Tyson Foods Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2022

There are 15 speakers on the call.

Operator

Good morning and welcome to the Tyson Foods First Quarter 2022 Earnings Conference Call. All participants will be in listen only

Speaker 1

mode. After

Operator

only. Please note this event is being recorded. Only. I would now like to turn the conference over to Megan Britt, Vice President of Investor Relations. Please go ahead.

Speaker 1

Only. Hello, and welcome to the Q1 fiscal 2022 earnings conference call for Tyson Foods. All. Prepared remarks today will be provided by Donnie King, President and Chief Executive Officer and Stuart Glendinning, EVP and Chief Financial Officer. Only.

Speaker 1

Additionally, David Bray, Group President, Poultry Noelle O'Meara, Group President, Prepared Foods Shane Miller, Group President, Fresh Meats only. And Chris Langholz, Group President International, will join the live Q and A session. We have prepared presentation slides to supplement our remarks, only, and these are available on the Investor Relations section of the Tyson website and through the link to our webcast. During this call, all will make forward looking statements regarding our expectations for the future. These statements are subject to risks, uncertainties and assumptions, which may cause on actual results to differ materially from our current projections.

Speaker 1

Please refer to our forward looking statement disclaimers on Slide 2 as well as our SEC filings for on earnings per share, operating income and operating margin in our remarks are on an adjusted basis unless otherwise noted. Only. For reconciliations of these non GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. I'll now turn the call over to Donnie.

Speaker 2

Only. Thank you, Megan, and thank you to everyone for joining us for the call today. Earlier today, we announced our Q1 fiscal 2022 results. Only. Tyson Foods once again delivered strong financial results.

Speaker 2

I would like to start by thanking our team members for their dedication, on. Herculean efforts this quarter as we managed a complex and dynamic operating environment. At our Investor Day, I shared our plan to grow our up and bottom lines aggressively over the next 3 years. This meant EPS growth of high single digits relative to a 2019 baseline and volume growth ahead of the market. Our results this quarter put us firmly on that path.

Speaker 2

Only. We achieved double digit sales and earnings growth, both of which were driven by ongoing demand strength, productivity savings and improving execution across our segments. Our diverse protein portfolio, omnichannel capabilities, leading brands and value added products contributed to our results. Strong performance in our beef segment, earlier than expected recovery in prepared foods and improvement in chicken and pork all supported strong earnings results. Our retail core business lines, which include our iconic brands, Tyson, only.

Speaker 2

Jimmy Dean, Hillshire Farm and Ballpark maintained their volume share position even as we work through price increases to address inflationary pressure. Only. And our foodservice Focus 6 product lines grew share year over year in broad line distribution. Only. This growth was driven in large part by value added chicken, which outperformed industry recovery and breakfast sausage, where we were seeing improved fill rates.

Speaker 2

Importantly, and despite the continued impact of COVID-nineteen, Our volumes improved slightly across the company relative to the same quarter last year. Chicken was a bright spot only. We saw our volumes improve 3.6%. While this is a good start, we are not where we want to be on volume. So we're taking actions segment by segment to improve our volume performance.

Speaker 2

These actions include investing in our team members, on. In additional capacity and in brands and product innovation. As discussed at Investor Day, we're also in the process of building 12 new plants. Only. Each of these is progressing and each will enable Tyson to address capacity constraints and meet the growing global demand for protein.

Speaker 2

Only. Bottom line, we're committed to improving our total company volumes during the year. We're also making sure that our Incorporates inflationary cost pressures on our business. In the quarter, our cost of goods sold was up 18% Relative to the same period last year, we're seeing higher costs across our supply chain, including higher input costs only. Such as feed and ingredients, we're also managing higher costs of labor, transportation due to strong demand and limited availability.

Speaker 2

Only. With these higher costs, we work closely with our customers to achieve a fair value for our products. As a result, our average sales price for the quarter increased 19.6% relative to the same period last year. This helped us capture some of the unrecovered costs due to the timing lag between inflation and price. Finally, our balance sheet and overall liquidity position are on the call.

Speaker 2

Providing optionality to pursue strategic growth priorities and invest in growth across our portfolio. Only. We have a disciplined approach to deploying capital to support capacity expansion, while achieving improved returns on invested capital. Only. Our first quarter results clearly demonstrate that we are making progress on our growth objectives that we remain focused on outpacing the overall market, Improving operating margins and driving stronger returns for our shareholders.

Speaker 2

While we're growing our business, we are mindful of our corporate responsibilities around environment, social and governance goals. For example, we committed to investing in and supporting our communities in rural America and around the world. Last year, Tyson Foods donated more than £16,000,000 of protein, the equivalent of on 64,000,000 meals to fight hunger. We're incredibly proud of this work and the people that make it possible. Only.

Speaker 2

Tyson is a great company with a great team doing great things. And I'm pleased that this was recognized just last week by Fortune Magazine, to announce that for the 6th year in a row, Tyson Foods was number 1 in our sector in their rankings of the world's most admired companies. Only. Now let's look at a few financial highlights from the Q1. Our results included double digit top and bottom line growth.

Speaker 2

Only. We delivered solid operating income performance, up 40% for the quarter. This performance was broad based across segments Our continued strong consumer demand and effective pricing to mitigate the impact of inflation drove higher earnings. Only. On volume, we are up slightly.

