Tyson Foods Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2022

There are 15 speakers on the call.

Operator

Morning, and welcome to the Tyson Foods 4th Quarter 2022 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brandon Tucker, Senior Manager, Investor Relations.

Operator

Please go ahead.

Speaker 1

Hello, and welcome to the Q4 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 Stuart Glendinning, Group President, Prepared Foods David Bray, Group President, Poultry and Amy Tu, Group President, International and CAO will join the live Q and 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.

Speaker 1

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 or on an adjusted basis, unless otherwise noted.

Speaker 1

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.

Speaker 2

Thank you, Brandon, and thank you to everyone for joining us for the call. Earlier today, we announced our Q4 and total fiscal year 2022 results, We showed record annual financial performance, including revenue, adjusted operating income and earnings per share. I'm grateful for the hard work and dedication of our team members. Our results would not have been possible without them. In this challenging macroeconomic environment with historically high inflation, consumer demand for protein remains relatively steady.

Speaker 2

We remain well positioned to serve this demand. We leveraged our diverse protein portfolio across multiple channels and brands To meet customer and consumer needs across a broad range of products and price points, serving an estimated onefive of U. S. Protein consumption. And as proven by our double digit sales growth, our portfolio of value added and branded products positions us uniquely to win.

Speaker 2

In addition to growing sales, we are also aggressively mitigating inflationary cost and SG and A expenses Through disciplined revenue management and enterprise wide productivity actions, including investments in automation to improve operational excellence and efficiency. As we progress our efforts to be the most sought after place to work, we continue to listen to our team members' needs and invest in areas like childcare to provide a better quality of life for our team members. We're beginning to see results from these investments through improved staffing levels and reduced turnover. Before I discuss our financial performance, let me provide a bit of strategic context. As you are well aware, we have a strong and disciplined strategic growth plan.

Speaker 2

And this past year, we continued to methodically execute against this plan as we strengthened our position as a global protein leader. Our growth strategy is built on 5 key pillars: transforming our team member experience growing with our customers to service demand Investing in digital and automation to drive operational excellence, restoring competitiveness in our Chicken segment And leveraging our financial strength to invest in the business and return cash to shareholders. I'm pleased to report that we have on each of these imperatives and delivered what we said we would entering the fiscal year. Our commitment to strengthening our position as a global protein leader and Driving value creation for our shareholders is the most important goal for our team. Having the right leadership team in place is also imperative as a global protein leader.

Speaker 2

To accomplish this, we recently announced changes in our executive leadership team, which we believe will drive improved results across our organization. Overall, we feel good about our performance. We saw a lot of really good things. We delivered record sales, revenue and earnings. The chicken turnaround progressed as promised.

Speaker 2

Beef performed better than expected and Prepared Foods is seeing positive volume momentum exiting the year. With that strategic context, let's turn to our financial performance. Compared to our initial fiscal year guidance, We exceeded our total company sales and beef margin guidance, and we met guidance on Chicken and Prepared Foods margins. We managed our balance sheet and sit today at a leverage ratio comfortably below our guidance. Sales improved 7% for the 4th quarter and 13% year over year.

Speaker 2

We delivered record sales revenue as a company and across each of our 4 largest operating segments. We delivered record annual adjusted operating income of $4,400,000,000 up 3% over the prior year. As expected, our 4th quarter earnings were lower compared to the prior year, but this was almost entirely due to record strength in beef a year ago. Our operating income performance translated to adjusted earnings per share of $1.63 for the 4th quarter and a record $8.73 for the full year, up 5% from last year. Turning to our results on volume.

Speaker 2

We're continuing to optimize our existing footprint, add new capacity, adjust our product mix by plant and match our portfolio more closely with Customer and consumer needs. We saw benefits of our efforts in the 4th quarter as total company volume increased 2.1%. We are building positive momentum and remain confident that our strategy will enable us to grow volumes across all segments long term. Chicken volumes increased 1.1% in the quarter compared to the prior year, driven by increased domestic production. In Prepared Foods, volumes were relatively flat in the quarter compared to the prior year.

