $12.2 million accrual. Accruals during our fourth fiscal quarter will be materially lower than during our third quarter, as we have as required by GAAP accrued approximately 75% of our total expected cost of these programs. If we remain on target and earn the full award, COGS will include a $4.3 million accrual during Q4 versus $12.2 million in Q3, and SG&A expenses will include a $2.5 million accrual and that is versus a $7.3 million accrual in Q3. The company's effective tax rate for the quarter was 35.8%; and for the balance of the year, we are modeling a rate of 35.2%. We spent $140.4 million on CapEx through the third quarter, which includes $50.1 million spent in Palestine and $11.4 million in St. Pauls. We have now accrued approximately $174.3 million for the full fiscal year; of which, $74.2 million is accrued for Palestine and St. Pauls. Our depreciation and amortization was $54.5 million year-to-date. And we continue to expect approximately $75 million in depreciation for the year. We also declared $15 million in dividends through the first three quarters of the year and as of today, only approximately $18.6 million in letters of credit are outstanding under our $750 million committed revolver. Before opening up the call for questions, I would like to remind everyone that the company will host an investor conference in New Orleans at the Hotel Monteleone on Friday morning October 16. We'll host a dinner at the Acme Oyster House the night before on Thursday, October 15, and the conference will start at 7

[Operator:]

Thank you. It appears our first question from Farha Aslam with Stephens, Inc.

[Farha Aslam:]

Good morning.

[Joe Frank Sanderson:]

Good morning, Farha.

[Farha Aslam:]

Joe, could you share with us your thoughts on chicken production outlook going into next year, particularly given the recent pullet placement number that was up 20% year-over-year?

[Joe Frank Sanderson:]

Yes. The pullet placement number does not startle me. 20% – I think you need to look at the absolute number and not the percentage, and also look at the number of those pullets that are committed for layers for export; that percentage is against the lowest number that a pullet that had been placed in the last two years and the second lowest of the last three years. And it's the fewest number of pullets in the last three months. And when you account for the number of pullets that are being placed for export and take that into account, we believe that head for next year is going to be up 2% to 3%. So the 20% is just a startle number and we're not concerned about that at all.

[Farha Aslam:]

And then more near-term, recently you've seen excess, kind of, tick-down from the 2% to 3% we were running earlier in the year down to about flat to up 1%. How do you think about that pullback? What's causing pullback in excess and your thoughts on pricing going into the second half of the year?

[Joe Frank Sanderson:]

We think this is just a seasonal cutback, we're into our holiday cut, which is about 4% cut for us. And I believe there are probably some other people doing a seasonal cutback. We think boneless breast is up $0.20 a pound from where it was as Lampkin described in July towards the end of the third quarter. So, we think just market is going to be okay through the Labor Day and then post Labor Day, we think we'll see a seasonal decline. The big question for me is not boneless breast and wings and the Georgia dock; we are okay with that. The big question is leg quarters. And if we get some relief, we hadn't had any outbreak of avian influenza in a while. And so it's time maybe for a few of these markets to open back up and if APHIS and USDA is successful in getting a few of these markets to reopen, take a little bit of pressure off the dark meat, that would be a bigger relief than breast prices. Georgia dock's fine. A seasonal decline from $1.53 in boneless breast is not a big deal. We just need a lot of relief on both the volume and the price on dark meat.

[Farha Aslam:]

Great. That's very helpful. Thank you.

[Joe Frank Sanderson:]

You bet.

[Operator:]

Our next question comes from Adam Samuelson with Goldman Sachs.

[Adam Samuelson:]

Yes, thanks. Good morning, everyone.

[Joe Frank Sanderson:]

Good morning, Adam.

[Adam Samuelson:]

Maybe continuing along Farha's line of questioning in a different tact. Joe, your own production exceeded your own forecast in the quarter. I believe if I heard Q right, your average weight per head was up close to 4%. Can you talk about the weight gain that you've seen both in your own production and in the industry as a whole? How sustainable you think that is? And then I have a question on exports.

[Lampkin Butts:]

You bet. Our increase for the quarter was primarily from yield, Adam, not necessarily bird weight. Our bird weighs like everybody in the industry; have been lower than our target weights during June and July because of the heat. It really happened in July and August.