Speaker 2

And while we're working to achieve optimal throughput across our segments, labor challenges are still impacting our volumes and the ability to achieve optimal mix across our network. Compared to pre pandemic levels, our volume performance is outpacing our peer set. In retail, only. Despite substantial market pressures, core business lines held share in the Q1, led by strong performance in on lunch meat, hot dogs, snacking and bacon. We also realized strong e commerce results with on.

Speaker 2

Tyson Foods outpacing total food and beverage growth and our core lines gaining share in the quarter. Still customer demand continues to outpace now. To realize our volume goals, we must be able to fully staff our plants across the company. We continue to on a meaningful action toward becoming the most sought after place to work. For example, we provided our hourly team members with more than $50,000,000 in bonuses during the Q1.

Speaker 2

We are piloting subsidized and on-site childcare, and we are adjusting schedules to flex with workforce needs. Only. These actions are bearing fruit as we see some improvement on the labor front. And while we have seen some labor challenges during the omicron surge, on. 1st percent in the quarter, driven by strong fundamental demand and improved live production.

Speaker 2

What is important to note is that we grew ahead of the market and gained market share. In Prepared Foods, volumes were down 2.6% in the 1st quarter. Only. About half of the decline was related to Pet Treat's divestiture. We expect to sequentially improve these results over the remainder of fiscal year 'twenty 2 as we take actions to expand and improve capacity utilization.

Speaker 2

In beef, volumes were down on 6.2% driven by labor shortages previously mentioned. In addition, pork congestion has also dampened export volumes in the segment. Only. We expect these headwinds on volume to normalize over the course of fiscal 2022. In pork, only.

Speaker 2

We have sequentially improved our capacity utilization. We are still working to optimize the mix. In international other, while we are starting from a relatively small base, our investment in capacity, innovation and brands or supporting our market share growth objective. Overall, we expect to grow our total company volumes by 2% to 3% in on slide 20 2, outpacing protein consumption growth. Chicken remains a top priority, and we continue to execute against our roadmap to achieve an operating income margin of 5% to 7% on a run rate basis by mid fiscal 'twenty 2.

Speaker 2

Only. I remain confident we will meet this goal. In the Q1, we've started to see profitability improvement resulting from our actions. Only. For example, we're investing aggressively in automation and technology to help us address some of the most hard to fill roles.

Speaker 2

Only. This is not a series of projects, but is a well planned program of automation designed to use common designs and equipment across our plants to optimize on cost, maintenance and asset utilization. The second imperative is to improve operational performance only. And critical to improving performance is maximizing our fixed cost leverage, which means having enough birds to run our plants full. Only.

Speaker 2

Since September, we've seen an improvement in our hatch rate ahead of our expectations. We continue to expect full recovery in this year. Only. We were pleased with our volume growth in the quarter and expect further improvements as we grow our harvest capacity utilization only. The strength in spot prices for commodity chicken products put our buy versus grow program at a relative disadvantage.

Speaker 2

Only. We have reduced our reliance on outside meat accordingly. We will staff our plants, service our customers, all. Grow our volumes and be the best in the business. The plan we have continues to be the right plan and our commitment to winning with our team members, only.

Speaker 2

Winning with our customers and consumers and winning with operational excellence is delivering results. Last year, we announced the launch of a new productivity program designed to drive a better, faster and more agile organization on productivity savings by the end of fiscal 'twenty four relative to a fiscal 2021 cost baseline and has 3 critical focus areas, on. Our digital manufacturing platform allows us to analyze real time data to take actions to only. We will now begin the question and answer session. On lower costs, consistent quality and increased output.

Speaker 2

In transportation and logistics, the fleet, dedicated fleet and third party fleet, only. Mitigating inflationary pressures and supporting better on time deliveries to our customers. In addition, we continued the expansion of our direct shipment

Speaker 3

only. We will now begin the Q1

Speaker 2

of 2019 program, reducing miles driven and product touches in our supply chain. Only. As a result of projects like these, we're on track to deliver $300,000,000 to $400,000,000 of savings in fiscal 2022. Only. We shared at our Investor Day that we're taking actions to accelerate our growth and drive disciplined return on invested capital.

Speaker 2

Only. The 5 imperatives on this slide show how we will achieve our commitments and drive value creation. This starts the and well-being only as well as ensuring an inclusive and equitable work environment. We are proud of our COVID-nineteen vaccine policy,

Speaker 3

only. Last

Speaker 2

year in the U. S. And of the broader investments that we have made to keep our team members, or asymptomatic, resulting in an extremely low number of hospitalizations. We are strongly encouraging boosters and are hosting clinics to make it easier for our team members and their families to get boosted. 2nd, we're working to enhance our on portfolio and capacity to better address demand.

Speaker 2

This includes increasing the contribution of branded and value added sales. As a result, we expect our volume to outpace this growing market. 3rd, we are aggressively restoring competitiveness in our Chicken segment. Only. This starts by returning our operating margin to the 5% to 7% level by the middle of fiscal 2022.

Speaker 2

Only. 4th, we're driving operational and functional excellence and investing in digital and automation initiatives. Only. This is at the heart of our new productivity program. We're working diligently to drive out waste, minimize bureaucracy and enhance decision making speed across the organization.

Speaker 2

5th, to address projected demand growth over the next decade, only. We are using our financial strength to invest in our business. On capital alone, we're expected to invest $2,000,000,000 in fiscal year 'twenty two with only. Disproportionate share focused on new capacity and automation objectives. And we continue to return cash to shareholders.