Speaker 2

We are gaining momentum delivering Sequential quarterly improvement driven primarily by the strength of our retail brands. The categories in which we play continue to be highly consumer relevant, with the vast majority remaining elevated relative to pre pandemic. In a few slides, we'll discuss our strong share performance. Compared to prior year, beef volumes were up 5.1% for the quarter, driven by higher head throughput and carcass weights, Improving from a full year volume deficit of 1.5% in the 3rd quarter. We finished the year relatively flat.

Speaker 2

Pork volumes were down 1.1% for the quarter compared to prior year due to limited hog supply and reduced export demand. In international, volumes continue to grow, up 7.3% compared to the prior year quarter, driven by our investments in capacity, Innovations and Brands that support market share growth. As we look ahead, one thing that excites me is the momentum I see in our branded retail business. It is evident that we are delivering the brands and the products that consumers want. With our iconic retail brands, Tyson, Jimmy Dean, Hillshire Farm and Ballpark, Tyson Core Business Lines Outpaced Total Food and Beverage and Our PEERS in Growth, Up 18% in volume sales in the last 13 weeks compared to pre pandemic levels per Nielsen data.

Speaker 2

According to Nielsen data, Tyson core business lines grew volume share by 2.6 points this quarter compared to pre pandemic levels, while also growing share relative to year ago. We continue to be the market share leader in the majority of the retail core categories in which we compete, while also gaining share in 7 of these 9 core categories. We experienced the greatest share gains in frozen protein breakfast, smoked sausage And corn dog category. Our brand strength relative to our peers is undeniable as Tyson, Jimmy Dean, Hillshire Farm In ballpark, all hold favorite brand status with consumers in the categories in which we compete. Many of our retail businesses continue to outperform total food and beverage and remain highly relevant to consumers and therefore elevated in consumption.

Speaker 2

Consumers will continue to spend on relevant categories and brands they know and trust. This data shows the recovery we're seeing versus a year ago and the momentum we are gaining as we move into fiscal 2023. We have made steady progress improving fill rates and on shelf availability. As we focus on serving our current customers and attracting new customers to grow our distribution and volume. Additionally, We took various degrees of pricing in our key categories earlier this fiscal year to offset inflationary cost pressures.

Speaker 2

Recently, We have seen competitors followed by increasing their prices, narrowing Tyson's price gap relative to our competitors. This is supporting improved volume performance across our portfolio of Prepared Foods products as we are continuing to see price elasticities remain below We're investing strategically in merchandising and advertising to support the long term health of our brands as their strength enables continued growth in both dollar and volume retail share. These factors, Along with our strong business fundamentals resulted in sequential quarterly share growth in many of our key retail categories and we expect our retail share growth to continue. While the foodservice industry has yet to recover to pre pandemic traffic levels, The Tyson Focus 6 Group is outpacing both total broad line and respective categories in volume sales, up 18.9% and 0.9 share points in the last 52 weeks compared to last year according to NPD supply track data. The Tyson Focus 6 group composed of value added chicken, breakfast sausage, dinner sausage, pepperoni pizza toppings, bacon And Philly Steak is also up 1.7 volume share points in the last 52 weeks compared to pre pandemic levels.

Speaker 2

We believe strongly in our foodservice portfolio and are confident there is immediate and long term growth ahead of this business as we align with key growing customers and execute our strategy across all categories to build momentum for the future. Our team members are essential to providing the products our customers and consumers demand. Staffing levels and the impact on operational throughput were a challenge in our business. We continue to make significant investments in our team members' experience, prioritizing these three key areas of health, Safety and well-being of our team members, total rewards and team member growth and our 1 Tyson culture with digitalization as a key enabler. We're now seeing business results from investing and becoming the most sought after place to work.

Speaker 2

Examples of these investments are free education, Child Care Solutions, Citizenship Support, Transportation, Maternity and Paternity Leave and Expanded Mental Health and Well-being Benefits. In August, we received national recognition for our innovative ride sharing program benefiting team members across the nation. The program provides an option for team members who may have difficulty assessing reliable transportation to get to work and is improving their quality of life. Investments in enhanced benefits, digitalized processes and tools and career growth opportunities for our team members are paying off. In October, we announced our One Tyson corporate office consolidation to world headquarters in Springdale, Arkansas.

