RESULTS OF OPERATIONS

Description of the Company

We are the world's largest meat protein company and the second-largest food production company in the Fortune 500 with one of the most recognized brand names in the food industry. We produce, distribute and market chicken, beef, pork, prepared foods and related allied products. Our operations are conducted in four segments: Chicken, Beef, Pork and Prepared Foods. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost of live cattle and hogs, raw materials and grain; and operating efficiencies of our facilities.

Overview

? Chicken Segment - Second quarter fiscal 2009 operating results improved $240 million as compared to the first quarter of fiscal 2009 due to decreased grain costs and reduced losses from our commodity risk management activities related to grain and energy purchases. Sales volume for the quarter was also up as inventory levels were reduced. ? Beef Segment - Operating income was $28 million in the second quarter of fiscal 2009, despite a reduction in sales volume.
? Pork Segment - Operating margins were $29 million, or 3.4%, down compared to the same period last year, as fiscal 2008 was a record year for the pork segment due to the strong domestic and export demand.
? Prepared Foods Segment - Operating margins were $19 million, or 2.8%, and included $15 million in charges for the closing of the Ponca City, Oklahoma, processed meats plant.
? Liquidity - In March 2009, we replaced our then existing $1.0 billion revolving credit facility set to expire in fiscal 2010 with a new $1.0 billion revolving credit facility which expires in March 2012. In addition, we issued $810 million of senior notes. In conjunction with these transactions, we paid down and terminated our accounts receivable securitization agreement. These transactions helped to strengthen our liquidity position and resulted in over $1.1 billion in total cash (including restricted cash) at March 28, 2009.
? Dispositions - In March 2009, we completed the sale of the beef processing, cattle feed yard and fertilizer assets of three of our Alberta, Canada subsidiaries (collectively, Lakeside) to XL Foods Inc., a Canadian-owned beef processing business, and an entity affiliated with XL Foods Inc. We received total consideration of $145 million. This included
(a) $43 million cash received at closing, (b) $78 million of collateralized notes receivable from either XL Foods or an affiliated entity to be recovered throughout the next two years and (c) $24 million of XL Foods Preferred Stock to be recovered over the next five years. In addition to consideration received from XL Foods, we also have approximately $12 million of net cash inflows expected from clearing receivable and payable balances.

in millions,                 Three Months Ended
except per share
data                                                               Six Months Ended
                      March 28, 2009    March 29, 2008     March 28, 2009     March 29, 2008
Net income           $          (104)   $           (5)
(loss)                                                    $          (216)   $            29
Net income                     (0.28)            (0.02)
(loss) - per
diluted share                                                       (0.58)              0.08

Second quarter of fiscal 2009 - Net income (loss) includes the following items:
? The impact of changing the method of recognizing interim income taxes. Second quarter and six months of fiscal 2009 - Net income (loss) includes the following items:
? $15 million charge related to the closing of our Ponca City, Oklahoma, processed meats plant.
Second quarter and six months of fiscal 2008 - Net income (loss) included the following items:
? $17 million charge related to the restructuring of our Emporia, Kansas, beef operation;
? $13 million charge related to the closing of our Wilkesboro, North Carolina, cooked products poultry plant; ? $12 million charge related to the impairment of packaging equipment; and ? $5 million in charges related to software impairments. Six months of fiscal 2008 - Net income (loss) included the following items:
? $18 million non-operating gain related to the sale of an investment; and ? $6 million of severance charges related to the FAST initiative.

Outlook

? Chicken - We expect to continually improve through the latter half of fiscal 2009. We should see an improvement in pricing into the summer months, while grain prices are currently at more stable levels as compared to the previous several quarters. We have worked through the majority of our long grain positions, with the exception of those related to our cost-plus customers.
? Beef - Fed cattle supplies should be adequate into the summer and fall.
Domestic demand will largely depend on the overall economy, while international demand has improved recently.
? Pork - While we expect hog supplies will be lower than the record highs experienced in 2008, we should have sufficient supplies to run our business effectively. We feel we should be able to manage margins within our normalized range.
? Prepared Foods - We expect the increased demand for our products will continue, while margins should hold within our normalized range. ? In April 2009, pork product values declined sharply with the initial label of the H1N1 flu as swine flu. Additionally, the live hog prices and CME lean hog futures markets declined sharply. It is currently too early to determine the impact on our pork and prepared foods businesses. Management is monitoring this situation closely and making adjustments where needed.

