Sean Cornett:

Good morning and welcome to Tyson Foods’ fiscal third quarter 2024 earnings conference call. On today’s call, Tyson’s President and Chief Executive Officer, Donnie King and Interim Chief Financial Officer, Curt Calaway will provide some prepared remarks, followed by Q&A. Additionally, joining us today are Brady Stewart, Group President - Beef, Pork, and Chief Supply Chain Officer; Melanie Boulden, Group President - Prepared Foods and Chief Growth Officer; Wes Morris, Group President - Poultry, and Devin Cole, President - International and Global McDonald’s. We also have provided a supplemental presentation which may be referenced on today’s call and is available on Tyson’s Investor Relations website and via the link in our webcast. During today’s call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions, or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking statements are subject to risks, uncertainties, and assumptions which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statements disclaimer on Slide 2, as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note that references to earnings per share, operating income and operating margin in our remarks are on an adjusted basis unless otherwise noted. For a reconciliation of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I’ll turn the call over to Donnie.

Curt Calaway:

Thanks, Donnie. Total company net sales of 13.35 billion in Q3 were up 1.6% year-over-year. The increase was led by beef with contributions from pork and Prepared Foods partially offset by declines in chicken and international. Adjusted operating income improved $312 million to nearly $500 million, driven primarily by another quarter of substantial increase in chicken profitability. Operational improvements and substantially higher AOI led to a $0.72 increase in adjusted EPS, which came in at $0.87 in Q3. As Donnie mentioned earlier, this is our best AOI, AOI margin, and adjusted EPS in the past seven quarters. Now let's review our segment results starting with Prepared Foods. In Prepared Foods, Q3 revenue grew 2.1% versus last year driven by volume growth in Food Service. As we expected, AOI in Q3 was down modestly, higher raw material costs were partially offset by lower map spend versus an elevated level last year, and the benefits of operational efficiencies and top-line growth. Moving to chicken, sales in Q3 declined 3.2%, primarily due to the pass-through of lower input costs and pricing. While volume is roughly flat year-over-year, as we continue to better align supply with customer demand, it was up approximately 2% from Q3 of fiscal 2022. AOI increased $370 million versus last year to $307 million. Lower input costs, net-of-pass-through pricing, along with the benefits of the strategic actions we have taken and the efficiencies the business has driven across our operations, drove the growth in AOI. We also experienced favorable year-over-year derivative impact of $63 million, primarily related to a $65 million net derivative loss in Q3 last year. In beef, revenue was up 5.8% year-over-year in the quarter primarily due to the volume impact of higher average carcass weights, with pricing increasing 1.4%. While revenue increased, AOI decreased primarily reflecting compressed spreads as expected, which more than offset our continued progress on operational efficiencies. Moving to pork, Q3 revenue increased a net 10.4% driven by higher price per pound reflecting healthy global demand. AOI also increased $92 million year-over-year benefiting from improved spreads and better operational execution. Shifting to our financial position and capital allocation. Our commitment to disciplined capital allocation remains unchanged. Our priorities are to maintain financial strength, invest in the business, and return cash to shareholders all while maintaining our investment grade credit rating. Cash flow from operations remains strong, with year-to-date approaching $2 billion, highlighting improved profitability and working capital management. Operating cash flows was more than double our CAPEX, which came in at $884 million year-to-date. CAPEX in Q3 of $263 million declined sequentially for the sixth consecutive quarter, reflecting our focus on controlling capital deployment while continuing to invest for profitable growth. Year-to-date free cash flow of $1.1 billion is more than two and a half times better than the previous two fiscal years combined over the same period. We ended Q3 with $4.8 billion of liquidity. Improving profits and strong cash management are also benefiting our net leverage, which declined sequentially again, coming in at three times in Q3, more than a full-turn lower than where we exited fiscal 2023. We continue focusing on returning net leverage to our long-term target of at or below two times net debt to adjusted EBITDA. We entered fiscal 2024 with a plan of applying our controlling the controllables approach to enhance free cash flow generation. We've over-delivered on that plan and remain committed to deploying resources to maximize long-term shareholder value. Now let's look at our updated outlook for fiscal 2024. We are reiterating our overall sales guidance at roughly flat year-over-year. Based primarily on our improved outlook for chicken, we are raising our AOI guidance and tightening the range. For the total company we now expect between $1.6 billion and $1.8 billion. Moving to the segments, in chicken, given the strong performance we're raising our AOI guidance range to be between $850 million and $950 million. For Prepared Foods, we are reiterating our AOI outlook of $850 million to $950 million as we continue to perform in line with expectations. In beef, we are tightening our AOI guidance range to a loss between $400 million and $300 million, reflecting well-known challenges in the cattle cycle. In pork, we are raising our AOI outlook to be between $100 million and $200 million highlighting improved year-to-date results versus expectations. To round out the key P&L items, we continue to anticipate interest expense to be roughly $395 million and our tax rate to be between 23% and 24%. Turning to CAPEX, we are maintaining our tight controls on spending in line with profitability and cash flows, and are narrowing our CAPEX range to be between $1.2 billion and $1.3 billion this year. Before I turn the call back over to Donnie, I want to emphasize that our multi-protein, multi-channel strategy is enabling us to raise the midpoint of our full year AOI guidance by $100 million. Now, I'll hand it over to Donnie to wrap up before we move to Q&A.

Sean Cornett:

Thanks, Donnie. We will now move to your questions. Please recall that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instruction.

Kenneth Goldman:

Hi, good morning, and thank you. I wanted to ask, I appreciate a lot of the information you gave about each segment, thank you for that. Donnie, as you think about taking a step back, looking at kind of the underlying fundamentals, especially in your two biggest segments, chicken and beef, but across the company, kind of what were the more important puts and takes in the quarter versus your expectations, just in terms of how fundamentals came in against what you were initially anticipating?

Kenneth Goldman:

Okay, thank you for that Donnie. And then I had a quick follow-up. As a company, you have a unique view into how restaurants are performing, particularly quick service. And I'm just wondering, we've heard from some quick service restaurants lately that they're not necessarily seeing real improvements in traffic yet, but maybe there are some green shoots, just as we -- as they experience some of the initial early benefits as the companies lean harder into promotions and actions that appeal to maybe some lower income consumers. So I'm just curious what you're seeing from your perspective from the restaurant industry in general, how it affects you, and if there's any real changes to your outlook in QSRs in particular? Thank you.

Melanie Boulden:

Thank you, Donnie. Happy to do so. And Ken, I'm going to talk to you with my enterprise CGO hat on. So first of all, the Food Service industry, as you know, is large. And demand for protein is strong as consumers see protein as an essential staple in their diets and meal routines. And at Tyson Foods we are advantaged because Tyson's diverse food servers portfolio spans major proteins, chicken, beef and pork. And this year, we've also seen a particular interest in our poultry offerings as quick-serve restaurants have been emphasizing value menu offerings. These factors, combined with our large and flexible manufacturing infrastructure, have been instrumental in driving our performance. For example, our ability to quickly partner with customers on LTOs or limited time offerings to meet their business objectives, we're operating is best-in-class. At the same time, that flexibility is also helping us to better partner with our customers to quickly develop innovation. Now our commercial scale is also a strategic advantage. On any given day, you'll find our products in school lunch programs, quick-serve restaurants, fine dining establishments, and hospitals. You'll also find us in travel and entertainment venues such as airports, cruise ships, movie theaters, amusement parks, and concert venues. This allows us to meet consumers where they are. Look, we remain focused on what we can control in Food Service, including improving our product pipeline with innovation to drive operator value and new customer acquisition. We're also focused on leveraging the diversity and flexibility of our broad manufacturing base to better serve our partners. And finally, we're focused on shifting the mix to advantaged channels. So because of these actions, we're building momentum going into fiscal year 2025 and are positioned well for continued growth.

Adam Samuelson:

Yes, thank you. Good morning everyone. I was hoping to dig into the results in chicken a bit more and really parse some of the drivers of operating margin improvement between the lower grain costs, which I believe at least on a gross basis in the Q were quantified at $305 million versus some of the underlying cost and mix actions that you've been undertaking and how should we think about that progressing, there's obviously implication in the guidance for 4Q, but help us think about what's embedded in the fourth quarter guidance from a net grain cost tailwind would be helpful? Thank you.

Wes Morris:

Yeah, thanks Donnie. Overall, I'd say I'm very pleased with the improvement in our cost fundamentals, and we're well poised for growth. Nothing's really changed. The big three areas that we've talked about the last few quarters around our live plant and S&OP. Our live results continued to improve. Our hatch was up 360 basis points versus a year ago, just short of 83. Our livability improved 50 points to 93.71 [ph] in a pretty tough grow-out environment. And then our cost 500 on the in bench mail [ph] and then a very deliberate focus on our live fundamentals are paying big dividends. The network changes that are paying off. Capacity utilization, as Donnie said, continues to improve sequentially and we still have room to grow. And then our S&OP process continues to add value. Service was up 100 basis points on an order field, while reducing our working capital around $260 million. We have a really highly functioning demand planning and supply planning team and our total poultry group is engaged in that area. Now we invested some of that operational improvements back into the business. As you know, we have the number one share in retail and Food Service, and we're focused on investing there. So our Danville fully cooked plant is well started up, that location is about a year ahead of schedule from what we originally anticipated. We've got a strong innovation pipeline. We've invested in quality and consumer promotions. And so I think our range is good. We've raised our guidance 850 to 950. Historically, Q1 and Q3 is our best quarters with Q2 and Q4 being a little softer and then the ongoing investments. So I feel well balanced at the midpoint.

Brady Stewart:

Well, thanks Adam for the question. And I'll just start with saying this, it's going to be very challenging to continue to really forecast the outcomes relative to this beef cycle. Every beef cycle has some differences embedded within it. And one of the key indicators relative to the cycle is droughts and monitoring drought in specific areas. So as you alluded to, we haven't seen really any notable retention to date. We've seen some differences relative to specific regions. And I would say that correlates really well relative to what those specific regions have from a climate and drought perspective. So when you definitely really evaluate as we move forward, what we do know is we're not expecting any incremental supply here in the short-term, which is consistent with these beef cycles. However, we're really focused on what we can control. And the highlights for our beef team have been decreased costs year-over-year relative to our manufacturing and our efficiencies have improved in our assets. We continue to see improvements in our yields, in our plants. We're doing a better job of balancing our supply and demand of cattle to beef and what our consumers and customers are demanding as well. So when you parlay all of those things together, we'll continue to manage what we can control and focus on really indications in the future on this rebuild.

Operator:

The next question comes from Andrew Strelzik with BMO. Please go ahead.

Wes Morris:

Yeah, this is Wes. I would say that we continue to focus on the fundamentals. We got a little different business mix and business volatility than some of the commodity players as we don't sell a lot of outside raw materials where price is immediate. We've got several pricing models. Some are grain-based and so as grain has come off, we pass that on to the customers, and that's fair. And then we have a high percentage of packaged goods and so we're going to stay focused on stabilization of earnings over time, strong relationships with key customers, and sustainable value creation. So regardless of what markets are doing, I expect us to deliver best-in-class results over time and stay focused on the controllables.

Donnie King:

Sure. Andrew, let me just say this. In terms of 2025 outlook, it's a little bit early for us. We'll be happy to discuss at length in Q4. So look forward to that. Just a reminder, there is no -- data doesn't support herd rebuild at this point but -- on a positive note, pasture conditions and feed costs are supportive of a herd rebuild. Interest rates, for example, might be a headwind, but there's no clear sign of herd retention. Brady, why don't you go deeper into that?

Operator:

The next question comes from Heather Jones with Vertical Group. Please go ahead.

Wes Morris:

Yes, sure, Heather. Thank you for the question. We see the USDA data and no question the industry exits and wages are well up, but the bird simply aren't making it to the plant. And so our genetics and strategic focus are just the opposite. I did say our hatch is up 360 basis points. I do believe it is sustainable. I think we've got the right programs in place. We're seeing intense focus on the execution. Our grower partners are buying into the performance and our livability is up 50 points even in a tough grow-out environment. So we're obviously outperforming in live. And yes, I believe that to be not only sustainable when we hit the fall cooler weather, I expect it to improve.

Brady Stewart:

Thanks for that question Heather. And again, I just go back to that drought monitor, the USDA and NOAA published and produced. And so through the last cycle, obviously, we saw a drought in that 2012, 2013 and then a relatively good rebound in 2014, 2015 and 2016. And then really, from a drought perspective in beef cow country, really, really low persistence relative to drought in the 2019 that led into some really good numbers here within the last three to five years. And so we'll continue to evaluate and understand and focus on that. That's really a prerequisite to this rebuild. Donnie outlined some of the other factors that are in play relative to the rebuild as well. But just to reiterate what Donnie said as well, we've made really good investments in our beef operations, and we like our asset base. We like our team. We like the supply partnerships we have, both on the cattle supply and the partnerships we have with our customers as well and really have laid out a variety of range of outcomes and understanding where the cycle really go and win most importantly, and we'll continue to evaluate that as we move forward.

Operator:

The next question comes from Michael Lavery with Piper Sandler. Please go ahead.

Melanie Boulden:

Yes. So thanks, Michael. Let me give you first an overview of our Q3 performance, and then I'll dive a little bit deeper into kind of the promotional environment that we're seeing. So overall, our Prepared Foods third quarter performance, as you know, was in line with our expectations, and we're pleased with the results as we delivered both volume and sales growth. But as you know, we made a number of investments in our plans to add new capacity and capabilities. That's important to remember, as our profit was roughly flat to year ago when you adjust for the incremental expenses associated with the ramp-up of those additions. Also important to note is that our results were accomplished despite lapping a period of higher merchandising levels and lower input costs. And there's really three key factors that drove our performance in the quarter

Operator:

The next question comes from Ben Theurer with Barclays. Please go ahead.

Curt Calaway:

Yeah, thanks. This is Curt. I'll kick it over to Wes in just a minute. But principally speaking, right, we talked about the back half of the year and a little bit of seasonality challenges that we perhaps could have. But to be specific on your question before I turn it over to Wes, it was really some stronger chicken performance than we had anticipated when we talked three months ago. But overall, kind of the construct that we thought about the back half of the year relatively in line. But certainly, as we said earlier, increased the overall midpoint of our guidance by $100 million, really with the strength of Q3 and I'll turn it over to Wes to talk a little bit about chicken’s performance.

Benjamin Theurer:

Okay. And then my follow-up, I know it tends to not get that much of attention, but it feels like it's coming together a little bit better on the international side. Could you share some of the initiatives you're currently doing and how that international business, how you think about this in the medium term because I know, Donnie, you always talk about the growth -- demand growth is in the international market, so just to understand how you think of investing and positioning yourself to even further accelerate the growth in the international segment?

Devin Cole:

Thank you, Donnie. Of course, it's pretty early in the process of evaluating this business from my standpoint. But I would tell you, I'm encouraged by the quality of our team, assets that I've had the chance to see around the world. We're really focused on some very key metrics, and that's just to keep our team members safe, make sure we've got the best food safety, the best product quality innovation for all of our customers around the world and also focused highly on operational excellence as we bring these new facilities up to speed. And I am convinced that we have the assets and the team to deliver the portfolio of products to meet both customer and consumer needs around the world. And really what this will allow us to do is to provide the growth in results that we expect and that we need to drive the operational efficiencies and capacity utilization in these assets.

Operator:

The next question comes from Peter Galbo with Bank of America. Please go ahead.

Wes Morris:

Yeah, thanks for the question Peter. As I've said, we had solid improvement in our fundamentals, and we partially offset those by investments. If I had to call the year today, I'd call it 40% performance base, 60% market-based. But if I adjust for the investments, I'd call it around 50-50. But it's important that my team stay focused on sustainable performance and driving value over time regardless of what those market conditions are.

Curt Calaway:

Thanks Peter. Yes, you're right. Maybe the best way to handle that is think about our liquidity. And we finished the quarter, right, with about $4.8 billion of liquidity. And that was partially driven by a bond offering that we did earlier this year to effectively prefund that, if you will. So yes, the bond maturity is coming up here in August of $1.25 billion, and we'll look to pay that off this month.

Alexia Howard:

Good morning everyone. So a couple of quick ones. Can you -- talking about chicken again, what are the key risks from here, is it as simple as if grain prices go up again, that could put pressure on the business, I'm just wondering where the growth from here comes or whether we're kind of approaching peak at this point? And then I have a follow-up.

Donnie King:

So if I could add one thing to that Wes has mentioned two or three times, but just to make sure it's clear, that from a mix perspective, Wes and his team are continuing to value up the mix from, let's call it, more commodity-oriented products to more value-added branded across Retail and Food Service.

Donnie King:

Sure. If I look at the team that's sitting around the table here this morning, we have some of the best people in the industry, in their specific discipline. They have a great deal of experience, and they are very passionate and competitive in everything they do. But the mantra that we have here at Tyson is one team, one Tyson, all behind our mission, feeding the world like family. And at the same time, making sure that there's high-quality protein on every table in the world. But the collaboration component of that is a team coming together and really being united around this one Tyson approach.

Thomas Palmer:

Good morning and thanks for the question. Maybe start out on the prepared foods side. The midpoint of guidance implies profit in 4Q, might not have as big of a seasonal pullback relative to 3Q as it might in a typical year. I know you mentioned this possibility a quarter ago. Could you just give us a reminder as to why this seasonality might not be as pronounced as normal? Thanks.

Melanie Boulden:

Yeah, so thanks for the question. And as I think about the future seasonality and Q4, we expect to have a strong Q4 compared to prior years. First, the cost associated with the new capacity and capabilities I touched on earlier, will be significantly reduced as those assets ramp up. This is true both sequentially and versus year ago. Second, the operational excellence initiatives we're driving are accretive. And -- or additive, I should say, meaning the total dollar impact will grow each quarter as we reduce cost and drive out inefficiencies. We also expect to continue strong commercial performance behind our Food Service business. And then finally, I'd also point to our growth in bacon, which is enabled by the successful start-up of our Bowling Green Facility and because of the new capacity and capabilities that we brought online, we're growing and gaining share in bacon. So as I think about Q4 as well as the momentum going into 2025, we're confident in our path forward. And a lot of this is obviously driven by our team that has been working really, really hard and is focused on delivering our goals.

Curt Callaway:

Just a couple of comments from me. I think we've had a fairly disciplined approach over this last year relative to our SG&A management. It will feel a little lumpy in a couple of quarters because we've got some higher performance-based compensation impacting each of the quarters. But overall, a very disciplined focus on our cost control spending this year.

Donnie King:

Thank you for your continued interest in Tyson Foods, and we look forward to speaking with you again soon.

Donnie King:

Thanks, Sean, and thank you to everyone for joining us this morning.

John Tyson:

Thanks, Donnie. I'll start with an overview of our total company results before moving on to our individual segments. Sales in Q2 were essentially in line year-over-year at $13.1 billion as a decrease in Chicken was nearly offset by an increase in Beef. Adjusted operating income increased $341 million year-over-year to $406 million, driven primarily by significant improvement in Chicken profitability. Operational performance and substantially higher AOI led to a $0.66 increase in adjusted EPS, which came in at $0.62 in Q2.

Donnie King:

Thanks, John. Before we get to your questions, I'd like to thank our 139,000 team members, who worked tirelessly to feed the world like family and fulfill our mission to bring high-quality food to every table in the world. It is the strength of our team that secures our position as a world-class food company and a recognized leader in protein. Together, we delivered a solid first half, we still have more work to do and believe we have the strategy in place to continue our progress and deliver long-term shareholder value.

Sean Cornett:

Thanks, Donnie. We will now move to your questions. Please recall our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instruction.

Peter Galbo:

Donnie, maybe just to start, you typically gave, I think, kind of an update on the state of the business and things have improved to your -- sequentially at least pretty dramatically. I guess just curious a little bit on 2 things. One, kind of are you happy now with kind of the state of the portfolio and the state of plant closures and asset rationalization? And then secondly, just trying to understand the commentary around Q3 weaker than Q4 seasonally in light of what you've been saying that, that would run kind of counter to what has been the case seasonally for the past, I don't know, 5 or 6 years. So maybe if you can just unpack those 2 areas would be helpful.

Peter Galbo:

Great. Melanie, that's very helpful. Yes, we've gotten certainly a number of questions on that. So thank you for the context. And then Donnie, maybe just as a follow-up. Look, we've had a number of companies this quarter, both in the CPG industry and in restaurants. Just kind of comment on the state of the consumer and low-income consumer. I know that was in some of your prepared remarks, but curious if you could dive a little bit deeper on just your view on food service and some of the channels that you service there. Just any commentary around quick service, casual dining and noncommercial would be helpful.

Melanie Boulden:

Yes, happy to. So Peter, in both retail and foodservice, as you know, the consumer is under pressure, especially the lower income households. And in retail, we're seeing roughly 20% cumulative inflation over the last 3 years. Now the inflation impact, coupled with historically low savings rate has created a more cautious price-sensitive consumer. And we're also seeing a cautious consumer prioritized essential staples over discretionary categories. Now that said, we're advantaged, in that our protein categories enjoy lower levels of elasticity compared to the broader consumer landscape. And in retail, we're experiencing -- well, I should say, but in retail, we are experiencing a little slippage to private label with lower income households. However, our share remains strong with growth in bacon, snacking and sausage.