Speaker 2

Only. During the quarter, we returned over $500,000,000 in dividends and share repurchases. To wrap it up, we are committed to winning with our team members, only. Customers and consumers as well as winning with operational excellence. I'm more excited about the future of Tyson Foods with each passing day, only.

Speaker 2

And I will now turn the call over to Stuart to walk us through our financial results in detail.

Speaker 4

Thank you, Donnie. Only. Let me turn first to a summary of our total company financial results. We're pleased to report a strong overall start to the year. Only.

Speaker 4

Our sales were up approximately 24% in the Q1, largely a function of our pricing initiatives to offset inflationary pressures. Only. Volumes were also up slightly, although impacted by continued labor challenges. Looking at our sales results by channel, on. Retail drove almost $350,000,000 of top line improvements versus last year.

Speaker 4

Improvements in sales through the foodservice channel drove an increase of $1,000,000,000 and our export sales were nearly $333,000,000 stronger than the prior year period as we leveraged our global scale to grow only. 1st quarter operating income of $1,400,000,000 was up 40% relative to the same quarter last year due to increased

Speaker 3

only. Earnings in Beef, Pork and Chicken.

Speaker 4

Driven by the strength in operating income, 1st quarter earnings per share grew 48% to $2.87 only. Higher operating income led to higher adjusted earnings per share compared to the same period last year. Only. And 1st quarter EPS also benefited from lower net interest expense and taxes. Slide 10 bridges year to date on operating income, which was $407,000,000 higher than fiscal 2021.

Speaker 4

Volumes were up slightly during the year, primarily a result on improvement in Chicken, Pork and International Other, offset by declines in Beef and Prepared Foods. Declines in Beef and Prepared Foods were largely due to on continued labor challenges in those segments. Our pricing actions led to approximately $2,100,000,000 in sales and on price mix benefit during the quarter, which offset the higher cost of goods sold of $1,600,000,000 We saw continued inflation across the business, in some instances, up only. 20% to 30%. Notable examples were labor, grain costs, live cattle and hog costs and freight costs.

Speaker 4

Only. And finally, SG and A was $88,000,000 unfavorable for the same period last year, which was largely a result of cycling a $55,000,000 benefit on the call. Moving to the Beef segment. Segment sales were more than $5,000,000,000 for the quarter, up 25% versus the same period last year. Sales growth was driven by continued strong demand for beef products, which has supported higher average sales price.

Speaker 4

Only. Partially offsetting higher sales prices were higher cattle costs during the Q1 versus the comparable prior year period. Only. We had sufficient livestock available in the quarter, driven by strong front end supplies. We have good visibility into cattle availability through fiscal year 2022 and continue to expect it will also be sufficient to support our customer needs.

Speaker 4

We delivered segment operating income of $956,000,000 up only. 81% versus the prior comparable period. This improvement was driven by strong global demand for beef products and a higher cutout, only, which were partially offset by higher operating costs. Our operating margin of 19.1% was notably higher than the same quarter last only. Now let's move on to the Pork segment on Slide 12.

Speaker 4

Segment sales were over $1,600,000,000 for the quarter, up on 13% versus the same period last year. Key sales drivers for the segment included higher average sales price due to strong demand and increased hog costs, only, partially offset by a challenging labor environment. Average sales price increased 12.8% and volumes were slightly higher relative to the same period last year. Segment operating income was $164,000,000 for the quarter, only. Up 41% versus the comparable period.

Speaker 4

Overall, operating margins for the segment improved to 10.1% for the quarter. Only. The operating income improvement was driven by higher spreads in the business. Moving now to Prepared Foods. Sales were $2,300,000,000 for the quarter, up up to 10% relative to the same period last year.

Speaker 4

Total volume was down in the quarter with strength in the retail channel and continued recovery in foodservice, only. More than offset by labor and supply chain challenges. Sales growth outpaced volume growth driven by inflation justified pricing. Only. During the quarter, retail core business lines maintained share driven by consumer demand for our brands and continued strong execution by our team.

Speaker 4

On. Operating margins for the segment were 8% or $186,000,000 for the Q1. The decline in segment operating margins versus the same quarter last year was driven by significant increases in raw material and other input costs that we were not able to fully recover through price during the quarter. Only. Raw material costs, logistics, ingredients, packaging and labor have increased our cost of production.

Speaker 4

Our pricing lagged inflation, only. But we expect to recover cost increases during fiscal 2022. In addition to pricing, we've executed productivity, revenue management and commercial spend on the organization initiatives while ensuring the continued development of brand equity through marketing and trade support. Only. Moving into the Chicken segment's results.

Speaker 4

Sales were $3,900,000,000 for the quarter, up 37%. Only. Volumes improved 3.6% in the quarter due to strong consumer demand and increased live production. Our teams have been focused on streamlining our plants to deliver higher volumes, and we expect to deliver substantial volume improvements in fiscal 2022 as Hatch recovers, and we continue to look for ways to operate our plant more efficiently. Average sales price improved around 20% in the first quarter only compared to the same period last year.

Speaker 4

This increase is due to favorable product mix and price recovery to offset cost inflation. Only. On pricing, we made tremendous progress toward driving our pricing mechanisms toward more variable structures and are now seeing those benefits. Only. We restructured our pricing strategy given our experience in fiscal 2021 to ensure that we have the flexibility to better respond to market and inflationary conditions.