Summary of Results - Continuing Operations



Sales

in millions                                Three Months Ended                       Six Months Ended
                                   March 28, 2009        March 29, 2008     March 28, 2009     March 29, 2008
Sales                            $             6,307     $         6,336    $        12,828    $        12,812
Change in average sales price            (5.1 )%                                       (0.9 )%
Change in sales volume                    4.9 %                                         1.1 %
Sales growth (decline)                   (0.5 )%                                        0.1 %

Second quarter - Fiscal 2009 vs Fiscal 2008 ? The decline in sales included lower average sales prices, which accounted for a decrease of approximately $283 million. This decrease was driven by a reduction in average sales prices in the Beef segment. In addition, inventory reductions and recent acquisitions in the Chicken segment led to an overall decrease in average sales prices, as most of the inventory reduction related to commodity products shipped internationally and sales volume from recent acquisitions are on average lower priced products. ? Sales were positively impacted by higher sales volume, which accounted for an increase of approximately $254 million. This included an increase in Chicken segment sales volume, which was driven by inventory reductions and sales volumes related to recent acquisitions. This was partially offset by reductions in Beef and Pork segment volumes, due primarily to lower export sales volumes.
Six months - Fiscal 2009 vs Fiscal 2008
? Sales were positively impacted by higher sales volume, which accounted for an increase of approximately $26 million. This included an increase in Chicken segment sales volume, which was driven by inventory reductions and sales volumes related to recent acquisitions. This was partially offset by reductions in Beef and Pork segment volumes, due primarily to lower export sales volumes.
? The decline in sales included lower average sales prices, which accounted for a decrease of approximately $10 million. This decrease was driven by a reduction in average sales prices in the Beef segment. In addition, inventory reductions and recent acquisitions in the Chicken segment led to an overall decrease in average sales prices, as most of the inventory reduction related to commodity products shipped internationally and sales volume from recent acquisitions are on average lower priced products. These decreases were partially offset by increases in average sales prices in our Pork and Prepared Foods segments.

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Cost of Sales

in millions             Three Months Ended                       Six Months Ended
                 March 28, 2009     March 29, 2008       March 28, 2009     March 29, 2008
Cost of sales    $         6,054     $        6,021      $        12,557    $        12,182
Gross margin     $           253     $          315      $           271    $           630
Cost of sales               96.0 %             95.0
as a
percentage of
sales                                               %               97.9 %             95.1 %

Second quarter - Fiscal 2009 vs Fiscal 2008 ? Cost of sales increased $33 million. Higher sales volume increased cost of sales $236 million, offset partially by a reduction in cost per pound reducing cost of sales $203 million.
? Increase due to net losses of $63 million in the second quarter of fiscal 2009, as compared to net gains of $43 million in the second quarter of fiscal 2008, from our commodity risk management activities related to grain and energy purchases, which exclude the impact from related physical purchase transactions that will impact current and future period operating results.
? Increase in average live hog costs of approximately $34 million. ? Decrease in average domestic live cattle costs of approximately $195 million.
Six months - Fiscal 2009 vs Fiscal 2008
? Cost of sales increased $375 million. Cost per pound contributed to a $378 million increase, as sales volume increases in the Chicken and Prepared Foods segments were offset by sales volume decreases in the Beef and Pork segments.
? Increase due to net losses of $251 million in the six months of fiscal 2009, as compared to net gains of $70 million in the six months of fiscal 2008, from our commodity risk management activities related to grain and energy purchases, which exclude the impact from related physical purchase transactions that will impact current and future period operating results.
? Increase in grain costs in the Chicken segment of approximately $172 million.
? Increase in average live hog costs of approximately $89 million. ? Increase in Prepared Foods raw material costs of approximately $40 million.
? Decrease in average domestic live cattle costs of approximately $286 million.

Selling, General and Administrative

in millions                          Three Months Ended              Six Months Ended
                                March 28,       March 29,      March 28,       March 29,
                                2009            2008           2009            2008
Selling, general and             $       209     $       231    $       425     $       446
administrative expenses
As a percentage of sales                 3.3 %           3.6 %          3.3 %           3.5 %

Second quarter - Fiscal 2009 vs Fiscal 2008 ? Decrease of $16 million related to advertising and sales promotions. Six months - Fiscal 2009 vs Fiscal 2008
? Decrease of $25 million related to advertising and sales promotions. ? Increase of $8 million related to negative investment returns on company-owned life insurance.

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Other Charges

in millions                               Three Months Ended                      Six Months Ended
                                  March 28, 2009       March 29, 2008                           March 29,
                                                                          March 28, 2009          2008
Other charges                    $             15     $             30   $             15     $          36

Second quarter and six months of fiscal 2009 ? Includes $15 million charge related to the closing of our Ponca City, Oklahoma, processed meats plant.
Second quarter and six months of fiscal 2008 ? Includes $17 million charge related to the restructuring of our Emporia, Kansas, beef operation.
? Includes $13 million charge related to the closing of our Wilkesboro, North Carolina, cooked products poultry plant. Six months of fiscal 2008
? Includes $6 million of severance charges related to the FAST initiative.

