Q4 2020 Tyson Foods Inc Earnings Call
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Good morning, and welcome to the Tyson Foods fourth quarter 2020 earnings Conference call.
All participants will be in a listen only mode.
And you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one to withdraw your question humor press star and two.
Please also note todays event is being recorded.
I would now like to turn the conference call over to John Auto Vice President of Investor Relations. Sir. Please go ahead.
Good morning, and welcome to the Tyson Foods incorporated earnings conference call for the fourth quarter and fiscal year of 2020.
On today's call are deemed banks, President and Chief Executive Officer, and Stewart Glendinning, our Chief Financial Officer.
Slides accompanying today's prepared remarks are available as a supplemental report and the resource center of the Tyson Investor website at IR Dot Tyson Dotcom Tyson.
Tyson Foods issued an earnings release this morning, which has been furnished to the FCC on form 8-K and is available on our website and IR Dot Tyson dotcom.
Our remarks today include forward looking statements as defined in the private Securities Litigation Reform Act of 995. These.
These statements reflect current views with respect to future events, such as Tysons outlook for future performance on sales margin earnings growth and various other aspects of its business.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Encourage you to read the release issued earlier this morning, and our filings with the SEC for a discussion of the risks that can affect our business, including those listed in our 10-K filed this morning.
I would like to remind everyone that this call is being recorded on Monday November 16th at nine am Eastern time a.
A replay of today's call will be available on our website approximately one hour after the conclusion of this call.
This broadcast is the property of Tyson foods, and any redistribution retransmission or rebroadcast of this call and any form without the express written consent of Tyson foods is strictly prohibited.
Please note that our references to earnings per share operating income and operating margin and today's remarks are on an adjusted basis unless otherwise noted.
For reconciliations to our GAAP results. Please refer to this mornings press release.
Ill now turn the call over to Dean banks.
Thank you John and many thanks to everyone listening for their interest and Tyson foods, we hope you're all safe and healthy as we continue to navigate the pandemic.
I'm thankful for the efforts of everyone of Tyson is nearly 140000 team members and wants you to know their health and safety remain our top priority and.
And dedication of our team members and the future of our business had me excited to be and my first earnings call as CEO.
We have an exceptional leadership team with tremendous experience across protein production.
Consumer insights innovation technology, and more and I am truly excited about the growth and success, we will drive as a team.
We recently faced unprecedented and and familiar times, but our business is settling down and we're uniquely positioned to fulfill our long term strategy.
Our business performed well and delivered strong fourth quarter and full year results. Our team members and agricultural partners and customers have shown resilience. This has enabled us to maintain and accelerate our efforts to provide global consumers, but a safe and accessible foods supply.
Before we talk about fourth quarter results I'd like to cover our team's accomplishments over the last 12 months.
At the onset of the pandemic, we launched and internal task force to address the virus, we made substantial investments and our personal protective equipment, social distancing safeguards and other increased health and safety measures across our business, we've seen a dramatic reduction and active cases involving our team members since last spring.
And an effort to stay ahead of the virus, we've launched a new industry, leading monitoring strategy that involves the weekly testing of a sample of team members, which has so far proven to be invaluable.
We had $540 million and direct incremental COVID-19 cost for the full year, including about $300 million and thank you bonuses and other benefits paid directly to our team members for their efforts, we managed core expenses aggressively and effort to partially offset the increased costs related to COVID-19.
Our beef and pork segments, both delivered a strong performance on the year well prepared foods showed positive momentum, including a continuation of share gains across many retail categories.
Our core retail lines grew volume and every quarter of the fiscal year up over 17% during the latest 52 weeks.
Our chicken business is still performing below our long term earnings expectations well.
Tyson frozen value added and premium air chilled products have performed strongly other businesses have not.
The biggest drivers of our underperformance are not having full staffing levels a portion of which can be attributed to the ongoing effects of the current of Iris.
Operational execution and pricing.
The majority of our improvement opportunity lies and reducing the mix and yield impacts and the three drivers I just mentioned and most of this is centered and a handful of our plans the inefficiencies driven by reduced staffing levels and poor execution has translated to higher cost per pound.
We expect progress toward these issues to face headwinds from absenteeism and other COVID-19 related complexities during the first half of the year I remain hopeful that a vaccine and a gradual return to normalcy and the second half will result in a net improvement for the year.
We continue to demonstrate our commitment to sustainable business practices and corporate social responsibility.
Our efforts included the following and.
Enhancing our framework to promote equity inclusion and diversity in the workplace, including $5 million and committed donations to organizations that are advancing the cause of lasting change.
Our work to verify and sustainable cattle production practices on more than 5 million acres of grazing land and the largest beef transparency program and the U.S.
Record protein donations across the country.
And the development and recently announced force protection standard to reassert that we have virtually no deforestation risk and across our global supply chain.
And the alternative protein space, we bolstered the companys offerings under the raise and rooted brand, while extending our retail presence to 10000 stores and less than a year entering the quick service restaurant channel and launching products and Europe over.
Over the past year, we have seen our plant based offerings retail sales increase over 250% and we are excited to build on this momentum alongside our customers as we meet evolving consumer demand for years to come.
Now, let's discuss some high level takeaways from our fourth quarter and the U.S. The pandemic continued to drive higher levels of retail demand and overall lower levels of foodservice volume well quick service restaurants are close to or better than pre cobot levels full service restaurants continue to operate and about 80% of normal with.
Wide variations by geography, well schools and cafeterias are operating at levels and significantly below normal.
These channel impacts as well as higher levels of absenteeism increased the cost and complexity of our operations Europe has a similar operating environment as the U.S., well or Asian businesses are almost back to normal.
The continued strength of at home consumption is driving historically high retail and ecommerce sales and Tyson is winning our retail core business lines experienced their ninth straight quarter of share growth and continue to outperform the top 10 food manufacturers volumes and these lines were up nearly 15% during the latest 13.
And weeks.
Leading to nearly two percentage points and volume share growth during that period.
As consumers increasingly shifted towards a little or no contact buying methods. During the pandemic, we experienced ecommerce sales growth of 99% on a full year basis, and 126% and the fourth quarter compared to last year, but.
