Question-and-Answer Session
Operator
(Operator Instructions) The first question comes from the line of Reza Vahabzadeh - Barclays Capital.
Reza Vahabzadeh - Barclays Capital
On the cost of sales, obviously it has been a nice tailwind for you so far this year. How much visibility do you have on the two Hispanic brands that this level of improvement will continue? Maybe if you can comment on the Burger King cost of sales visibility as well?
Alan Vituli
Dan maybe you should take that question dealing with potentially how much we have in terms of the forward contracts.
Dan Accordino
With the Hispanic brands we have good visibility because all of our primary commodities are contracted for the balance of 2009. As it relates to Burger King we have reasonably good visibility given the information that we have received from the buying cooperative for the balance of this year. We know what our packaging costs are and what our French fry costs are and what some of the proteins are. The only variable would be the ground beef costs which changes weekly. Certainly it will be infinitely more positive than it was a year ago.
Reza Vahabzadeh - Barclays Capital
Ground beef has been declining obviously on a year-over-year basis in the last 3-4 months. Is that something that in your guidance you are incorporating as if it is going to be down on a go-forward basis or what kind of assumption are you making on that front?
Dan Accordino
It is going to be down relative to last year certainly. On a sequential basis it actually tends to go up a little bit during this time of year.
Alan Vituli
In terms of guidance, a general statement our inclination with respect to the world that we are looking at was to be as relatively conservative with respect to our guidance. Certainly the historical beef prices that we have experienced at Burger King, we are using prices that are lower than those historical prices.
Reza Vahabzadeh - Barclays Capital
On the operating expense side, obviously a significant improvement there. How much of that is sort of sustainable in the next couple of quarters? You talked about advertising being timing driven. Utility expense, how much was that down and is it likely to be down going forward?
Paul Flanders
Utility costs year-over-year was a big part of the favorability. I think we will continue to see some of that as we go forward in the third and fourth quarters. I would say in general as you can see in the numbers we have improved operating margins pretty considerably in the quarter. I think as we go forward I wouldn’t necessarily think in terms of margin expansion at those rates but that is more dependent on what sales end up doing in the back half of the year than anything.
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