[Joe Frank Sanderson:]

We're down to 880 right now because of heat and I think everybody in the industry is that's why the price of boneless breast has gone up. But our yields have been just superior even in Palestine. Palestine is doing outstanding with yield and while they may have drug down our cost advantage a little bit, their yield and workmanship has been outstanding, but our target live weight was fine for June. We were right on the money, we were not over our target live **weight at all. We've been right on it, but our weights right now beginning in July and August, we are at 20 points, 25 points under our live weight and I suspect, most people in the industry are – we will recover that second-half September and October, I suspect, as the weather turns cooler.

[Adam Samuelson:]

Okay. And then...

[Joe Frank Sanderson:]

I don't know if that answered your question or not.

[Adam Samuelson:]

No, that's some very helpful color. And then, as you think prospectively on that point, that's been an area that you've seen some pretty dramatic gains across the industry. I think there has been some conversions of some small bird facilitates to big bird I mean, do you think about weight gains in 2016?

[Joe Frank Sanderson:]

I do not. I don't think you'll see anything like the weight gains in 2016 that you saw in 2015. I know you won't out of us.

[Adam Samuelson:]

Okay. That's helpful. And then maybe on exports, I think certainly the pressure on leg quarters is noted. I think it's notable though that Mexico, which is a market that has not closed to U.S. poultry. The exports there are also down pretty meaningfully. Can you comment on what you are seeing in terms of your customers in Mexico, which is a very important outlet for U.S. producers at this point?

[Lampkin Butts:]

We continue to see excellent demand from Mexico. We see that same number. I believe, year-to-date Mexico is down 6% in volume. And at these prices, that's a surprise. I mean, you would think at these prices, they would be buying more, but I think the strong dollar has impacted that.

[Adam Samuelson:]

And as you look at your own business on the export side, the pricing on export product for you, is it worse than maybe the Urner Barry quotes would suggest in terms of the FOB (25

[Lampkin Butts:]

Yes. Yes.

[Adam Samuelson:]

Okay. That's very helpful. I will pass along.

[Joe Frank Sanderson:]

Thank you.

[Lampkin Butts:]

Thank you, Adam.

[Operator:]

Our next question comes from Michael Piken with Cleveland Research.

[Michael Leith Piken:]

Yeah. Hi, good morning. I was wondering, first, if we could get an update in terms of what your expectations are for the Chinese market as it relates to paws and when we might see a potential reopening for that and how much it may have cost you this past quarter?

[Joe Frank Sanderson:]

Well, it cost us $4.3 million – just paws, was it paws and wing tips or just paws?

[Unknown Speaker:]

Paws and wing tips.

[Joe Frank Sanderson:]

Paws and wing tips cost us $4.3 million pre-tax a week times 13 per month – I'm sorry, per month. And we're still rendering 60% of the industry is containing into ship paws through June and July. The last number I saw was down, but a lot of them are still shipping into Hong Kong and we're not and that's okay, we made that season in January and we just think it's prudent. We have a fairly large profile over there and not only that, we don't want to risk our partner getting in trouble. And so we're not doing it now. Lampkin and I were in Washington in the last six weeks, maybe the last month, and we believe it's going to be – maybe 2016 before that market opens up. There is a process underway that has to take place and it's a slow moving process for Chinese plants are seeking approval to export to the U.S., and that's a slow-moving process and USDA has a lot of work to do to be certain and to be thorough, and that has to be concluded and then we have paperwork, the USS paperwork to do and it's a tedious process. So, we think it's year-and-a-half probably.

[Michael Leith Piken:]

Okay. Thanks.

[Lampkin Butts:]

Michael, this is Lampkin. There are meetings in China this week. Thursday and Friday, toward the end of this week with different agencies in China, U.S. Poultry & Egg is there with some different industry people. We hope to know more after those meetings.

[Michael Leith Piken:]

Okay. Thanks.

[Lampkin Butts:]

May we have a better feel.

[Michael Leith Piken:]

And if there isn't a repeat, obviously we don't know for sure, but if AI shows up again next winter, do we have to like restart the clock on some of these markets or what ends up happening in that type of situation even if it doesn't impact the commercial chicken flock directly?

[Unknown Speaker:]

They can. I mean, they can go right back to it or they can regionalize and not do the whole country. They have some options. But their one option is to go right back where they were with the ban.

[Michael Leith Piken:]

Okay. Thanks. And then just shifting gears, you guys had mentioned you locked in your corn through September and your soybean through October and took a little bit of coverage in November. If you could, give us some context in terms of the timing of when that – was that right after the WASDE report or just so we can sort of figure out in terms of what type of cost base and I would assume you basis is also locked in for that timeframe as well, would that be safe to assume?