But this growth Tyson online sales penetration through its ecommerce channel partners is now estimated at over $1 billion and we expect continued relevance of this channel moving forward.
The company experienced solid results during the fourth quarter, driven by strong operating income performances, and our beef pork and prepared foods businesses.
The performance of these segments offset lower results and our chicken business.
In total we delivered almost $1 billion of operating income for the fourth quarter in spite of the negative impacts of $200 million associated with COVID-19.
This represents and operating income improvement of $275 million versus Q4 of 2019 and increase of almost 40%.
Our prepared foods business delivered strong Q4 results.
Our brands and products continue to resonate with consumers as demonstrated by our track record of share growth nine quarters in a row.
We have a balanced mix of distribution channels, giving us a resilient business model, that's able to effectively react to external factors, including obstacles caused by COVID-19 improved.
Improved operational execution as well as lower commercial spend also helped to drive strong Q4 results.
We're also pursuing SK, you rationalization and optimization opportunities across our production network.
Our beef and pork businesses continue to be an important part of our company's portfolio strategy. They generated very strong returns during the quarter, enabling investments in key value added and international growth initiatives across our business.
The beef segment delivered solid earnings is the cut out margin remained strong while live cattle prices driven by plentiful supplies remained relatively low.
This was set against the backdrop of continued strong consumer demand.
Our operational performance recovered substantially from the early COVID-19 impacts and volumes were up 31% versus the third quarter.
Exports have also been strong for our beef segment, which serve as a way for us to optimize all parts of the animal including products that aren't traditionally consumed with and the American diet makes.
We expect to see continued adequate cattle supplies during fiscal 2021.
The pork segment also delivered very strong earnings during the quarter. Despite a narrowing of the spread as hog cost increase and the cut out came down the hog supply remains strong while our plan space less disruption and produce significantly improved volumes versus Q3.
The plentiful conditions, we've seen in the hog supply are beginning to moderate as a result of the industry's ongoing recovery and we expect adequate supplies and the near term and.
In an effort to support the independent hog farmers, who rely on us for consistent and reliable outlet for their livestock, we've worked hard to safely maximize our processing capacity.
African swine fever has persisted overseas moving into Germany is wellbore population. This.
This infection quickly led to certain nations banning Durham and pork exports.
Which we expect to create incremental global demand for us pork.
We are beginning to see some level of herd rebuilding and China, but we agree with industry analysts that a complete recovery may depend on eradication of assets and or the success other commercial grade vaccine.
Our view is that full recovery could still be a multiyear event until this occurs we expect to see a continued redistribution of global pork supplies.
Within the U.S. export demand has increased at a pace that has helped to offset increased pork supplies domestically.
This demand has been supportive of hog prices, which is critical for us and dependent on farmers.
Our Q4 chicken results improved sequentially compared to the third quarter as we saw some recovery and our operations and experienced lower COVID-19 costs. However, the results were not better than our prior year.
He has a number of the challenges, which I outlined earlier are still with us.
Having said that we've seen tremendous performance within our branded retail value added poultry lines, including more than 24% volume growth during the quarter, the simultaneous volume and dollar share gains.
The impacts of COVID-19 on channel volumes and operating efficiency resulted in net negative volumes for the quarter and higher operating costs.
We also saw a dramatic softening of the leg quarter market during the quarter, which a sense leveled out.
As I mentioned, we are aggressively executing a variety of operational and supply chain efficiency programs to better position us for long term competitiveness additions.
Additionally, we are continually identifying ways to drive costs out of our structure, while remaining keenly focused on operational improvements and customer service.
As COVID-19 related absenteeism rates have improved although not yet back to historical levels. We're focused on the operational improvement programs mentioned in fiscal 2020, we.
We still believe the original target of $200 million and cost savings as a result of these improvement initiatives is attainable.
Our international portfolio continues to give us great opportunities for growth and synergy our view remains that the vast majority of global protein consumption growth will happen outside of the U.S. So we are positioning our company to meet that need during the last quarter, we found new profitable international outlets for us based by products that would otherwise realized.
Relatively low values domestically by leveraging our us based and scale with our newly acquired and legacy International businesses, we've identified repeatable opportunities to margin up bulk export products and to a convenient value added and retail ready format for international markets.
The benefit of these value added sales, which originate and our domestic business and are sold throughout our international network is an example of how our one Tyson approach helps us meet global demand, while enhancing the company's margin structure.
We will continue to seek out and leverage these and other synergistic opportunities across our global network as we expand abroad and continue to learn from consumers and these growing markets.
We also recently announced our plans to build new production capacity in China, and Thailand, as well as expansion of our facility and the Netherlands. These initiatives will add substantial fully cooked poultry capacity to our network, which will help us serve emerging markets and strategic customers.
And last we plan to accelerate our focus on initiatives to ensure a competitive cost structure moving forward and which includes optimizing organizational structures and other cost reduction activities.
In summary, I'm pleased by our fourth quarter performance and I am excited about our future.
I'd now like to turn the call over to Stewart to walk us through our Q4 financial performance and fiscal 2021 financial outlook.
Thank you Dean as previously mentioned our business performed well during Q4 and the full fiscal year, especially considering the external challenges facing our company.
Now please keep in mind that Q4 was a 14 week quarter because of the 53 week fiscal year, which is reflected in our GAAP results.
The quarterly and annual adjusted results that we refer to throughout have the impact of the additional week removed for comparability purposes.
We delivered operating income of $961 million during the quarter up almost 40% versus Q4, 19 and $3.1 billion for the full year up almost 5% versus last year, leading to a total company return on sales of 7.4%.
Up about 40 basis points versus last year. This.
This strong performance resulted in a $1.81 up EPS for the quarter, an increase of approximately 50% versus Q4, 19 and $5.64 for the full year up about 3% versus fiscal 2019.
This performance was predicated on our flexible cross protein portfolio that has shown great resiliency during recent periods of disruption to our industry and economy.
Our Q4 results include a $75 million positive derivative impact both on a full year basis derivative values were relatively flat.
We also incurred $200 million of direct COVID-19 costs. During Q4, as we continue to prioritize team member health and safety and those costs have not been adjusted out of our results.