Speaker 2

The move will enable excellence and execution by bringing our corporate business unit roles together on one campus, driving a culture that optimize collaboration, Innovation accelerates speed and facilitates career growth for our team members. The feedback we've received from our customers for this change has been well received. These investments we're making in our people are part of our broader effort to evolve our business from an environmental, social and governance perspective. Today, we are focused on 3 core pillars of our ESG framework, the formula to feed the future. Those three pillars are reimagining people and community impact, Driving Product Responsibility from Farm to Table and Working Toward Achieving Net 0.

Speaker 2

In July, we released our sustainability report for 2021, which highlights our ambition to become the world's most sustainable and transparent protein company. In addition to the investments in people mentioned, we also highlighted in our report our efforts around animal welfare, Sustainable packaging, minimizing waste, water stewardship and working within our operations and supply chain to reduce emissions. Significant progress was achieved in the past fiscal year in improving our scores and metrics within ESG rating agencies. We are particularly proud of a more than 30% increase in our Dow Jones Sustainability Index score year over year, And we're taking more steps to continue to improve our standing with ESG stakeholders. In the past fiscal year, our productivity program outperformed on our commitments, Delivering over $700,000,000 in savings impact across all components of our business.

Speaker 2

This performance indicates how Tyson has remained focused on We expect the productivity program will continue to outperform our original expectations of more than $1,000,000,000 in recurring savings by the end of fiscal year 2024. The program is now on track to deliver this commitment by the end of fiscal year 2023, a year earlier than expected. As mentioned before, these recurring savings support the partial offset of inflationary pressures, while at the same time improving our competitiveness in the marketplace. Automation remains a top priority, I'm very pleased with the aggressive rollout of automation technologies across all segments in fiscal year 2022, including continuing to scale debone automation in our poultry operations and pack out automation across all businesses. I will now turn the call over to John to walk us through more detail on our financial results for

Speaker 3

the Q4. Thank you, Donnie. Let me turn first to a summary of our total company financial performance. We're pleased to report resilient 4th quarter and record annual performance in the fiscal year. Sales were up for both the Q4 and fiscal year benefiting from our pricing initiatives to offset the increase in cost of goods.

Speaker 3

Volumes were up for the Q4 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 $1,400,000,000 of top line improvement, while the ongoing recovery in the foodservice channel drove an increase of $2,000,000,000 Fiscal year sales in international markets, including both domestically and internationally produced products were $1,300,000,000 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 $126,000,000 greater than the fiscal 2021. We significantly improved earnings in our Chicken segment and generated higher earnings in Paired Foods, which more than offset the expected decline in beef earnings.

Speaker 3

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 $80,000,000 in SG and 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 and A expenses increased, SG and A as a percentage of total sales was down 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.

Speaker 3

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 $4,900,000,000 for the 4th quarter, down 3% versus the same period last but up 10% for the fiscal year at nearly $20,000,000,000 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.

Speaker 3

We expect volumes to remain stable next year amid a tightening supply of cattle offset by improved labor participation, supporting higher plant productivity. On expenses, we incurred greater cost during the fiscal year compared to the prior year as live cattle costs increased approximately 2,000,000,000 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 $2,500,000,000 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 at the Pork segment, Sales were approximately $1,600,000,000 for the quarter and $6,400,000,000 for the fiscal year, down 3% and up 2% respectively versus the prior year.

Speaker 3

Global demand remains challenged by high domestic retail prices in the strong U. S. Dollar, making U. S. Pork relatively expensive as compared to alternative sources globally.

Speaker 3

For the year, the average sales price increased 4.1%, offsetting the decrease in volume of 1.9%. We expect these headwinds to impact port volumes next year a lesser extent than the past year. Segment operating income and margins were $198,000,000 3.1 percent respectively for the fiscal year. The operating income deterioration was driven by herd health issues negatively impacting hog costs and a constrained cutout compressing pork margins in the elevated inflationary environment, increasing While the Q4 result was negative operating income, we do expect to flip back to positive returns in Q1. Moving now to Prepared Foods.

Speaker 3

Sales were approximately $2,500,000,000 for the quarter, up 12% relative to the same period last year. For the fiscal year, sales increased 9.4 percent 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 4th quarter as our investments in brands and merchandising drove an increase portfolio market share. Our 4th 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.