Speaker 4

Only. Chicken delivered adjusted operating income of $117,000,000 in the Q1 of fiscal 2022, only, representing an operating margin of 3%. Operating income in the quarter was negatively impacted by $185,000,000 also. Now turning to Slide 15. As part of our capital allocation approach, we focused on building financial only.

Speaker 4

Investing in our business and returning cash to shareholders. In pursuit of our priority to build financial strength and flexibility, we used improved earnings to

Speaker 5

on our prior debt in fiscal year

Speaker 4

2021 and expect to do the same this year. Continued strength in our earnings this quarter have further improved our leverage on. We will now be conducting a reconciliation of our financial results. We will now be conducting a on a strong return generation for our shareholders. Finally, as our track record has demonstrated, we are committed to returning cash to shareholders through both dividends and share buybacks.

Speaker 4

We finished the quarter with a powerful balance sheet and continued Let's now discuss the fiscal 'twenty two financial outlook. We are maintaining our total company sales guidance of $49,000,000,000 to $51,000,000,000 although we expect to perform at the upper end of the range. Only. In support of our sales growth, we still expect a 2% to 3% volume growth on a year over year basis as we work to optimize our existing footprint and run our plants full. Looking at AOI margin target ranges for our segments, in Chicken, our operational turnaround is working, and we still expect to achieve a run rate profitability of 5% to 7% by the middle of the year.

Speaker 4

We expect full year margins that also fall between 5% to 7%. Prepaid Foods is expected to deliver margins during fiscal 'twenty two of between 7% 9%. Only. Based on our Q1 performance, we now expect the full year margin performance in Prepared Foods to be at the upper end of the range. Only.

Speaker 4

Indeed, we're maintaining our AOI margin at 9% to 11%, but we expect to perform at the upper end of the range. Only. Also, we expect the front half of the year to be meaningfully stronger than the back half as industry and labor conditions are expected to normalize partway through the year. Only. In Pork, we expect similar performance during fiscal 'twenty two to what we accomplished during fiscal 'twenty one, equating to a margin of between 5% and 7%.

Speaker 4

Only. As is normal seasonality for pork, we expect the Q1 to be the strongest. In international other, we expect margins of 2% to 3% as only. ASPE expansions and strong global demand support volume growth and improved profitability. Consistent with our only.

Speaker 4

For a meaningful increase in CapEx spending to pursue a healthy pipeline of projects with strong return profiles, we anticipate CapEx spending of approximately $2,000,000,000 during fiscal 2022. We now expect lower net interest expense due to lower anticipated average debt balances during the fiscal year. On. Activity savings and tax rate changes remain unchanged. Our net leverage is expected to remain well below 2x net debt to adjusted EBITDA, only, providing optionality for inorganic investment and additional return of cash to shareholders over the course of the year.

Speaker 4

Only. In summary, we've had a strong start to the fiscal year. We have a great team, growing demand for our products, strong portfolio only. And the differentiated asset footprint needed to win in the marketplace. We set out ambitious calls at our Investor Day, and we expect to achieve them.

Speaker 4

Only. I'll now turn the call back over to Megan for Q and A instructions. Megan?

Speaker 1

Thanks, Stuart. Only. We'll 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 and A. Only.

Speaker 1

Operator, please provide the Q and A instructions.

Operator

We will now begin the question and answer session.

Speaker 1

Only.

Speaker 3

Only.

Operator

And our first question will come from Adam Sandalson of Goldman Sachs. Please go ahead.

Speaker 6

Yes. Thank you. Good morning, everyone. Only.

Speaker 1

Good morning, Adam. Good morning, Adam.

Speaker 5

Hi. So I guess my first question,

Speaker 6

just maybe taking the quarter and the kind of only. Updated kind of view of fiscal 2022 kind of broadly. Can you help us frame kind of the areas where the margin expectations for the year have off. Maybe incrementally inched up on a point estimate basis and some of the drivers, is that really reflecting The strong fiscal Q1, is that a more constructive view of pricing and price cost balance over the balance of the year? Just help us think about on how your outlook has evolved relative to when you gave it initially in November.

Speaker 2

Okay. Good morning and welcome, only. Adam and everyone. Well, let me start off with and tell you that we really got off to a good start in Q1. And there are a number of factors only with Q1 and what we saw in Q1 and our optimism as we look through the balance of the year.

Speaker 2

Only. We've adjusted a number of pricing mechanisms to be more variable in nature. We've seen price for example, in prepared foods be less or lower than what they have historically been, Which is exciting there. We've been able to maintain volume in this inflationary environment. Inflation as we see it will continue It's continuing to move up.

Speaker 2

We're really excited about our productivity program relative only. To the whole company, we're anticipating $300,000,000 $400,000,000 and we're on track through Q1 relative to that. Only. Just doing what we do better and we talk about becoming a more agile, faster decision making organization. Only.

Speaker 2

Essentially, that's all about process and being better, faster and making decisions at with greater speed and at lower levels within organization. But because of our vaccination position, we've now moved past the surge of only. The Omicron spike as we call it, which occurred predominantly in the 1st 3 weeks of January and we're back to normal level. We think our vaccine mandate served us well and making that commitment and only. Really making our team members' health and safety highest priority has served us through the new variant.

Speaker 2

Only. We've seen better absenteeism and turnover throughout the organization. These coming online with Head and Harvest and Chicken and further processing capabilities, value added capabilities in on prepared and chicken, and we've got labor going back into beef and pork plants, and we'll be able to Improve those mixes as well as increase the harvest capacity.