Operator:

The next question comes from Ben Theurer with Barclays.

Donnie King:

I think I caught all the questions. Let me start out here was -- if I heard correctly, it was a kind of a supply question and then let me talk about that, and I will flip it to Wes to add some very specific details. But in terms of chicken supply, if you look at the publicly available data, USDA has projected chicken supply increased about 1% in 2024. But if you look at the data underneath it, there are some things that you need to get from this. This is a livability and hatchability story for the industry. If you look, pull it and [ hen ] mortality continues to be elevated. Broiler mortality continues to be elevated. Hatchability continues to be 3% to 5% below historical rates.

Wes Morris:

Yes, Ben, we certainly see the USDA numbers projecting up 1%, but we're seeing the egg sets up, but slaughter pounds relatively flat. Now the good news is I'm very proud of our live performance. We hashed [ 82 34 ] in the quarter, livability is up 50 points year-over-year. And so looking at our live performance and then our S&OP process, our supply-demand group, we're in a good position for the back half of the year to stay balanced, to take care of our customers, and I'm very pleased with our live and supply-demand planning group.

Benjamin Theurer:

Okay. Perfect. And then just a quick follow-up on Beef in terms of like what you're seeing on the industry. Have you seen any signs of heifer retention to just what you like getting on the ground to get a better feel on how bad it is still going to get until it might get better? A little bit of the premium maybe into '25.

Thomas Palmer:

Maybe start off on the Chicken side, at least relative to consensus estimates, the guidance boost would seem to indicate more than just upside in the quarter. So maybe talk on the components that are driving that increased outlook for the second half of the year? I mean it does seem, obviously, like feed is favorable. It seems like the pricing environment it's getting better. And then you've had positive commentary on productivity. So just any help on kind of how much those items are helping, if there are other items to consider? And any quantification, of course, would be appreciated.

Thomas Palmer:

Right And then maybe a quicker one on Pork. Just with the costs falling, are you seeing any signs that the industry in terms of hog supply making better profits and might start ramping up supply at all or still a bit too early?

Adam Samuelson:

Maybe continuing on the discussion on controlling the controllables. Donnie, in response to the last question, you talked about kind of improvements in live operations, operational efficiency, kind of matching supply demand. I would just love to get your view on where the company is today and certainly notably improved versus where you were 12, 18 months ago. But where how much -- where can you get it to? How much kind of cost reduction on a per pound or millions of EBIT dollars, do you think is still kind of attainable, excluding changes in the external market environment in the Chicken business?

John Tyson:

And Adam, I think -- this is John, just with one final clarifying point. You had a specific question around, can you quantify the operational performance opportunity? I would just say that -- we've got a range of guidance out there. I think that reflects the balance take and the midpoint of that is probably a reasonable place to be for the total company. But we've left things open a little bit on the top side and the high end of all the estimates of the various segments would reflect, at least what we believe to be achievable in our fiscal from an operational improvement opportunity. So I think that's about as much detail as we're intending to provide here. But safe to say, I think we see a lot of opportunities around the portfolio. The guidance reflects what we can get in '24, and we're optimistic about '25 and beyond, too.

Brady Stewart:

Thanks for the follow-up question there. And we've been pretty consistent with our message over the last few quarters, whereas there is absolutely a variety of expected outcomes here and how we move through relative to supply and pounds. One of the good signs we've seen is we have seen additional weight for carcass. And so that has provided some dilutive effect relative to cost structure, which is one of the concerns as you move through lower supplies, how that translates itself into potentially higher grading cattle is of interest as well, and we'll be monitoring that. But as we looked at the cycle and the potential outcomes of the cycle, we created a strategy that was completely focused on understanding a range of outcomes and how we can provide deliverables within those outcomes as well.

Operator:

Our next question comes from Heather Jones with Heather Jones Research.

Donnie King:

Sure, Heather. Let me start out and just maybe remind us of last year. In '23, at least the first half of '23 is not a real good comparator. If you look at Q1 of last year, we absolutely missed the demand signal in Q1 of last year, and that carried on into Q2 of last year. And so if you look at volume in Q2 of last year, versus Q2 of this year, you're going to see that it is down and -- but last year was really overstated. Volume growth was, in fact, there, but there was also issues with profitable sales as it relates to Q1 and Q2 last year. So we're beyond that, we've cleaned all of that up, and we're moving forward. We're running a much better business today in our Chicken business.

Wes Morris:

Yes, Heather, thank you for your question and asking for clarity. Our volume is in line with our expectations. We are well positioned in supply-demand balance. And we have strong growth plans put in place, and you'll start to see that in the second half.

Brady Stewart:

Yes, Heather, thanks for the question. I would say relative to demand, we've seen a fantastic demand on both the Chicken side and the Pork side relative to retail promotional activity as well. While we've seen fantastic demand being driven by that retail and promotional activity, Beef really has not received much promotional activity at all. And so where in the past, as we move into the summer months, you've seen that activity. We'll be watching for that as we move into Q3 to see if we see additional promos, where retail specifically going to drive the consumer relative to any of the proteins. Luckily for us, we're in good shape on the Pork side, good shape on the Chicken side in terms of meeting that customer in those channels as well.

Brady Stewart:

That's correct.

Brady Stewart:

The Beef -- Beef promotion, that's been -- that's really been a calendar '24 story. And again, we'll continue to monitor that as we move through the remainder of the quarter, but we won't provide any additional guidance on Q3 other than what we've provided already.

Ben Bienvenu:

So you noted that in the Chicken business, fairly equal contribution in the first half of the fiscal year of the improvement to what we saw last year between operational improvements and market improvements. As you look to the balance of the year, 3Q, 4Q, is it similarly equally split? Or should we see a diminished operational improvement contribution and more of the improvement is predicated on the market having strengthened?

Ben Bienvenu:

Okay. Very good. My second question is related to total company. And in particular, in years past, you all have gone through the exercise of articulating what you think kind of normalized earnings power is for the business and you've provided some clarity by segment. Not asking today what that earnings power is, but maybe when you think you all might be at a place where you can provide that level of clarity at the total enterprise and across the segments, given all the changes that you've made and the operational improvements that you've made progress against?

Operator:

The next question comes from Alexia Howard with Bernstein.

John Tyson:

Alexia, this is John again. I would say that we typically plan for a little bit of that weather in the quarter. When we talked to you in February, we were pretty early on and had experienced some significant event just at that point, kind of one month in. I would say overall, though, the impacts in the quarter were not so significant that it had a disproportionate impact on earnings. So I think nothing to read into there.

Melanie Boulden:

Alex, this is Melanie. And in terms of our start-up costs, we may experience a little bit bleeding over into Q3, but we think the majority of them have hit in Q2.

Operator:

The next question comes from Andrew Strelzik with BMO.

Brady Stewart:

Thanks for the question, Andrew. And specifically, we talk a lot about beef demand. We talk a lot about beef cutout pricing as well. But also, we need to factor in the fact that drop as a significant amount of value that falls within the beef supply chain and also our largest cost is relative to live cattle costs as well. And so when you really balance the 2 revenue streams, the cutout pricing and the drop pricing and you take that into account with live cattle and where potentially we could see some live cattle pricing going, that really creates the range of outcomes. It's trying to balance those 3, the 2 revenue and the 1 supply cost perspective when we look at particular guidance and the range of outcomes.

Andrew Strelzik:

Okay. Okay. That's helpful. And then my second question is on the CapEx outlook. And I know last quarter, when it was reduced, you were kind of matching CapEx and the operating profit outlook. And so I guess I'm curious just how we should think about CapEx on a go-forward basis as the profit environment is better, since that hasn't really kept up and maybe there's timing dynamics and you've already mentioned controlling that tightly. But just as the profit dynamics get better, how should we think about the rate at which you might add back to CapEx? Where are the priorities where you might want to add back? Just any color around that on the go forward would be great.

Michael Lavery:

You had mentioned that you still have some work to do in chicken and you've touched on that a few ways, but can you just be clear how that does or doesn't apply to your footprint there? Is the supply-demand balance pretty well set? Or is that another piece of the equation that could evolve as well?

Michael Lavery:

Okay. That's helpful. And just on international. You've touched on it a couple of times earlier in the prepared remarks. Just how should we think about its margin runway? And what does it take for that to get a ramp-up in profitability?

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Sean Cornett:

Good morning, and welcome to Tyson Foods' fiscal first quarter 2024 earnings conference call. On today's call, Tyson's President and Chief Executive Officer, Donnie King, and Chief Financial Officer, John R. Tyson, will provide some prepared remarks followed by Q&A. Additionally, joining us today are Brady Stewart, Group President, Beef and Pork and Chief Supply Chain Officer; Melanie Boulden, Group President, Prepared Foods and Chief Growth Officer; Wes Morris, Group President, Poultry; and Amy Tu, President, International. We have also provided a supplemental presentation, which may be referenced on today's call and is available on Tyson's Investor Relations website and via the link in our webcast. During today's call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions, or beliefs about future events or performance that's not related solely to historical periods. These forward-looking statements are subject to risks, uncertainties and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statements disclaimers on Slide 2 as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note that references to earnings per share, operating income and operating margin in our remarks are on an adjusted basis, unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now, I'll turn the call over to Donnie.

John R. Tyson:

Thanks, Donnie. I'll start with an overview of our total company results before moving on to our individual segments. Sales in Q1 grew slightly year-over-year as an increase in Beef revenue was nearly offset by a decrease in Chicken. The decline in adjusted operating profit was driven by lower profitability in Beef, which was partially offset by growth in Chicken and Pork. It's important to note that AOI improved significantly on a sequential basis despite the modest decline versus last year. Adjusted EPS nearly doubled compared to last quarter, highlighting the ongoing improvement in our operational performance. Now, let's review our segment results starting with Prepared Foods. In Prepared Foods, Q1 revenue was flat year-over-year. Volume growth was led by benefits from the Williams acquisition and continued recovery in our foodservice business. Lower pricing primarily reflects the mix impact of the lower contribution from retail. AOI in Q1 was also in-line with last year. Lower raw material costs and operational efficiencies were offset by increased brand support expenses, start-up costs associated with new capacity additions and mix. AOI dollars and margin both increased significantly on a sequential basis due to strong operational performance and great seasonal execution by the team. Moving on to Chicken. Sales in Q1 declined 5.4% year-over-year, primarily driven by the impact of lower commodity protein prices. Volume declined 1.5% due to lower production, which was partially offset by continued sell-through of finished goods inventory. Despite the decline in sales versus last year, AOI more than doubled in Q1, primarily driven by the benefits of our strategic actions and other operational efficiencies. These include lower plant spend, improved yield and better live performance. While input costs were a clear tailwind, these were largely offset by the impact of lower pricing. As Donnie mentioned, this is the third consecutive quarter of more than $100 million of AOI improvement as we were able to pull forward the benefits of closures of inefficient plants in improvements in our live operations. Now moving to Beef. In Beef, revenue increased 6.4% year-over-year in Q1, with lower head throughput more than offset by higher prices per pound. While revenue increased, AOI decreased versus last year, primarily reflecting compressed spreads, as was expected. As Donnie mentioned, in Q1, nearly half of the operating loss was driven by an unfavorable inventory valuation adjustment, which was primarily due to the rapid and significant decline in cattle futures. Moving to Pork, Q1 revenue was down modestly as volume growth was offset by lower pricing. However, AOI increased year-over-year, benefiting primarily from improved spreads driven by lower hog cost as well as better execution. And finally, a brief comment on our International business. AOI improved as we begin to lap some of the start-up cost of our newer facilities and continue to focus on improving execution despite a decline in sales, driven by macroeconomic challenges. Shifting to our financial position and capital allocation. Our commitment to building financial strength, investing in our business and returning cash to shareholders, primarily via our dividend, remains unwavering. While market conditions remain challenging, we are laser-focused on disciplined management and deployment our capital resources to drive cash flow. Q1 showcased robust operating cash flow of $1.3 billion, above our expectations, and working capital was a solid source of cash as we continued to manage inventory levels. We were also disciplined with CapEx, which came in at just over $350 million in the quarter, below last year's exit rate. During the quarter, we returned $171 million to shareholders via dividends. Our net leverage declined sequentially, coming below 4 times, driven by our improved profitability and strong cash generation. We ended Q1 with more than $3.7 billion of liquidity. Our balance sheet management approach remains unchanged. We are committed to building financial strength and maintaining our investment-grade credit rating, and returning net leverage to at or below 2 times net debt to EBITDA. We remain committed to maintaining a disciplined yet opportunistic capital allocation strategy, ensuring that we deploy resources to maximize long-term shareholder value. Now, let's take a look at our updated outlook for fiscal 2024. Given the solid results in Q1, we have confidence that our financial performance in 2024 will improve versus last year. However, as it's still early in the new fiscal year and uncertainties remain, especially in our Beef segment, we have made only modest changes to our outlook. Our focus for fiscal 2024 remains to manage the business for profit and cash dollar generation, reflected in our guidance presented in dollar terms rather than margin percentages. With that in mind, we are reiterating our overall sales guidance to be roughly flat year-over-year. Moving to each of the segments. Prepared Foods had a solid start in a seasonally strong period. For the remainder of the year, we expect strong volume results as we continue our momentum in foodservice and see the benefits of our capacity additions. We remain focused on operational efficiencies while we support our brands and anticipate continued start-up costs. Taking all this into account, we're maintaining our AOI guidance to be in the range of $800 million to $1 billion. In Chicken, our operational turnaround is progressing as anticipated. For the remainder of the year, we expect to return to normal seasonality where Q2 is typically a weaker quarter. Given the strong start in Q1 and that we believe that there were more tailwinds than headwinds, we are tightening our AOI guidance range to be between $500 million and $700 million. In Beef, spreads are compressing as expected. However, uncertainty remains around how the cattle cycle will progress. Therefore, we are maintaining our full-year guidance at a loss of $400 million to breakeven. In Pork, on the back of our strong Q1 results, we're now raising our guidance to be between breakeven and $100 million. For the total company AOI, we're maintaining our guidance of between $1 billion and $1.5 billion, reflecting the portfolio nature of our segments. To round out the key P&L items, we anticipate interest expense to be roughly $400 million, and a tax rate to now be between 23% and 24%. Turning to CapEx, we're maintaining tight controls on spending in-line with profitability and cash flow, and we expect CapEx to remain between $1 billion and $1.5 billion this year. Finally, on free cash flow, we're committed to managing working capital and CapEx, and we're even more confident now than we were last quarter that we will generate positive free cash flow for the year. To further help model the shape of the rest of the year, we anticipate more typical seasonality across our business. As a reminder, Q2 is seasonally our weakest quarter for AOI and cash flow, driven by Beef and Chicken. As you may be aware, this January has already been impacted by severe winter weather disrupting operations. And again, we expect start-up costs in Prepared Foods to impact Q2 as well. So, in summary, 2024 is off to a promising start and we're cautiously optimistic on our prospects for the remainder of the year as well as for the long term. Tyson is a leader in the global protein industry. We have strong brands, a broad portfolio of products and a great team, all of which uniquely position us to win in the market. With that, I'll turn the call back over to Sean for Q&A instructions.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Peter Galbo with Bank of America. Please go ahead.

Donnie King:

Hi, Peter. Good morning.

Peter Galbo:

Donnie, I was just wondering if you could give kind of maybe a brief state of the union, I know you gave some in your prepared remarks, but across the segments. And then maybe specifically, if you could start on Prepared Foods, where unlike a lot of CPG peers, you're showing actual volume growth. Some of that may be acquired, but just some of the dynamics around foodservice there seem to be a pretty important driver. So, if you can unpack that for us would be great.

Melanie Boulden:

Yeah. Donnie, I think you did a great job I'm hitting the highlights. The only thing I'll add for you Peter is, as Donnie said, our foodservice performance was strong, and I believe you asked about this question. Our growth this quarter was up 3% and that was due to customer expansion. Look, as this channel is rebounding, it continues to be an important part of our portfolio that we are focused on because we want to be where our consumers are at. And so, we're diversifying our customer base, we're building digital capabilities to drive demand, and we are focused on profitable growth.

Donnie King:

Sure. I mean, I'll tell you we look at the same information that I'm sure you've seen and we saw the cattle on feed report that you referenced. Unfortunately, Peter, the data doesn't indicate that heifer retention is taking place and that's obviously one of the signposts we're looking for. In the quarter, we continue to see volatility and spread tightening. We expected that. As we think about our outlook, we continue to project high cattle supplies for the balance of 2024 and even beyond. And let me pause. Brady, do you want to add anything to that?

Peter Galbo:

Thanks very much.

Operator:

The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Donnie King:

Good morning, Adam.

John R. Tyson:

Yeah, Adam, thanks for the question. And maybe let me give a few point that will help you shape our '24 outlook compared to '23. I think the first thing to point out is we talked about the network moves, operational performance improvement, we started to realize that, and the adjustment in our guidance range of taking the bottom end up by $100 million, roughly equivalent in-line with where we were ahead of expectations for the balance of the year -- or excuse me, where we were compared to expectations. Then, when I move through the balance of the year, I know one question is sometimes on investors' mind is, "Hey, where is your return on sales guidance? How does that peaking, or not peaking?" We've heard some questions about that. We're not going to return on sales guidance, but there's reasons to believe that our quarter three and quarter four could be around where we delivered the result in Q1, but frankly, it's probably premature to make any strong assertions around that. And then again, Q2, we had weather impacts across all of our segments. Chicken was not immune to that. And so, that's kind of the overall picture that we can give today based on the shape of the year. A couple of other things we're saying, we did talk about a couple of hundred million dollars in improvements on some previous earnings calls, thinking about the benefits we've realized from the network moves. We believe that we have achieved that. We have one facility still going core in Indiana. And when we close out that process, then we'll be nearly finished there. And then, there are some tailwinds from a market standpoint. I think last quarter Donnie was the one who said more tailwinds than headwinds. I think that sentiment prevails. As you know it's not just grain prices, but it is kind of the interplay between that and what chicken markets are doing and what's going on from a supply-demand standpoint to influence things. So, I think overall the $500 million to $700 million range, for a lot of those reasons, is our best estimate today of where we think the year will be. And, yeah, hopefully that gives you a little extra color. Wes, maybe you got something to add in there for Adam.

Adam Samuelson:

That's very helpful color. And then just as a follow-up, especially in Chicken and Prepared Foods. Just wondering if you have any views on changes in consumer behavior and how consumer demand elasticity has been evolving as you kind of enter -- as the calendar flipped and how you're thinking about the state of the US consumer over the balance of calendar '24.

Wes Morris:

Yes, Adam, I'd just add that we're seeing really good dark meat demand. We've seen a reemergence of our wing demand, and we're seeing a slight shift towards foodservice.

Donnie King:

Thanks, Adam.

Ken Goldman:

Hi, thanks so much. I wanted to ask a little bit about competition on the Prepared Food side. Are there any of your more important categories that you're starting to feel maybe a little incremental pressure in terms of competition, whether it's on the pricing side or however you want to frame it? And I guess, how comfortable are you with your price gaps versus these competitors today just in a general sense?

Melanie Boulden:

Yeah. I would just say, Ken, at the end of the day, this is a challenging consumer environment, and boy, competition is stepping up. We're not only seeing competition step up from branded players, but also private label is a factor. And I think overall, we're doing very well and holding our position. But at the end of the day, we are just focused on our own retail business, in particular, and making sure that we're doing what we have to drive consumption, to address any price gaps and make sure that we are maintaining our leadership position in -- which, as you know, in eight of our 10 categories. So right now, we are focused on making sure that we grow through high ROI merchandising with a strong feature and display at shelf. We're increasing our MAP investment to continue to grow our household penetration. We've got strong innovation on shelf now and also coming, which is going to offer strong engagement with consumers. And very importantly, to address pricing, we're making sure that we're enhancing our price pack architecture offering so we can ensure that we are maximizing our distribution footprint. And we think all these steps together, we're starting to see actions in the marketplace and are confident in our full-year outlook.

Wes Morris:

Yeah, I'll take that, Ken. Thanks. We've seen a lot of disruption in the [part] (ph) export side. Specific to leg quarters, freezer stocks are at a really low level and demand seems to be robust enough to clear it at very attractive prices.

Operator:

The next question comes from Ben Bienvenu with Stephens Inc. Please go ahead.

Donnie King:

Good morning, Ben.

John R. Tyson:

I think there are reasons to believe why some of that could offset it. But I think it would be -- I think, to quantify exactly what that offset is, we're not really ready to do that. But let's zoom out and talk about the broader year, because I think I just want to hone in on some factors that are at play about why we remain cautious on the Chicken outlook. And it has to do with what's going on in the total protein markets. Beef continues to be volatile. I think we've had predictions about where beef prices and beef markets were going to go, some have held through, some have not. There is projections for more pork to be on the market this year. We've already talked about the consumer today. So, I just want to make sure that we land the message today while there -- we're cautiously optimistic about chicken, there remains a lot of uncertainty and a lot of time left in the year. So, Ben, I think I addressed at least parts of your question. Hopefully, that's helpful.