Speaker 3

Operating margin for the segment was 5.8 percent or $147,000,000 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 782,000,000 Now on to the Chicken segment's results. Sales were $4,600,000,000 for the quarter, up 19 percent and for the full year sales were up 24 At $17,000,000,000 Volumes improved both for the quarter and fiscal year as we gain 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.

Speaker 3

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 $337,000,000 or 7.3 percent for the 4th quarter and $926,000,000 or 5.5 percent margin for the total fiscal year. Respectively, this represents margin improvement 10.2% and 5.3% over the prior year comparable periods. This quarter, we surpassed our goal of processing $40,000,000 head per week by the end of the fiscal year. We intend to continue to grow next year to 42,000,000 head per week, enabling us to maximize our fixed cost leverage and grow market share along with our value added business.

Speaker 3

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'm pleased with the tremendous progress we have made against our roadmap to restoring competitiveness in this business. However, there's still work to do 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.

Speaker 3

We remain focused on building financial strength, investing in our team members and business and returning cash to shareholders. We produced $2,700,000,000 of operating cash flows in fiscal year 'twenty 2. This is after funding a $2,100,000,000 increase in working capital, which included an investment of $1,000,000,000 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 settlement of certain legal accruals. Our leverage ratio finished the year at 1.3 times net debt adjusted EBITDA, demonstrating our powerful balance sheet and our continued capital allocation optionality.

Speaker 3

Investing in our business for both organic and inorganic growth 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 and 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 and 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 $1,900,000,000 in our business in the past fiscal year, focused primarily on new capacity and automation objectives.

Speaker 3

Finally, we remain committed to returning cash to shareholders through both dividends and share buybacks. For the fiscal year, we returned nearly $1,400,000,000 in cash to shareholders through $653,000,000 in dividends and $702,000,000 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 $55,000,000,000 $57,000,000,000 and also expect volume growth compared to the prior fiscal year. Both total company sales and volume growth in fiscal 2023 We'll 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.

Speaker 3

To grow volumes in our Chicken Prepared Foods and International businesses, construction is in progress of 6 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 3 plants going live in China and 1 in Malaysia during 2023.

Speaker 3

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 $300,000,000 to $400,000,000 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 $2,500,000,000 during fiscal 2023 to pursue a healthy pipeline of projects with strong return profiles. We currently expect our adjusted tax rate to be around 23% and we anticipate a net interest expense of approximately $320,000,000 Liquidity is expected to significantly exceed our minimum target and net leverage is expected to remain below 2 times net debt to adjusted EBITDA.

Speaker 3

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 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% 4%.

Speaker 3

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% 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 forecasted and we are now increasing our focus on optimizing our mix to maximize profitability of our value added portfolio.

Speaker 3

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. 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 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 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.

Speaker 3

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.

Speaker 3

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? Thanks, John. I would like to take

Speaker 2

a moment to make one final point. Like John, the company takes this matter seriously. Tyson Foods has a strong, robust corporate governance process. Our independent Board of Directors are overseeing a thorough review of this matter, and I'm confident in this independent process. With this said and before I turn the call back over to Brandon for your questions, I'd like to remind you that 2022 was a record year for sales,

Speaker 1

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 and A. Operator, please provide the Q and A instructions.

Operator

Thank you. We will now begin the question and answer session. Please limit yourself to 1 question and one follow-up. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster.

Operator

Our first question comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Speaker 4

Yes. Thank you. Good morning, everyone.

Speaker 5

Good morning, Adam. Good

Speaker 3

morning. Good morning.

Speaker 4

So I guess my first question is thinking about the outlook for fiscal 2023 In beef and you're kind of saying 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 is going to keep shrinking.

Speaker 4

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 a smaller herd? Talk about kind of what you're doing from productivity, from mix, the case ready capacity that would be a ballast to margins What would seem like a more challenging kind of multiyear outlook?

Speaker 3

Hey, Adam, this is John, and thanks for the question. I think, look, at first, I'd reiterate what we see as a long term guidance for the beef business. And we're that's a full outlook for the year long term. We're not at this point going to give quarterly guidance. And what I think I'd say is, we're at Tyson not necessarily immune to the cattle cycle, but there are a couple of things I'd point out That maybe make this cycle a little bit different.