The reactions from our team members to the investments and initiatives, we have implemented to prevent the spread of COVID-19 have been resoundingly positive.
Sales and volumes were both lower by about 2% versus Q4, 19, driven primarily by the effects of Cove and 19 include.
Including reduced sales through the food service channel.
Return on sales for the aggregate business came in at 9% for Q4 and average sales price was down less than 1% versus Q4 19.
Jumping into the specific segment results our prepared foods segment delivered strong performance, including operating income of $236 million or 11.2% return on sales.
Sales were down 1.8% and volumes were down 5.6% versus the comparable period as a result of retail strength offset by Cove, and 19 related weakness in food service.
Operating income improvements were driven by reduced commercial spending lower commodities and operational improvements, including the benefits of lower write downs versus last year.
The chicken segment delivered operating income of $91 million generating a 2.9% return on sales. These.
These results include a $45 million gain from derivative adjustments during the quarter.
Sales were down 7.5% and volumes were 5.4% lower versus the comparable period last year.
Driven in large part by the effects of COVID-19, including lower foodservice volumes.
We were impacted by both channel shift as well as operational issues, resulting from the pandemic.
As Dean outlined in his prepared remarks, we continue to face challenges and our chicken segment, but remain committed to take the actions necessary to return us to top quartile performance.
Beef segment operating income was $483 million during the quarter generating a return on sales of 12.2%.
Sales were up 2.7% and volumes were up 3.8% versus Q4 19.
Driven principally by the lower comparable figures last year June.
Due to lower production capacity as a result of the fire at our Fannie County processing facility.
We don't anticipate these levels of profitability to persist into the remainder of fiscal 2021, but still expect the beef business to deliver strong results going forward.
Pork operating income was $162 million in the fourth quarter, representing a return on sales of 12.8%.
Sales were up 1% and volumes were up almost 7% versus the comparable period last year, driven primarily by strong consumption of pork products and both domestic and international markets.
Gross margin and volume improvements completely offset higher operating costs to deliver year over year, adjusted operating income growth of $135 million.
Our international business as Dean mentioned continues to demonstrate great growth and synergy prospects.
This business has now been profitable for the past two years, which sets the stage for strong future performance.
We will continue to focus on growth opportunities and seek out additional synergy opportunities using our one Tyson framework to increase the value of our international output across the portfolio.
Moving on to broader financial performance highlights year to date operating cash flows were $3.9 billion on a 53 week basis.
Balance sheet and leverage ratios continued to strengthen driven by gross debt de leveraging and an increasing liquidity position as a result of strong cash flows.
We repaid almost $700 million of bond maturities during the quarter and our ending liquidity, which was higher than we would have originally anticipated due to strong operating cash flows was $3.2 billion.
Net debt to adjusted EBITDA for the quarter ended at 2.3 times, which included the negative effects of our direct to COVID-19 costs.
Net interest expense totaled $123 million during the quarter.
Our effective tax rate was 21.6% in the fourth quarter and weighted average shares outstanding were approximately 364 million.
Capital expenditures during the fourth quarter came in at $292 million.
While depreciation and amortization totaled $316 million.
Our cross protein portfolio strategy provides us with a counter cyclical effect during periods of weakness in specific protein markets. This differentiated capability allows us to both grow and stabilize the company's aggregate earnings over time and has contributed to a strong annual operating CAGR over time.
Based protein businesses have continued to generate strong returns and cash flows that will fuel our value added and international growth into the future.
And finally last week, our board approved an increase to our annual dividend of 10 cents per share.
This increases our annual dividend to $1.78 per share I'd.
I would now like to walk through our financial guidance as we look ahead into the balance of fiscal Twentytwenty one.
We're about halfway through our first quarter and our businesses are off to a good start.
We expect annual revenues of $42 billion to $44 billion.
With our strong pipeline of organic growth opportunities, we expect capex spending of between 1.2 and $1.4 billion and.
The majority of this spending will be toward previously announced capacity additions in our beef chicken prepared foods and international businesses as we focus on strategic organic growth plans.
We expect to manage liquidity in excess of our historical target of $1 billion and we will continue to focus on de leveraging with over $500 million of notes maturing during the fiscal year.
Our effective tax rate is expected to approximate 23%.
Net interest expense is expected to be approximately $440 million.
Cove and costs are expected to be lower on a run rate basis than the fourth quarter also we expect ERP and employee related payments amongst other costs to continue while covenant infections remain active.
So it's still very early and a host of factors could impact the accuracy of our assumptions, including the duration of the pandemic. We're currently anticipating approximately $330 million of Cove and costs for the fiscal year.
I want to stress that this is a point in time estimate based on what we know currently and the health and safety of our employees is our top priority.
Some other direct cost we've experienced as a result of COVID-19 have been transient while others could be structural specifically regarding team member wages and certain production locations.
Because of this we expect some increased labor costs as we strive to attract and retain talent in the competitive labor markets, where we operate.
This competition for labor is not only with other meat processes, but with a range of companies hiring similarly skilled people.
As 2021 progresses, we will have a better sense of which costs are likely to continue over the longer term.
Our new plant and Humboldt will commence operations this year and as is normal with planned startups, we will and Chris substantial ramp up costs.
Despite the challenges we've experienced are counter cyclical multi protein business model across brands channels categories and geographies puts us in a good position as we orient our portfolio toward future growth.
As Dean mentioned, we're proud of our team's accomplishments during the fourth quarter and are excited about how our performance sets us up for the balance of fiscal 2021.
Balance sheet and liquidity scale and portfolio of businesses differentiate Tyson from other food companies and position us for long term growth as we execute against our strategic plan with a constant focus on maximizing long term shareholder value.
I'd like to now turn the call back over to Dean to discuss broader fiscal 21 business outlook and closing remarks Deane.
Thank you Stewart.
We have a bright future ahead, and we remain committed to navigate the risks and market based factors that we may face, especially in the current environment we.
We will prepare for and respond to those risks to the best of our ability just as we've always done.
With respect to our view on the business and operating environment. As we look ahead into the balance of fiscal 2021, we expect to consumption behavior will continue to orient towards meals at home and less the current wave causes widespread shutdowns, we would expect to see a continuing gradual recovery and foodservice volume throughout the year.