Donnie King:

If I could add one thing or a couple of things to that as it relates to Chicken. Those operational improvements that all of us have talked about in Chicken, those continue. And those fundamentals, while we are improved, there's still a lot of work left to do there. And we got a really good team working against those things. But keep that in mind as you are looking at Q2 and the balance of the year as well.

John R. Tyson:

That's a great question. I think there's probably room to tighten it a little bit, but let me kind of talk about the total picture. When we gave guidance in the first quarter, we talked about striving to be free cash flow positive that we would pay attention to our ability to manage the business and working capital as well as our operational results, and that would influence our thinking in terms of the total spend. If you just extrapolate where we are in Q1, that would take you towards a higher end of that $1.5 billion range. But that's really just a product of lot of good projects in flight that we have, our efforts to slow down from the spin that was projected in north of $2 billion in recent years. And I would just say we're not trending to that higher end because, "Hey, we've made some adjustment in our opening up the capital floodgates again," we remain very committed to getting that spend down to the midpoint of our range or below as we move through the balance of this year and next year. So that's what I want you to take away from a CapEx guidance standpoint.

Donnie King:

Thanks, Ben.

Andrew Strelzik:

Hey, good morning. Thanks for taking the questions. My first one is actually on the Pork segment and the outlook there. If I look at the performance in the quarter, and it seems like some solid performance is probably continuing into the second quarter. It doesn't seem like there's much baked into the back part of the year. So I guess, how are you thinking about pork margins from here evolving through the year and kind of the puts and takes as we get into the back part of the year?

Brady Stewart:

No. Thanks, Donnie. And Q1, obviously, is seasonally the strongest quarter of the year. And we'd expect to see some typical seasonality as we move through specifically the latter part of this year as well. The team understands it's their responsibility to control the controllables. And as Donnie indicated, done a really good job of being able to take advantage of some of the spreads we have seen in Q1 and certainly expect those improvements to continue through the course of the year as well. Really seeing some increased operational efficiencies, and the team has done a great job increasing the true business performance through the data and analytics platforms that they've stood up that allow us for better decision-making and really adaptation of some of these market trends in the current conditions.

Brady Stewart:

Well, thanks for the question. And as you pointed out there, I think it's really important to emphasize what both John and Donnie indicated in the opening remarks, which was, in Q1, we saw that rapid decline in cattle futures and that was the driver for that inventory valuation adjustment, that was roughly $56 million in the first quarter. And really, as we look at the first quarter, obviously, we saw some headwinds relative to some decreased value in the drop. We saw the spread compression. And obviously, with lower supply, not only in Q1, but as we move through the rest of the year, we see that lower opportunity for cost dilution of our overhead structure relative to these volumes. But let me be really clear, we see a path to improvement as well. And from an operational excellence perspective, how we manage the business today versus the past in a different economic cycle is very important. Focus on efficiency, yield and really balancing supply and demand, not only by a cut-by-cut basis and through our grinds complex, but also in terms of yield and efficiency is going to be paramount and important to the team, and they're dialed in on that as well. We've made changes that certainly provide us opportunity in the future as well as we mentioned last quarter. We've right-sized our Beef value-added business really to match our customer needs and what we're seeing from a supply perspective as we move through this. And again, as I've mentioned before, we have a well-capitalized asset base, and believe we're really able to manage through a variety of headwinds and market conditions that we expect to see as we move through this cattle cycle.

Donnie King:

Thank you.

Ben Theurer:

Hi, good morning, Donnie, John. Thanks for taking my question.

Ben Theurer:

So, just wanted to kind of understand a little bit some of the dynamics as it relates to the export business, because if I remember right, that used to be some sort of a headwind also in Beef. So, if we look into the details on sales into the international channels, particularly Beef, which kind of contrary to the rest of it, was actually even down in the sales. Could you elaborate a little bit on the dynamics in the export markets as it relates to Beef in particular, but also if you could just mention briefly what you're seeing on exports for Chicken and Pork? That would be my first question. Thank you.

Wes Morris:

Yeah. And Ben, this is Wes. I'll touch briefly on Chicken. As I said earlier, parts have been interrupted due to [indiscernible]. And on leg quarters, we're seeing frozen inventory in the US at almost record lows. Our inventory continues to be in check, and the pricing has been very good going forward.

Brady Stewart:

Yeah. We haven't broken that out, but it's -- we haven't broken that out specifically, Ben.

Operator:

The next question comes from Tom Palmer with Citi. Please go ahead.

Wes Morris:

Yeah, Tom, this is Wes. I'll touch on that. We have a very diverse commodity risk management group. We also have different pricing mechanisms with customers in which some of the grains flow-through through pricing. I would tell you it's moderate and in the back half of the year.

Donnie King:

Melanie?

Tom Palmer:

Yes. Sorry. Exactly. Just you've noted some -- your growth was driven by some new customer wins. And I was just curious what products were really driving that for you right now within Prepared Foods. Thanks.

Tom Palmer:

Yes. Thank you.

Tom Palmer:

Okay. Thank you.

Michael Lavery:

Thank you. Good morning.

Michael Lavery:

I want to come back to Chicken and just trying to understand, obviously, the lift in the quarter was cost and margin driven. But when you point to the strategic actions and those benefits, can you help us understand maybe how to think of them kind of longer term? And would this put you at the higher end or above kind of a 5% to 7% margin range? I know you're not wanting to think about margins as how you guide for the year. You gave a little bit of breadcrumbs for the second half. That's all real helpful. But maybe just looking a little further out, is business structurally different enough that under normalized conditions, you would rethink what it's capable of, what its earnings power is longer term?

John R. Tyson:

Yeah, Don, it's a nice summary. I think, again, without touching on what the long-term outlook is like, the things I would point out about how the strategic moves we made have a sustaining impact in our business is a couple of things. First, we're just taking cost out of the system while still keeping the same amount of volume with our customers. Over the long run, that means not putting capital into older and more tired assets, rather investing in those assets where we think we could achieve our targeted ROIC number. And then, I think the other thing, too, is we have really, in the last year, refocused our growth to be demand backed and to be in those subcategory within the Chicken segment, where we see favorable trends from a growth and margin standpoint. So, I think with that over the long run, we project to be competing and performing as a best-in-class chicken company from a margin standpoint, and that's how we realize that. I think the other big move that we made, we've seen it in our live performance results this year is the switch from NAE to NAIHM and that provides us for a lot more consistency in order to meet customer demand and expectations from a live standpoint.

Melanie Boulden:

Yeah. So, this is Melanie. I would say that promotional activity is continuing -- we are continuing to see intense promotional activity. In terms of how we are operating, we have our highest-performing our highest-ROI merchandising initiatives in place to drive our feature and display and choice at shelf, and we are seeing it working. But to your point, competitive activity in this area is strong and we're just focused on controlling our controllables. And in addition to our promotional activity, we're focused on, as I said before, increasing our MAP investment to engage consumers. Again, we've got strong innovation in place, and we're enhancing -- when you asked about price, we're making sure that we enhance our price pack architecture structure to address competitive pricing as well.

Donnie King:

Thank you.

Alexia Howard:

Good morning, everyone.

John R. Tyson:

Good morning, Alexia.

John R. Tyson:

Yeah. Thanks, Alexia. So, I think two questions in there. The first off is just independent of weather -- I want to make sure we're tracking. Independent of weather, we expect our Q2 to typically be one of the softer quarters from an operating income standpoint. And so then that's exacerbated by weather a little bit. In the long run, we are projecting for leverage to continue to come down. That's driven by a couple of things. One, we're getting more efficient with working capital. We've talked about some inventory clearing in our -- around our segments. Exactly kind of where things happen in the first half of the year, we can say that we would expect to end our fiscal 2024 in a better net leverage position from a ratio standpoint than last year. That's evident also in our pull down on CapEx and what we projected, which is to be a better year from an operating income and EBITDA standpoint than '23. So that's -- we're trending in the right direction, aggressively pursuing that at or around 2 times net leverage ratio. And we would project that we'll get to do that, continue to invest in our business and also support our dividend from a capital allocation standpoint.

Donnie King:

Okay. Alexia, this is Don. There are a lot of questions in there. Here's what I can tell you relative to foodservice. And keep this in mind, we've talked about it today because you have seen some volume improvement relative to foodservice. I would remind you that we had given up some business in the middle of pandemic, and the nature of those contracts can be quite lengthy. And we're starting to get back in when those open up and get some volume. We have maintained in Prepared Foods the capacity which produces those products. So, if you think about it from that perspective, this overhead in these assets have been a drag on our business to some degree. We've gotten new volume to put into those assets. So that's one piece of it. We're probably not going to talk about the differential in the margin structure between foodservice and retail. But it's important that we regain that volume in foodservice. But our retail -- our iconic brands in retail continuing to support those and grow those and innovate and do merchandising like Melanie has talked about before, those are all still critical -- mission critical for us.

Alexia Howard:

Great. Thank you very much. I'll pass it on.

John R. Tyson:

Before Donnie wraps us up, I just want to make sure we land one final point related to our outlook for 2024. And we've had a lot of great discussion this morning about our various segments. We obviously moved the range on Chicken and on Pork. But I just want to highlight our reaffirmation of the total company guidance from $1 billion to $1.5 billion based on a lot of various macro factors and the interplay between all of our segments. I think we have reasons to believe while we could achieve a range of outcomes in that window, the midpoint plus or minus, we designed it that way for a reason, and it feels like a way to think about the total look. And then obviously, as we move through Q2 and through the balance of the year, we'll give any revisions as necessary. But cautiously optimistic, promising start to the year, but still a lot of factors at play around total protein availability, consumer sentiment and the other unpredictable factors that would get us to where we are. So, Donnie, I think with that, I hand it over to you.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Sean Cornett:

Good morning, and welcome to Tyson Foods' fiscal fourth quarter 2023 earnings conference call. On today's call, Tyson's President and Chief Executive Officer, Donnie King, and Chief Financial Officer, John R. Tyson will provide some prepared remarks followed by Q&A. Additionally, joining us today are Brady Stewart Group President, Beef, Pork, and Chief Supply Chain Officer; Melanie Boulden, Group President, Prepared Foods and Chief Growth Officer; Wes Morris, Group President, Poultry; and Amy Tu, President, International. We have also provided a supplemental presentation, which may be referenced on today's call and is available on Tyson's Investor Relations website and via the link in our webcast. During today's call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include comments reflecting our expectations, assumptions, or beliefs about future events or performance, that do not relate solely to historical periods. These forward-looking statements are subject to certain risks and uncertainties, and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statements disclaimers on Slide 2, as well as our SEC filings for additional information concerning risk factors, that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note that references to earnings per share, operating income, and operating margin in our remarks are on an adjusted basis unless otherwise noted. For a reconciliation of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I'll turn the call over to Donnie.

John R. Tyson:

Thank you, Donnie. Let me start with a quick summary of our total company results, and then review our individual segments. Our sales were down year-over-year in Q4 and for fiscal '23, driven by pork and chicken, where we saw a reduction in price per pound. The decline in adjusted operating profit for both periods was driven by lower profitability in beef and chicken. While profit in Q4 was down substantially versus last year, it's important to note that it continued to improve on a sequential basis and adjusted EPS more than doubled compared to Q3. Challenges remain, but we continue to drive efficiencies and improve our operations, and we believe we're headed in the right direction. Now, onto the individual segment results, starting with Prepared Foods. In Prepared Foods, revenue was down modestly in Q4 year-over-year, driven by lower bacon pricing. This lower pricing was offset by volume growth, which highlights the strength of our brands. AOI improved slightly year-over-year, despite lower sales. Our ongoing productivity initiatives and easing inflation offset lower pricing, increased marketing, advertising, and promotional support, and the onset of start-up costs for our new facilities. AOI margin declined sequentially in Q4 due to seasonality, increased brand support, and start-up costs. However, the $151 million of AOI the segment generated is the second-highest Q4 result in the past five years. In the full year, fiscal '23, AOI grew by more than $100 million, representing growth of nearly 14% year-over-year. Now, moving to chicken, sales declined 10% year-over-year in the quarter, driven by lower pricing, reflecting primarily lower commodity protein prices. Volume grew modestly in Q4 versus last year, driven by continued sell-through of finished goods inventory, and this was partially offset by a decline in production. This decrease in production highlights our ongoing focus on balancing supply with our customer's demand. Year-over-year profitability declined primarily due to lower commodity chicken pricing, but this was partially offset by lower input costs and operational efficiencies. On a sequential basis, lower grain cost and productivity enhancements drove another quarter of AOI improvement. In fact, when we compare to Q4 to Q2, chicken AOI increased by more than $240 million. In beef, revenue increased modestly year-over-year in Q4, with lower head throughput offset by higher pricing. Operating profit was down, reflecting compressed spreads, primarily due to higher cattle costs. As we have been discussing all year, beef is likely to continue to face headwinds, including in fiscal '24, as we don't expect the ongoing tightening of cattle supply and spread compression to abate until herd rebuilding is underway. Moving on to pork, revenue was down nearly 7%, driven primarily by lower pricing due to softer global demand. AOI for the quarter was a modest loss, but importantly it increased by more than $40 million year-over-year and by more than $60 million sequentially as spreads improved along with operating performance. Before moving to our capital priorities, it's worth noting that our international business posted solid Q4 and fiscal '23 results, driven by growing penetration across our key markets and channels. We remain focused on market share growth and continued operational excellence, as we ramp up our new facilities. Now to our financial position and capital priorities, where building financial strength, investing in our business, and returning cash to shareholders primarily via our dividend remain the priorities of our capital allocation strategy. As Donnie said earlier, we will remain disciplined and prudent with capital. We came into fiscal '23 with a plan to spend roughly $2.5 billion dollars in CapEx. As you saw, we ended up reducing our spend by $600 million, as we reacted to market conditions driving lower profitability and impacting our operating cash flow. We were also disciplined in managing working capital, which was a source of cash this year. We ended the year with $3 billion of liquidity and net leverage of just over four times. Our balance sheet management approach remains unchanged as we are committed to building financial strength, maintaining our investment grade credit rating, and returning to net leverage of at or below two times net debt to EBITDA. During the year, we returned $670 million to shareholders via dividends and $354 million in share repurchases, primarily to offset dilution. We remain committed to maintaining a disciplined capital allocation strategy, ensuring that we deploy resources to maximize long-term shareholder value. Now, let's review our outlook for fiscal 2024. Fiscal '23 was a challenging year, and we took a hard look at how we managed the business in times like these and how we can better communicate and manage expectations for investors. Our focus for fiscal '24 is to manage the business for profit and cash dollar generation. These are our internal goals and what we want investors to understand. So for this year, as you'll see, we are giving guidance in dollar terms instead of a margin percentage. While there are some top-line uncertainties within the individual protein categories, we expect our overall sales to be approximately in line with fiscal '23. Moving on to the segments, prepared foods has been solid and stable driver of operating cash flow. We expect that to continue in fiscal '24, driven by volume growth, disciplined revenue management, and productivity offset by MAP support for our brands and the start-up costs for our new facilities, as well as risks from changes in consumer behavior. Reflecting these dynamics, our expectations for adjusted operating income is in the range of $800 million to $1 billion. To help navigate any potential shifts in consumer spending and sentiment, we are focused on the most efficient marketing, advertising and promotions that drive the highest ROI and the most effective consumer engagement and demand. To help meet demand in value-added brands and categories, we had previously invested in new capacity and we expect to incur start-up costs in fiscal '24. On to chicken, our operational turnaround in chicken is progressing as we expected. We demonstrated sequential profit improvement in Q3 and again in Q4. We anticipate operational improvements to continue into next year and that along with lower input costs net of pass-through pricing, the segment should generate between $400 million and $700 million of adjusted operating income. Now onto our beef segment, when and how fast meaningful heifer retention will take hold is uncertain at this point, and this influences our outlook for our beef segment in 2024. Multiple outcomes are possible and we will be prepared for all of them to operate as efficiently as we can. Our guidance for this segment is a loss of $400 million to break even for the year, reflecting uncertainty in market dynamics. Now onto our pork segment, where we see momentum in the business. As spreads begin to improve and we continue to execute, we expect AOI to improve versus last year, to roughly break even for fiscal 2024. For the total company, we've given a range of outcomes for each segment, but we expect any outsized weakness or strength in any one area to be balanced by the remainder of the portfolio. In other words, neither the low end nor high end of the range is anticipated to happen simultaneously across all the businesses. As a result, we expect our total company, AOI for fiscal '24 to be between $1.0 billion and $1.5 billion. To further help understand the shape of the year, let me provide some context on the quarterly phasing. While we foresee more typical seasonality in our business for next year, things like start-up costs and prepared foods and rising cattle costs will impact Q1 and Q2, and generally shift profitability to the back half of Fiscal '24. In addition, we are monitoring potential impacts to the consumer of higher interest rates and inflation, which could create some volatility. Now, to round out the key P&L items, we anticipate interest expense to be roughly $400 million for the year and our tax rate to be approximately 23%. We moderated our pace of CapEx in Fiscal '23 in a challenging environment. We ended the year with $375 million of expenditures in Q4, which annualizes to $1.5 billion. As we maintain tight controls in our spending in line with profitability and cash flow, we expect CapEx for the year to be between $1.0 billion and $1.5 billion. While there are a range of possible outcomes for AOI, we expect to manage our working capital and CapEx so that we're free cash flow positive for the year. In summary, while the current operating environment remains difficult, we are making improvements across our operations, and remain optimistic on our long-term prospects. We have great teams, growing demand for our products, and the right portfolio mix to win in the marketplace. Now I'll turn the call back over to Sean for Q&A instructions.

Operator:

Ladies and gentlemen, at this time we'll begin our question-and-answer session. [Operator Instructions] And our first question today comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.

Donnie King:

Good morning, Adam.

Donnie King:

Okay. Adam, this is Donnie here. Thanks for the question this morning and thank you for being with us. As we said earlier, 2023 was a very unusual year, one that I've not seen, where all core protein categories were challenged at the same time. And at the same time, our brands continue to perform well, outperforming the broader food and beverage category. The demand for protein remains strong. We're controlling the controllables and we're focused on efficiency, modernization, and cost structure. Over this past year, we've taken bold actions to improve performance. We're managing the business for cash. We also have pulled down our capital spend and if you go back to '22, we spent $2.6 billion, in '23, we pulled that down to $1.9 billion and we're projecting between $1 billion and $1.5 billion in '24. We will continue to return cash to shareholders predominantly through the dividend and we shared that earlier today. We had the 12th consecutive year of increasing dividends. We're winning with customers and consumers. We do have advantage brands and advantage categories and are very proud to be in the Top 10 for the second year in a row with Kantar Power Ranking. We've seen sequential improvement across all the businesses in the second half of '23. We expect fiscal '24 to be better year-over-year in cash flow and profitability. Chicken AOI improving considerably and prepared foods continuing to perform well. In short, our plan is working and delivering tangible results. FY '24 is off to a great start and I could not be more excited about our future. We do have a good plan. We do have the right team, and we are executing at levels I've not seen in a long, long time. And in terms of individual segments, John, do you want to add something to that?

Adam Samuelson:

And I think the AOI dollar guidance ranges are definitely appreciated versus the percent. And if I could give -- ask a follow up just on cash flow, so you said free cash flow positive, is that free cash flow positive after dividends or what's the big plugin there would be? How much working capital do you think you can release if given the sales and profit outlook that you have?

Adam Samuelson:

Okay, I appreciate it.

Adam Samuelson:

Okay. I appreciate that color. I'll pass it on. Thanks.

Operator:

Our next question comes from Andrew Strelzik from BMO. Please go ahead with your question.

Donnie King:

Good morning, Andrew.

John R. Tyson:

Yeah. I guess, I'll give you three or four data points on how to think about CapEx. Number one, we communicated throughout last year, that we were trending towards a $1.5 billion number, did not mean to make any commitments last year as to when we got there, although we feel as though that's the high watermark this year. And so, I think I mentioned in my prepared remarks, Q4 was at $370 spend for us and so that would track out to being at the high-end of our range for the year. I think that the other -- the other two things, that are worth pointing out is, number one, we have a lot of capacity expansion projects that are rolling off and finishing up, as we start '24. And then last but not least, if you just think about a normalized investment level in our business, if I were to go back to before we embarked on this period of significant capital investment, [$1.25 billion] (ph) was probably the -- was the average number between I think '17 and '21, so that's just recent history that would support the range that we're sharing today is in line with what we need to invest in our business.

Andrew Strelzik:

Okay, great. That's super helpful. And then a second question, I guess, is maybe, if you think about your footprint today, your capacity utilization across your business, and you've been very, very consistent in terms of saying that you're looking for all the opportunities that are out there and those types of things across the business. So you found some more in chicken that you've talked about. But I guess I'm just curious if you could characterize how you think about your footprint today and how you're evaluating those opportunities. If there's anything beyond chicken that you think might make sense at some point, or maybe not, since we haven't seen that yet, but just curious, as you continue to go down that path? Thank you.