Speaker 3

Number 1, we see the quality, generally speaking, around the industry is stronger and better. This has kind of supported demand for beef cattle. I think secondly, the global demand is pretty strong. That's a little bit tempered by FX That we're seeing in our business, but generally speaking, I think that makes this cycle that we're heading into slightly different. I'll let Shane maybe comment on some of the investments we're making around the business and give a little more detail as it relates to the outlook on beef.

Speaker 6

Excuse me. 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 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.

Speaker 6

S. Beef. And then finally, if you think about the even though we do have The strong quality that's coming out

Speaker 5

of the meat products, but

Speaker 6

you have items such as our specialty products fats and oils, our off all items, items like that that typically Haven't been large contributors, but 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.

Speaker 4

Okay, that's helpful. If I could just maybe switch gears to the chicken business. And if you think about the exit margins coming out of fiscal 4th quarter at 7.3%. Can you just help us think about the trajectory of Chicken from here? I think there was some mark to market throughout the gains in the quarter, but how do we think about the volume scaling kind of mix contribution and help us think about kind of what would get you to The 8% versus the 6% at the upper and lower balance of your guidance range.

Speaker 2

Thanks, Adam. This is Donnie. Thanks for the question. The chicken turnaround continues. We've made a lot of progress.

Speaker 2

David and his team We've 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 the 6 to 8% for 23%, and we feel very good about that.

Speaker 2

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.

Speaker 7

Perfect, Don. Thank you very much. And you said it very well. We have made progress in 2022, but We've got a considerable amount of work to do as we get into 2023. But it's also important to understand that our goals have not changed within this segment and we are aligned on not only making Sure that we service our customers, but we run our facilities at capacity, and that's incredibly important to us as we move into 2023.

Speaker 7

As a team, we're focused on making sure that our customers are serviced, that we fill our plants and that we're taking care of our team members. And in total, we've got a very strong plan for 2023. And John mentioned the guidance between 6% to 8%, and we feel very good about the plan we have in place to deliver those numbers.

Speaker 4

Great. I'll pass it on. Thanks.

Speaker 2

Thanks, Adam.

Operator

Our next question comes from Sandhya Venue with Stephens. Please go ahead.

Speaker 8

Hey, thanks. Good morning, everybody.

Speaker 2

Good morning.

Speaker 6

Good morning.

Speaker 9

So I

Speaker 8

want to ask about the Prepared Foods business. And you talked about The cadence of improvements that we should expect as we move through the year, could you talk about the critical path Is that sufficient to cover the costs to get to that 8% to 10% range or is there additional pricing that you might need to take?

Speaker 2

Let me just say that and I'll pass it over to Stuart 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 2023. Our foodservice recovery is a little slower than pace than expected, but we feel very good about this segment And the performance and I'm personally very proud that we have Stuart leading this business. And Stuart, why don't you add some Yes, thanks.

Speaker 5

Well, good morning, Ben. I'd start by saying that it's great to run this business because when you look at the construct of the Prepared Foods business, On the retail side, out of the 9 categories, we've got the number one position in 8. And on the food service side, we're in, think about 19 categories or so there, but and then in the majority of those, we've got the number one position. So we're really starting from a position of

Speaker 10

Strength just

Speaker 5

from the portfolio standpoint. If you look at the way this year has gone, we took pricing earlier in the year. And so As we went through the year, of course, we have continued inflation. So looking to the back part of this of 'twenty three, as we go through 'twenty three, We're going to be recovering from the 5.8% to get up to the 8%. And that's really going to have a couple of big drivers.

Speaker 5

The first one and the most important is volume. If you look back in the volume history, we shared last quarter that we'd lost some foodservice volume. We're working on getting that back. Our fill rates, we still have an opportunity in fill rates and so there's volume that's actually sitting in our order queue that we can go and get and we're working On that and seeing improvement week over week. As the pricing, we'll see how the year goes.

Speaker 5

In this 4th quarter, We saw a strong volume performance. Some of that came on the back of increased promotions. But I'd note that our promotions were in line with our competition. So back half of the year, probably the last point to make is we've got Pretty strong plans for cost reduction this year and that will also contribute to getting us to the 8% to 10%.

Speaker 8

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?

Speaker 8

Or could that continue to improve? Would you want it to?

Speaker 2

We are well on track.