Speaker 3

Only. All

Speaker 5

right. That color is really helpful. And if

Speaker 6

I guess just as a quick follow-up on capital only. You stepped up the buyback in the fiscal Q1. It was something that was notably absent from the kind of multiyear view at the Analyst Day in December. Only. And I was wondering if you could just help us think, Stuart, maybe just cadence on buybacks going forward.

Speaker 6

Should we think about it being more ratable, only. More opportunistic, just you certainly have the balance sheet capacity to make it more ratable, but we're preparing that expectation going

Speaker 4

over. Yes. Look, thanks for that, Adam. If you go back to Investor Day, we have a

Speaker 3

very strong point to the

Speaker 4

on. And part of that was a pretty significant allocation of Increased capital to CapEx spending and the various capacity expansion. So it wasn't an intention only. To leave stock buybacks in the end, stock buybacks have been tough, Tyson, and they will be in the future. Only.

Speaker 4

The one thing we said is that we do look each year to try to buy back the dilution. And after that, it will be more opportunistic. Only. But growth is the focus for our company.

Speaker 6

Okay. All right. That's all very helpful. I'll pass off. Thank you.

Operator

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

Speaker 7

Hey, guys. Good morning. Thanks for taking the question.

Speaker 4

Good morning, Peter.

Speaker 7

And for Donnie, and I believe David's only. Thank you. Thank you. Thank you. Thank you.

Speaker 7

Donnie, you've spoken

Speaker 3

in the past and it's been

Speaker 7

helpful just on how Buy versus grow, it's put at a disadvantage, particularly when spot prices move. You've made some strides to lower kind of outside meat purchases here on a sequential basis. But just only. In the month of January with where spot prices kind of moved, how should we think about that impact on chicken and on the overall turnaround maybe just in the short term here?

Speaker 2

Only. Okay, Peter. I'll tell you, I'll start and then I will let David make a few comments. But over the last year or so, we've only. The recovery for our chicken business has been a priority, specifically as it relates to buy versus grow.

Speaker 2

Only. Fact of the matter is we became too dependent on the buy portion of the model and we forgot to grow only. Which hurt us from a capacity utilization perspective and those additional panels flowing through our business really impacted our fixed cost leverage. So we tilted too far on the dive portion of this. And over the last year, as we only.

Speaker 2

I've been building the breeding stock and getting past the hatch issue that we talked about so much last year. We're now in a better position to get more head through our on processing and harvest facilities and which will give us more breast meat at a much more attractive price point versus the buy in the marketplace right now. We have not totally abandoned the buy portion and do not anticipate totally abandoning that, but only. There is a smaller percentage of our overall needs that we will go to the market to secure. But we're on plan with what we intended to do.

Speaker 2

Only.

Speaker 1

Yes, I think, Peter, again, thank you

Speaker 5

for the question. I think one way to also look at this is we will buy outside the need to the extent that it's the right financial of the decision. From our standpoint, we will continue to manage against what is right is whether buy versus only. And as Donnie stated, volume is critical and

Speaker 7

it's

Speaker 5

only. As Donnie stated, volume is critical. It's one of the big levers of what we are going to accomplish in FY 2020.

Speaker 4

Only. Got it. Okay. And

Speaker 7

only. In both your comments, prepared remarks and Stuart's, you both commented on restructuring the pricing strategy to be more variable in nature, particularly in chicken. Only. I'm just curious, what percentage of that business now is tied to more of

Speaker 5

only. Yes. So I would say within Chicken specifically, I would say we have restructured our pricing approach and only. That's really in large part thanks to our commercial organization as well as the great customer relationship.

Speaker 8

Only.

Speaker 5

We're not even utilizing fixed Within our conversations, every contractor program that we have is either tied only. Grain tied to market value and we will continue to use that. Pricing was up

Speaker 3

on. Only.

Operator

Next question comes from Ken Goldman of JPMorgan.

Speaker 9

Only. Please go ahead.

Speaker 10

Hi, thank you so much. I wanted to ask, it's obviously extremely early and this only. This could

Speaker 5

lead to nothing, but there have been a couple of

Speaker 10

industry. I'm just curious, are you seeing anything? Are you doing anything on your part only. To take extra precautions against this, I think you're probably one of the most only. You're up to speed, so maybe you're already there.

Speaker 10

I'm just trying to get a sense of, and if there's been a lot of changes since only.

Speaker 5

Yes, absolutely, Ken. Good morning. Thank you. And yes, the USDA has reported only. This IPAD variant has only been found in the wild bird population.

Speaker 5

Only. It's really been within the East Coast of the United States. I would tell you more specifically to what Tyson is doing versus what industry doing is that we have a very robust bio on. We have increased our biosecurity measures in all of our facilities on on the East Coast. Some of those things that we've done are we're reducing number of trips that we're taking to farms.

Speaker 5

We're actually taking extra only. We're not doing more cleaning of our vehicles that do go to the farms, but we are ahead of this and have been watching it very closely.

Speaker 2

I would add this, that we are we have in our biosecurity programs, only. We have green, which is just normal business, yellow, orange and red, which are progressive. On the East Coast, as David mentioned, we are in the orange on category at this point. So a lot of attention, a lot of watching. I saw the case over the weeks, which we have only.

Speaker 10

Okay. Thank you for that. That is helpful. And then, I wanted to also ask, you had only. Yes, you obviously still have a plant based alternative business, not obviously the biggest part of your business at this point, but it was a little bit of an initiative for you a couple of years ago and still mentioned from time to time.