Andrew Strelzik:

Great. Thanks. I'll pass the line.

Ken Goldman:

Hi. Thank you. I wanted to ask first, Tyson in the past has gone back and forth a little bit about providing longer term margin ranges by segment. Now that you're providing EBIT dollars by segment, and I would mirror, I think, Adam's thoughts about appreciating that. Is it possible that at some point in the future, you might consider going back to giving us some kind of longer-term EBIT ranges instead of margin ranges? Or is the goal to kind know, hey, let's see where the business goes, and then maybe that'll be considered? Or is that just kind of off the table at all? I know there's some people that just are always curious what your longer term outlook is at this point, you know, even though visibility is not great right now?

Ken Goldman:

And then just as a quick follow-up. And thank you for that. It was mentioned that you're still, if I can paraphrase maybe kind of reviewing all of your options for your pork business, I was just curious, if there's any further insights you might be able to provide about what those options are and kind of where you are in that progress. Thank you.

Brady Stewart:

Thanks, Donnie. As Donnie indicated, we've seen improvement and John certainly in his opening remarks, talked about the improvement sequentially quarter-over-quarter and year-over-year in our Pork business. Again, that's driven by two things, one is we did see some moderate improvements relative to the spread and we did see a significant improvement relative to us controlling our controllables. Again, that is a focus on making sure our assets, operating as efficiently as possible. Really focused on our mix and ensuring that we have world-class yields coming out of our assets as well. So when we talk about ‘24, again, we're looking at better than $100 million of improvements year-over-year relative to ’23. We're excited about the team that we have. They continue to really use data and analytics and ID all of the opportunities in the business, they've developed the right strategies for the future. And most importantly, they've executed on continuous improvement in mix efficiency and yields.

Peter Galbo:

Hey, guys. Good morning. Thanks for taking the questions. I wanted to unpack a little bit on Prepared Foods and the guidance for the year. Donnie, just given your commentary and some of your competitors, it seems like there is a step-up in the [map] (ph) spending and some of the promotion and maybe the category -- some of the retail categories are getting more competitive. I just -- I was hoping maybe you could unpack that in the current environment and then kind of reconcile, again, the guidance for the year, typically, you would see a stronger profit contribution from Prepared in the first half versus the second half of the year, and maybe this year, it seems like it might be a bit different. So anything you can do more to get more detail there.

Melanie Boulden:

Hi, Peter. So let's first -- you asked about performance and wanting to kind of unpack that, if you will. Let's start with our performance in Q4. It's important to remember that the Prepared Foods business, it has some seasonality aspects that typically resulted in softer margins in Q4 compared with our full year expectations. But despite the seasonality and impact from our start-up costs this past quarter, our margins still remain -- our margins still increased year-over-year in line with our full year expectations. And as John pointed out, this past quarter, we generated -- it's been our second highest Q4 result in the past five years. And so then as I think about the full year, and our outlook for 2024, I have full confidence in the growth proposition of our Prepared Foods business. As we think about fiscal year 2024, we are driving profits behind disciplined revenue growth management and price pack architecture capabilities as well as we have strong operational improvement initiatives planned. And yes, to your point about that, we are investing for the future behind our business with increased math but we're also investing behind new highly automated industry-leading production facilities to increase our capabilities in service to meet our growing demand. But I do want to say, though, as I think about 2024, it's also important to note, just like we had in Q4, we still have some start-up costs in Q1 for our new facilities, and that's probably going to impact our profit.

Peter Galbo:

Got it. Okay. No, that's helpful. Thanks, Melanie and John. And then Donnie, maybe just -- and I know we have Brady on the call as well, but a two-parter on Beef, I mean, it seems like you missed the window or the industry missed the window on kind of heifer retention for last year. Is that pushing out now another six to 12 months prior on beef cycle recovery versus kind of what you thought previously? And then -- the second piece would be, obviously, you're consolidating some of the case-ready operations that you announced last week. Historically, that was supposed to be a pretty big value driver in margining up the beef business over time. And just I want to make sure that, that's still kind of core to the strategy. And again, removing those plants or shuttering those plants doesn't kind of knock that off the rail. Thanks guys.

Donnie King:

So if I could add a couple of things to that as well. I think it's important that when you're evaluating beef that you evaluated across the entire cycle, which is approximately 10 years. And I will tell you and this thing moves kind of quickly. But a year ago, I was testifying before Congress with some of my peers because Beef was making so much money. And today, we're talking about what it looks like on the downside. So my message there, and I have to tell myself this as well, is that you have to look at it across the cycle, and we do that. But a couple of other things that, again, I would just reiterate, don't miss the fact that we have redundant capacity and are able to shutter that, that don't miss the fact that we got better at what we do and every aspect of the operational component. And so we did. But we continue to evaluate all options, but something that Brady would never say, but I'll say because he won't that we have best-in-class assets. We have best-in-class team members. We have -- we are aligned with the right suppliers, and we have great -- we have all the great customers that you would want to service. So we have a number of things that are lined up against -- or lined up the right way for us.

Ben Bienvenu:

Yeah. Thank you, good morning. John, a follow-up on a comment that you made around the Chicken guidance for next year. You noted the operational improvements you expect to make and I think the variability from the bottom end of the range for next year to the top end is subject to the pace of that progress. But you also made a comment about the market conditions that we can all see improving, is improved market conditions a variable that you're considering in guidance for next year for FY '24 in chicken?

Wes Morris:

Yeah. Thanks for the question, Ben. As John said, I classify it -- one-third of our improvements will be baked around markets, so grains, net of meat values, two-thirds driven by our fundamental improvements. And I'll give you some examples. Nice improvement in Q4 in our live production led by livability, fee conversion and hatch. Our capacity and our yields were both up, while turnover and absenteeism were down. Our service was up materially year-over-year, and we did it with $84 million less finished inventory pounds. And so trending in the right direction. We also have a very disciplined supply demand balance process in place. And so balance and supply demand and capacity to maximize profits while servicing customers. And so we're on track, improving our fundamentals, servicing customers and shifting our mix to drive profitability. But I agree with John, one-third markets, two-thirds performance.

John R. Tyson:

Yeah. So we'd be projecting to refinance any upcoming maturities. I think we also have a term loan that we executed earlier this year to draw in November. And so just the rebalancing of the portfolio and the combination of the fixed and floating is where you see the rate -- the total interest expense tick up year-over-year.

Operator:

Our next question comes from Ben Theurer from Barclays. Please go ahead with your question.

Donnie King:

So let me start off, and I'll answer the Beef question first. The write-down in Beef doesn't have anything to do with that. That was discount rates, which drove the goodwill impairment. But in terms of Chicken, let me just state this because we've not said this in some time. Our goal in Chicken is to simply be the very best in this space. That hasn't changed. I can tell you that over the last three, four, five years, maybe we haven't done that to the best of our ability. We haven't competed very well. But we're getting more competitive, and we are still unlocking opportunities. And I'll let Wes share some of the things that he's doing in addition to what he's already said.

Unidentified Analyst:

Great. Thank you so much.

Operator:

And our next question comes from Michael Lavery from Piper Sandler. Please go ahead with your question.

John R. Tyson:

This is John. I'll take that question. So as I mentioned earlier, we remain committed to growing the dividend, preserving dividend this year and growing it over time. I understand the question. I think our judgment was that on an absolute basis, about a 2% increase in terms of cents per share was modest and fit well within the range of outcomes for our capital allocation in '24. So I think that's how we answer that question.

Michael Lavery:

Okay. That's helpful. And I just want to follow up on the Prepared Foods commentary. This has been touched on a little bit, but you called out the difficult consumer environment and how you're trying to meet those consumers where they are. I guess, just at a higher level. Can you give a sense of how you prioritize the sort of volume over price? What's the key driver in terms of how you think about approaching what could be a further step-up in promotions? Or just how you manage that going forward?

Michael Lavery:

Okay. Thanks so much.

Alexia Howard:

Good morning, everyone.

Alexia Howard:

So can I just start with Beef. I think you mentioned in the prepared remarks that it was going to be a year of two halves with more pressure on profitability in the first half. Obviously, this latest quarter came through a bit better than expected. and I know you don't give quarterly guidance, but are we trending at the moment towards the sort of lower end of the range, and the expectation is that things will pull around. And why would they pull around in the second half? Just curious about the magnitude of how it skews first half and second half.

Alexia Howard:

Okay. Thank you. And then on leverage, it's kind of linked to the Beef question. I mean if there is going to be the sort of cadence through the year, do you anticipate that leverage is going to increase? And if so, by how much? Or how do you expect that to trend from here?

Alexia Howard:

Okay. Thank you very much. I’ll pass it on.

Donnie King:

Thank you. While fiscal 2023 was a difficult year for our business, we finished strong and are more focused, collaborative and efficient than we were 12 months ago. While we're not yet where we want to be, our plan and the decisions we have made are moving us in the right direction as demonstrated by a second quarter in a row of sequential improvements. In an uncertain macro environment, our priority continues to be controlling the controllables with discipline and agility. Our strategy is working. We have the right leadership team in place to deliver, and the bold actions we've taken are poised to drive long-term opportunity and shareholder value. Thank you, and have a good day.

Sean Cornett:

Good morning, and welcome to Tyson Foods' Fiscal Third Quarter 2023 Earnings Conference Call. On today’s call, Tyson’s President and Chief Executive Officer, Donnie King, and Chief Financial Officer, John R. Tyson, will provide some prepared remarks followed by Q&A. Additionally, joining us today are Brady Stewart, Group President, Fresh Meats; Stewart Glendinning, Group President, Prepared Foods; Wes Morris, Group President, Poultry; and Amy Tu, President, International and Chief Administrative Officer. We have also provided a supplemental presentation, which maybe referenced on today’s call and is available on Tyson’s Investor Relations website and via the link in our webcast. During today's call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking statements are subject to certain risks, uncertainties and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statements disclaimers on Slide 2, as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note that references to earnings per share, operating income and operating margin in our remarks are on an adjusted basis, unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I'll turn the call over to Donnie.

John Tyson:

Thank you, Donnie. Let me start with a quick summary of our total company results and then review our individual segments. Our sales were down 2.6% year-over-year, driven by pork and chicken where we saw a reduction in price per pound. More than 90% of the decline in adjusted operating profit was driven by lower profitability in our Beef and Chicken segments. Higher input cost per pound was primarily due to the increase in cattle costs along with unfavorable derivative impacts and higher labor costs. But these were partially offset by lower hog costs, reduced outside purchase of meat in our Chicken segment and lower raw material costs in Prepared Foods. While profit was down substantially versus last year, it's important to note that it improved meaningfully versus last quarter and adjusted EPS increased $0.19 on a sequential basis. Challenges remain, but we continue to improve efficiencies by controlling what we can and believe we're heading in the right direction. Now, on to the individual segments results, starting with Beef. In Beef, revenue was essentially flat year-over-year with lower head throughput offset by higher pricing. Operating profit was down primarily reflecting higher cattle costs, which increased $610 million on a lines per pound basis. Operating margin of 1.6% was down from the historically strong, margins of more than 10% in Q3 last year. On a sequential basis, disciplined yield and procurement benefits along with seasonal cutout improvement help drive better than expected operating profits. Beef is likely to continue to face headwinds and we don't expect the ongoing tightening of cattle supply and spread compression to abate until herd rebuilding is well underway. Now moving to Pork, revenue was down 18% driven, primarily by lower pricing due to software demand. The operating loss at the quarter was $70 million as spread compression continued to pressure our margins. This was exacerbated by market pressures in our live operations, lower exports and the operational impact of a fire at our Madison facility. Moving on to Chicken now. Sales declined 3.5% year-on-year, driven by lower pricing, partially offset by volume growth. The decrease in pricing reflects the challenging commodity market. While volume grew modestly versus last year, it decreased more than 4% on a sequential basis. This sequential decline is more than historical seasonality reflecting steps we took to allow an internal production to consumer demand, while also reducing finished goods inventory by $70 million. Year-over-year profitability was negatively impacted by market conditions and higher feed cost and a $65 million net derivative loss in the current quarter, compared to a $23 million loss in the prior year period. On a sequential basis, it's worth noting the AOI improved by more than a $100 million. In Prepared Foods, sales declined 2.6% driven by both volume and price. The volume decline was driven by Food Service, as the trajectory of this channel’s recovery remains a little uneven. As Donnie mentioned, our Focus 6 categories are outpacing broad line industry and maintaining their share. Our lower foodservice volumes were partially offset by continued growth in retail, highlighting the strength of our brands. Lower pricing was primarily driven by lower bacon prices, reflecting the underlying cutout values for bellies. Compared to the prior year period, operating profit was up $34 million due to lower raw material cost and productivity gains, which was partially offset by lower sales, higher packaging cost and increased mass investments. Despite increased spending and brand building efforts, we were pleased with our operating margin of 9.2%, particularly so given the challenging retail food environment. Our Prepare Food segment remains key to our strategy providing a high margin, stable business with many growth opportunities ahead helping to offset the pressures and volatility in commodity prices. Before moving on to balance sheet items, I want to provide some context on the goodwill impairment charge that impacted our reported numbers on a GAAP basis, the details of which will be provided in our 10-Q when we file it later this week. The interim impairment testing we did this quarter resulted in non-cash charges in the reporting units that we have been disclosing is at risk in our filings going back to last fiscal year. The impacts of the charges are not shown in our presentation this morning as they are not reflected in our adjusted results, but all reconciliations to reported results can be found at the appendix. Now, to our financial position and capital priorities, we’re building financial strength, investing in our business and returning cash to shareholders remain the priorities of our capital allocation strategy. Q3 operating cash flow is $660 million, in line with expectations with prudent working capital management, partially offsetting lower profitability. Inventory reduction was the primary driver of improved core working capital. We still see some opportunity to improve inventory days and drive better cash flow. Year-to-date CapEx is roughly $1.6 billion and we continue to moderate our pace of spending. Based on this pace, we don't expect CapEx to exceed $2.1 billion below our prior guidance of $2.3 billion. We ended the quarter with $3.7 billion of liquidity and net leverage of 3.2 x. Our balance sheet management approach remains unchanged, as we are committed to building financial strength, maintaining our investment grade credit rating and targeting net leverage of at or below 2 x net debt to EBITDA for the long term. During Q3, we returned $167 million to shareholders via dividends and $11 million in share repurchases. We remain committed to maintaining a disciplined yet opportunistic capital allocation strategy ensuring that we deploy resources to maximize long-term shareholder value. Now, let's review our updated outlook for fiscal 2023. We're maintaining our total company sales guidance range of $53 billion to $54 billion and we expect to be at the lower end with roughly flat sales growth for the year. Turning to AOI, in beef, based on our year-to-date results, offset by anticipated live cattle cutout spread compression, we expect full year margins to be at the higher end of our range of between a loss of 1$ and a gain of 1%. For Pork, due to ongoing market dynamics impacting our Pork segment, we now expect full year margins to be between a loss of 4% and a loss of 2%, but at the higher end of that range. In Chicken, we're gaining momentum, but with our results year-to-date, including net derivative losses, we expect full year margins to be at the lower end of our range, but between a loss of 1% and a gain of 1%. Prepared Foods generated strong margins throughout the year with continued investment to support our brands, we expect margins to be at the higher end of the 8% to 10% range for fiscal 2023. And as I mentioned earlier, we're reducing our expectations for CapEx of approximately $2.1 billion. Our expectations for net interest expense and tax rate remained unchanged at around $340 million and 22% respectively. So, in summary, while the current operating environment is difficult in several of our businesses, we are making improvements across our operations and we are optimistic on our long-term growth opportunities. We have great teams across our segments. We've got growing demand for our products and the right portfolio mix to win in the marketplace. So, now, I'll turn the call back over to Sean for Q&A instructions.

Operator:

[Operator Instructions] And our first question today, comes from Alexia Howard from Alliance Bernstein. Please, go ahead with your question.

Donnie King :

Good morning.

Alexia Howard:

Okay. So, there obviously a lot of moving pieces here on the quarter. Could we maybe take a step back, and get your overall take on the quarter and where we are at in the recovery of your commodity mix segments. Just trying to put things into context here and then I have a follow-up.

Brady Stewart:

Sure. Thanks, Donnie. First of all, on the Pork – in our Pork business, I think it's important to break the Pork business into two different segments. First, as John and Donnie indicated in the opening remarks, we faced some challenges relative to the economics in the Pork business, specific with live operations. It's well documented that the pork industry is in the midst of a liquidation cycle right now. We believe that the markets will in fact, take care of themselves. But over a half of our losses in the quarter were attributable to live ops and price discovery relative to live ops with some of our suppliers. Fresh pork on the other hand, the other half of that segment was impacted by the fire we had in Madison. And outside of that, we saw strong improvement in terms of operational execution in our Pork business. We're excited about the team that we've assembled here in Springdale, and believe we have a bright future in front of us as we continue to execute on those operations. On the beef side, we will continue to focus on what we can control relative to you moving through this beef cycle. We're going to continue to align our supply with demand and drive value-added including Kids Ready to make sure that we continue to be closer to our customer and try to decommoditize that business. Thanks for the question.

Brady Stewart:

Thank you, Alexia. We are encouraged by the sequential improvement in 3Q and especially in June. As we have much work left to do, but we're on the right path. And I think that's important to call out. We are controlling the controllables better than before and I mentioned earlier that the best I've seen in terms of execution since pre-pandemic. But let me flip that over to Wes and let him add a little bit more color on Chicken.

Alexia Howard:

Thank you a lot.

Ben Bienvenu :

Hey, good morning. Thanks for taking my questions.

Ben Bienvenu :

So, I want to start on the Chicken business. Donnie you noted the sequential improvement in the business. You also called out the actions you took too close four facilities. I recognize, not all of those are a lot kill harvest facilities, but I do think there's some sizable facilities and that put print. So could you talk a little bit about what the net impact to production might look like as you layer some of that production into the rest of your facilities? And then, think about what the go forward looks like.

Wes Morris :

Yeah, Ben. I would answer it simply this way. We're moving our existing sales to more efficient assets and so, no material change in volume in any way, shape, or form and excess of 90% once implemented.

Ben Bienvenu :

Okay, that's very helpful. Thanks. May be thinking about the Pork business. You noted the facility fire impact in the quarter, we have been seeing the cutout rally pretty materially. So kind of a two-part question, One, I know despite the guide down for the balance of the year in Pork, how would you expect Pork packer margins to migrate as we move through the rest of this year? And then, two, as you've seen, some of the cutout cost prices that rally pretty materially, what impact does that have to cost a goods sold on the Prepared Foods business, as well. So, Ben, if I could make a couple comments and I'll let Brady add color to, Q3 was challenging and we expected it to be. As Brady mentioned earlier, we are absolutely laser-focused on those things, which we can control. I'll let Brady if you would speak to from the hog side, as well as from a Pork perspective.

Operator:

And ladies and gentlemen, our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Donnie King:

Good morning, Peter.

John Tyson:

Hey, Peter, just regarding your question on the Outlook, I think there is couple of things. So, you did know, right, just on what the implications are with our guidance ranges on the balance of our ‘23. And, we base that on dynamic market conditions. We're obviously being is as intentional and aggressive as possible and trying to balance that supply and demand to manage the spread. But knowing what we know today that's where things sit. As we think about ‘24, we expect to give you guidance in November as has been customary for us in the past kind of annual cycles. But as it relates to making any projections looks like. As we move into the fall, we will start to see some data around where pasture conditions were, what are the herd numbers looking like? What is the cow harvest? And I think from there, at that point on in time, we might be able to make better projections about what ‘24 and ‘25 look like. And so I think that's probably as much as we can tell you on that today.

Donnie King:

Sure. Thanks. Let me - in terms of the plant closures, as I said earlier, we're continuing to evaluate everything as we automate and modernize these assets. And so, we'll continue to look. I will tell you from an execution standpoint again, performance was much better in Q3 and a lot of momentum moving into Q4 in our chicken business. We we're still growing with customers and we still have capacity to be able to do that going forward. So, but in terms of mark-to-market, I see it as well, we've talked about in a great deal at what the other options are for that in the business. Let me, let me send it over to John and let him add a little color about that.

Peter Galbo:

Great. Thanks very much, John.

Adam Samuelson:

Yes. Thank you. Good morning, everyone.

Adam Samuelson:

Morning. So maybe just continuing in chicken and John you have some helpful color and quantifying how it benefits from some of the plant closures and production shifts on the business. And you quoted a $200 million kind of profit run rate that would equate to give or take 110, or 120 basis points to margin at your current revenue levels. So, as we think about where you're exiting fiscal ‘23 with the business in a loss position, the cumulative effect of those actions would get you to functionally marginal levels of profitability. So help us think about beyond that. So these are things you can control and they get you slightly profitable. Is it really a market-dependent question on Chicken demand has to improve chicken – commodity chicken pricing has to improve is what would actually get you to those historical 5% plus margins that the company had been previously still aiming for a longer term?