Speaker 7

We are very pleased with the work that our live team has done and getting us put back in a position where we're no longer having daily conversations about what our hatch rates are. So we are on track and feel good. Okay.

Speaker 5

Thank you. Best of luck.

Speaker 11

Thank you.

Operator

Our next question comes from Alexia Howard with Laurence Bernstein. Please go ahead.

Speaker 12

Good morning, everyone.

Speaker 2

Good morning.

Speaker 5

Good morning. Great.

Speaker 12

Can I ask about the productivity savings program? You obviously over delivered In fiscal 2022 relative to where you were expecting to get to, can you talk about what it was that You know, went better than expected. And I guess linked to that, a second question, if the automation part is going faster than expected, How quickly is total employee count coming down and how much more is there to go on that front? Thank you.

Speaker 2

Sure. Thanks for the question. So the productivity program, as we laid it out, was 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.

Speaker 2

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, 2023. 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.

Speaker 2

And of course, we're happy about that. But remember, the automation piece was To eliminate some laborious, difficult, high turnover type positions. And And the program is, 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, we have focused in our packed 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.

Speaker 12

Great. And anything on the headcount side of things?

Speaker 2

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.

Speaker 12

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

Speaker 5

Thank you.

Operator

Our next question comes from Robert Moskow with Credit Suisse. Please go ahead.

Speaker 11

Hi. Thank you. 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 how to how the organization is responding culturally to these decisions, especially in light of the fact that you're also closing down 2 of your headquarters, Consolidating into Springdale. Donnie, what are you doing to mitigate execution risk during this Kind of high turmoil period.

Speaker 2

Thank you. In short, we have a plan. Let's start with the office consolidation that you referenced. This is something that we've talked about, we've looked at for a number of years now. And we made the decision to do that in an effort to be a better version of ourselves.

Speaker 2

We're still working through trying to finalize which team members are moving and which ones are not. We certainly realize it's a difficult decision for Those team members and we're committed to providing the resources and the way we've characterized that here at Tyson As we're trying to help those team members and it's about 1100 of them to be able to find the yes in terms of being able to move here and with their families. And I would just characterize it as integration a few years later. And there's opportunity obviously That we see in terms of being better, being more agile and delivering better results, being more productive, All those type attributes and in order to get that, we had to do our project concept. Now in terms of the people, I would remind you, Tyson, we have a our succession planning process is very robust.

Speaker 2

And we're working that program. It's a living document and we did, to your point, make some decisions. I would start with, I am very pleased with the decisions that we've made Around John Randle, around Stuart and Amy too. These are very talented individuals And all of them have experience in other areas that and then they brought that to Tyson. So We're comfortable with the team that we've got.

Speaker 2

The team feels good with the leaders that they have and I already see great progress in the work that they're doing. And, but we're I'm perfectly comfortable with the people we put in place.

Speaker 11

Appreciate that, Donnie. Maybe a follow-up. When do you expect to be able to give more clarity to those 1100 people? In my experience, people want to know stuff like that sooner than later. How quickly can you move?

Speaker 2

Sure. So I think the thing that you need to know about that is we've been working and meeting almost on a daily basis. We put together a Team to execute the plan that we have in place. We've invited every team member to join us here in Northwest Arkansas And that's open. We've asked them to commit to us what their intentions are.

Speaker 2

And in fact today, I don't know the numbers yet, but today was the day which we needed to know that. And we really approached this in a couple of different ways. One is, We want you to be here. We want you to remain a part of Tyson Foods. And quite frankly, I've been out recruiting people to As other leaders have to come to Northwest Arkansas.

Speaker 2

And we've had a lot of success. There will be some people who at this point in their life can't move. And so we will try to create an opportunity where they can stay with the company long enough So that their replacement could be higher and trained so that we have no business interruption or interruption to business continuity.

Speaker 6

Makes sense. Thank you.

Speaker 5

Thank you.

Operator

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

Speaker 13

Hi, good morning. Hi, good morning. It's Antonio Martinez on behalf of Dave and Soider. My concern is regarding your CapEx plans For the next year, you clearly provided us. So, Carlos, on that, could you provide a little bit more breakdown on the different I have answered the jury standing and what should we expect more in the medium to long term?

Speaker 13

Thanks.

Speaker 10

Hey, there. You're kind

Speaker 3

of muffled on our end. I think your question was about CapEx and just wondering if we could expand upon that. Is that right?