This is of course dependent on the extent of the pandemic spread within our communities the broad availability of a vaccine and any local or federal regulatory restrictions.
As we look across our businesses, we are evaluating where we can utilize automation and technology and our work that will enable more efficient and effective collaboration and operations.
Brain futures for 2021 has strengthened recently due to diminishing us production prospects from earlier in the season and record high demand in China.
Prices have been further supported by unfavorable weather and competing crop producing countries and could result, and overall grain costs being higher for 2021.
Remember our previous guidance that a 10 cent per bushel move and corn or a $10 per ton moving soybean meal translates to and approximately 25 million dollar change to cost of goods sold.
The trade environment continues to present uncertainty, especially considering this year's elections and the potential implications that may have on trade policy.
We recently observed higher freight costs due to limited driver availability and mix related load and efficiencies that are exploring opportunities to mitigate and offset this trend. This is in addition to the challenges we mentioned earlier around ensuring full staffing and our plants.
Beef and pork segment margins are expected to moderate toward more historical levels as industry capacity live animal supplies and finished goods inventories equilibrate.
Although we still expect these businesses to generate healthy returns.
At the same time, we expect stronger performances from our prepared foods and chicken businesses as we sharpen our focus on cost reduction and operational improvement.
We also expect that when the virus proceeds our ability to drive business improvements will accelerate.
And closing our business performed well during an unprecedented time, our team displayed resilience when consumers more than ever needed access to a stable and accessible food supply.
While we will continue to face pandemic related challenges and fiscal 2021, we're settling the business down to be focused on executing our long term strategy, while generating strong returns for shareholders.
I am excited for the opportunities ahead for this great company and absurd and we have the people products and strategies in place to drive future growth that.
That concludes our prepared remarks, operator, we're ready for Q and a.
Ladies and gentlemen at this time, we'll begin the question and answer session task.
Ask a question you May press Star and then one using a touchstone and telephone if.
If you are using a speaker phone and we do ask Steve Please pick up your handset before pressing the keys.
So it's all your questions you May press star and two.
We do add Steve please limit yourself to one question and one follow up.
You do have further questions you may reenter the question queue.
At this time, we will pause momentarily to assemble the roster.
And our first question today comes from Ken Goldman from Jpmorgan. Please go ahead with your question.
Hi, good morning, everybody.
And again.
D. and you were quoted in the media yesterday.
Regarding your Kobe prep and you talked a little bit about it today I did just want to clarify a little bit, though just given how quickly the virus is spread and how do you think about how do you prepare for.
Increased risks of labor shortages and the next couple of months not just because of actual illness, but also because of workers may be afraid and getting a little sick.
And I guess on a tangential note are you seeing any short term demand upticks for your products as consumers, maybe pull some orders forward a little bit.
Sure Ken.
First and foremost our team member safety is been our top priority and Weve.
Taken a tremendous amount of forward looking action to make sure that we're prepared.
So that when they come into work every day, they not only feel safe that they look around and see.
Steve precautions that we've taken to protect them and so you've seen some announcements that we've made around hiring of nurses and our facilities and that.
I was in anticipation.
And what we're seeing today and.
For fear that that actually could manifest itself.
We've posted a position for Chief Medical Officer, which were close on.
And I would say the the most important aspect of.
Our preventative measures was that has been how we've acted upon the availability of testing with what we're calling our always on testing strategy, where we're sampling and.
Team members as they because they come in and making sure that we can identify what's going on both and the public numbers and that community, but also what we're seeing from our team members coming into the plants.
And that's just been tremendously and valuable and getting them comfort.
That and that they're not at risk of catching.
Catching anything and then I would say that.
It's also been invaluable to the communities, which we operate and you might have seen a article that came out a few weeks ago and storm Lake were a former state health official cited that the county, and which we operate actually had lower cobot numbers.
And she attributed that to how we're acting with our monitoring and testing strategy much like we.
We anticipated the need for masks early in the first wave of the crisis and chartered a plane to take proactive aggressive action to get precaution for our team members precautionary protections for our team members I'd say and this.
And this crisis weve been and the sector. This way we have been.
Preparing all along and you see that and our expenses.
From a demand perspective.
From up from a demand labor perspective, or from a labor perspective, I would say that.
We as Stuart mentioned in his comments.
We have been.
We've been Bonusing, our team members and just saying thank you we know that.
They have options for where they go and we won we won Tyson foods to be a place where they can come to work and thrive every day.
Okay. Thank you for that that is clear and then a quick follow up for me.
You're well into the first quarter already.
I know you're hesitant to talk about 2021 for understandable reasons, but is there anything.
So we can understand maybe even directionally about how the quarters progressing so far are there any unusual factors, we should consider when we model I'm just trying to kind of avoid any surprises or any unnecessary surprising so to speak.
Yeah, we're not going to be able to pre announce or anything like that but what I would say is that.
We are and expect.
Expecting beef and pork to ultimately through 2021 and normalize.
I would say when you when you're thinking about those two businesses specifically.
From a pork perspective hogs are coming in and wait.
Now and so we think weve worked through some portion of the backlog other based there'll be some out there we do expect adequate supplies through the year and and beef cattle are still coming in quite.
Quite a bit overweight and so we're seeing that there is quite a bit of backlog and ample supply certainly for the year to come.
Chicken and as you because you seem to the reports we are aggressively pursuing operational improvements and you've seen the leadership change we have made their boat complementing Chad Martin and his exceptional leadership with Donna cankers and industry veteran leading the business.
That's going to take some time no recovering chicken is going to be a long effort. We've got a handful of plants that are just not operating operational efficiently and then to the variability related to the crisis.
And whats happening and foodservice and some of those plants is just continuing to make that make that challenging, but we're working hard to make the operational improvements we need and.
The prepared foods is this has been performing strong we're very proud of the work Theyre doing there and.
Much like the other parts of the business, we really need foodservice to come back on line for that business to be everything that we know it can but the ability for the team to flex between.
Retail and foodservice has been been phenomenal.
Great. Thank you so much.