Adam Samuelson:

No. It is. And I guess though, if I think philosophically historically, the company would always talk about profitability in Chicken and less volatility than the industry as a whole and not seeing the lows but others in the industry not seeing the same highs. And I guess I am not saying that others in the industry haven't seen real lows in the last 6 to 12 months. It’s been a real challenge for the whole industry. I guess, the historical model would have – maybe think that Tyson’s Chicken business would be more resilient. So how does the experience of the last year kind of inform how you would think about the Tyson's relative performance versus the industry and the margin potential of the business is currently constructed?

Donnie King:

As I said earlier, Adam, we're - we believe in Chicken, we're on the right path. I would tell you it’s the right path we've been on that path for about two years now, and we've had a number of fits and starts from the breeder side to a demand – with the demand picture. We're on our way to healing it from a genetics perspective on the live side. In terms of our operations, they're performing better than have. But then the third one and it really impacted US in Q1 last year is the demand picture that we struggle with getting a really accurate view of that. I would tell you the good news is, in Q2, we were able to get that done. We actually started seeing benefits of that in Q3. And so, we feel like we have a better picture of what the demand truly and consumption truly looks like and that informs us again in terms of supply. And so, we feel more balanced today than we have over the past two quarters and the executional elements that we've talked about. We're obviously doing those a lot better than before. And then, if you look at the bridge that you're trying to create, it bases your question, yes, there are some asset impairments. Yes, there is some plant closures. There's, the typical labor yield and all those types of things that we're managing. But we are doing every one of those things. And so, I feel really good about where we are in Chicken and the path that we're on. And the future looks really, really good to me. John?

Adam Samuelson:

Okay. That’s helpful color. I'll pass it on. Thanks.

Andrew Strelzik:

Hey, good morning. Thanks for taking the questions. My first one is related to the Chicken facility closures that you just announced, but I'm wondering if you could, kind of compare and contrast the Chicken dynamics to what's going on in the Beef and Pork operating environment. You talked about controlling the controllables and utilization rates, and certainly struck by how difficult decisions are to close plants. But why does it make sense to do that in chicken and not across your beef and pork businesses given the supply contraction that you're talking about?

John Tyson:

Yes. I think the specific question was comparing chicken to beef here. And how do you think about that? I think, look, there's multiple factors that go into making decisions like this. Asset efficiency and projected capital requirements are a big driver here. And when we talk about poultry today and we just think about the older kind slower less efficient assets, compared to where we're moving the birds, we see that as a big uplift. And we make those same kind of evaluations across the whole network if that would make the comparison there? I think the other thing to point out, we've talked about this on previous calls. We are in this kind of special moment of facing headwinds in chicken, pork and beef segments. The recovery time line on each of those is different. We would expect to see chicken recover most quickly, pork is a little different and then, the beef cycle and those dynamics, I think are well documented. So it's just worth recalling attention to that we've discussed before.

Andrew Strelzik:

Great that that's really helpful color. And then, I guess, the second question, I just want to go back to the, to the change to the CapEx guidance for the year. Can you talk about some more specifically to change there does it have any applications for ‘24 CapEx? And I guess just generally as you think about the flexibility of your CapEx budget, is there a way, given projects that are already underway etcetera, to think about, kind of a minimum CapEx budget for next year? I don't know if there's a way to frame that. Thank you.

Andrew Strelzik:

Thank you very much. I’ll pass it on.

Benjamin Theurer:

Hi, good morning. Thanks for taking my question. Could you talk about your pork margins have to be easily shown you already commented on market conditions, but can you provide more light of company-specific initiatives. Maybe some plant closure assessing maybe it could be an option, anything else if you can provide towards improving operations there?

Benjamin Theurer:

Sure. On book margin, you already revised this, and market conditions, especially with sales, but can you provide more light on company-specific initiatives, maybe some plant closures? Could have be an option to invest in which you can anything else on pork to improve things? Thanks.

Benjamin Theurer:

Okay. So no plants closures and expect kind of specific scenarios?

Benjamin Theurer:

Okay. Perfect. Thanks.

Operator:

[Operator Instructions] Our next question comes from Michael Lavery from Piper Sandler. Please go ahead with your question.

Donnie King :

Good morning.

Donnie King :

Sure, I think there's a couple things to say on that. I mean, we've been pretty consistent going back to the last year talking about capacity utilization as a driver for profitability in this business. And we were in the low 80s in ‘22. And so, with the balance of growing our business and rationalizing some of the footprint, we have feel as though we've now optimized the network and continue to push towards those utilization levels that would be in line with historical the drivers for profitability for us. I think that's the first thing. And then, you talk about – you ask about just where demand is, or what the customer doing or the industry dynamics. We don't mean to make any projections about what's going on, the industry and focus on what we can control. And I think that with these move or going to get closer to our customers, which is a benefit with how we're moving things around and I think we feel good about the choices on that front. I don't know if you got anything to add, Wes or John?

John Tyson :

And maybe I could add one additional thing to that, there's been a lot of conversation this morning about capital and what is that going to be going forward. But we obviously talked about the assets that we’re closing. I think that what you may not understand is how all those fit together and so maybe I can help with that. A couple of years ago, we have eat up intentionally in capital to get ourselves in a position to have capacity, specifically, more value-added branded type capacity. And so, that's where a lot of the extra spending above and beyond $1.5 billion. I think it's also important to link the plant closures that we talked about with a reduction in the capital that we're going to spend for the balance of ‘23 and probably what that looks like in ’24. That work is done today and these assets were shuttering would have required a significant capital in order to make them competitive. And if you look at the returns on those that did really didn't make sense to do that. But I would tell you, in terms of Chicken specifically in the capacity, with even with the 10% reduction, we're just over 90% capacity and we still have room to grow with the customers and as the market grows.

Donnie King :

Thank you.

Donnie King:

Alright, thank you and thanks everyone for being with us today. As you've heard today, we're executing in the pace of macro headwinds and we're seeing early success demonstrated by the sequential improvement in Q3. I remain optimistic about our long-term outlook, our customers and consumers are behind us. We're winning with both, while we remain focused on operational excellence and we will continue to combat the current environment by focus on what we can control, all in an effort to maximize value for shareholders. I'm very thankful for the hard work that our team members do every day to support these efforts. As we continue to build a world-class organization positioned to take advantage of the opportunities in front of us we remain confident that our strategy will deliver long-term growth and shareholder value. Thanks for your interest in Tyson Foods and we look forward to speaking soon.

Sean Cornett:

Good morning, and welcome to Tyson Foods' Fiscal Second Quarter 2023 Earnings Conference Call and Webcast. Prepared remarks today will be provided by Donnie King, President and Chief Executive Officer; and John R. Tyson, Executive Vice President and Chief Financial Officer. Additionally, Brady Stewart, Group President, Fresh Meat; Stewart Glendinning, Group President, Prepared Foods; Wes Morris, Group President, Poultry; and Amy Tu, President, International and Chief Administrative Officer, will join the live Q&A session. We have prepared presentation slides to supplement our comments, which are available on the Investor Relations section of the Tyson website and through the link on our webcast. During today's call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking statements are subject to certain risks, uncertainties and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statements disclaimer on Slide 2 as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note that references to earnings per share, operating income and operating margin in our remarks are on an adjusted basis unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I'll turn the call over to Donnie.

John Tyson :

Thank you, Donnie. First, for a quick touch on our total company financial performance and then a review of the individual segments. Total company revenue was up slightly compared to last year's previous record Q2 performance as the benefit from significant volume growth in Chicken were offset by the reduction in price per pound in Beef and in Pork. For the total company and individually in Chicken and Prepared Foods, we continue to deliver record high sales performance now for a fifth consecutive quarter. We remain focused on driving growth in these businesses to enhance our margin profile over time. Now turning to profitability. More than 90% of the decline in adjusted operating income was driven by lower earnings in Beef and Chicken. Higher input costs per pound in all segments except Pork increased our cost of goods sold. The majority was driven by inflationary impacts on raw material and labor costs. The remainder of the increase was due to a few things

Operator:

[Operator Instructions] Our first question today comes from Ben Bienvenu from Stephens Inc.

Donnie King :

Okay. Ben, this is Donnie. I'll start off and then for the Chicken portion of this, I'll flip it over to Wes and let him add some detail to this. But I would say this quarter was not a surprise to us. We knew Q2 was going to be challenging and it was. I've talked about the fact that I've never seen this highly unusual situation where Beef, Pork and Chicken were all experiencing challenges at the same time. Many of these are macro in nature. But in Chicken specifically -- in Chicken, we have seen operational improvements and market recovery. While slower than expected, it will recover and of all of our businesses that are challenged right now, Chicken will recover first. In the quarter, we had -- of our $166 million loss, $90 million of that came from 3 main areas. There was about 1/3 of it in mark-to-market, inventory adjustment, SKU rationalization accounted for about 1/3 of it and start-up costs associated with the mix change and improvement from bone-in to boneless plus a few asset impairments. So I would then go on to say Chicken remains a top priority for me. We have the #1 brand in Chicken. Our model doesn't give us the highs and lows of the commodity markets. That doesn't mean that we're not impacted by that and variable pricing model that we have in place, there are lags that go with that. About 2 years ago, I laid out for you the plan that we had with our Chicken business, and we're following it. We're growing our volume and improving our mix. We sow what we harvested and we reduced inventory by 20%. And I would tell you that we are relentless on operational execution. We continue to invest in automation and digital capabilities and we will and do compete with the very best in the industry. We're winning in every area in which we play. We have market leadership in every category. Customers and consumers are key priorities for us, and it's clear we're having success with them. We've just recently announced that we moved up into the top 10 of Kantar for the first time ever on the most recent power rankings. We expect to win with consumers behind the #1 brand in Chicken and win with our customers by being their go-to supplier. And I have confidence in the team that we have in our Chicken business. We have the right strategy and are doing the right things for growth. We continue to implement this strategy and focus on the things that we can control, and we'll build on this strong place -- a strong foundation that we have in place. Now with that, let me stop Ben, and let me flip this to Wes Morris, who leads that Chicken business and that team and let him add some additional color.

John Tyson:

And Ben, I want to just pick up on a couple of specific parts of your question there. I think, first off, you're asking, are there further actions that we're contemplating and just to address that directly, we're always looking at the footprint, but everything that we're doing is focused on growing our business today. And I would note that with the 2 announcements we made earlier in the quarter, we're still growing the business. You mentioned inventory too, part of working through, kind of some of the changing market conditions does mean continuing to pull down inventory. And so that will influence the outlook. But you noted correctly from the earlier remarks on kind of moving to breakeven and improving through the back half of the year is what we expect to see in poultry.

Stewart Glendinning:

Got it. Let me pick up on that. We're pleased with the overall performance in the first half of the year. And I can see that we're making progress with both of our brands and our operations to improve margins. You're seeing that in the results. You're also -- by the way, you're seeing it in absolute dollars because I think if you looked at the first half this year versus last year, we're up about 10%. So all of that is good news. If -- when you're looking forward, the shape of our year on a quarterly basis will look similar to last year in the sense that we expect a stronger first half than the second half and this is because of 2 things. First, because of normal seasonality in the business; and second, because we expect to have some higher brand investments behind our retail brands in the back half. That's important. Those brands are doing well. They have strong engagement with customers. And I want to make sure that we have continued investment to reinforce that. There is more work to do in food service. And in that space, the customer decision and contract cycles are longer. So it takes a little bit to win back that business. But we have a strong platform. We have good products, and I'm confident we're going to start to see the benefits of that improvement in the future.

Adam Samuelson:

Maybe my first question, just in Beef and taking kind of the revised outlook and it would seem to imply the business is operating kind of breakeven or a loss for the next couple of quarters. And I just want to make sure I'm thinking about that properly in the context of kind of industry packer margins, which, while certainly off their highs, are not negative. And just how do we then think about the implications of that into fiscal '24 and '25 candidly. And is cattle availability is just going to get worse progressively over the next couple of years, given kind of what we know about the cattle herd right now?

Brady Stewart:

Thanks, Donnie, and thanks, Adam, for the question. I think there's a few specific call outs relative to standard industry gross margin calculations that we need to take into account during this specific time frame here in '23. And number one is while we still see export demand being relatively strong from a quarter-over-quarter perspective and versus prior periods, the opportunity for us to arbitrage our exports opportunities versus domestic with some cutout runs that have occurred in specific products has actually diminished our opportunity to capture some of those results from a Tyson perspective. Number two is we've seen some pullback on drought credit values and again, versus the previous cattle cycle, we saw drought values are strong. However, from a quarter-over-quarter perspective, again, we saw some pullback as well that certainly impacts some of the calculations relative to gross margin. And number three, from a brand versus choice perspective, we've seen a pullback in USDA data indicates that the spread between branded and choice actually decreased $4.3 hundredweight quarter-over-quarter from a sequential standpoint. So those are certainly some of the factors that are in our mind as we continue to look at the remainder of '23. As we move into 2024 and beyond, in addition to the comments that Donnie made relative to the cycle that we're in, there's reasons for both challenges from an industry perspective relative to gross margin. There's also a reason for us to be optimistic. And number one, we'll absolutely be relentless in terms of operational excellence. And really, it's about Tyson and our team, controlling what we can control. The markets will do their job over time, but we have a world-class Beef business, and the expectation is we'll continue to perform at a very high level as we move through the cycle. Number two is we have the opportunity to get closer to our customers and our consumers. We have capacity within our case-ready and value-added business, we've been working diligently to fill that capacity and feel very good and comfortable in terms of the future of that business to get closer to the consumer as well. So while there are challenges ahead relative to the markets, I feel we're in a very good position to weather those challenges as we move forward.

John Tyson:

Yes. Thank you for that question. And let me talk about the outlook and get a little more clarity on that, when we talk about leverage. I'm glad you asked this question. So if you look at the return on sales guidance that we've given kind of on a segment-by-segment basis, it could take a few different shapes. So a point I want to make sure that our listeners take away today is that when we look at a total operating income number for the second half of the year, we expect that to be in aggregate similar to or maybe slightly down compared to the first half of the year. So depending on the different movements within the various core proteins, that's kind of the net of it. We want to make sure lands from an outlook perspective. And as you suggested, that does have implications for what our total leverage ratio as we move into the back half of the year. And what I can say is we're focused in the long run on that 2x number, and I think just pointing to what we've done in the last couple of years, we were diligent in paying off $3 billion worth of debt. We've invested in the business from a growth standpoint, we've got new operations coming online and retail branded chicken, bacon and a lot of growth outside the U.S., aligned with our strategy. So I think while the timing on some of the capital expenditures, for example, kind of puts a pressure on the operating cash flows. I think we're comfortable with where we are and feel good about the outlook. I think that we know there's volatility in our business. Ratings agencies keep up with that. I mean, I can't speak for them this morning, but we're in constant communication, providing them outlooks about the business. So overall, we feel good, but yes, the leverage ratio will pick up for a little while.

Andrew Strelzik:

I guess I wanted to start on the Chicken side. And I'm curious, kind of philosophically how you're thinking about growth and which is clearly the focus on growing the volumes versus balancing that with kind of the medium-term margin outlook. Have you changed at all your expectations on the back half Chicken volumes that you would expect to realize and just kind of philosophically how you think about that?

John Tyson:

Yes. If I can add to that, though, I think you asked specifically about how do we balance the profitability versus the growth. And what I want to point out is that we've pulled down the total sales outlook for the business, but we're still projecting to grow from a volume standpoint. So I think the Chicken call compared to a quarter ago is still up, but slightly less than what we had initially projected just because of the demand that was referenced.

Donnie King:

Well, thanks for that question. It's still -- as we've said, I mean, we are continually focused on being the absolute best from an operations perspective. We want to be the best company, the best brand, the best protein wherever we choose to play. And what we're doing very simply is executing those things through productivity, through efficiency to deliver that. Some of that requires adding volume, for example, in Chicken. Some of that requires improved yield and labor utilization. It includes -- it also -- looking at the assets that you have and trying to make sure that we modernize those and invest in those and get the right footprint not only today but going forward. We'll do all those things and continue doing all those things. But the whole efficiency-productivity piece is top of mind for everyone in this organization today.

Alexia Howard :

Sticking with Chicken, can I ask about the price -- the market pricing dynamics? I know obviously, last quarter, there was a challenge because there was an excess of chicken -- of fresh chicken flooding the market over the holiday period. I get the point that, that sort of bled into this quarter as well. Is there any visibility into how that might -- whether that might firm up in the second half of the fiscal year? Or where are we in that cycle? And then I have a follow-up.

Alexia Howard :

Great. And then on to the Prepared Foods, with the Kantar PoweRanking study, I'm just wondering what it was that's changed in your retailer relationships because that is a big move. I mean, to get into the top 10, there's a lot of larger, more established, CPG-type companies that are not in the top 10. I'm just wondering what you think has changed over the last couple of years to have got you there.

Operator:

Our next question comes from Ken Goldman from JPMorgan.

Donnie King:

So Ken, I'll start off and then I will flip that to give a little more color from Wes around Chicken and Brady on Beef. But I did talk about the macro a lot. And I got to tell you, it pains me to talk about that because that we've never been able to control macro-economic issues or market conditions. But what I can tell you is we are controlling what we can. And we have a full-court press on being the best that we can be in operational excellence and winning with customers and consumers. But the other thing I would tell you, Ken, is that here at Tyson and as you know, I've been through a number of these cycles before, this company has been -- in its 90-year history, has been through a number of them before. But what we have done in the past, and we're doing this time is we're accelerating in the bottom of this cycle, and we always come out better and stronger. And I see no reason to believe that we won't do that this time as well. And let me flip it to Wes to add some Chicken color.

Ken Goldman :

All right. If I could ask another quick question. The Williams Sausage acquisition, I think we got a price today in the 10-Q of $200 million to $250 million. Could you give us a little bit of detail on what the expected revenues are, the last 12-month revenues? And sort of why now is the right time to do a deal, given some of the challenges you have in the balance sheet?

Stewart Glendinning:

Yes. Ken, let me just add a little bit here, this is Stewart. Look, this is a company with some great brands and some really great facilities and 2 things are going to come out of this. First, there are capabilities we're going to have because right now, most of our stock harvest goes through a single facility, this is going to provide some redundancy that makes sense for our business, particularly because Jimmy Dean is so important to the portfolio. And then second, when you look at the brands that are going to be complementary to our brands, along with a [DSG] network that, frankly, we haven't had in our portfolio before, I think we're setting up for a very interesting deal here that is going to be a good addition to Tyson.

Peter Galbo :

Maybe we can just start going back off of Ken's question, particularly around Beef. First, I think there's probably been some noise out there in the market that just shifts are being cut across kind of the entire Beef network and some of that maybe is due to the lower kind of harvest levels. But if you can kind of comment there. And then secondly, Brady, I'd just be curious for your perspective, with cattle prices basically at all-time highs, in speaking to cow-calf operators, like what are the unit economics looking for them like in real time? How does that kind of change their decision-making process around retention or not? Because again, looking at the spreadsheet math, you'd think the price would be enough of an incentive, but obviously, a lot of their cost structure has probably changed as well. So I would appreciate any color there.

Peter Galbo :

Great. That's very helpful. And Donnie, I just wanted to go back to one of your comments, I think you did mention, I think, around Chicken that you took some asset impairments in the quarter. I'm not sure that I saw those in the Q. But just maybe thinking on a longer-term basis, look, Chicken has been a business where you've been quite acquisitive. I think the margin profile, self admittedly, has probably been a little bit weaker than you would have thought. Just as we kind of sit here today and go through the balance of the year, like how do we think about further impairment risk in that business particularly as the margin improvement even coming out of this year isn't expected to be kind of at your long-term average.

Operator:

And our next question comes from Ben Theurer from Barclays.

Donnie King:

Okay. I will start off and then I'll flip it for Wes for even greater level of detail. But I would remind you that a couple of years ago, I outlined a road map for us to, what I would call, restore our Chicken business to its rightful position. Those are my exact -- almost my exact words. And we're still on that road map. We've had bumps along the way, in live production, in the life cycle of the animals that we had some issues with some of the breeding stock, particularly the males are not -- has been well chronicled, everywhere. We had issues with hatch and we're very competitive as it relates to that today. We've made lots of improvement. We've -- we were buying, if you recall, a significant amount of product on the outside and paying a premium in the height of the market. And we began to reduce our dependence on outside meat and wanted to utilize the assets that we have in place and get the fixed cost leverage by producing those live animals and then converting those into those products that our customers and consumers love. And we've done all those things, and we're still on this journey. And I would tell you that we got the right people in place to complete that mission, not that you ever implied, but to continue down the road, a great leadership, a great team in place now to do that. And I'm excited. I'm optimistic about the future of our Chicken business and where it's going and even in this quarter, losing $166 million. I'm still excited about the future of the #1 brand in Chicken and the opportunity that we still have before us. Wes?

