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    Tyson Foods Inc (TSN)

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    Business Description

    Tyson Foods, Inc. (TSN) is one of the world's largest food companies, recognized as a leader in protein production, operating in four main segments: Beef, Pork, Chicken, and Prepared Foods. The company processes and markets a variety of meat products, including beef, pork, and chicken, as well as frozen and refrigerated prepared foods, to domestic and international markets . Tyson Foods' product lines feature well-known brands such as Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp®, and State Fair® . In fiscal 2024, Tyson Foods reported total sales of $53.309 billion, with Walmart Inc. being its largest customer, accounting for 18.4% of consolidated sales .

    1. Beef - Processes live fed cattle into meat cuts and case-ready products for various markets.
    2. Chicken - Involves raising and processing chickens into fresh, frozen, and value-added products.
    3. Prepared Foods - Manufactures and markets frozen and refrigerated food products.
    4. Pork - Processes live market hogs into meat cuts for distribution.

    Q4 2024 Summary

    Initial Price$56.51June 28, 2024
    Final Price$59.69September 28, 2024
    Price Change$3.18
    % Change+5.63%

    What went well

    • Strong operational improvements and profitability growth in the Chicken segment, delivering the strongest Q4 in history and expecting high single-digit profitability growth in FY'25, driven by a focus on innovation, quality upgrades, and a robust pipeline of new products.
    • Prepared Foods segment achieving its best performance in six years, with significant operational efficiencies, increased distribution, successful new product launches, and double-digit profitability growth expected in FY'25.
    • Significant reduction in leverage and strong free cash flow generation, with net leverage reduced from 4.1x to 2.6x, free cash flow exceeding the annual dividend of about $700 million, commitment to investment-grade credit rating, and focus on improving returns on invested capital.

    What went wrong

    • Continued losses in the Beef segment are expected, with guidance indicating a loss of $400 million to $200 million in fiscal 2025, reflecting ongoing challenges in the cattle cycle with no signs of herd rebuilding.
    • Overall volume is expected to decrease slightly in fiscal 2025 due to tight cattle supply and network optimization, which may limit revenue growth.
    • The company's reliance on operational improvements in the Chicken and Prepared Foods segments to drive profitability may not fully offset the headwinds in Beef, posing a risk to achieving projected AOI growth of 10% at midpoint.

    Q&A Summary

    1. Chicken Segment Outlook
      Q: What's driving growth and potential upside in Chicken for FY'25?
      A: Management highlighted that the Chicken business is fundamentally different and better than a year ago, achieving over $1 billion in AOI for FY'24, exceeding prior expectations of up to $700 million. They expect AOI between $1 billion to $1.2 billion in FY'25, a high single-digit growth at midpoint. This growth is driven by over $500 million in operational improvements, with an additional $185 million planned, independent of market conditions. They are investing around $100 million to drive a mix shift towards value-added products, leveraging upgrades in quality, packaging, and a new advertising campaign.

    2. Prepared Foods Performance
      Q: What are the drivers for Prepared Foods growth in FY'25?
      A: The company reported the best Prepared Foods performance since 2018 and expects over 10% AOI growth in FY'25, driven entirely by controllable improvements. Key drivers include operational efficiencies with significant improvements in yield and throughput, a 26% reduction in distressed sales, and service levels improved over 170 points year-over-year. They're focusing on core business distribution gains and leveraging a robust innovation pipeline, carrying momentum from '24 into '25.

    3. Beef Segment Challenges
      Q: How is Tyson addressing challenges in the Beef segment?
      A: Tyson is guiding to a loss of $400 million to $200 million in Beef for FY'25 due to continued challenges from tight cattle supply. They are implementing operational improvements to cushion against market pressures, focusing on efficiencies in plants, yields, and utilization of their six harvest assets. They aim to minimize losses during this cycle and position for future growth.

    4. Operational Improvements Across Segments
      Q: Can you quantify operational improvements across segments?
      A: In Chicken, Tyson achieved over $500 million in operational improvements in FY'24 and plans an additional $185 million in FY'25, independent of markets. In Prepared Foods, they realized significant gains in yield and throughput, reduced distressed sales by 26%, and improved service levels over 170 points year-over-year. In Beef, they improved operating costs year-over-year and are leveraging data analytics to drive efficiencies and yield improvements.

    5. Capital Allocation and Leverage
      Q: How is Tyson approaching capital allocation and leverage targets?
      A: Tyson reduced net leverage from 4.1x to 2.6x in FY'24 and plans to invest $1 billion to $1.2 billion in CapEx for FY'25. Free cash flow is expected to exceed the annual dividend, estimated at around $700 million. They remain committed to an investment-grade credit rating and a long-term target leverage of at or below 2x , and focus on improving returns on invested capital.