Speaker 13

Exactly. Yes.

Speaker 3

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 in some of our Chicken Prepared Foods and Fresh Meats Businesses, we see opportunities for network optimization.

Speaker 3

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 investment. I would emphasize back to the question 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

Operator

Our next question comes from Ken Goldman with JPMorgan. Please go ahead.

Speaker 10

Hi, thank you. I wanted to ask about your guidance for the sales range of $55,000,000,000

Speaker 9

to 57,000,000,000

Speaker 10

I do appreciate that there are 6 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 could extend a little bit perhaps on how much production the 6 new plants are expected to cumulatively add. I think that would help people really kind

Speaker 11

of maybe bridge the gap there

Speaker 10

to that higher end perhaps.

Speaker 2

Let me start out, Ken, And say this, I mean, we feel very confident in the what we've laid out in terms of outlook. Could we move to the higher side perhaps, but We're guiding to have a really, really good year. We factored in things like inflation. We factored in Growing share in both dollar and volume, we've included all those things in terms of The drought and the conditions that we're seeing in the beef segment, the strength of the dollar from an export position. So In short, I would tell you that we've considered all those things in coming up with this plan.

Speaker 2

And we rolled it up as a team And we all signed off on it, but I'll pass it to John and see if he wants to Yes,

Speaker 3

Johnny, I think that was a fair summary. I There is a balance in that projection between the volume growth and what we see from a sales growth and 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 the question about What's the capacity coming online with the new build? And I think without going into details, each of those Operations, a little bit of that is dependent on the timing and when things come online in 2023.

Speaker 3

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 number.

Speaker 6

Okay. Thank you. And then

Speaker 10

a quick follow-up. You obviously have done really well with getting your productivity At an accelerated pace, I don't think and forgive me if I missed this, you did talk about productivity after 2023. We know previously you had Got it guided into 2024. Is it fair to assume that there will be still significant productivity savings after 2023 now that you've You'll pull those forward a little bit and if so, when might we get a little bit of color on the dollar or percentage amount there?

Speaker 2

So great question. First thing I would say to you is we had a good 'twenty two and we feel very good about delivering a year early in 'twenty three. Our nature is that we have a continuous improvement mindset. So we will identify 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.

Speaker 2

I don't know what that is at this moment. John, anything? No, nothing to add, Donnie. Thanks.

Operator

Our next question comes from Peter Galbo with Bank of America, please go ahead.

Speaker 14

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

Speaker 3

Good morning, Peter. John, I

Speaker 14

just wanted to maybe clarify a couple of points you made on the volume growth assumptions between some of the segments. I think, what you're calling for in chicken is maybe like a 5% growth in 2023, just given the weekly slaughter levels. Just wanted to check that. And then on beef, I wanted to make sure I heard you correctly. Even with USDA kind of calling for down mid single digit On volumes, you were thinking you could be relatively stable.

Speaker 14

I don't know if that meant flat for the year or how you

Speaker 4

were thinking about that?

Speaker 3

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 FY 23. 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 continue to grow in specific channels.

Speaker 3

I think we see it as critical to preserving the outlook for 2023. Shane, maybe you had a little bit to add on the beef segment.

Speaker 6

Yes, Peter, I think one of the things to keep in mind too when you look at beef is you're lapping a period a year ago with Still COVID induced reduction of volumes and we've seen our operations get back to we're getting 5 days of animals harvested and processed in 5 days and 6 days really turned into a flex day. So on top of that from the supply component, You're right. I mean, we are in the middle of the drought still and we're seeing drought induced movement into the feed yards continues to show lower weights at Placement, which in a sense means that cattle are being pulled forward and so forth. So as you look forward here into the next several months, I mean, we're still going to have plenty of animals to work through.

Speaker 14

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 pricing relative to history where maybe it wasn't as impactful to your business?

Speaker 2

Let me I'll Mention a few things and then I'll let David add some additional color. Yes, we feel very good about that. I would remind you that in our portfolio, The percentage of our portfolio that is value added is significant and a significant portion of that is branded. And so we have a lot more discretion with that. Some of the pricing variability It's essentially more associated with some of the segments like fresh chicken or things like that.