Ben Theurer :

Perfect. And then just a second question just around capital allocation. Obviously, you've reduced the CapEx a little bit, but at the same time, because of the loan, you got a little higher interest. You did some share repurchases throughout the quarter. How should we think about for the balance of the year also in light of what Adam pointed out as leverage could go somewhere north of 4x. How should we think about share purchases, dividends, further CapEx and ultimately, M&A, which is also something that kind of popped up during the quarter. So just to understand the priorities here.

Operator:

And our next question comes from Michael Lavery from Piper Sandler.

Donnie King:

Yes. Thanks for that question. And first thing I would tell you is that just to acknowledge the macro environment and what it's been and the fact that the magnitude and the duration of the challenges, they do continue. However, if you think about this company, in particular, we've had a 90-year history of successfully managing macroeconomic cycles, and we've always come out stronger. We have never been able to control those cycles and what we can do is control what we can control. And there's a lot of opportunity there for us to be better. And we are obviously focused on that and across all businesses and functions. In terms of growth at any cost, that's not what we're talking about here. The growth that we have is in service to our customers and those consumers. And I think as Wes had mentioned this earlier, that we always start with the demand plan, and we work back to a supply plan and so we wouldn't be growing Chicken, Beef or Pork or Prepared Foods for that matter, if we didn't have a demand plan that says that we have a consumer wanting this. And then the second part of that is we obviously had no intention of just growing for growth's sake, and -- but we always balance growth with profitability, and I wouldn't expect this time to be any different than that. But we see this as -- this cycle as something we've seen before, and we've always accelerated out of these types of cycles, and we -- in a growth pattern, accelerating out of the curve, if you will and that's what we're doing this time as well.

Operator:

And ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Donnie King for any closing remarks.

Operator:

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Sean Cornett:

Good morning and welcome to Tyson Foods’ fiscal first quarter 2023 earnings conference call. Prepared remarks today will be provided by Donnie King, President and Chief Executive Officer and John R. Tyson, Executive Vice President and Chief Financial Officer. Additionally, Brady Stewart, Group President, Fresh Meats; Stewart Glendinning, Group President, Prepared Foods; Wes Morris, Group President, Poultry; and Amy Tu, President, International and Chief Administrative Officer, will join the live Q&A session. We have prepared presentation slides to supplement our comments, which are available on the Investor Relations section of the Tyson website and through the link on our webcast. During today’s call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking statements are subject to risks, uncertainties and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statements disclaimers on Slide 2 as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note that references to earnings per share, operating income and operating margin in our remarks are on an adjusted basis unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now, I will turn the call over to Donnie.

John Tyson:

Thanks, Donnie. First, let’s review a summary of our total company financial performance then we can dive deeper into the detail for the individual segments. As Donnie stated, sales were up year-over-year for the first quarter, benefiting from both volume growth and disciplined revenue management to offset elevated inflationary increases in our cost of goods. Looking at our sales results by channel, retail drove $324 million of top line improvement led by Chicken and Prepared Foods. Our industrial and other channel sales increased by $108 million, led by beef and chicken and this was offset by slight decreases in sales to the foodservice and international channels. As expected, given the record strength of beef a year ago, we delivered lower adjusted operating income in the prior year of $453 million. This translated to an adjusted earnings per share of $0.85. Now, turning to the adjusted operating income bridge, we significantly grew Prepared Foods earnings in the quarter, but underperformance in chicken, pork and beef led to $979 million lower operating income compared to the prior year. While pricing actions led to an improvement of $222 million, higher input costs per pound increased cost of goods sold by $1.3 billion. About two-thirds of this increase was driven by inflationary impacts on raw material and supply chain costs. The remainder was primarily due to a shift to producing more value-added mix, higher labor costs and unfavorable derivative impact. Excluding the impact of restructuring, SG&A expenses as a percentage of sales was down to 3.7% from 4.3% in the prior fiscal year as we continue to eliminate non-value-added spend across our business while investing to support the future growth of our brands. Our productivity program continues to play a critical role in the long-term improvement of our margin profile. Now to the individual segment results. Starting with the Beef segment, sales in the quarter remained strong at more than $4.7 billion, but were down 5.6% compared to record high sales in the prior year. Volume gains of 2.9% were supported by improved staffing for higher throughput, while the average sales price was down 8.5% due to softer domestic demand for Beef. Live cattle costs increased approximately $530 million in the quarter as cattle supplies continue to tighten. Net-net, segment operating income for beef was $129 million for an operating margin of 2.7% off the previous year’s historical record first quarter margin of 19%. We saw higher cattle prices as beef herd numbers continue to decline. We will continue to monitor the beef cutout value and balance our supply with customer demand during a period of margin compression while pushing volume growth in case-ready and premium branded products. Although the near-term operating environment remains challenging, we have reasons to believe in our long-term outlook for beef. This outlook is supported by our investment in strategic supplier relationships that provide higher quality beef, a growing global demand, specifically in Asia, and the strengthening drop credit as well as opportunities to shift our beef products up the value pyramid. Now, let’s look at the Pork segment. Sales were approximately $1.5 billion for the quarter, down 6% for the record high in the prior year. Average sales price gains of 1.4%, mostly driven by higher value specialty products were offset by volume decreases of 7.4%. International demand for U.S. pork products continues to be impacted by the strong U.S. dollar, while domestic demand is being affected by high retail prices despite the cutout realigning to historical norms. However, we are optimistic that when these factors normalize, demand will improve. We expect to see continued industry supply challenges in the fiscal year as the producer navigates herd health issues and higher input costs. On expenses, we incurred greater cost as lean hog costs increased approximately $55 million over the prior year. We also experienced an unfavorable year-over-year derivative impact of $35 million. Segment operating income was lower than expected at a loss of $19 million for the quarter, down from a profit of $160 million in the prior year. As we move forward, pork margins should be supported over time with the normalization and the strength of the U.S. dollar aiding future export demand, a strengthening drop credit and additional opportunity to shift pork products up the value pyramid, especially into our case-ready business. Now, let’s move on to the Chicken segment’s results. Sales were a record first quarter high at $4.3 billion, up 9.6% from the prior year. The sales increase was attributable to a 2.5% uptick in volume and 7.1% gain in pricing compared to the prior year quarter. Volume gains are due to a combination of strategic choices to maximize our capacity utilization and pursue an optimal mix strategy with products and customers. Our pricing results while improved were lower than expected. We pegged this to a combination of factors that influence chicken prices, mostly related to total protein availability, notably chicken and beef. We anticipate these factors easing in the back half of 2023 as beef availability lessened and total poultry harvest normalizes, providing support for improvement in our chicken prices. The fall in commodity chicken prices driven by heightened protein supply in the market and seasonal demand weakness does not change our strategy. Based on current USDA industry placement data, we are optimistic on our forward-looking supply conditions in the intermediate term. We intend to grow our domestic production to 42 million head per week during this fiscal year, which should enable us to improve our fixed cost leverage, grow volume and gain market share. We will continue optimizing our plant network and portfolio mix to maximize the profitability of our Chicken segment, particularly by growing our portfolio of value-added products, which remain in high demand. Operating income in the quarter was negatively impacted by $225 million of higher feed ingredient costs and an unfavorable year-over-year derivative impact of approximately $40 million. Net-net, our Chicken segment delivered operating income of $77 million in the first quarter. We see significant room for improvement in the long-term operating margin of our Chicken segment as there is still work to do to attain industry leading performance and we are optimistic it can be achieved due to the following

Operator:

Thank you. [Operator Instructions] Today’s first question comes from Alexia Howard with Bernstein. Please go ahead.

Donnie King:

Good morning.

Alexia Howard:

Okay. I guess we need to focus in on the Chicken segment here. And I know in your prepared remarks, you made some comments about why things came up short this quarter. Can you talk about what was the big negative surprises, chicken prices? It sounds like there were some operational and executional issues. And also, as we look forward, can you talk about how quickly you expect some of those issues to resolve? And what gives you the confidence that they might improve over the remainder of the year? And then I have a follow-up.

Alexia Howard:

Thank you for that. Just moving quickly to the Beef segment, you’ve given us a range of 2% to 4% on the operating margin side now. Prior to that, it was more open ended just below your long-term guidance. What has become clearer? What is more certain now about the outlook for this year? And what gives you the confidence that it will come in within that range and not below it? Thank you and I will pass it on.

Brady Stewart:

Thank you, Donnie. And certainly, your points relative to cattle availability and the look into the future is spot on the drought, lack of affordable hay and forage and higher overall supply chain costs are still driving cal liquidation in parts of the U.S. as we move out of this cycle of the cal liquidation and start to see some [indiscernible] replacements into the future, we will certainly have better visibility to the trough that you mentioned as well, Donnie. Why I am optimistic about the future? Is the team has worked diligently and effectively to strategically align ourselves with suppliers to ensure we have the supply required relative to higher grading cattle. We feel good about global demand, specifically on higher-grading beef products from a macro standpoint. We’re seeing some appreciation in drop credit values, specifically on specialty products, including fats and oils. And while it is hard to pinpoint the exact bottom based on the current drought and feedstock conditions, we are seeing some moderation and some signs of optimism relative to the drought conditions that we will keep an eye on moving into the future.

Ken Goldman:

Hi, thank you. I wanted to ask a couple of questions. First, Donnie, you made a change at the top in the Chicken segment. Can you outline a little bit which changes are most important as we think about the next few years that you’d like to see and maybe why the change was made now?

Ken Goldman:

No, no, that’s helpful. Thank you for that. I guess as my quick follow-up, it’s obviously not the largest segment you have, but since you mentioned international, it’s never made money. And I’m just curious. I’m not trying to be critical of it because, obviously, it’s – but in the long run, it’s going to be a business that should be very profitable for you and others. But what’s the strategy? Don, you’ve taken a much stronger tack toward, I think, profitability and margins and just efficiency than perhaps your predecessors have. Between you and Amy, what is the frac that we should expect that margin to be going on ahead?

Amy Tu:

Ken thank you for the question and pointing out profitability, our non-profitability over the last few years. I think Donnie is absolutely right. This is our growth strategy. We’ve talked about in the past where global population growth will happen and will happen outside the United States. And so we’re taking our existing footprint right now. We’re putting in place the kind of execution fundamentals that we need to have. And then we’re also discussing with our other segments, the opportunities that lie before us, given the raw materials that we have here in the United States. But Donnie just put forward exactly what we have outside the United States with our strong brands. We are launching smart factories. We are able to do things more quickly outside the United States which will give us ultimately a benefit for the entire company. So more to come, but we are very excited about what we see right now.

Ken Goldman:

Yes, there is more to do it. Okay, perfect. Thank you, John.

Donnie King:

Hi, Ben.

Donnie King:

Thanks, Ben. I will make a few remarks, and then I’ll pass it to Wes for a little more detail. As I said in my opening comments to – also in the first question, we still feel really good about our chicken business. We think we have a good plan. Yes, we got hitting the mouth in Q1 because of all the protein on the market in Q1. And our tray pack, our fresh chicken business did materialize as we had expected. And so we kind a created – we created our own issue with that because of what happened in the market. But I would tell you, we still have tremendous opportunity and upside as we execute this business. And it’s nothing exciting, but it’s the fundamentals of labor and yield and spend and just maintaining growing this business to fill up our capacity and service the needs that we have. And I would remind you that you and everyone else that we place chickens based on what our demand plan looks like is in service of our demand plan. So as we go back and look at what happened in Q1 and think about the future, in Q1 strategically, the only thing that went awry was the fact that the demand didn’t materialize in the place at retail in which we thought it would. And so that triggered a number of other inefficient moves and activities. But again, we think Q1, you’ve seen the numbers, Q2 is seasonally softer. But as we start getting towards the to that Q3 time period, we feel good about it, and we don’t have something that’s broken here that like a hatch issue and a genetics issue, the time horizon for fixing this is much shorter than many of those things. Wes, anything you want to add to that?

Ben Bienvenu:

Okay, very good. Thank you. My second question is on the Prepared Foods business, a very strong start to the year. The guidance is unchanged. I know it’s early in the year, but implied in the guidance being unchanged is a moderation in the operating margin. So what is it that we would need to see for that to happen? How much of that is it’s early in the year and you want to get a little bit more of the fiscal year under your belt to adjust that guidance versus explicit view that things soften from here?

Stewart Glendinning:

Yes. Thanks for that, Donnie. Well, look, foodservice, as I said last quarter is operating from a very, very strong platform. And investors should expect to see that over the medium-term that, that business continues to grow and the profitability improves. And in the short run, we have got a job to do on foodservice, and I believe we are making progress there as I look at the pipeline that’s developing. Very strong performance on retail, but acknowledge that in the first quarter, some of that is seasonal as you look at some of the Sausage Breakfast, Sausage Products that we have. And we are taking some of that benefit. I feel good about the guidance we have given for the year. There may be a little bit of variability in some of the quarters. But I am really standing on the fact that this is a solid platform that we can continue to see go from strength-to-strength.

Adam Samuelson:

Hi guys. Thank you. Hi. Good morning. So, I guess coming back to chicken a little bit more deeply. I guess I am trying to just kind of square kind of the point on market kind of demand dynamics were a bit responsible for pretty unfavorable mix. And Donnie, you talked about your sales volumes in chicken up, I think 2.7%, but harvest up 15%. So, clearly and you talked about too much meat in the market. If I think about your own harvest levels up 15%, that would represent a pretty disproportionate amount of the increase in poultry production in the industry in the fourth quarter. And so I guess I am just trying to get a sense of when you say market was the source of weakness, is it just pricing, is it mix, or is it just – look, we saw the big bird cut up be down with commodity market pricing was bad, or is it just demand in your highest value channel or higher value channel in retail tray pack and you had to sell that meat into the big bird market at a discount at a lower value?

Wes Morris:

Yes. Adam, thanks for the question. Like I said before, we executed our live plan very well and did exactly what we said we were going to do. We did have a strategic mix change and had less bones. And then one of the other drivers was the impact of our sales of 2% to 2.5% of a lot of chicken depending on what size. Rebuilding our safety stock inventory. And then the seasonal increase in inventory to supply wings to the marketplace. But Adam, the way I would ask you to think about it is at a macro level, we did a very good job, and we absolutely had the right number of chickens. We simply had them in the wrong place based on the post-COVID changes. And so we had more than we needed in our fresh chicken business and came up short in some other areas.

Donnie King:

Sure, Adam. So, I have said earlier that as a way of a reminder that we start with a demand plan and that over the past 3 years, we have not been able to service the demand in fresh chicken at retail. We were trying to correct that at this point. And every demand signal we had said that the demand was going to materialize and we place chickens accordingly. Remember, we placed those chickens for that November timeframe back in August. And so we were going – I understand your point about we are in November and we are having the last earnings call. A lot of things from that day forward, the demand didn’t show up in fresh chicken. A lot of the other things worked exactly the way we planned for them. And – but that trigger, if you think about fresh chicken, you typically put that products in a tray and then before you have the order. And when the order doesn’t show up, then you have to take it out of the tray or sell it in the tray at a discounted or in a distressed fashion. We had a lot of that in our Q1. And we have cleaned up that. We are still trying to get ourselves going back again. Q2 is going to be seasonally softer, variable pricing models and the lag associated with that. I mean we will get caught up with that. The back half of the year, we feel good about where we are going to be relative to that. And so Wes, that’s I think the first question, what about the second one?

John Tyson:

Hey Adam, this is John, too. I think there is just a couple of other things that we have said that are worth reemphasizing. One is, and I think you asked a good question about, hey, what was going on, you have talked to this last time in November. I think in addition to all the poultry dynamics that Donnie was described here, I think there is still different of outlook as it relates to beef availability, which I think was maybe a little bit of a surprise. And then I think as it relates to the outlook for the year, if you just look at kind of what the public data says, I think it’s something like 25% to 30% more chicken meat in the freezer. And so our plan is to account for working through that, but it does take some time to work through that. And there are timing differentials between how the market recovers and where our pricing recovers. So, all of that influences just the shape of the year for us. And I think we have also said this, but just to make sure the listeners on the call get it today, Q2 will be softer for us in Q1. And we expect to see a recovery in what is our Q3 and Q4, the second part of our fiscal year.

Robert Moskow:

Hi. Thanks for the question. I guess the follow-up is it sounds like there is no change to your production plan for chicken. I think you had a plan of 42 million head per week. Is that still the same? And I don’t know, like do you still have to harvest 15% more chicken now in order to satisfy the demand that you have three months from now? Is it – are you still at a 15% increase in production?

Robert Moskow:

Okay. I guess the follow-up is, I have gotten questions from investors asking whether this is an indication of much weaker demand from consumers. Would you describe it that way, or is it really oversupply that’s been the issue. And then in the back half of your fiscal year, you think that, that’s what’s going to correct? It’s not really demand needs to get better. It’s that the supply needs to normalize?

Operator:

Thank you. And our next question today comes from Ben Theurer with Barclays. Please go ahead.

John Tyson:

Hey Ben, this is John. I think maybe just a couple of comments headlining on kind of how we are using hedging and derivatives as it relates to a risk management kind of overarching strategy. Generally speaking, what you would expect from us is to kind of have coverage in the near-term, coordinated with what our sales picture looks like with customers. And we really use it as a margin management tool more than any type of speculative tool. And so I think that just emphasizing that last point, we would not project any – there is no outside best sitting out there in terms of what the markets are going to be doing. We kind of keep things in close and use it more from a margin management standpoint.

Stewart Glendinning:

Yes. Sure. Well, Stewart here. I will just pick that up. So, first of all, look, like I said earlier, we have a very, very powerful platform here, both on the retail side and on the foodservice side. The increase in volume was not driven by food service. Foodservice for me is still a place where there is a lot of work to be done. A good platform, but opportunity to fill some plants to sell harder against volume that we lost during COVID. This was driven by the strength of retail. And what was really impressive in the quarter was the ability of our brands to gain price to offset some inflation and also to gain ground with consumers. But we are working closely with our customers. We are providing the right level of support for our brands. And I think this – the performance in this quarter just demonstrates the real strength of our retail platform. At the same time, there is ground that we can cover in innovation. I am pleased that Melanie is on Board. She is going to be a big help. There is ground we can cover from a productivity standpoint. Just in running our operations better. And certainly, we will start to fill up that foodservice volume.

Michael Lavery:

Thank you. Good morning. I just wanted to follow-up on the consumer demand piece and just understand you have said you have seen channel shifts and protein shifts and things that sound pretty typical. But in just a few weeks, the elevated SNAP party is going to be over. And just curious how you think about for that cohort, which it is a certain demographic. But – how do you think about that impact in your planning for the rest of the year?

John Tyson:

Yes. I would add two things to what Donnie is saying. Number one, if you think about the kind of prepared and retail branded side of our business, we have been paying attention to what the consumer is doing and feeling over the last few quarters and we continue today. I think the good news is even in these times where the outlook for the economy is evolving, we have had pretty steady growth and pretty strong performance in that part of our business, which tells us that while, yes, there may be a lot of behavioral changes going on in the economy, we see consumers come into the brands and the categories that we are in repeatedly. So, I think we feel good about that. On the second point I want to make is from a – how to say it, the supply and demand balancing on the kind of fresh and frozen more commodity protein side of our business, has more influence on how we are performing than does the macro situation because people are going to continue to eat protein. They may cut back on other things, but food is not one of them.

Donnie King:

Yes. I mean it’s I wish I could be here before you today and tell you I knew when that was going to happen. But there is kind of some prerequisites before we are going to see [indiscernible] retention, which is going to be driven by better precipitation, getting past the drought and for ranchers to see to have hay that’s more affordable and forage land to be able to feed those animals. I don’t think you are going to see [indiscernible] retention in a meaningful way until those things occur. And I have listened to every expert that’s been through all of these cycles through all of these years. And I have been through a couple of them myself. It’s I get a number somewhere between the spring of ‘23 and the spring of ‘24. And that’s how variable it could be. What I can tell you is the harvest of [indiscernible] and the harvest of cows continue. And in a lot of cases, people are paying up for those animals to sell them at a – for a lesser cut out. So, that’s what I can tell you about it, Brady, anything you would add to that?

Operator:

Thank you. And our next question comes from Eric Larson with Seaport Research Partners.

Donnie King:

Yes, I will make a few comments, and Brady can step in on this. I mean I think you have described it very well in terms of what the levers are here. Everything you have said I think I agree with what you have said and how you characterize it. And you have also described this future state where there will be more packing capacity with fewer animals. And so if you build the capacity, these are – for these large plants, you can spend $1 billion to build the beef plant. So, if you spend $1 billion to get a beef plant, you are going to process animals. And so that could all likelihood drive up the price of the cattle that are available at that point. But you are going to get some pushback with the consumer if you try to cover that or try to get cut out to cover that. So, I see all the same pressures and dynamics that you just outlined. And it’s going to take a bit to rebuild the herd. And once we get to whatever the bottom is, I mean we are looking at 2-plus years to be able to see some better times. Brady?

Eric Larson:

Thank you, guys.