[Joe Frank Sanderson:]

We bought the basis prior to the WASDE report and for the (29

[Michael Leith Piken:]

Okay. Thank you very much.

[Lampkin Butts:]

Thank you, Michael.

[Operator:]

Our next question comes from Kenneth Zaslow with BMO Capital Markets.

[Patrick Chen:]

Hi. This is Patrick for Ken.

[Lampkin Butts:]

Hi, Patrick.

[Joe Frank Sanderson:]

Good morning, Patrick.

[Patrick Chen:]

Just curious you've been talking about the export environment, have you sent some of your leg quarters to rendering? And also, more broadly what are you doing to reduce the impact of the AI export bans on your business model?

[Joe Frank Sanderson:]

We have not rendered anything. We have – of course the new plants have expanded deboning capacity. Palestine, Waco and Laurel are all doing a good bit of deboning. The older plants do not – we do have some whole leg and some sizing capacity at Collins and Hammond, and we are doing that. We will do the other if we – my concern about jumping into deboning right now is that we do a lot of deboning as everybody seems to be enticed to do right now then – two things are going to happen

[Patrick Chen:]

I think you answered them all. And just one quick follow-up. Given avian influenza impact on turkeys so far, do you foresee an opportunity for, I guess, whole birds around holiday season?

[Joe Frank Sanderson:]

Well, we try to say that every year. We do a little advertising for our roasters every year, but I think there's certain number of people who are going to buy turkeys. But we will try.

[D. Michael Cockrell:]

We certainly encourage everyone to eat chicken.

[Patrick Chen:]

Great. Thank you. I'll pass it along.

[Lampkin Butts:]

You bet.

[Operator:]

Our next question comes from Brett Hundley with BB&T Capital Markets.

[Brett Michael Hundley:]

Hey. Good morning, guys. Can you hear me?

[Joe Frank Sanderson:]

You bet. Good morning, Brett.

[Brett Michael Hundley:]

Hey, thanks. I wanted to ask you a question about your price performance during the quarter, and if this makes sense, I'm trying to get an understanding if your price performance was more due to big bird condition during the month of July or if it's more reflective of the broader export market dynamic that you guys have talked about across the quarter itself?

[Joe Frank Sanderson:]

Big bird debone.

[D. Michael Cockrell:]

Yeah. It was really, like we talked about this on the second quarter call as well, but our realized price versus the quoted Urner Barry price for leg quarters was materially lower during parts of the quarter. I mean, as Lampkin said the average price was $0.20, I forget what it was, in the mid-$0.20s, but there were times, Lampkin, when we were selling dark meat for...

[Lampkin Butts:]

$0.12 a pound.

[D. Michael Cockrell:]

Yeah, $0.12 a pound. So, most of the – if you're building a model and you compare it on realized price to the quoted market price, most of it again just like in the second quarter was because of realized price on dark meat.

[Brett Michael Hundley:]

Okay. And then, we...

[Joe Frank Sanderson:]

Hey, let me (34

[D. Michael Cockrell:]

That's the low end.

[Joe Frank Sanderson:]

That's a low-end. Tell him what the range is on leg quarter price.

[D. Michael Cockrell:]

During leg quarters $0.12 to $0.21 a pound.

[Joe Frank Sanderson:]

So it depends on what part of the world where you're going and $0.12 is a low-end and $0.21 dock that's FOB to dock our plant.

[D. Michael Cockrell:]

And the debone dark meats nets our more than that.

[Joe Frank Sanderson:]

Yeah, and the debone is, I think, add – how much do you add to the debone?

[Unknown Speaker:]

$0.08 to $0.10.

[Joe Frank Sanderson:]

$0.08 to $0.10 to the debone. So, there's a broad range.

[D. Michael Cockrell:]

And Brett also in July, as we were talking about the other day, in July boneless bottomed at a $1.30 and has recovered nicely now, but the realized price for boneless breast meat trading back of that, it was trading back of $1.30 and that had a significant impact on the quarter...

[Joe Frank Sanderson:]

The average back is $0.18.

[D. Michael Cockrell:]

Right.

[Brett Michael Hundley:]

Okay. That's actually really good color. So it sounds like maybe if I could sum that up, July was obviously difficult, we've all heard of where boneless skinless was trading back in the market, and then more broadly across the quarter depending on who your customer is either domestically or internationally potentially you could be realizing lower prices within that range. Does that make sense?