Speaker 2

But we feel very good. And if you go back and look at us through history, you will find when the market goes up really high in breast I think a quarter or so ago, breast meat was trading at around $2.60 and you can buy that for about $0.90 today. You know what, we never got the high of that based on our model and we never get the lows either. So we trade within a range here And we have on purpose and have more or better, more predictable results.

Speaker 6

David? Donnie, I think

Speaker 1

that was perfect, especially when

Speaker 7

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 at Tyson Foods and what we've done within our variable pricing is provide 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

Speaker 5

of a value added mix.

Operator

Our next question comes from Ken Zaslow with BMO. Please go ahead.

Speaker 9

Hey, good morning, guys. Good morning.

Speaker 6

Good morning.

Speaker 9

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

Speaker 3

Hey, Ken. This is John. Maybe let me answer that question first. And I think the first thing I'd point out just as it relates to kind of the overall leadership team here, as you know, I've been on the executive team We're going on a few years now and involved in a senior leadership level for more than that. So I don't think from a Capital allocation standpoint or a strategy standpoint, you should expect too many significant changes or departures From how things have been handled in the past.

Speaker 3

I guess that's the first one I'd make. Stuart and I are sitting here next year. Stylistically, you might see a few differences between the 2 of us, but I think overall, I think the direction of the company and It stays the same. I think check back with me in a quarter or 2 to see if there's any new ideas, but I think overall just provide The perspective that I think that these leadership moves are kind of a vote for continuity rather than radical change of any kind.

Speaker 5

Yes. Ken, maybe first just worth a background point. I spent 13 years before the Sandia business, 10 of those as an Executive Officer, 4 of those as the CFO, 6 years running 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.

Speaker 5

Starting off, If you look at the volume performance prepared for 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 that exists in our network and both of those 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 And lots of opportunity to press hard in the market. So I come into the role full of confidence and believing that we have a strong pathway ahead.

Speaker 2

If I might, Ken, just a couple of things. Stuart touched in fairly great detail his prior And he does have great experience coming into Tyson. But John Randall, he's had experience outside of Tyson. He's had escalating levels of responsibility in banking and venture capitalism prior to joining Tyson. But You may not know that within Tyson for the last 4 years, he's led the M and A strategy, ventures in other areas of the company.

Speaker 2

So But don't forget about the fact that he's been involved in this business essentially his whole life. So a lot of experience there. Let me mention Amy too, which you didn't ask about very specifically, but Amy came to us with a great deal of global leadership Outside of Tyson with Boeing and Walmart, she has strong experience in M and A, Strategy and Commercial as well as a legal background. And she's a very talented person and I'm very happy with what I'm seeing out of all three of these today And I think they will make us a better Tyson as we move forward.

Speaker 9

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 kind of want 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 Longer term, 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?

Speaker 9

Or is it really dependent on the market in terms of just making sure that China remains A key ex quarter, 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? And with that, I thank you guys.

Speaker 2

Let me Ken, thank you. Let me just say a couple of things. We think we have a bit of a different business model than we had, Let's say in 2015 when we went through the drought last time, it's already been talked about today in terms of our relationship with these producers that provide us with this better quality grading animals that we have. I think it's also important to remind you about The global demand is better than previous cycles. People outside the United States are looking for high quality grain fed U.

Speaker 2

S. And so we're able to meet that, but we've also invested heavily to be able to take Boxed beef up the value chain with our investments most recently in Eagle Mountain, Utah and also in Columbia, South Carolina. So we continue to take beef and pork up the value chain. And so we feel better. We feel the drought is real.

Speaker 2

We see that. We're not kidding ourselves about that, but we intend to manage through it And perform better than we did the last time through it. Shane?

Speaker 6

Yes. Excuse me. Yes. Thanks for the question. Donnie, I think you hit on all the Key point, 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 Differentiate our beef business model.

Speaker 6

And on top of that, if you think about the investments that we've made and we are making This is 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 To maintain and preserve resources and have focus on sustainability for the future.

Speaker 9

I very much appreciate it. Take care, guys.

Speaker 5

Thank you.

Operator

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

Speaker 2

We have a powerful and diverse portfolio across proteins, channels and geographies. We are improving 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 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

Operator

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

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Earnings Conference Call
Tyson Foods Q4 2022
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