Interest Expense

in millions             Three Months Ended                       Six Months Ended
                March 28, 2009       March 29, 2008     March 28, 2009      March 29, 2008
Cash             $           66       $           54
interest
expense                                                 $           123     $           106
Noncash                       8                    1
interest
expense                                                              14                   2
Total                        74                   55
Interest
Expense                                                             137                 108

Fiscal 2009 vs Fiscal 2008
? Cash interest expense includes interest expense related to the coupon rates for senior notes, commitment/letter of credit fees incurred on our revolving credit facility, as well as other miscellaneous recurring cash payments. The increase is due primarily to higher average weekly indebtedness of approximately 10% and 12%, respectively, for the three and six months ending March 28, 2009, as compared to the same periods last year. We also had an increase in the overall average borrowing rates. ? Noncash interest expense primarily includes interest related to the amortization of debt issuance costs and discounts/premiums on note issuances. The increase is primarily due to debt issuance costs incurred on the new credit facility, the 2014 Notes and amendment fees paid in December 2008 on our then existing credit agreements. In addition, we had a slight increase due to the accretion of the debt discount on the 2014 Notes. Noncash interest expense for the six months ending March 28, 2009, includes a $3 million unrealized loss on our interest rate swap.

Other (Income) Expense, net

in millions                               Three Months Ended                      Six Months Ended
                                  March 28, 2009       March 29, 2008    March 28, 2009      March 29, 2008
Other (income) expense, net        $           3        $          (4)    $          21      $          (23)

Six months of fiscal 2009
? Includes $19 million in foreign currency exchange loss. Six months of fiscal 2008
? Includes $18 million non-operating gain related to the sale of an investment.

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Effective Tax Rate

                                              Three Months Ended                      Six Months Ended
                                      March 28, 2009     March 29, 2008      March 28, 2009      March 29, 2008
Effective tax rate                          (108.9)%               35.9%               34.0%               34.1%

Second quarter and six months of fiscal 2009 - The effective tax rate was impacted by:
? the change in method from estimated annual to year to date; ? tax planning in foreign jurisdictions; ? general business credits;
? amounts relating to company-owned life insurance and certain other nondeductible expense items; and
? state and foreign valuation allowances.
Second quarter and six months of fiscal 2008 - The effective tax rate was impacted by:
? the Domestic Production Deduction; ? general business credits;
? amounts related to company-owned life insurance and certain other nondeductible expense items; and
? composition of income and loss between domestic and foreign operations.

Segment Results



We operate in four segments: Chicken, Beef, Pork and Prepared Foods. The
following table is a summary of sales and segment profit (loss), which we
measure at the operating income (loss) level.



in millions                                        Sales
                          Three Months Ended                     Six Months Ended
                  March 28, 2009      March 29, 2008     March 28, 2009     March 29, 2008
Chicken                $     2,360     $        2,158       $       4,594    $        4,260
Beef                         2,419              2,720               5,082             5,581
Pork                           844                824               1,722             1,660
Prepared Foods                 684                634               1,430             1,311
Total                  $     6,307    $         6,336       $      12,828    $       12,812




in
millions                                  Operating Income (Loss)
                       Three Months Ended                             Six Months Ended
              March 28, 2009          March 29, 2008         March 28, 2009       March 29, 2008
Chicken             $        (46 )       $         (45 )         $       (332 )     $           3
Beef                          28                     6                     28                 (62 )
Pork                          29                    69                     84                 148
Prepared
Foods                         19                    24                     54                  59
Other                         (1 )                   -                     (3 )                 -
Total               $         29         $          54           $       (169 )     $         148

Chicken Segment Results

in millions
                              Three Months Ended                                        Six Months Ended
                    March 28,       March 29,                                March 28,           March 29,
                       2009           2008          Change                     2009                2008         Change
Sales                  $ 2,360      $   2,158         $  202                  $      4,594       $    4,260       $  334
Sales Volume
Change                                                  14.7 %                                                       9.8 %
Avg. Sales Price
Change                                                  (4.7 )%                                                     (1.8 )%

Operating Income
(Loss)                 $   (46)     $     (45)        $   (1 )                $       (332)      $        3       $ (335 )
Operating Margin          (1.9) %        (2.1) %                                      (7.2) %           0.1 %

Second quarter and six months of fiscal 2008 ? Includes $13 million charge related to the closing of our Wilkesboro, North Carolina, cooked products plant.
? Includes $5 million in charges related to software impairments.