[Joe Frank Sanderson:]

Yeah, it does.

[Brett Michael Hundley:]

Okay.

[Joe Frank Sanderson:]

And people that don't have regular customers for their white meat or their leg quarters will get lower prices than what we were just describing.

[Brett Michael Hundley:]

Yeah. Okay. And then, Joe I wanted to ask you about an industry condition that we've been hearing about for probably a couple of years now and it goes back with woody breast meat that's out there, this firm breast meat and we've heard it kind of bounce around amongst a number of different industry players over time. And I just wanted to get your perspective of if this is an issue for the U.S. broiler industry or if it's something that can be fixed in relatively short order?

[Joe Frank Sanderson:]

I don't think – I think it's a breed. It's a genetic deal that's occurred as primary breeders have selected for yield and secondarily for growth rate, but primarily for yield and we are actually culling it at our plants now, and grading for it and pulling it out, and it's I don't know what percentage we're pulling out now.

[Lampkin Butts:]

3%.

[Joe Frank Sanderson:]

Maybe 3% and that product is going to – instead of going to our food service customers, it's going to as breast trim and is being made into nuggets and patties now. And that's half price of boneless breast meat or lower than that. But I think it's not a quick fix, because it's a genetic characteristic. I think it's two years or three years to correct. And when you correct it, you're going to lose what you were selecting for. You're going to lose a little bit of yield, and a little bit of fee conversion or something that you're striving for, you'll lose it, but that's got to be corrected, and it's happening in all breeds, and it's happening in all weight groups.

[Brett Michael Hundley:]

Okay. So, two quick questions. Did that issue affect your pricing at all?

[Joe Frank Sanderson:]

No. No.

[Brett Michael Hundley:]

During the quarter. No?

[Joe Frank Sanderson:]

No.

[Brett Michael Hundley:]

Okay. And then...

[Joe Frank Sanderson:]

Our pricing was affected by leg quarters and $1.31 boneless breast price.

[Brett Michael Hundley:]

Okay. And then, sorry, as some of this breed gets culled out and replaced, I hear you on losing some yield fee conversion; that makes sense. I guess going back to different breeds, should we think about that adding weight potentially down the road or is that not a good read-through?

[Lampkin Butts:]

No. I don't see a connection there.

[Brett Michael Hundley:]

Okay. Okay. And then...

[Joe Frank Sanderson:]

It's such a smaller percentage. I don't think it'll be material. As you cull this out over two years or three years, you may lose a little bit, but it won't be material, you won't notice it.

[Brett Michael Hundley:]

Okay. All right, that's really helpful. And then, just my last question and then I'll yield the floor. I just wanted to ask you guys about your plant build expectation, your balance sheet is still going be very strong even after we account for St. Pauls. And the industry has seemingly changed a bit here with regards to plant build, some of the normal players that would have built in years past, we don't really see those announcements from them. You guys are obviously continuing to build and it's been a strategy of yours for many years now. And I just want to get it sense of how you evaluate your use of cash flow going forward with wanting to build facilities for your shareholders, but also wanting to maintain a favorable market environment. Can you give us some commentary there, I appreciate it.

[Joe Frank Sanderson:]

Well, we don't really think – at the end of the day what you're trying to do, you start with your share price and our deal is to get our share price up. At the end of the day, our job is to take $100 stock and get it to $120 and then from $120 to $140. That's what – we got to figure out how to do that. And our deal is not to – we don't think about improving the multiple, we don't think about being safe in the down market, we think about increasing the share price. And the two ways we can do that

[Brett Michael Hundley:]

I appreciate the thought. Thanks for taking my questions.

[Unknown Speaker:]

You bet.

[Operator:]

Our next question comes from Jeremy Scott with CLSA.

[Jeremy C. Scott:]

Hi. Thanks, guys. Good morning.

[Unknown Speaker:]

You bet.

[Jeremy C. Scott:]

Just a couple of quick follow-ups. What was your average leg quarter pricing in the quarter, your realized pricing?

[Lampkin Butts:]

Quoted bulk leg quarter prices averaged $0.2572, that less the average of Urner Barry.

[Unknown Speaker:]

Yeah, yeah.

[Jeremy C. Scott:]

Right. Did you give a realized price?

[Unknown Speaker:]

No.

[Joe Frank Sanderson:]

We didn't. We don't, but it was lower than that.