John Tyson:

Sure. This is John again. And just a couple of things to wrap up on. We want to make sure we got to cover with you before I hand it to Donnie to close it off. I think the first thing, if we think about the top line guidance that we have given, our outlook there is probably in the bottom half of that range just to kind of crystallize where we are today. And I think the second thing is we didn’t really have to touch on capital allocation today, although I know it’s a point of interest for many folks. And our capital expenditure outlook for the year is firm at or around that $2.5 billion number. But I think what we would guide to as we look forward, that’s probably the high watermark. And for us, our priorities are kind of preserving financial strength and flexibility, investing for returns in our business and then after that, being disciplined on M&A, dividends and share repo. So, I just want to make sure people understood kind of what the outlook was like there. And yes, I think with that, Donnie, I will hand it back to you just to close it out.

Operator:

Thank you. Ladies and gentlemen, this concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.

Brandon Tucker:

Hello, and welcome to the fourth quarter fiscal 2022 earnings conference call for Tyson Foods. Prepared remarks today will be provided by Donnie King, President and Chief Executive Officer; and John R. Tyson, EVP and Chief Financial Officer. Additionally, Shane Miller, Group President, Fresh Meats; Stewart Glendinning, Group President, Prepared Foods; David Bray, Group President, Poultry; and Amy Tu, Group President, International and CAO, will join the live Q&A session. We have prepared presentation slides to supplement our comments which are available on the Investor Relations section of the Tyson website and through the link to our webcast. During this call, we will make forward-looking statements regarding our expectations for the future. These statements are subject to risks, uncertainties and assumptions which may cause our actual results to differ materially from our current projections. Please refer to our forward-looking statement disclaimers on slide 2 as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note, the references to earnings per share, operating income and operating margin in our remarks are on an adjusted basis, unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. I will now turn the call over to Donnie.

John R. Tyson:

Thank you, Donnie. Let me turn first to a summary of our total company financial performance. We're pleased to report resilient fourth quarter and record annual performance in the fiscal year. Sales were up for both the fourth quarter and fiscal year, benefiting from our pricing initiatives to offset the increase in cost of goods. Volumes were up for the fourth quarter and relatively flat for the full year as we overcame supply constraints in an elevated inflationary environment pressuring consumer demand. Looking at our sales results by channel for the fiscal year. Retail drove $1.4 billion of top line improvement, while the ongoing recovery in the foodservice channel drove an increase of $2 billion. Fiscal year sales in international markets, including both domestically and internationally produced products, were $1.3 billion greater than the prior year as we leverage our global scale to grow our business. Donnie covered our operating income and earnings per share results, so I won't repeat. Slide 16 bridges operating income for the fiscal year, which was $126 million greater than the fiscal 2021. We significantly improved earnings in our Chicken segment and generated higher earnings in Prepared Foods, which more than offset the expected decline in Beef earnings. Our pricing actions, which offset the higher input costs, led to higher sales during the year. We saw notable year-over-year increases of 20% to 25% across the business in cost of goods, including labor, feed ingredients, live animals and freight costs. Investment in growth is our priority. To facilitate this growth, an additional $80 million in SG&A expenses compared to last fiscal year was invested in team members, marketing, advertising and promotional spend to support our brand and digitalization initiatives, among other things. While SG&A expenses increased, SG&A as a percentage of total sales was down to 4.2% from 4.5% in the prior fiscal year, reflecting our continued focus on assessing all expenses across the business to identify non-value-added spend and continuing to build leverage across the scale of our business. As mentioned by Donnie, we significantly accelerated our productivity actions to improve efficiency across all segments during the past year, which has had a meaningful positive impact on our margin profile. Our year-to-date results clearly demonstrate that our diverse portfolio supports our growth objectives of growing faster than the overall market, improving operating margins and driving strong returns for our shareholders. Now moving to the Beef segment. Sales were approximately $4.9 billion for the fourth quarter, down 3% versus the same period last year, but up 10% for the fiscal year at nearly $20 billion. Sales in the quarter remained strong, supported by higher volume, but offset by lower average sales price. Global consumer demand for beef products remains strong. We expect volumes to remain stable next year amid tightening supply of cattle, offset by improved labor participation, supporting higher plant productivity. On expenses, we incurred greater costs during the fiscal year compared to the prior year as live cattle costs increased approximately $2 billion. But we have sufficient livestock available to finish the year, and we continue to have ample supply to support our operations. We delivered segment operating income of $2.5 billion for the year, and our fiscal year operating margin of 12.5% was a very strong performance by historical standards. We still expect future beef margins to be in a normalized range of 5% to 7% over the long term. Looking next to the Pork segment. Sales were approximately $1.6 billion for the quarter and $6.4 billion for the fiscal year, down 3% and up 2%, respectively, versus the prior year. Global demand remains challenged by high domestic retail prices and the strong U.S. dollar, making U.S. pork relatively expensive as compared to alternative sources globally. For the year, the average sales price increased 4.1%, offsetting the decrease in volume of 1.9%. We expect these headwinds to impact pork volumes next year to a lesser extent than the past year. Segment operating income and margins were $198 million and 3.1%, respectively, for the fiscal year. The operating income deterioration was driven by herd health issues negatively impacting hog costs and a constrained cut out compressing pork margins in the elevated inflationary environment, increasing operating costs overall. While the Q4 result was negative operating income, we do expect to flip back to positive returns in Q1. Moving now to Prepared Foods. Sales were approximately $2.5 billion for the quarter, up 12% relative to the same period last year. For the fiscal year, sales increased 9.4%, driven by the higher average sales price increase of 13.5%, partially offset by the volume decline of 4.1%, in which 0.9% of the decline was due to the sale of our pet treats business. Volume performance improved in the fourth quarter as our investments in brands and merchandising drove an increase in portfolio market share. Our fourth quarter result, which was roughly flat versus last year, was our strongest performance this year and better than the competition, which underscores the strength of our brands. We expect volume to grow sequentially next year, driven by foodservice recovery, improved supply and continued investment in our brands. Operating margin for the segment was 5.8% or $147 million for the quarter, up 4.1% compared to last year. For the fiscal year, our operating margin was 8.1%, up 0.5% compared to the prior year at $782 million. Now, on to the Chicken segment's results. Sales were $4.6 billion for the quarter, up 19%. And for the full year, sales were up 24% at $17 billion. Volumes improved both for the quarter and fiscal year as we gained momentum in the improvement of our live operations. We expect this operational improvement to continue driving sequential quarterly volume growth into next fiscal year. Average sales price increased by approximately 18% for both the quarter and the fiscal year compared to last year. Our shift in pricing mechanisms to more variable structures, allowing us to be more agile in response to market conditions was a key decision by our management team. Chicken delivered operating income of $337 million or 7.3% for the fourth quarter and $926 million or 5.5% margin for the total fiscal year. Respectively, this represents margin improvement of 10.2% and 5.3% over the prior year comparable periods. This quarter, we surpassed our goal of processing 40 million head per week by the end of the fiscal year. We intend to continue to grow next year to 42 million head per week, enabling us to maximize our fixed cost leverage and grow market share along with our value-added business. With live operations on a positive trajectory, we will continue optimizing our plant network and portfolio mix to maximize the profitability of our Chicken segment. I am pleased with the tremendous progress we have made against our road map to restoring competitiveness in this business. However, there's still work to do to attain industry-leading performance, and I look forward to more great things to come from the team on this one. Now turning to slide 20. Our healthy cash flows and improved balance sheet have continued to support our disciplined capital allocation approach with a focus on total shareholder return. We remain focused on building financial strength, investing in our team members and business and returning cash to shareholders. We produced $2.7 billion of operating cash flows in fiscal year ‘22. This is after funding a $2.1 billion increase in working capital, which included an investment of $1 billion in inventory to better service our customers as well as the impact of cost inflation. Additionally, we had other planned working capital outflows associated with taxes paid on the divestiture of our pet treats business, payment of a portion of deferred payroll taxes from the CARES Act and the settlement of certain legal accruals. Our leverage ratio finished the year at 1.3 times net debt-to-adjusted EBITDA, demonstrating our powerful balance sheet and our continued capital allocation optionality. Investing in our business for both organic and inorganic growth and operational efficiency will continue to be an important priority as we utilize a disciplined capital allocation and balance sheet management approach to invest in desirable projects, brands, categories and geographies. We also maintain a disciplined M&A approach, investing in opportunities that fit well with our existing portfolio or our growth objectives, such as the recent acquisition in Saudi Arabia, providing access to the growing Halal market. While M&A will always be a consideration for growth, we're focused first on investing in growth in our existing footprint. This will facilitate Tyson increasing production capacity, market capabilities and profitability, providing return on capital generation above the market and at a minimum of 12% return on invested capital for our shareholders as our long-term target. To address projected demand growth over the next decade, we invested $1.9 billion in our business in the past fiscal year, focused primarily on new capacity and automation objectives. Finally, we remain committed to returning cash to shareholders through both dividends and share buybacks. For the fiscal year, we returned nearly $1.4 billion in cash to shareholders through $653 million in dividends and $702 million of share repurchases as we continue to prioritize shareholder return. Let's now discuss the fiscal 2023 financial outlook. We anticipate total company sales between $55 billion and $57 billion, and also expect volume growth compared to the prior fiscal year. Both total company sales and volume growth in fiscal '23 will largely be driven by our Chicken, Prepared Foods and International businesses as we work to run our plants full, optimizing our existing footprint and utilizing new capacity expansions. To grow volumes in our Chicken, Prepared Foods and International businesses, construction is in progress of six new plants, all to be in operation by the end of fiscal 2023. We're building a value-added chicken plant in Danville, Virginia, and we're growing our bacon business with a new location in Bowling Green, Kentucky. And we're also expanding our footprint and increasing volumes outside the U.S. with three plants going live in China and one in Malaysia during 2023. These investments in the recently announced joint venture partnerships are fueling future growth, both organically and inorganically in our international business. We remain focused on growing internationally and on those fastest-growing protein consumption markets in the world. Now, as we touched on earlier, our productivity program is expected to deliver an additional $300 million to $400 million of savings during fiscal 2023 as we build upon the foundation laid across the enterprise this year with focus on operational and functional excellence, digital solutions and programmatic automation initiatives. To continue to capitalize upon the organic growth opportunities ahead for our business, we expect to increase CapEx spending to approximately $2.5 billion during fiscal 2023 to pursue a healthy pipeline of projects with strong return profile. We currently expect our adjusted tax rate to be around 23%, and we anticipate net interest expense of approximately $320 million. Liquidity is expected to significantly exceed our minimum target and net leverage is expected to remain below 2 times net debt-to-adjusted EBITDA. We expect strong and meaningfully better operating cash flows in fiscal 2023 as we do not expect to invest as much in working capital as experienced in the past fiscal year. Now, finally, let's look at how each of our segments will contribute to our total company performance. As mentioned earlier, we continue to expect future Beef segment margins to be in a normalized range of 5% to 7% for the long term. However, based on current market dynamics, we expect fiscal 2023 to be at or below the low end of that range. In Pork, we expect return on sales between 2% and 4%. Due to normal seasonality for our Pork segment, we expect the front half of the year to outperform the back half of the year. We continue to invest behind our expanded case-ready capacity, increasing volume through organic growth with new and existing customers, underpinned by product innovation for both our Beef and Pork segments. Prepared Foods is expected to deliver margins during fiscal 2023 between 8% and 10%, driven by volume growth, productivity and disciplined revenue management. We expect volume, sales revenue and operating income to all increase through the fiscal year with stronger quarters in the second half of the year compared to the first half of the year. In Chicken, our operational turnaround progress as forecasted, and we are now increasing our focus on optimizing our mix to maximize profitability of our value-added portfolio. We expect to deliver full year margins of 6% to 8%, driven primarily by progressively growing volume and sales revenue while at the same time realizing additional operational improvements. And in international, we anticipate improved profitability from our operations in fiscal 2023, driven by volume growth from capacity expansions ramping up. Our segments individually and in aggregate have clear and compelling roles within Tyson's portfolio strategy. We make products that provide options for consumers across proteins and up and down the value chain, delivering performance that supports the Company's long-term earnings objectives and desirable returns for shareholders. To sum it up, fiscal 2022 was a record year in revenue, operating income and EPS. And as a result, we are in a strong financial position as we enter fiscal 2023 to support continued investment in our existing footprint, new capacity expansion, more automation and support for our brands as we continue to grow our business. Now, before I turn the call over for your questions, I want to take a moment to address an important issue. I'm sure you've seen the news about the recent incident involving me. I'm embarrassed and I want to let you know that I take full responsibility for my actions. I also want to apologize to our investors as I have to our employees. This was an incident inconsistent with our company values as well as my personal values. I just wanted you guys to hear this directly from me and to know that I'm committed to making sure this never happens again. And with that, I'll turn the call back over to Donnie. Donnie?

Brandon Tucker:

Thanks, Donnie. We will now move on to your questions. Please recall that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

Adam Samuelson:

So, I guess my first question is thinking about the outlook for fiscal 2023 in Beef and you're kind of staying at or below the low end of the normalized range. Clearly, there's been some herd liquidation that's been happening in the U.S. industry, cattle prices have risen. I guess, I'm trying to understand if we're already at or below the low end of that normalized range, the cattle herd was going to keep -- is going to keep shrinking. Can you help us think about how we would ever get -- how we would get back to that normalized range in the next few years with the smaller herd? Talk about kind of what you're doing from productivity, from a mixed, case-ready capacity that would be a balance to margins and what would seem like a more challenging kind of multiyear outlook?

Shane Miller:

Thanks for the question, Adam. John touched on a couple of things that I think to think about that's a bit different this cycle versus previous cycles is one. John touched on the cattle quality, that's extremely different this go around than the last time we went through this cycle. The second component is globally beef has remained and still has been a strong demand product that's going into different channels throughout Asia. And also, we're seeing interest from different parts of the globe that historically have not been big buyers of U.S. beef. And then finally, if you think about the -- even though we do have a strong quality that's coming out of the meat products, but you have items such as our specialty products, fat and oils are off all items, items like that that typically haven't been large contributors that this go around are significant contributors. So, if you think of it in direction in relationship to the last cycle, I think we have an opportunity here to scale in here and do much better than the last go around. So I think all those things coupled together give us confidence and hope that we're going to continue to be able to drive this type of return.

Donnie King:

Thanks, Adam. This is Donnie. Thanks for the question. The Chicken turnaround continues. We've made a lot of progress. David and his team have got our chicken business in a better place than it's been in some time. But we haven't arrived yet. There's still things to do. And we get better sequentially each quarter and would expect that to continue. I would point out that we're guiding to a 6% to 8% for '23, and we feel very good about that. And we feel good about investing in our Tyson brand and continuing to use that. But let me just flip it over to David. And this is a guy who's been doing all the work, and he and his team -- and let him add some additional color for you.

Operator:

Our next question comes from Ben Bienvenu with Stephens.

Donnie King:

Let me just say that -- and I'll pass it over to Stewart to add some commentary. We guided to 8% to 10% in 2023. And behind productivity, capacity utilization and mix improvements, we anticipate improved volume sales and AOI for '23. Our foodservice recovery is a little slower pace than expected, but we feel very good about this segment and the performance. And I'm personally very proud that we have Stewart leading this business. And Stewart, why don't you add some comments?

Ben Bienvenu:

Okay. Great. And if I could circle back to the chicken business, I believe your goal that you laid out at the Investor Day in 2021 was to be at an 84% hatch rate as of kind of around right now. Is that where you are? Are you on track? You mentioned commentary in your slides that you're on track with your hatch improvement goals. Are we kind of now at a new cruising level and shouldn't expect further improvement from here, or could that continue to improve, would you want it to?

Operator:

Our next question comes from Alexia Howard with Bernstein.

Donnie King:

Sure. Thanks for the question. So, the productivity program, as we laid it out, it was a 3-year program, and we're well ahead of that in 2022. And we talked about this in terms of really 3 buckets. Automation is obviously one of those, digital is another, and then operational and functional excellence. And all of those are working together really, really well. We think we'll meet our commitment by the end of this fiscal year '23. But it seems like every rock we turn over, we find something new and we capture that, and we'll continue to do that. The automation piece specifically is progressing faster than what we had planned. And of course, we're happy about that. But -- and remember, the automation piece was to eliminate some laborious difficult, high turnover type of positions. And in the program, as I think it was in the script that I mentioned in chicken, the debone automation project. But we also, in this programmatic approach to automation, where we have focused in our pack-out area. And we've also launched our digital enablement group as we take technology throughout Tyson. And we're progressing on all of those, and we'll update you each and every quarter on how we're doing in that area.

Donnie King:

I have nothing to report on that now. We obviously are eliminating positions and are eliminating difficult jobs, and we are reassigning people to open position throughout the company.

Robert Moskow:

Look, those of us who have followed Tyson for a long time are used to the Company putting people with a lot of brand management expertise in charge of Prepared Foods because it's a heavily branded food portfolio. And putting people into the CFO role who have 20-plus years of experience in the finance track and this latest reshuffling did the opposite. Can you speak to how the organization is responding culturally to these decisions, especially in light of the fact that you're also closing down two of your headquarters, consolidating into Springdale. Donnie, what are you doing to mitigate execution risk during this kind of high turmoil period?

Robert Moskow:

I appreciate that, Donnie. Maybe a follow-up. When do you expect to be able to give more clarity to those 1,100 people? In my experience, people who want to know stuff like that sooner than later, how quickly can you move?

Operator:

Our next question comes from Ben Theurer with Barclays.

John R. Tyson:

Hey, there. You're kind of muffled on our end. I think your question was about CapEx and just wondering if we could expand upon that. Is that right?

John R. Tyson:

Sure thing. Well, I think, look, what we've talked to you about already this morning is our plans for a heavier investment in our business compared to historical years. And I think in a small part, that's driven a little bit about the inflationary environment that we're in. But really, I think the point we want you to take away is that we see a lot of opportunity in our business in terms of productivity improvements, things like automation and a little bit of capacity expansion. So, as it relates to priorities, I would tell you that in our value-added segments, we're trying to grow capacity and some of our chicken, prepared foods and fresh meats businesses, we see opportunities for network optimization. So, I don't think it's any departure from what you would expect us to be investing in, a decent balance of growth and productivity investments. I would emphasize, back to the question that someone asked earlier, automation is a huge part of our agenda. And what we like about those investments is we see sustained productivity as we reapportion team members to different parts of our operations. And so, we feel really confident in some of the more programmatic investments we're making around our automation agenda.

Ken Goldman:

I wanted to ask about your guidance for the sales range of $55 billion to $57 billion. I do appreciate that there are six new plants coming on and that you'll have some additional pricing and some mix improvements. I guess one of the questions we're getting from investors this morning is, is it reasonable to expect the high end of that range, just given some of the potential trade down coming as consumers potentially face some more challenges and more importantly, where we're seeing chicken prices today? So I guess I'm curious if you can expand a little bit perhaps on how much production the six new plants are expected to cumulatively add? I think that would help people really kind of maybe bridge the gap there to that higher end perhaps?

John R. Tyson:

Yes, Donnie, I think that was a fair summary. I mean, there's a balance in that projection between the volume growth and what we see from a sales growth from a pricing standpoint. And I think that we feel confident in the mix between those two things to achieve the range that we gave. You also asked a question about what's the capacity coming on line with the new build. And I think without going into details of each of those operations, a little bit of that is dependent on the timing of when things come online in '23. But I think overall, what we want you to take away is that we feel confident in the range at this standpoint as a roll-up of multiple factors that go into the numbers.

Donnie King:

So, great question. First thing I would say to you is we had a good '22, and we feel very good about delivering a year early in '23. Our nature is that we are -- have a continuous improvement mindset. So, we will identify and continue to identify opportunities to become more productive, become more efficient to run lines at rate better to automate, do all those type of things that will continue to bring money to the bottom line. We feel good about that, and I think you could expect that we would have another program or continuation of this program. I don't know what that is at this moment. John, anything?

Operator:

Our next question comes from Peter Galbo with Bank of America.

John R. Tyson:

Sure. I think, look, we've kind of tried to give some overall indications on volume as it relates to the various segments. And there's a lot of factors that go into the sales and AOI numbers we're looking at, part of which is volume. I think in our poultry business, we do feel comfortable about the sequential growth directionally speaking, that we're talking about as we head into FY23. And I think on the Beef business, even amidst the total environment and USDA calling out the harvest, I think what I'd point to is some of the investments we make in terms of our business model around our relationships with suppliers, investments in kind of the value-added parts of our business and continuing to grow in specific channels. I think we see it as critical to preserving the outlook for '23. Shane, maybe you have a little bit to add on the Beef segment.

Peter Galbo:

Got it. No. Thanks. That's very helpful. And Donnie, I guess just to follow-up on Ken's last question around chicken. Just given that you have transitioned more of your contracts to a more variable pricing structure, what we've seen in the spot markets in terms of pricing, can you just kind of remind us where you stand today in terms of how commodity markets or commodity chicken markets might impact pricing relative to history where maybe it wasn't as impactful to your business?