Speaker 10

We've heard only. Some of your competitors and peers out there talk about how demand has slowed only for that part of the business. And I'm just curious what your take is on the industry in general. How much of has your optimism waned at all for that? Only.

Speaker 10

Just want to get a sense for how you see that current balance between animal based and alternative based meat.

Speaker 2

Sure. Only. Well, I mean, we're still in the plant based protein business. We still like it. The consumer demand continues to be good.

Speaker 2

Only. We've seen a lot more growth on the domestically in foodservice than retail of late. But only. Across retail and foodservice, we continue to see growth. Now that's also a very small base, as you might imagine, but we're continuing to see growth.

Speaker 2

Only. But for us, with our presence outside of the United States and also in Southeast Asia, we also have Plant based products. So we're still excited about the plant based business and when consumers prefer that, on the call. We want to have the opportunity to be able to provide that for them and only.

Speaker 1

And we know that consumer interest in adoption is growing only. J. Rice:] And if you see the RACE and RUDIN products that we've launched domestically, we on

Speaker 9

the products that we've launched domestically, we continue to see

Speaker 1

consumer interest and adoption growth.

Speaker 10

Only. Thank you so much.

Speaker 2

Thank you.

Operator

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

Speaker 10

Hi, good only. Good morning. This is Antonio Hernandez on behalf of Ben Frieder. My question is regarding prepared foods and you Basically performing in line with guidance during this last quarter. But if you mentioned the long term target of 10% to 12%, only.

Speaker 10

How do you see the potential in the Perfords to further pass on pricing to recover margins within this year and also next fiscal year

Speaker 1

only. Hi, so I can give you a bit of context on the performance that we're seeing despite the price increases, which is really due to the strength of our brands and the strong partnership and relationships that we've built with our customers. Elasticity has been less than the historical models that Donnie has mentioned, only. But it's clearly something that we're watching closely. And so we're constantly reviewing our pricing and revenue management strategies as the landscape changes.

Speaker 1

We'll continue to take thoughtful on those critical levers. As you also heard in the comments, we're taking significant actions to transform our cost base And we're creating good momentum there. And so on the year, we continue to feel good about the 7% to 9% range that we've given. And we believe we have the right building blocks off in place on our path to deliver sustainable double digit margin.

Speaker 10

Okay, perfect. Thanks a lot.

Speaker 2

Only. Thank you.

Operator

The next question comes from Ken Zaslow of Bank of Montreal. Please go ahead.

Speaker 11

Only. Just some framework to the automation story would be helpful.

Speaker 2

Well, automation

Speaker 3

only.

Speaker 2

Automation is I've talked about it in a great deal In our productivity program, I talked about at Investor Day that we anticipate over the next 3 years only. That would be worth about $450,000,000 to us. Only. So we're spending significant amounts of capital on that. Stuart talked about in his opening remarks about the $2,000,000,000 of CapEx over capacity, but a great deal of the money is being spent is on automated that only.

Speaker 2

Number of different projects and we've moved from a only. We've really moved from a project to project to more of a programmatic approach where we attack like palletizing, for example, and automation that's available there across the entire enterprise, also. Material handling type things, but all of these are in terms of priority are the more difficult, harder to only. And so we will deliver $300,000,000 to $400,000,000 and some of that only. Juste:] It is coming from the automation piece.

Speaker 2

To the best of my knowledge, we've not on the call. I'm not sure how much is coming from each sector, but we're moving as quickly only. As humanly possible, as quickly as the supply chain will allow us to get new pieces of equipment and so forth.

Speaker 11

Only. Great. My second question is on hatchability. We haven't really seen it in the data on the public data, but you're Say that you're moving faster than you've expected on the Hatchability. Can you talk about what you're actually seeing in your operation?

Speaker 11

Only. And when do you think it will actually translate to the numbers in the publicly available data? And just kind of give us a little bit of what you've actually done to move that hatchability up to where you are actually ahead of schedule. And I appreciate it as always.

Speaker 5

Yes, absolutely, Ken. Thank you. And I think first and foremost, we do need to state only. We are ahead of what we had expected from a Q1 standpoint related to our overall hedge. I'll also share with you that and again this is everything specific to Tyson only.

Speaker 5

I won't speak to and cannot speak to what's happening within the industry. But understand we entered FY 2022 with a growth mindset and we really demonstrated that only. 21, I can tell you we are up in egg sets. We are up in both chicks place as well as overall breeder on production. Our plan is to continue to grow like we did for the balance in Q1 for the balance of 'twenty two.

Speaker 5

Only.

Speaker 2

I would add this piece of context to that, Ken, that in 'twenty two, we have only. We've where we intersect in publicly benchmark data. Thank you very much.

Operator

Up. The next question comes from Ben Bienvenu of Stephens. Please go ahead.

Speaker 12

Hey, thanks and good morning everybody.

Speaker 3

Good morning. Good morning.

Speaker 5

Good morning.

Speaker 12

So I

Speaker 9

only. I want to

Speaker 12

ask in your presentation that you issued concurrent with the results this only. You noted on the pork business that there's a continued opportunity around mix. I'd hope that you could elaborate a little bit on that. And then also the often. I think that you think about that as a component of your Chicken business.

Speaker 12

I know re pricing contracts, hatchability only. And plant productivity are all kind of the highlight items associated with improving that business. Where does mix stand

Speaker 2

Okay. Only. Well, in the Pork business, labor availability only. And Cor can check-in. It's been the single biggest challenge that we've had over the last 2 years in the pandemic.