    6. Impact of Higher Chicken Supply
      Q: Will increased chicken supply affect Tyson's outlook?
      A: Management acknowledges increased egg sets and chick placements but notes that industry challenges in hatch and livability mean excess chicks aren't reaching processing plants. They have accounted for potential supply increases in their guidance and believe supply and demand are fairly balanced. Tyson is more insulated due to its focus on strategic customers and value-added products.

    7. Shift from Chicken to Beef Promotions
      Q: Are retailers shifting promotions from Chicken to Beef?
      A: Despite higher beef prices, demand remains strong, and retailers are employing various strategies, including promoting beef cuts to drive market baskets higher. Tyson expects beef demand to continue into '25 and is leveraging this through convenience products and innovation.

    8. Network Optimization and Plant Closures
      Q: Are there further plant closures or network changes planned?
      A: Tyson evaluates assets based on age, profitability, scale, competitiveness, and future capital requirements. While they have made decisions to optimize their network, including plant closures, they are focused on controlling what they can and executing with excellence.

    9. Prepared Foods Start-up Costs
      Q: How are start-up costs affecting Prepared Foods profitability?
      A: Start-up costs in FY'24 were around $20 million. The company expects to lap these costs in FY'25 but also notes lower depreciation in the first half due to overhead.

    10. Impact of New Administration
      Q: How might a new administration affect Tyson?
      A: Management stated they have successfully operated for over 90 years, regardless of political changes, and will focus on controlling what they can control.

    11. Capital Deployment and Cash Flow Generation
      Q: How is Tyson planning future capital deployment?
      A: Tyson plans to continue investing in the business and returning cash to shareholders, with CapEx between $1 billion to $1.2 billion in FY'25. They emphasize improving returns on invested capital and maintaining financial strength.

    12. Further Improvements in Beef Segment
      Q: Can operational improvements lessen Beef segment losses?
      A: While acknowledging that 85% of the Beef business is influenced by uncontrollable market spreads, Tyson is implementing efficiencies to minimize losses and position for future success.

    13. Prepared Foods Cadence
      Q: How will Prepared Foods growth unfold across FY'25?
      A: Management expects a more balanced performance across the year, differing from historical seasonality, due to ongoing operational efficiencies.

    14. Expansion of Fully Cooked Lines
      Q: Is Tyson expanding fully cooked production lines?
      A: After successfully selling out five fully cooked lines in Danville, Virginia, Tyson is working on adding the next five lines to support growth in value-added products.

    Guidance Changes

    Annual guidance for FY 2025:

    • Adjusted Operating Income (AOI): $1.8 billion to $2.2 billion (raised from $1.6 billion to $1.8 billion )
    • Prepared Foods AOI: $900 million to $1.1 billion (raised from $850 million to $950 million )
    • Chicken AOI: $1 billion to $1.2 billion (raised from $850 million to $950 million )
    • Beef AOI: Loss of $400 million to $200 million (raised from a loss of $400 million to $300 million )
    • Pork AOI: $100 million to $200 million (no change from prior guidance )
    • Capital Expenditures (CapEx): $1 billion to $1.2 billion (lowered from $1.2 billion to $1.3 billion )
    • Sales: Flat to down 1% (lowered from roughly flat year-over-year )
    • Free Cash Flow: Exceed $700 million (no prior guidance)
    • Interest Expense: $380 million (no prior guidance)
    • Tax Rate: 24% to 25% (no prior guidance)

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    John H. TysonChairman of the Board of Directors1984John H. Tyson has been a member of the Board of Directors since 1984 and has served as Chairman since 1998. He was CEO from 2000 until 2006 .
    Lori BondarSenior Vice President and Chief Accounting OfficerDecember 2023Lori Bondar was appointed as Senior Vice President and Chief Accounting Officer in December 2023. She joined Tyson Foods in September 2023 .
    Melanie BouldenChief Growth OfficerFebruary 2023Melanie Boulden was appointed as Chief Growth Officer in February 2023. She also served as Group President, Prepared Foods from September 2023 to September 2024 .
    Curt CalawayChief Financial OfficerAugust 29, 2024Curt Calaway became CFO on August 29, 2024, after serving as interim CFO since June 2024. He has been with Tyson Foods since 2006 .
    Devin ColePresident, International & Global McDonald'sJuly 2024Devin Cole was appointed as President, International & Global McDonald's in July 2024. He has a long history with Tyson Foods, having worked there from 1995 to 2014 .
    Adam DeckingerGeneral Counsel and SecretaryJanuary 2023Adam Deckinger was appointed as General Counsel and Secretary in January 2023. He joined Tyson Foods in April 2018 .
    Jacqueline HansonChief People OfficerJanuary 2024Jacqueline Hanson was appointed as Chief People Officer in January 2024. She was previously the HR Senior Vice President for Poultry, Cobb, McDonald's, and International .
    Donnie KingPresident and Chief Executive OfficerJune 2021Donnie King has served as President and CEO since June 2021. He has held various senior leadership roles within the company since joining in 1984 .
    Wes MorrisGroup President, PoultryJanuary 2023Wes Morris was appointed as Group President, Poultry in January 2023. He was previously a consultant to the company starting in October 2020 .
    Kyle NarronGroup President, Prepared FoodsOctober 2024Kyle Narron was appointed as Group President, Prepared Foods in October 2024. He was previously Senior Vice President of Pork and Prepared Foods .
    Brady StewartGroup President, Beef, Pork and Chief Supply Chain OfficerAugust 2023Brady Stewart was appointed as Group President, Beef, Pork and Chief Supply Chain Officer in August 2023. He joined as Group President, Fresh Meats in January 2023 .
    John R. TysonExecutive Vice PresidentN/AJohn R. Tyson is the Executive Vice President. He was previously the Executive Vice President and CFO from October 2022 to June 2024 .
    Maria N. MartinezBoard of Directors MemberJune 14, 2024Maria N. Martinez serves as a Director on the Board of Directors. Her initial statement of beneficial ownership of securities was filed on June 14, 2024 .