David Bray:

Donnie, I think that was perfect, especially when you talk about our exposure and the amount of big bird breast meat that we actually have a part of. But the other piece to that is we have great customers Tyson Foods. And what we've done within our variable pricing is provided us the opportunity to have more consistent conversations with them about the things that make their prices go up and the things that make their prices go down. And we'll continue to have those conversations despite soft times and seasonality. So, a lot of progress has been made against that. And again, we've done a lot of work to shift into more of a value-added mix.

Ken Zaslow:

Hey John, Stewart, can you kind of tell us, as you enter the new role, what is your key actions you expect to do within the next, call it, 6 to 12 months? And how you think that role for you will evolve? And what contribution you will actually have to the changes that need to be done?

Stewart Glendinning:

Yes. Ken, maybe first just with the background point. I spent 13 years before this in the beer business, 10 of those as an executive officer, four of those as the CFO running in the branded businesses. So I'm coming to this business with a good knowledge of brands, and I'm excited to run what is a powerful part of our portfolio. When I look at the business, I see huge opportunity mainly because the platform is so strong. Starting off, if you look at the volume performance [Technical Difficulty] the last number of years, while share has been good, volume could be stronger. And so as I started to this job, I see real opportunity for volume improvement, particularly in the foodservice business and I'm pressing hard against that. That means filling the orders we already have and it means selling out the capacity that exists in our network. And both of those have a big -- have a big opportunity in our company. I also, by the way, look at our cost structures and believe that we've got the ability to run our business in a leaner way and still achieve the growth goals that we want to see in the company. And then, I'd probably finish up by saying that I further believe that on the innovation side, we have lots of runway and lots of opportunity to press hard in the market. So, I come into role with both, confidence and believing that we have a strong pathway ahead.

Ken Zaslow:

Great. I was not minimizing the experience. I just wanted to see the actions, particularly in Prepared Foods because I sense that you're in the 8% margin and you're kind of wanting to go to that 8% to 10% but it sounds like there's a little bit of a touch on operational efficiencies. My second question would be, as I think about the longer term, and I know there was an allusion to how you can actually get back to the midpoint of the range. What are the concrete actions that you can do, or is it really dependent on the market in terms of just making sure that China remains a key exporter? Because that's the single biggest thing that's changed over the last couple of years. So, is it the new environment that you think will get you back there, or do you think that there is internal actions that can be taken to put you back into that margin structure?

Shane Miller:

Yes. Thanks for the question. Donnie, I think you hit on all the key points. The only thing I would mention is no matter what the market conditions are or the cattle supply, we feel good about all these investments to differentiate our beef business model. And on top of that, if you think about the investments that we've made and we are making into our supply chain on beef and cattle sustainability, these are key important topics that our customers and ultimately, the consumer are asking about. And we feel really good about what we're doing there, telling the story back up into the feed yard, but even further back into the ranch and to maintain and preserve resources and have focused on sustainability for the future.

Donnie King:

We have a powerful and diverse portfolio across proteins, channels and geographies. We are improving operational efficiencies and have a team that is positioned to take advantage of the opportunities in front of us. For these reasons, we are confident we will grow revenue and maintain strong profitability in fiscal year 2023 and have future long-term growth ahead of us. At Tyson, we're focused on making food affordable, accessible and nutritious for customers and consumers around the world. Thanks again for your interest in Tyson Foods. We look forward to speaking again soon.

Brandon Tucker:

Hello, and welcome to the third quarter fiscal 2022 earnings conference call for Tyson Foods. Prepared remarks today will be provided by Donnie King, President and Chief Executive Officer; and Stewart Glendinning, EVP and Chief Financial Officer. Additionally, Shane Miller, Group President, Fresh Meats; Noelle O’Mara, Group President, Prepared Foods; David Bray, Group President, Poultry; and Chris Langholz, Group President, International, will join the live Q&A session. We have prepared presentation slides to supplement our comments, which are available on the Investor Relations section of the Tyson website and through the link to our webcast. During this call, we will make forward-looking statements regarding our expectations for the future. These statements are subject to risks, uncertainties and assumptions which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statement disclaimers on slide 2 as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. Please note the references to earnings per share, operating income and operating margin in our remarks are on an adjusted basis unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. I will now turn the call over to Donnie.

Stewart Glendinning:

Thank you, Donnie. Let me turn first to a summary of our total company financial performance. We’re pleased to report solid results in the third quarter and year-to-date. Sales were up for both, the third quarter and year-to-date, benefiting from our pricing initiatives to offset the increase in cost of goods. Volumes were down both for the third quarter and year-to-date due to supply constraints and a challenging macroeconomic environment impacting consumer demand. Looking at our sales results by channel. Retail drove $173 million of top line improvement in the third quarter relative to the same quarter last year. In the third quarter, the ongoing recovery in the foodservice channel drove an increase of $165 million. Sales to international markets, including both domestically and internationally produced products, were $339 million greater than the prior year period as we leveraged our global scale to grow our business. Donnie covered our earnings and EPS results. Slide 11 bridges operating income for the third quarter, which was $374 million lower than fiscal 2021. Volumes were down 1.9% in the quarter. Our pricing actions, which partially offset the higher input costs, led to higher sales during the quarter. We saw continued increases in cost of goods across the business, in some instances, up to 15%. Notable examples were labor, feed ingredients, live animals and freight costs. SG&A was $20 million unfavorable to the same period last year due to increased investment in advertising and promotional spend and technology-related costs, partially offset by lower commission costs incurred by selling direct to customers rather than via brokers. As Donnie said, we are assessing all of our SG&A expenses across the business to identify non-value-added spend. Savings from our productivity program initiatives continue to have a positive impact on margins. Moving to the Beef segment. Sales were approximately $5 billion for the third quarter, flat versus the same period last year, but up 15% year-to-date at nearly $15 billion. Sales in the quarter remained strong, supported by higher volume but offset by lower average sales price driven by softer consumer demand for premium cuts of beef. Global consumer demand for beef products remains strong, and we expect volume to continue to improve in the fourth quarter as improved labor participation supports higher plant productivity. On expenses, we incurred greater costs during the third quarter versus the comparable prior year period as live cattle costs increased approximately $480 million in the quarter. We had sufficient livestock available in the quarter driven by higher herd liquidation due to drought conditions. We delivered segment operating income of $506 million in the quarter, down 55% versus the prior year comparable period. Our operating margin of 10.2% was lower than the same quarter last year but remains a strong performance. We expect to see Beef margins return closer to an expected long-term 5% to 7% average. Looking next to the Pork segment. Sales were approximately $1.6 billion for the quarter, down 6% versus the same period last year, but up 4% year-to-date at $4.8 billion. Global demand is being impacted domestically by high retail prices and internationally by the strong dollar, making U.S. pork relatively expensive as compared to alternative sources globally. For the quarter, the average sales price decreased 3.9%. Segment operating income was $25 million and $248 million for the quarter and year-to-date, respectively. While down 63% versus the comparable prior year quarter, operating income is down less than 1% year-to-date. Overall operating margins for the segment declined to 1.5% for the quarter. The operating income deterioration was driven by compressed pork margins with rising hog costs and a constrained cutout. Moving now to Prepared Foods. Sales were approximately $2.4 billion for the quarter, up 5% relative to the same period last year and up 9% year-to-date at $7.2 billion. Sales increased despite a volume decline driven by higher average sales prices. Note, part of the volume decline in the quarter was driven by the sale of our pet treats business. Our brand strength and category relevance has enabled continued strong performance across multiple categories. Operating margin for the segment was 7.6% or $186 million for the quarter, up versus last year. Year-to-date, operating margin is 8.9% and flat compared to the prior year at $635 million. Cost of goods continues to increase, pressuring our cost of production. To offset higher costs, we’ve executed productivity initiatives, revenue management and optimize our spend. To support our growth aspirations, we continue to invest in marketing and trade to increase the market share of our brands. Moving into the Chicken segment’s results. Sales were $4.4 billion for the quarter, up 26%. Year-to-date, sales are up 25% at $12.3 billion. Average sales price increased in the quarter compared to the same period last year. Our shift in pricing mechanisms to more variable structures has reduced risk by allowing us to be more agile in response to increasing cost of goods. Chicken delivered adjusted operating income of $269 million in the third quarter representing an operating margin of 6.2%. Quarterly operating income increased over the same quarter last year due to higher average sales price and efficiency improvements, partially offset by increased cost of goods. For the third quarter, we experienced $145 million in higher feed ingredient costs versus prior year, and we recognized $23 million in net derivative losses compared to $56 million of net derivative gains in the prior year. Turning to slide 16. Our healthy cash flows and improved balance sheet have continued to support our disciplined capital allocation approach. We remain focused on building financial strength, investing in our team members and business and returning cash to shareholders. We produced $1.9 billion of operating cash flow so far during fiscal year ‘22, and that’s after funding a $1.9 billion increase in our working capital. Our leverage ratio at 1.2x net debt to adjusted EBITDA demonstrates our powerful balance sheet and our continued capital allocation optionality. Investing in our business for both organic and inorganic growth and operational efficiency will continue to be an important priority and will help Tyson increase production capacity, market capabilities and profitability. This will support return on capital generation above the market for our shareholders. Finally, we remain committed to returning cash to shareholders through both dividends and share buybacks. Year-to-date, we’ve returned $491 million in dividends and repurchased $693 million of shares, including $170 million of shares during the third quarter. Let’s now discuss the financial outlook for the remainder of the fiscal year. Based on the strong results year-to-date, we’re maintaining our total company sales guidance at a range of $52 billion to $54 billion. We now expect total volume growth to be flat on a year-over-year basis. Looking at AOI margin target ranges for our segments. In Chicken, our operational turnaround is on track, and we expect full year margins to be between 5% and 7%, but at the lower end. Based on the current trends in retail and foodservice, we expect the full year margin in Prepared Foods to be at the lower end of the 8% to 10% range. In Beef, we expect margins to move toward our expected 5% to 7% range as the live cattle to cutout price spread continues to decline. However, we still expect to deliver a full year AOI margin of 11% to 13%. In Pork, due to margin compression from hog costs and global demand headwinds, we’re reducing our full year AOI margin outlook to be in the range of 3% to 5%. In International/Other, we anticipate slightly lower results from our foreign operations in fiscal ‘22 due to supply chain disruptions and other impacts related to COVID-19. Our expectations for CapEx and net interest expense are lowered to $1.9 billion and $350 million, respectively. Our tax rate expectation is lowered from approximately 23% to approximately 22.5%. Our net leverage is expected to remain well below 2 times net debt to adjusted EBITDA, providing optionality for inorganic investment and additional return of cash to shareholders for the remainder of the year. I’ll now turn the call back over to Brandon for Q&A instructions. Brandon?

Operator:

[Operator Instructions] Our first question today comes from Ben Theurer from Barclays.

Donnie King:

Thank you, Ben, for that question. The turnaround that we’ve talked about for the last year now continues. And I’m pleased with the progress that we’ve made and said that in the script. We still have work to do, grain and the volatility around grain, supply, demand, so forth, still exists out there. But the demand for chicken is extremely strong. Demand for ready-to-eat chicken, for example, is very strong. And we’re at capacity as it relates to that. We are investing and have a new asset coming on line early next year, and that will obviously be a help. But the business did grow. And there’s a lot of noise in this particular quarter around the Hanceville fire in Q4 of ‘21 that we’ll work through. But the thing I want you to hear is that our harvest rates continue to improve, and there will be over -- there’ll be $40 million or so in Q4, and it will continue to grow from there. But I want to stop and pause at that point, and I’m going to pass it to David Bray, and David, if you’d like to add some more color.

Ben Theurer:

And then just as only -- just a very technical question maybe for Stewart. So, as we are on a year-to-date basis, still down on the volume on a consolidated basis, is the flat guidance really a function of because of 4Q Prepared Foods, you get the easier comp because the divestiture happened last year during 4Q and that’s where the volume impact was? Is that the right way how we should think about it?

Operator:

Our next question comes from Alexia Howard from Bernstein.

Donnie King:

Okay. I’ll start, and then I will flip it over to Noelle to add some details. But I would start with that we are seeing some movements in the marketplace between foodservice to retail. In-home dining continues to increase in this environment, which we would -- suspected. We’re also seeing some movement from quick service chain account type business to more in -- on-premise dining as COVID wanes and the people are more adventurous that they get out. And so we’re seeing some improvement in that as well. But I would tell you, overall, we are starting to see some elasticity, but I would tell you they’re below what historical elasticity you would expect. Noelle, anything you’d like to add to that?

Alexia Howard:

A quick follow-up. Sticking with that part of the business. Private label dynamics, it seems as though need is being particularly affected by private label. I know you make private label presumably, it may be lower margin for you. Just wondering what you’re seeing in that area as that much occurs?

Operator:

Our next question comes from Ken Goldman from JPMorgan.

Donnie King:

We still are maintaining our guidance for the segment to 11% to 13% for the full year. I think our number was 10.2%. The cost increases we’re seeing on cattle are certainly impacting the spread. And we’ve been talking now for a number of periods about the fact that there were going to be fewer cattle. I think we’re current now from the cattle that we’re involved in the backlog of COVID. We’re current on that. The prices of those animals have continued to increase. And so, there’s drought and all those kind of conversations. But let me flip it over to Shane, and I’ll let him give you some color around beef.

Ken Goldman:

Well, if you don’t know, I don’t think anyone knows. But I have a quick follow-up. On the -- in the prepared remarks -- and thank you so much for these, you did provide a little bit more color on the ranges that you expect for the Chicken segment margin and the Prepared Foods margin. It still is a little bit of a wide range in beef. Maybe you purposely left it that way because there’s so much uncertainty. But maybe directionally, you could send us sort of how to think about that margin for the year, now that you’re -- the year is getting closer to done in that particular segment would be helpful, if you can.

Operator:

Our next question comes from Adam Samuelson from Goldman Sachs.

Stewart Glendinning:

Well, I’ll just pick up the margin point quickly, and then Noelle can expand on some of the other pieces. But just look from a margin perspective, as I said, we are going to come in at the low end of the range. That gives you a little bit of flex. Certainly, that means that we would just mathematically would be in the high 7s or low 8 for Q4.

Adam Samuelson:

Okay. All right. And then, maybe another question for Stewart. If I look at the balance sheet trends in the quarter, net debt to EBITDA, you bought back a little bit of stock in the fiscal third quarter. But I guess, just looking forward into the next -- over the next 12 to 24 months, I mean I’m just -- the balance sheet is kind of comfortable with your leverage target. You’re already investing quite aggressively on the organic CapEx side. And so, I guess, I’m just trying to make sense of kind of the comfort level you have with the balance sheet kind of where it is versus what it would take to a significant releveraging event, but maybe a bigger step-up in share repurchase that there isn’t continued excess cash building on the balance sheet from here. So any added color that you could provide just in priority of share repurchase moving forward?

Operator:

Our next question comes from Ben Bienvenu from Stephens.

Donnie King:

Let me say a couple of things, and then I’ll flip it to David to talk about a few things. We feel very good about -- I feel better about our Chicken business than I have in a long time. And we’re making progress every day. As I mentioned earlier, we’re not where we want to be at this point. But I would -- if you look at across channels, foodservice, retail, we gained share with branded value-added chicken and foodservice, I think it was 2.6 points or maybe a little more than that in foodservice. We lost a little share because of capacity in retail, the branded portfolio, and we’re gaining that back rather quickly. But as we think about chicken and all these pieces and parts coming together, we’re through the whole live animal livability hatch kind of conversation. We now have the supply chain on the ground that’s going to continue to grow our supply so that we can service the customers in the way that we’d like. We got more fully cooked capacity coming on line, which helps, which is already sold. So we like that. And so we’ll continue to optimize and improve the mix, which helps. And we will brand -- it will be a branded portfolio play as well. But there’s still volatility in grain out there. But we like what we’re seeing. We like our opportunity going forward. And we think we have the foundation of this business in a good place today, and we look for things to improve over Q4 and into next year. David?

Stewart Glendinning:

Ben, Stewart. Just want to add one thing there. Don’t overlook in David’s model, the leverage that you’ll get from the increased volume. So you see them going up to 40 million birds this quarter. Every time he adds to those birds, they’re not coming at any increase in fixed costs. That’s already been paid for. And that’s going to be helped as P&L.

Shane Miller:

Yes. So Ben, this is Shane. I think the way I would characterize it is as we’re -- this year, we’re in the 11% to 13% range for fiscal year ‘22. And as we transition to less numbers and back to the prior conversation around trying to pinpoint exactly when this has flipped, it’s like trying to predict the weather right now. So, it’s awfully difficult to do that. I would say it’d be more of the midterm. We believe over time -- to Donnie’s earlier point, over time, we’re going to be trading somewhere in the 5% to 7% returns in our Beef business. And we think about it in a couple of ways to, as you think about how we’re decommoditizing this business is the quality aspect that I mentioned earlier. We’re partnered with some of the best cattle feeders in the world. And when you look at this global demand, it’s going to continue. And we’re not able to service all of that today because of some of the disruptions at the ports that we’re dealing with. And having the ability to value up these components through our case-ready business through Prepared Foods and then also through our International business unit is an additional pro that this company has. So, we feel like we’re going to be scaling into that here as we go through the next 12 to 18 months.

Peter Galbo:

Just two really quick ones for me. Shane and Donnie, maybe just to stick on the beef topic, and I know we’ve covered a lot of ground there. But one of the questions we’ve gotten, just given the level of liquidation you’ve seen this year, realizing the 5% to 7% kind of medium-term margin target, like what’s the possibility though that next year comes in somewhat below that just because you’re dealing with such a high level of liquidation this year that’s relatively unprecedented?

Peter Galbo:

Okay. No, that’s helpful. Thank you, Shane. And then, maybe just a technical one for Stewart and Noelle, on Prepared’s margins. Again, kind of exiting this year at the kind of high 7s, low 8s that Stewart mentioned. Just what’s it going to take to build that back to a double digit? I know you had just come out of 2Q at 11%, but now it seems like those margins have taken a step back and based on some of your commentary, it doesn’t feel like there’s a lot more pricing that can go through. So, like what do we need to see, I guess, to restore those margins back to a double-digit run rate?

Stewart Glendinning:

Yes. Maybe just to build on that, I think as Noelle focuses on recovering some of that foodservice volume, and I guess busy with the merchandising that she was talking about, again, you’ll start then to see that she has the potential to gain volume and to start gaining back some of that fixed cost deleverage.

Robert Moskow:

A few additional questions on Chicken. I think you are guiding to the low end of your margin range for Chicken as well. Does that reflect a weaker outlook for 4Q, or is 4Q pretty much how you thought it would be? And then also, you mentioned you’re trying to get to top quartile among your peers. Your peers are, from what I can see, like delivering really strong margins. So where are you now versus that top quartile? Are you in top 50%, or are you below it?

Robert Moskow:

Okay. And a follow-up. The USDA for next year is forecasting even less than 1% volume growth for chicken. Do you think that’s like the right amount of volume for the market given the demand framework? From what you’re reporting, pricing is up a lot, but demand has been pretty stable. Do you think that that’s in line with how the overall industry will perform?

Robert Moskow:

So, does that mean that 1% supply growth is not enough to meet the market?

Operator:

And our next question comes from Ken Zaslow from Bank of Montreal.

Donnie King:

Based on what was quoted in the prior call, USDA is reporting a 1%, maybe a flat to I think that’s probably realistic. I think our demand is going to be stronger than that as we go into ‘23. And from a beef perspective, with the herd liquidation, there’s going to be fewer -- there’s going to be fewer cattle in the harvest. And you’re going to have more and more packers chasing those heads, particularly the -- those which have better genetics that grade better that provide additional revenue and margin opportunity. And so that’s going to become very tight. And as we move into ‘23 and even into ‘24, beef is going to see some -- you’re going to see some higher cutouts and higher-priced cattle in the marketplace.

Donnie King:

Let me say a couple of things about that, Ken, and then I will flip it to Noelle. What we’re talking about there is a big portion of that, for example, is in the first half, particularly in the first quarter. You may remember that we had a resurgence in COVID at that point. And so, we got a little bit behind and as we started the year or in our second quarter. But we’ve been out of capacity on a few key categories that we’re seeing now come on line. We got more capacity coming on line next year for Prepared Foods. The demand is -- while it’s been impacted a little bit in some key categories around the pricing, it’s still, let’s say, less elastic than maybe you would -- or even our models would have indicated, but we’re still -- we’re seeing some elasticity. But we expect the volume to grow. We expect to put forth a great deal of effort in our supply chain. Those things that we can control, the productivity program, for example, is a huge -- huge for us in the way of automation and technology. We’ve been investing now for over a year, and we’re starting to see some of those things bear fruit, and not only for this quarter, but as we move forward. And so, those investments are paying off. We’re -- some of the things that we’ve done around autonomous planning and trying to eliminate or improve forecast accuracy and eliminate distress and those type of things, we’re much better today than we were a quarter or two quarters ago, but there’s still things to do. But supply chain is improving. We’re running it right. In many cases or in most cases, we are staffed completely, but we just -- we’re looking for opportunities to continue to get better. Noelle, anything you want to add to that?