Okay.
Our next question comes from and so far from Barclays. Please go ahead with your question.
Yes, Thank you very much and Dean Stewart, good morning, and Congress and the results. Thanks.
Thanks Ben.
So far.
First question I was just wondering if you could elaborate and little bit more on on the outlook for 2021, just following up Kens question. Obviously, there's a lot you kicked off pre announce but just to understand a little bit of dynamics because it seems like your sales guidance and leave looks for something like slightly negative two maybe three.
And off to 4% and growth on an adjusted basis, so that that looks rather cautious if which is considered significant decline we head into the third quarter of 2020, and your and your fiscal quarter. So is that really because you still see theres a lot of headwinds and foodservice from from Covance. So just to elaborate a little bit on the dynamics and.
In terms of top line amongst the different segments that would be much appreciated.
Ben I'd love to be able to give you some guidance, but as you.
As you've seen it if we started getting any direction a month and a half ago.
We made of and wrong.
Coated and packs and increases our continuing with with shutdown both in our domestic and in some international markets and we're just not able to we're not able to guide at this point.
John.
And and then my second question if you could just quickly go into.
The chicken segment and the operating.
Inefficiencies, if you want to call it that way, where do you think you stand on and dressing though is and you said just moments ago that Dennis will take obviously time, but how do you think about the progression and the way to address day was those inefficiencies just putting for a moment the site Colby I know.
There is there is lot of uncertainty around it but that would not be a headwind how do you feel about the ability to address those inefficiencies and get those operating margins into a more reasonable level just by what is in your hands to be addressed.
I won't be able to give a ton of specifics, but as you know we put out guidance before that we were going after.
About $200 million and operational improvements and the chicken business before the crisis and and as we reported we were making good progress on that and then as you rightly point out Cove and.
Really affected quite a bit of that.
We are still making improvements every day our leaders are in our plants looking.
Looking for inefficiencies and looking for the ways that we can get those plants running full again and back on track.
But as far as.
Okay, and recovering that full $200 million there.
There will be some value and and the recovery from Cove, and foodservice and getting our our plants back up to full operational capacity, but we we are we're not waiting on that much like you've seen in the past the shift from foodservice to retail we've done that where we can we've also maintain flexibility to support our fast growing QSR partners who are.
Okay, and surpassing their original sales with their progress and drive through and take out and so.
It is going to take some resolution and killed it for us to really make the growth and expansion there we want but but we're not waiting for that where we're taking aggressive steps as we speak.
And it's true. It's just just one other thing just to add to that I mean look the good news here is the teams raises shop and what needs to be done to move that business to the first quarter tops.
One thing just to keep in mind for the modeling and I mentioned in my comments is that Humboldt will come online later this year thats grades going to give us more capacity, but it will come with some increased costs and you could think for modeling purposes, that's going to be a little less than 100 million Bucks.
Probably more weighted to the back half of the other than to the to the front, but and it's meaningful number.
Okay that was very helpful. Thank you very much Stewart and James Thanks, Congrats I'll leave it to you.
Thanks Dennis.
Our next question comes from Alexia Howard from Bernstein. Please go ahead with your question.
Hi, there can you hear me okay. Good day.
No actually go ahead, thank perfect okay.
Oh, good that you mentioned the trends on the sales service side and the business.
And with the two I thought and.
Moving pretty much business as usual and and full service restaurants, and the pricing at 18 and funds and school, that's right pretty hard hit and.
Good can you give us an idea of how you will see and service sales break down in each of those channel just that and we can get an idea and thats how exposed you watch it to each price trends and then I have a follow up.
No, we're not going to be able to to break those down any more specifically I would even site just to hear your read of the situation that some of our Qs part QSR partners are actually surpassing.
Surpassing previous volumes, which is really exciting and see for them and that's.
That's a that's changing quite quite dynamically so.
We won't be able to give any additional direction and related to how that breaks down yes, I'd like to best the best data I can give you.
I suggest that you take a look at the 10-K, which we filed this morning.
Back in the segment day to day, you'll you'll find some some breakout maybe not quite we are asking for but it'll be at least give you give you a sense of.
What went through food service last year, and whats going on whats going through that now.
The bottom part of.
And dollars lower on on a GAAP and and keep in mind also when you look at that data. That's 53 week data for 20, and not 52 week day.
Okay and out.
Okay, All day take a lot and so.
Secondly, you did see true, yes, the pump a part of the portfolio in the prepared remarks.
And you mentioned back in 10, thousands and outlets and the retail side plus getting to the QSR and channel as well can you give us an idea of how large that business is and I know with any long saw some estimates early days, but but.
Hi, good how big it is and what the momentum and looks like right now and that business. Thank you and I'll pass it on.
Yeah, I'll comment on the word momentum skus quite a bit of momentum we have some of the skews or.
Oh really surpassing expectations related to velocity.
As you saw we've expanded to a significant number of retail stores.
You may have also seen the announcement just recently that we're kicking off a pilot for Jack in the box, we're thrilled about that and and our progress there and and a variety of prospects with the business not give any specifics on the side, but we're thrilled with the investment and the momentum that we've had.
Great. Thank you very much I'll pass it on thank.
Thank you.
Our next question comes from Peter Galbo from Bank of America. Please go with your question.
Hey, guys. Good morning, Thanks, Thanks for taking the questions good morning, Peter.
Can you give just given your comments yesterday.
And some other comments today around around Kogut.
With with cases climbing I guess one of the concerns is that plan to remaining open at this point because of the current administration day executive order. So I guess the first part of the question is have you had any discussions with the incoming administration about making sure that that maintains in place and.
The second part of that is is there any discussion going on at the higher level, So making sure that these vaccines become available that Youre front line workers are kind of first in line to receive the vaccine just to maintain supply chain.
So I'll stress and one thing that we've.
We've really put team member safety first.
And as you saw through the previous waves we have.
Take and no hesitation to idle plants whenever we think it's the right thing to do to neither do day cleaning or mass testing or whatever was required and so.
And this and this crisis, we are taking.
Taking as many precautions as possible and make sure we're keeping our team member safe and and that that results and then feeling safe coming to work and that results and us being able to keep keep our plants up and running and and feeding the world.