    Questions to Ask Management

    1. Given the ongoing challenges in your Beef segment due to compressed spreads and a lack of herd rebuilding, what specific strategies are you implementing to navigate the current cattle cycle, and how confident are you in your ability to stabilize profitability in this area?

    2. Despite highlighting operational improvements in your Chicken and Prepared Foods segments, how do you plan to sustain these efficiencies amid potential market volatility and rising input costs, and what measures are in place to mitigate these risks?

    3. With your focus on disciplined capital allocation and managing CapEx, how are you balancing investments in growth initiatives like expanding your fully cooked portfolio and digital capabilities with the need to reduce leverage and return cash to shareholders?

    4. Considering the network optimization initiatives and plant closures you've executed, do you anticipate further consolidation or restructuring within your operations, and how might this impact your capacity to meet customer demand and maintain service levels?

    5. You’ve emphasized the use of big data, predictive analytics, and AI for operational excellence and consumer insights; can you provide specific examples of how these technologies have materially improved your performance, and what challenges have you encountered in their implementation?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateFebruary 7, 2003
    End Date/DurationNo fixed termination date
    Total Additional Amount110 million shares
    Remaining Authorization7.3 million shares
    DetailsShares are repurchased based on factors like working capital needs, market conditions, and regulatory requirements. Purchases also fund obligations under equity compensation plans.

    Past Guidance

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Adjusted Operating Income (AOI): $1.8 billion to $2.2 billion
      2. Prepared Foods AOI: $900 million to $1.1 billion
      3. Chicken AOI: $1 billion to $1.2 billion
      4. Beef AOI: Loss of $400 million to $200 million
      5. Pork AOI: $100 million to $200 million
      6. Interest Expense: $380 million
      7. Tax Rate: 24% to 25%
      8. Capital Expenditures (CapEx): $1 billion to $1.2 billion
      9. Free Cash Flow: Exceed $700 million
      10. Sales: Flat to down 1% .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Overall Sales Guidance: Roughly flat year-over-year
      2. Total Company AOI: $1.6 billion to $1.8 billion
      3. Chicken Segment AOI: $850 million to $950 million
      4. Prepared Foods Segment AOI: $850 million to $950 million
      5. Beef Segment AOI: Loss of $400 million to $300 million
      6. Pork Segment AOI: $100 million to $200 million
      7. Capital Expenditures (CapEx): $1.2 billion to $1.3 billion .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Overall Sales Guidance: Roughly flat year-over-year
      2. Operating Income (OI): $1.4 billion to $1.8 billion
      3. Chicken AOI: $700 million to $900 million
      4. Prepared Foods AOI: $850 million to $950 million
      5. Beef AOI: Loss of $400 million to $100 million
      6. Pork AOI: $50 million to $150 million
      7. Interest Expense: $400 million
      8. Tax Rate: 24%
      9. Capital Expenditures (CapEx): $1.2 billion to $1.4 billion
      10. Free Cash Flow: Confident in fully funding the dividend .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Total Company AOI: $1 billion to $1.5 billion
      2. Prepared Foods AOI: $800 million to $1 billion
      3. Chicken AOI: $500 million to $700 million
      4. Beef AOI: Loss of $400 million to breakeven
      5. Pork AOI: Breakeven to $100 million
      6. Interest Expense: $400 million
      7. Tax Rate: 23% to 24%
      8. Capital Expenditures (CapEx): $1 billion to $1.5 billion
      9. Sales Guidance: Roughly flat year-over-year
      10. Net Leverage: Aim to return net leverage to at or below 2x net debt to EBITDA .