Speaker 2

Capacity utilization has been better up. In pork than it has been in chicken. Labor and capacity utilization only. It's continuing it has been good in pork and continues to get better. The thing that has hurt us to some degree up.

Speaker 2

On both pork and chicken is mix or capturing some things like June harvest only. In chicken or Paws are similar specialty products in pork. We've just not been able to fully optimize that. For only. In pork, maybe the inability to debone a ham versus selling a whole ham only.

Speaker 2

And those are the type of things. But as we enter 'twenty two in both businesses, only. We're in much better position in terms of labor Improving and we still have some ways to go, but we see improving mix and capacity utilization across all businesses. And I'll let Shane only. Speak to maybe to a few more things before.

Speaker 13

Yes. Thanks, Donnie. And you hit on most of it there. But I think the other thing to add to this too is, only. As we think globally here, Tyson is a global company and we're servicing a lot of Companies and countries across the globe and the key to this is being able to balance that with our domestic business and looking at what we have from a throughput and a labor perspective.

Speaker 13

Also. So, assessing we're doing on the back end of the plant has been a bit of a challenge. So, staying focused on optimizing our labor usage and maximizing throughput and contribution only. When we look at it on a labor per man hour basis

Speaker 2

has been the key.

Speaker 12

Only. Okay, that's great. Thanks. And then my second question is related to export demand. You called out in the presentation as well around beef That port congestion and labor shortages impacted the business.

Speaker 12

Export demand has been exceptionally strong for beef in particular. Only. I'm curious, your outlook for this year for continued export demand. And then for chicken, only. I know that there's a mix challenges that perhaps weighed on leg quarters domestically, but with this very strong only.

Speaker 12

Crude backdrop, I would think that would also benefit export demand for domestic leg quarters. So can you talk a little bit about exports and your outlook for that across all the businesses for the balance of the year.

Speaker 4

Yes. So

Speaker 13

only. I'll take the beef question. So the U. S. Is a leader in global beef production and it's centered around our superior taste and quality.

Speaker 13

Only. And the producers that we're partnering with in this country are doing a phenomenal job of bringing quality to the marketplace. Only. So global consumers are increasingly preferring U. S.

Speaker 13

Produced beef and we're seeing stronger global demand orders that have taken prior to this. And that's really what we've been focused on is on the call to our press release, but also to mitigate our risk as we go forward. But we continue to see very good interest coming out of Asia, especially only for our high quality yield in beef and a good example around that is China has become the number 3 destination for U. S. Beef and Tyson has a competitive advantage with not only our direct business in China.

Speaker 13

So Significant resources in country, a lot of customers demanding beef and we feel real good about 2022 and going forward.

Speaker 5

Only. Then to answer your question relative to what we're seeing within poultry and very similar to this comment that Shane was making, only to the poultry organization, but that really underscores the need for us as an organization only. We are targeting our mix and to utilize those in domestic use.

Speaker 7

A lot of work being done right now relative to only.

Speaker 5

We are targeting both deli and foodservice for some of those opportunities.

Speaker 2

Only. I'd try to remind everyone, only. In addition to all the things that both Shane and the international business units that we have only. And with leg quarters and pork and beef products and prepared foods product as well, only. When we export those commodity based products outside the United States or in most cases today, only.

Speaker 2

We take them in and further process chicken leg quarters and the branded products into only. China in an approach we call 1 Tyson and then we're able to sell it and capture an additional margin on top of all that, eliminating a number of activities and hands touched in the middle only for the process. So I'll leave it at that.

Speaker 12

Awesome. Thanks so much for taking my questions and congratulations on a great start to the year.

Speaker 2

All right. Thank you. Thanks,

Operator

only. The next question comes from Rob Moskow

Speaker 9

of Credit please. Please go ahead.

Speaker 14

Hi. I have a couple

Speaker 4

of questions.

Speaker 14

1, I I think easy to answer and maybe one that's not so easy. So I'll start with the first. You talked about being able to only. A lot of your branded food peers can't seem to recoup those charges. So why is yours different?

Speaker 14

Is it only. It's easier in fresh meat than it is in branded foods to charge the customer only for that surcharge, and then I'll wait and ask another one.

Speaker 2

Only. Okay. Let me start with that one. Let me start with simply saying that freight costs are up 32% for us. Only.

Speaker 2

I talked about some of the technology we use in my opening remarks, actually outside carriers only. And try to optimize the inflation happened so rapidly, it took a bit to get on top of that. Only. Thus far, we have been successful in being able only. We have asked only.

Speaker 2

We've been successful in doing so.

Speaker 4

So is it Go ahead.

Speaker 2

Nels is not only. Are you able to do that?

Speaker 14

So is it easier in one part of the business than it is in another part of the business, like easier branded?

Speaker 2

Only. Not as I look around the room and from all those leading the business, I don't think to do with our customers is say freight is freight. And the price of the product is the price of only. And we don't we try not to blend the 2. And so only.

Speaker 2

The matter is, while the freight being up 32%, that's what it costs to get the product moved and delivered to a customer and we're asking our customers to pay for that. Yes. Okay. Don, do you want to? Yes.