Related to vaccine availability.
It's too early to push forward and what that could ultimately look like you have to consider.
Distribution, obviously side effect profile, and and up and a milling and other things when thinking about how that is going to ultimately impact your business and.
And from a.
From a broader perspective.
Our core business is.
His operating through this climate very well, what I would say is that whether it's our our balanced portfolio and whether it's the protections that we have taken the business has proven extraordinarily resilient and.
We've heard from some really every administration that they consider.
Companies like Tyson and industry, specifically around food to be mission critical for the country and I'm sure that if.
If the vaccine is proving to be effective and safe and.
And and our team members decided that they wanted for further and protections that said it will be made available.
Okay, and that's that's very helpful.
And Stewart, maybe just the comments that you made on on freight and grain you know I know that kind of the hedges you had in place and in 20 on chicken were or just advantageous from a green perspective, but just as grain has moved up how should we think about those reversing into a more positive position and if you're more advantageous Lee hedged. Thanks very much guys.
Hi, guys I mean, we've got some some detail and on a k. I think the best thing to do is just to think broadly about the stats I gave you earlier.
For the for the following reason I think the staff and gave you sort of 10 cents on corn is 25 million Bucks 10 Bucks on soybean per tonne is 25 million Bucks. So look at those we've got and we've got more detailed in the K.
We ought to think about about hedging and sort of ultimately following the.
Basic trend and it's going to it's going to create a lag and so as.
As grain prices go up.
Hedging will will will operate and such a ways to slow that increased numbers, but then you'll get the opposite on and on the other sites and thinking about the curve I mean the curve.
Is distinctly output certainly in the last month or so.
Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.
Yes. Thank you good morning, everyone.
Good morning.
Hi, So I guess first I wanted to come back to something that got and.
Mentioned in the prepared remarks, and alluded to and one of the other one of the answers and it was taken the idea of taking the chicken business back to top quartile performance and.
And you can look at some of your public peers and kind of evaluate that but there's also meaningful mix differences and your business given kind of your differences and bird class the big prepared kind of fully cooked operation that you have some.
I'm just trying to think about how as you would define top quartile.
Formats, and your chicken business, given your mix, what does that actually mean.
Yes, certainly a good question, Adam I'd say our businesses.
And specifically in chicken, it's as you pointed out its very mixed so our retail value added portfolio has performed just just phenomenally through the crisis up north of 24% we've been.
Thrilled with the market share gains there.
And the other aspects of our business, whether its tray pack or fresh or small bird. They are all competing and all being impacted and very different ways. Specifically some of our business has been very strongly hit by by daily sales being down through the crisis.
And so we we watch performance really on a business unit by business unit basis and.
And some other businesses that have been impacted specifically the plants due to mix and operational efficiency. That's what we're talking about and getting back up to top quartile performance on those that are underperforming and in each of their given segments. I don't think I'll be able to get any more specific guidance than that.
Okay, and then I wanted to just try to wrap up some of the comments on fiscal 21, a little bit just go through some of the different pieces. So if I'm reading the guidance range about $210 million of Tailwinds today on current costs out and that could change.
Hundred million or so of incremental costs related to Humboldt.
If I would look at and grain today I would look and take the sensitivity that you just gave Stewart and I would think it's at least $150 million on a gross basis and now I know you pricing to offset some of that but gross 150 or so.
And then I and then freight I didn't catch a number in terms of other headwind was.
And then just any other kind of discrete kind of Tyson controlled expenses or things you have line of sight to that you'd call out before we.
Overlaid the market kind of conditions.
Yes, sure Steve So let me give you a couple of things. So first of all I wouldn't necessarily say that.
And that tech of it is.
Necessarily the tailwind remember I gave you the 330, it and that is a number that is lower than this year, but.
But keep a close eye on Cove it because that's a point in time estimate and I wanted to make sure I got that but I accept that for them and that's a $200 million benefit I'm afraid I can give you a number and I'm not going to give you some specific that but it's a it's some pressure on grain and.
The numbers, you should sort of talking about thats, probably in the range.
That's going to vary by the way based on.
Where the numbers, where the price goes the only other one I would say that you don't have and which we did call out during the during the current.
Prepared remarks is what happens with our picture on labor and.
And I.
I did draw your attention to the fact that there are some locations where we're starting to see some some wage pressure as we compete for labor not just with other meat processes, but with a broad range of companies and that's going to take some time to figure that out.
Again, the labor market seeing other disruption from from Cove, It and we'll see how much of that become structural versus temporal.
Okay I appreciate that color. Thank you.
Our next question comes from Ben Bienvenu from Stephens incorporated please go with your question.
Hey, Thanks, good morning, guys.
Morning.
A follow up on Adam's question is around the guidance and in particular just on the revenue guidance that you guys provided for fiscal 21, and and if you could give us a sense of the variability that's incorporated from the bottom to the top end of the range, whether its variability and volume or price and.
And and what that variability is predicated on whether it's related to co that potential disruptions or lack thereof, and then along the same line of the $330 million of because of the cost that you gave Stewart.
And.
Right.
I guess.
If we see significant closures absenteeism, if this year looks more like last year how.
Okay. So let me let me run through the questions and quickly. So first of all on the top line and the big drivers for the top line you called some them out and I won't break them out but by percentage, but certainly price is going to be a big I was going to be a big one that that obviously has a fair bit of volatility, especially in our and our commodity meat business as pork and beef for sure.
Sure that's going to move around and keep in mind also that depending on how close that goes so will our our foodservice volumes and that has an impact on our on our average pricing so.
It was and probably the biggest the biggest factors and that you might be able to make some some educated guesses on each of those.
In terms of the Cove.
Cobot cost.
Yes look I mean, some cost me and crew and they are sort of one time, we put up all the barriers we.
Initially mosques were costing more and it's hard to find and so I think we're going to find some of those costs.
And the one has to be repeated or may be on as as as did it go but the variability is going to come with them.
With what we have to do on labor.
We want to look offer our employees. This is the number one priority for us and so.
We will first of all deploy whatever is necessary from a testing or healthcare perspective, we will not give people any incentive to come to work if they are sick.