Second quarter and six months - Fiscal 2009 vs Fiscal 2008 ? Operating results were impacted positively by increased sales volume, partially offset by lower average sales prices. The increase in sales volume for both the second quarter and six months of fiscal 2009 was due to inventory reductions and sales volume related to recent acquisitions. The inventory reductions and recent acquisitions led to an overall decrease in average sales prices, as most of the inventory reduction related to commodity products shipped internationally and sales volume from recent acquisitions are on average lower priced products. Operating results were adversely impacted in the second quarter and six months of fiscal 2009, as compared to the same periods of fiscal 2008, by a decline of $106 million and $321 million, respectively, from our commodity risk management activities related to grain and energy purchases. These amounts exclude the impact from related physical purchase transactions, which impact current and future period operating results. As compared to the same periods of fiscal 2008, operating results were also adversely impacted in the six months of fiscal 2009 by an increase in grain costs of $172 million, while we had a slight benefit from a reduction in grain costs during the second quarter of fiscal 2009.

Beef Segment Results

in millions
                              Three Months Ended                                   Six Months Ended
                    March 28,       March 29,                           March 28,       March 29,
                       2009           2008         Change                 2009            2008          Change
Sales                  $  2,419     $    2,720       $ (301 )              $ 5,082      $    5,581       $  (499 )
Sales Volume
Change                                                 (3.2 )%                                              (7.1 )%
Avg. Sales Price
Change                                                 (8.2 )%                                              (1.9 )%

Operating Income
(Loss)                 $     28     $        6       $   22                $    28      $      (62 )     $    90
Operating Margin           1.2  %         0.2  %                               0.6 %          (1.1 )%

Second quarter and six months of fiscal 2008 ? Includes $17 million charge related to the restructuring of our Emporia, Kansas, operation.
? Includes $8 million charge related to the impairment of packaging equipment.

Second quarter and six months - Fiscal 2009 vs Fiscal 2008 ? Operating results as compared to the same periods in 2008 were impacted positively by lower average live prices, offset by lower average sales prices and decreased sales volume. Operating results were impacted in the second quarter and six months of fiscal 2009 by a decline of $6 million and an improvement of $35 million, respectively, from our commodity risk management activities related to forward futures contracts for live cattle as compared to the same periods of fiscal 2008. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.

Pork Segment Results

in millions
                               Three Months Ended                                      Six Months Ended
                     March 28,        March 29,                            March 28,       March 29,
                        2009            2008          Change                 2009            2008          Change
Sales                    $    844      $     824        $   20                $ 1,722      $    1,660        $    62
Sales Volume
Change                                                    (1.2 )%                                               (3.0 )%
Avg. Sales Price
Change                                                     3.7 %                                                 7.0 %

Operating Income         $     29      $      69        $  (40 )              $    84      $      148        $   (64 )
Operating Margin             3.4  %         8.4  %                               4.9  %          8.9  %

Second quarter and six months of fiscal 2008 ? Includes $4 million charge related to the impairment of packaging equipment.

Second quarter and six months - Fiscal 2009 vs Fiscal 2008 ? Operating results as compared to the same periods in fiscal 2008 were impacted positively by increased average sales prices, offset by higher average live prices and decreased sales volume. Operating results were impacted in the second quarter and six months of fiscal 2009 by a decline of $17 million and $37 million, respectively, from our commodity risk management activities related to forward futures contracts for live hogs as compared to the same periods of fiscal 2008. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results. Operating results were negatively impacted by higher operating costs as compared to the same periods of fiscal 2008.

Prepared Foods Segment Results

in millions
                              Three Months Ended                                      Six Months Ended
                     March 28,      March 29,                             March 28,       March 29,
                       2009           2008          Change                  2009            2008          Change
Sales                   $    684     $     634        $   50                 $ 1,430      $    1,311        $   119
Sales Volume
Change                                                   5.1 %                                                  4.4 %
Avg. Sales Price
Change                                                   2.7 %                                                  4.5 %

Operating Income        $     19     $      24        $   (5 )               $    54      $       59        $    (5 )
Operating Margin            2.8  %        3.8  %                                3.8  %          4.5  %

Second quarter and six months of fiscal 2009 ? Includes $15 million charge related to the closing of our Ponca City, Oklahoma, processed meats plant.

Second quarter and six months - Fiscal 2009 vs Fiscal 2008 ? Operating results were impacted positively by higher average sales prices and increased sales volumes, offset in the six months of fiscal 2009 by higher raw material costs.

LIQUIDITY AND CAPITAL RESOURCES

Our cash needs for working capital, capital expenditures and growth opportunities are expected to be met with current cash on hand, cash flows provided by operating activities, or short-term borrowings. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance through capital markets transactions. The amount, nature and timing of any capital markets transactions will depend on our operating performance and other circumstances, our then-current commitments and obligations, the amount, nature and timing of our capital requirements, any limitations imposed by our current credit arrangements and overall market conditions.