Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tyson Foods Inc (TSN, Financial) reported a significant increase in adjusted operating income (AOI) by more than $300 million, growing nearly 175% year-over-year.
- The company achieved the highest profitability in the last seven quarters, with adjusted EPS increasing by more than $0.70 or almost 500%.
- The chicken segment delivered its best third-quarter profit in eight years, with segment AOI exceeding $300 million.
- Year-to-date free cash flow improved by more than $1.2 billion compared to last year, driven by improved profitability and effective capital management.
- Tyson Foods Inc (TSN) raised its AOI guidance for the chicken segment for the third consecutive quarter, now expecting $850 million to $950 million.
Negative Points
- The beef segment faced challenges due to elevated cattle costs, leading to compressed spreads and a projected AOI loss between $400 million and $300 million.
- Despite overall revenue growth, the chicken segment saw a 3.2% decline in sales due to lower input costs and pricing.
- The company continues to navigate a challenging environment for beef, with no clear signs of meaningful herd rebuilding.
- Higher raw material costs in the prepared foods segment partially offset the benefits of operational efficiencies and top-line growth.
- The international segment faced macroeconomic and geopolitical headwinds, impacting its performance despite recent investments.
Q & A Highlights
Q: Donnie, as you think about taking a step back, looking at the underlying fundamentals, especially in your two biggest segments, chicken and beef, what were the more important puts and takes in the quarter versus your expectations?
A: Good morning, Ken. We are pleased with our Q3 results, which is the best quarter in the last seven. We're seeing the benefits of our multi-protein portfolio for chicken, prepared, and pork are offsetting the headwinds in beef. In Q3, momentum continues to strengthen, and all of our businesses are executing better than they have in quite some time. We're controlling the controllables, optimizing our network, and focusing on operational excellence. Our performance has given us confidence to raise our guidance again.
Q: We've heard from some quick service restaurants lately that they're not necessarily seeing real improvements in traffic yet. What are you seeing from your perspective from the restaurant industry in general, and how does it affect you?
A: In the protein space, there typically are lower levels of elasticity. Protein is a consumer staple. Our diverse food service portfolio spans major proteins, and this year, we've seen a particular interest in our poultry offerings as quick-serve restaurants have been emphasizing value menu offerings. Our ability to quickly partner with customers on limited time offerings (LTOs) and our commercial scale are strategic advantages.
Q: Can you help us understand the drivers of operating margin improvement in chicken between lower grain costs and underlying cost and mix actions?
A: Our poultry team is improving faster than expected. Our live operations continue to improve with hatch rates and livability up year over year. We've generated efficiencies and improved utilization in our plants by optimizing our network. Our demand planning and customer service have also taken significant steps forward. We invested some of the operational improvements back into the business, such as accelerating the ramp-up of our Danville fully cooked facility.
Q: How do you think about your own capacity utilization and industry capacity utilization in the beef sector given the current cattle cycle?
A: It's challenging to forecast outcomes relative to this beef cycle. We haven't seen notable retention to date. We're focused on operational excellence, improving yields, and balancing supply and demand. Our asset base is well-invested, and we are capable of running with the best in the industry. The benefits of our multi-protein portfolio are driving our momentum.
Q: What are the opportunities for further improvement in the chicken business from here?
A: We continue to focus on the fundamentals. Our business mix and volatility are different from commodity players. We have several pricing models, and as grain costs come down, we pass that on to customers. We are focused on stabilization of earnings over time, strong relationships with key customers, and sustainable value creation.
Q: Can you provide more details on the promotional environment in prepared foods and how it affects your pricing strategy?
A: We closely monitor in-market pricing dynamics, elasticities, and promotional performance. We have a disciplined approach to pricing and promotions, making changes as the consumer landscape evolves. Our strong brands, customer relationships, and data-driven consumer insights allow us to act fast when the marketplace changes. Protein enjoys lower elasticities than other food categories, and we believe consumers will continue to prioritize protein.
Q: Can you discuss the sustainability of chicken profitability into 2025 and the key risks from here?
A: Our focus on the fundamentals of our business remains strong. Grain prices have an impact, but our commercial relationships help stabilize earnings. We are focused on sustainable performance and driving value over time regardless of market conditions. We continue to value up the mix from more commodity-oriented products to more value-added branded products across retail and foodservice.
Q: Can you elaborate on the collaboration across the businesses and how it has improved?
A: We have some of the best people in the industry, and they are very passionate and competitive. The mantra at Tyson is one team, one Tyson, all behind our mission of feeding the world like family. The collaboration component is about the team coming together and being united around this one Tyson approach.
Q: Can you provide an update on the international business and your strategy for growth in that segment?
A: Our international business continues to grow. We've invested heavily in assets in China and Southeast Asia. Despite macroeconomic and geopolitical headwinds, we have seen improvement in raw materials. We are focused on operational excellence, food safety, product quality, and innovation. We have the assets and team to deliver the portfolio of products to meet customer and consumer needs around the world.
Q: Can you explain the lower SG&A expenses and where these reductions are most apparent?
A: We've had a disciplined approach to SG&A management this year. There may be some lumpiness due to higher performance-based compensation in certain quarters, but overall, we have focused on controlling costs and spending.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