Need to recognize that cost and then of course and.
Last year, a big chunk of our costs was some of the thank you bonuses that we paid to our front line employees and for coming during a very difficult time, and whether or not that has to be repeated.
We will be will be dependent on the outcome of covered so unfortunate and absolutely clear number, but that's because we're now facing and as to the peer set of circumstances.
Understood understood. Thank you.
Second question is related to the prepared foods business and.
I know Theres bifurcated results within this but the retail is doing quite well and I'm curious on how you guys are thinking about product innovation and in the midst of this operating environment, you talked about SKU rationalization as well and that may have been across your.
Your segments.
And any commentary you can talk about in terms of how you're building that business for future growth as it relates to new products.
And how we should be thinking about the pace of innovation.
And the extent of Covid today that consumers are really getting tired of cooking at home and making sure that we have already made foods are easy to cook are easy to prepare foods and a very foods business.
That is also really really benefited us through the crisis looking forward, we know that there is stickiness and click and collect click and deliver and so making sure that our products or even even more amenable to that and we've looked at everything from preparation of packaging across the entire prepared foods franchise.
To make sure that as as.
And as we start moving out of the crisis.
Steady and ready to to deliver and that business.
Okay, great. Thanks, Congrats on the results and best of luck.
Thank you.
Our next question comes from Michael pick and from Cleveland Research. Please go ahead with your question.
Yes, good morning, and my first question was on a chicken and there's been a little bit of a reduction and exits recently and I guess I'm just sort of wondering in terms of your business should we be sort of tracking your commodity check and peace sort of in line with those and you know how historically higher fee costs, and maybe led to a little bit more.
Or rational chicken production and like how much and you sort of thinking about you know the the volumes for your chicken business and the potential pros and cons and potentially heartbeat costs.
No, we're not gonna be able to comment relative to industry and we'll just talk about ourselves that when we're looking at running our facilities and running them efficiently and effectively obviously the way that we place eggs and the way that we deliver.
Delivered with those businesses from and operational efficiency perspective, it really depends upon the markets and what's going on whether it's foodservice, having some cutbacks or whether it's retail running away, we're always always making adjustments that and trying to do our best runner plants full and efficient and effective so we'll be able to comment on how that is relative industry.
And related today, and then related to cost sorry finished the second part of your question related to and put costs as you know.
Some of our product ultimately goes out and prices and commodity.
Spot markets et cetera, some of it is contractual where input costs ultimately pass through and some of it.
Fixed price this negotiated over time so.
HM HM no real comment yet on how that's best playing out relative to what we're placing and what we're delivering.
Great Yeah, and then my follow up was actually related to kind of a white quarter marketing exports I guess, specifically soft port prices gone up quite a bit about a month or two ago and it.
And it seems like the export demand is improving to be like what is it gonna take to turn the.
Chicken export market around to add some pause and are you seeing any signs of pick up and and stuff like what markets. Thanks.
You may have read we've.
And put a pretty significant amount and true and initiatives and we're calling one tyson and compliments or international folks that are listening and they've done and amazing job.
And really taking the byproduct of our domestic production and value and that up and the international markets and we've just seen tremendous success and that and also.
Working with them to to rationalize our export teams and make sure that we're we're getting the best deployment officially efficiency of our products and then our international markets are also consumers of our own leg quarters and so we've got a lot of international.
Further processed capacity that we feed when and prices come down those businesses can deliver better margin. So we're.
We're doing everything we can define full balance and optimization through the one Tyson network.
Our next question comes from Michael Lavery from Piper Sandler. Please go ahead with your question.
Thank you and good morning.
And it.
And you just elaborate a little bit on on ASF, and and I know you mentioned some of the volume shifts sort of globally around the world that that are being driven by that but how much is your expected impact more likely that sort of volume reallocation versus a pricing lift and and how.
Do you think about how that impacts, but you're thinking on and planning for 21.
I'd say ASF is still a really dynamic situation.
We've seen it dancing around Germany for some time and and now that showed up and the wild boar population.
We're we're obviously looking at and as I mentioned that global shift of production distribution.
We're seeing obviously continued increased demand.
From China and other other exports Mark export markets that were service by Germany, but as you can imagine.
The rebalancing component does mitigate some of that and make it so that.
And the German exports and the planning somewhere else, but otherwise.
More fulfilled by other markets and fill by other markets and so.
Generally.
<unk> is not gone and until there is a vaccine we don't expect it to be gone and we know that all.
All countries embracing and doing a lot to try to mitigate China's obviously aggressively trying to fill fill that hole we've seen.
A variety of efforts there and.
I'd say, it's going to continue to impact our business, especially our port protein portfolio for some time.
Because of because of the the counter balancing effects of each of our proteins.
Will be continued demand globally, the more and more ASF is impacting the markets but.
Not.
It's not going away anytime soon.
Okay, and that's helpful and just a quick follow up on the plant based business.
Is the 10000 stores around where.
And you had expected to be or has COVID-19 and maybe shelf resents being delayed.
Impacted that where we should expect some upside to that and how does that look maybe going ahead and.
No I would say from a retail perspective, we've seen.
The uplift and our alternative protein portfolio much much like we have and other parts of our business and that's been encouraging both from a from a placements perspective and from a velocity perspective, the place where I think all new product launches, maybe except for chicken sandwiches had been impacted.
Is and foodservice and so.
We've actually obviously very interested and the foodservice.
Environment for alternative proteins that you've seen the recent announcements to begin with Jack and the box.
And.
We're excited about that set of portfolios, but.
We have not.
We've seen foodservice players revert a little bit back to kind of staple menu items and consolidating menu items through the crisis. So they can get people through their drive through and through there and take out more more efficiently and effectively.
Okay, great. Thank you very much.
Our next question comes from Robert Moscow from Credit Suisse. Please go ahead with your question.
Hi, a couple of questions.
I'm always surprised how difficult it is to estimate the duration of the backlog of cattle.
For the beep segment at and.
And can you tell me like what are your analysts telling you in terms of like how long that could take how.
How long do you expect to be having higher weight.
<unk> running through and and what makes it challenging to estimated and then my last question is.