[Jeremy C. Scott:]

Okay. And then, just to dig a little deeper on the breeder, Joe, you've mentioned at a recent conference that, in a discussion with your primary breeder, they expected that the egg exports to Mexico were capped out from here. Is that still the case? And if that is the case, how do we reconcile the increase in pullets with...

[Joe Frank Sanderson:]

We didn't. I mean, if I said that, I misspoke. Actually the egg exports to June – to Mexico in June increased substantially. From May to June, they went from roughly 3 million dozen to 4.2 million dozen, and which meant, they went from 3.4% of the layers to 5% of the layers, is what we're required from May to June. I don't know if that's going to continue, but that was a huge increase according to USDA. And it's also the numbers to the rest of the world, and the rest of world is a lot into the Caribbean, those have also increased over the last 18 months from 1.5 million dozen a month to 2.5 million dozen a month. And that's going from about 2% to about 3% of the layers. Now, I don't – my qualification on what I'm fixing to give you is two things, one is the layers, the dozen reported is from the USDA and so I don't – and those numbers are reported by the hatcheries. And then the second is we are using Agri Stats numbers on average rate of lay, so we're extrapolating a little bit here. But, based on June, the month of June 8%, 9% of all of the layers are being used for export now for the month of June.

[Jeremy C. Scott:]

I guess another way to ask it, in terms of the percentage of layers, do you think that's capped out? And would that mean that the incremental pullet placements are indicative of increased domestic supply of eggs?

[Joe Frank Sanderson:]

Well, it appears that more and more of the pullets are being placed for export. And it's increasing. Now, why is that happening and I don't know. I don't know. I'm not surprised about Mexico, I don't have any explanation about – Canada is unchanged, but – basically, but rest of the world, I don't have any explanation why it's up so substantially. And there is an another thing that I believe is within these numbers. I'm fairly confident that there is an increase in these pullet numbers of 1% to 2% is for the primary breeders. The two primary breeders represent 1% to 2% of these pullets. They had to increase, because of the demand for the pullets. They had to increase their parent and their grandparent stuff. And so, I'm confident that within these numbers, 1% to 2% representing parent and grandparent stuff.

[Jeremy C. Scott:]

Okay.

[Joe Frank Sanderson:]

I don't think these pullet numbers all the way for the whole year. I think in pull off 6% or 7% for export, and I think in pull off 1% to 2% for the primary breeders, and I think you can also pull off at least another 1% because of the rate of lay for the one breed that's replacing another breed.

[Jeremy C. Scott:]

Okay. So that's – so over the past three months, they've been up about 9%. So we're pulling all of that off essentially?

[Joe Frank Sanderson:]

Yes.

[Jeremy C. Scott:]

So how do you get to your 2% to 3% head growth in 2016?

[Joe Frank Sanderson:]

I think if you look at it for the year as a whole, I think you will – I think that's what you're going to see.

[Jeremy C. Scott:]

Okay. And then, just on Mexico, okay, let's assume that's...

[Joe Frank Sanderson:]

Mexico has only happened for one month. This big surge happened in June. So, I might see so more much for Mexico before I really know about that, I don't know it just happened for the month of June.

[Jeremy C. Scott:]

And what is your outlook for meat exports to Mexico, given that in-country production is going to increase?

[D. Michael Cockrell:]

Why are you concluding that in-country production is going to increase? I know there may be a company or two expanding some, but I would not read into the hatching export necessarily there increasing in-country production. It does indicate that maybe some Mexican people with Mexican operations are moving their breeder flocks to the United States and producing eggs and sending them to Mexico, but it doesn't necessarily remain, there is going to be more chicken to Mexico.

[Jeremy C. Scott:]

Okay. So, we shouldn't read into egg exports as an indicator that production will increase in Mexico?

[D. Michael Cockrell:]

No. Not at all, I mean the companies with operations down there had said that, to some extent, they were relocating some of their breeders here to ironically enough avoid avian influenza.

[Jeremy C. Scott:]

Okay. Okay. Thank you.

[Joe Frank Sanderson:]

You bet. Thank you.

[Operator:]

And it appears we have no further questions in the queue at this time.

[Joe Frank Sanderson:]

Thank you all for joining us today. And we look forward to seeing you in New Orleans in October and reporting our year-end results to you in December.

[Operator:]

That does conclude today's conference. Thank you for your participation.

[Joe Frank Sanderson:]

Thank you.