Speaker 13

I was going to say, this

Speaker 14

is Shane. The only thing I'd add on

Speaker 2

to that is only. If you

Speaker 13

think of it regionally too, there

Speaker 14

are certain markets that are

Speaker 8

a little more difficult to

Speaker 13

shift into versus others. So you got to think about only. Back calls and what your cost mechanism is going to be to recover that too. So that would be the only other component I'd add on

Speaker 2

to what Donnie said. Only.

Speaker 14

Okay, great. Here's the second question. Only. The industry has been dealing with a labor shortage for a long time. It's unclear when it's going to get better.

Speaker 14

Off. In the past, I remember hearing that Tyson and others have found pockets of international immigrants, only. Communities to source to improve their labor utilization in certain facilities. Only. Is that is your access to international immigrants compromised in the current environment more so than it has in the past?

Speaker 14

Only. And is there something that the industry can do to gain access to more people from

Speaker 2

all. You're right. Labor has been a challenge for only. We look at this in terms of trying to solve for Tyson. And our approach has been to try to create A better place for people to work, a better work experience with less turnover and less absenteeism with just keeping team members safe.

Speaker 2

Only. In our Q1, we paid $50,000,000 in bonuses to our team members for no reason other than to say only. Thank you for choosing Tyson. Thank you for being on our team. And we've had to do a number of things like piloting childcare and only.

Speaker 2

Subsidized childcare, on-site clinics and we've also to take away some of those more difficult jobs. Now our workforce only. To be clear, it is made up of a number of different over the world in different nationalities and only. Having such a diverse workforce. And so we continue to pursue those things like only.

Speaker 2

Afghan refugees, we try to be available with and working with the government in terms of only. Having availability and we've worked with communities in only in terms of trying to build or to find housing to support that to make it easier. I mean, we're doing all kinds of things along that only to be able to make it easy to do business with Tyson, Easy to go to work for Tyson and do it all the right way. And so that's been our approach. Only.

Speaker 2

I know of no magic or no pool of people anywhere that we are only. We're targeting to try to take care of the labor situation. We're trying to solve it by doing a number of things to

Speaker 13

make this a better place to work.

Speaker 14

Only. Got it. Hey, thank you very much.

Operator

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

Speaker 8

Good morning. Thank you.

Speaker 2

Good morning. Good morning, Michael.

Speaker 8

Only. You touched on elasticities a little bit and I realize they've held up quite well. We've heard that from a lot of only. But just curious how you think about some of your assumptions for that going And especially just with pricing up as strongly as it is, that's just a few multiples of what wage growth looks like. So only.

Speaker 8

Just curious what your planning assumptions are for how that unfolds over the rest of the year and maybe a little bit color by segment if you can?

Speaker 4

Only. Joanne, would you like

Speaker 2

to start with that?

Speaker 1

Sure. So as I mentioned, we're constantly reviewing pricing and revenue management strategies and only. It is a dynamic environment. And as the environment continues to evolve, we'll be very thoughtful about our approaches. Pricing is just one of the levers in our toolkit.

Speaker 1

We look at productivity and cost opportunities and other levers to ensure that we have all the pieces coming together to best grow our brands and business on the earnings and price pack architecture also becomes critical in these inflationary times and you see that focus for us across the business.

Speaker 2

Only. Yes, I would add this to what Noelle said. We have seen a lot of inflation, but I would remind you the cost of food in the U. S, while it is higher, is only. We're up 22%, grain has been up 29% this year and freight, I mentioned earlier, is up 32%.

Speaker 2

We're not asking only to pay for our inefficiencies. We're asking them to pay for inflation and the only. We try to find ways to be more productive to lower cost and increase throughputs and

Speaker 8

only. The inflation headwinds are obviously clear and certainly

Speaker 2

a driver

Speaker 8

of the pricing. But just maybe Back to some of your assumptions on elasticities, maybe at a very high level, do you assume they revert to more normal levels or that they can hold at sort of

Speaker 2

only. They are where they are right now and I know that's not a very good answer. I mean there is a only. We're very pleased with the progress we're making

Speaker 6

in the marketplace.

Speaker 2

We're very pleased with the progress we're making in the marketplace. We're very pleased with the progress we're making in the marketplace.

Speaker 4

We're making in the marketplace. We're making in the marketplace. We're making

Speaker 2

in the marketplace.

Speaker 3

We're making in the marketplace. We're making in the marketplace.

Speaker 2

We're making in the marketplace. We're making in the marketplace. We're making in the marketplace. We're making in the marketplace. We're making in the marketplace.

Speaker 2

We're making in the marketplace. We're making in the most value only. And we meet the value chain. And only. So we intend to continue to grow our business and serve those consumers wherever they are.

Speaker 2

Okay, great. And I just want to follow-up on the only.

Speaker 8

And if it's meant to allow for more upside, is it only. Is it flexible in both directions or does it have any sort of floors that just mostly allow for easier increases?

Speaker 6

Only. Absolutely. Thank you very much.

Speaker 5

And again, there's flexibility both going up and

Speaker 7

there's flexibility going down. Our partners in

Speaker 5

both retail and foodservice understand what those metrics are and we've put our programs together. But the biggest piece of it is off. The fact that it is much more variable today than it has been at any point in time.

Speaker 8

Okay, great. Thanks so much.

Speaker 2

Only. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Dongmi King, President and CEO, for any closing remarks.

Speaker 2

Thank you, Andrea, and thanks again for your interest in Tyson Foods. We look forward

Operator

only. The conference is now concluded. Thank you for attending today's presentation.

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Earnings Conference Call
Tyson Foods Q1 2022
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