And and give some wall Street Journal article.
You were in about the Cubs response.
It said that you and test and have your employees is there any reason you didn't go forward and have.
Cash for all employees at the plants.
And what's the pros and cons and that thanks.
Sure, Rob and I'll go ahead and.
Take your first question first.
I would I would say that it's worth just pointing out that and a volatile and certain COVID-19 environment and hesitation, you're seeing and our pace and velocity and moving through the cattle backlog is.
The analysts are probably likely expressing just as much uncertainty on the ability to to produce as as really being able to estimate what's going on and the field.
We see adequate kettle supplies for a year plus out and we think that's healthy for our business and we're going to be able to operate and drive through that and so you are probably just seeing hesitant and projecting forward for fear that there there could be further shutdowns and that sort of thing and and not knowing the precautions that we've taken to ensure we're going to be able to do what we can to provide that.
Adequate production and supply.
Related to the Covid response.
We.
We have a multi pronged testing strategy, where we are sampling our team members looking for evidence of of what's going on and the community and we see.
And Ah community Spike, we will and.
Obviously look at close contacts and a BB test and entire plant population.
You'd asked about the tradeoffs of testing.
Early and the crisis, we made the decisions to aggressively.
Implement plan white testing anywhere that we were seeing signal that there could be community infection, and we found a substantial number of asymptomatic positives that we're not being identified and the broader community and and I would say the media generally wasn't terribly forgiving of that and although it was absolutely the right thing to do both for our T.
Members for the communities and which we operate and for our customers to make sure that we can keep our plants running and so there's there's balance to that but Tyson is taken taken decided aligned with our values that we're putting team member safety, absolutely first and we're testing aggressively.
Anywhere that we see it as needed.
Okay. Thank you very much.
Thanks.
Our next question comes from tens outflow from back and Montreal. Please go ahead with your question.
Hey, good morning, everyone.
And again and just.
I get this question a lot from the investors so I just kind of.
Like see what you can talk about with this.
And as you went through your view of the businesses. What do you think the actual cause other chicken operations issues or like where do you think it stems from and like what happened and can you give us.
Thought on how that actually transpired.
Well and our business, we've always taken effort to value up a portfolio and and.
Built and built higher margin products, and so and given plants and facilities and that decision was made at the expense of operational efficiency whenever.
Protein prices were high and.
And we could we could go capture the margin and the marketplace.
With the correction.
And leg quarters, and breast meat and pricing.
That makes it hard to run your plants operational efficiently and we've.
<unk>.
We are now going back to basics, and making sure that the plants run lean and effective and efficient and.
And then if if and when pricing ever recovers, we'll we'll be able to capture that margin on top.
Okay and and the second question is.
It's a hard question to ask I guess is as you were thinking about the year and it was probably a thought that maybe.
Outlook may not a day as good as it is now can you talk about what has changed for the positive maybe thing and it.
Initially maybe a possibility it would not be as strong and 2021, but now it seems like you're a little bit more comfortable with the outlook can you talk about how things have progressed and how you're thinking about the general profitability of 2021.
While this this is a little bit of.
My surfing and to this day, but one thing that I've just been terribly impressed with.
Is the resiliency of our team members and of our business as a whole.
And and our ability to adjust and adapt to really whatever.
Covid or the markets are throwing at us and so that that has me confident and 2021 and and the future of Tyson Foods I think we've assembled a phenomenal set of assets that are fit and work together to make sure that the business remains resilience and make sure that we keep food on the tables of the global consumer and then the strategic plan.
And that we put together when I was and the essay see that that we're still standing by today and our ability to pick up the tempo with that is also really encouraging the the acquisitions that we've made internationally.
Turn out to be quite quite symbiotic and we're finding a lot of efficiencies and the portfolio that we've assembled there and then the investments we've made and prepared foods just continue to surprise and their ability to both game day market share and volume growth and so all in.
There's a lot of reason to be excited about Tyson foods today, and and the future and the word that I would use is resiliency and.
Tied to the core business and and got a lot of force site tied to the strategic plan and how we put it together.
Okay and more comfortable.
That type of will actually have a profit growth and 2021 is that a fair assessment.
And I am not going to guide on and forward looking profit, maybe and maybe just a little bit of.
Perspective for me can I would go back to the remarks that we made this morning.
And we said do we expect to see that.
Chicken and prepared foods would would improve during the year.
Probably can see what is taking place in and.
And cut out for beef and pork. So that's day do you consider follow.
And for the quarter so far.
But I think beef and pork will be the variable factor during the right and and that's the one to watch I would say just just.
Figure out.
And that performance versus how chicken and prepared perform and we're going to know more about that as we go through the year of course.
The other variable is COVID-19 and I think as we get into the year through this first quarter will have a better perspective.
Okay, and then I'm going to sneak and one more.
Comment about normalized decent port.
I don't know what that means because.
If I go over the last 20 years, I would say normalizes, 2% to 3%, but in reality for beef.
The last four years to be normalized and that the whole different things. So when you say normal like you.
Really mean normalized the old Tyson or normalized and a new environment, where things are.
You have export them and you have more cattle supply.
The word normalize and.
Is a very.
Peak.
Award and just curious to make sure that I fully understand what you're trying to get at and then I'll leave it there and thank you very much and.
So I'll I'll comment a little bit and and pass it to Stewart.
When we say normalize there's there's really two components. One is the historical look back on the operating margins of these businesses, but the other component is the effort that we've made to value up variety meats, and and I'll fall from the portfolio to optimize our cuts and to really run the business more efficiently and even for.
And investments that we've made and.
And.
Tre pack, and and portion and the proteins and and making them more effective and and valuable to our to our consumers and customers. So I make sure. We think through both of those and we think about what what new margins. Ultimately look like Stewart do you Wanna get more color. Yeah. I mean can I would say just to the specifics and the margins when I came into the business we were talking about normalizes.
One to three but certainly since I'd be him, we haven't seen that and so we took tossed out the idea that normalized as one to three on the other side of things and then we looked at the quarter, returning and almost 12% and turn on sales for the quarter and and.
So the question is can.
Ken beef and pork continue to operate at those levels and we think that other time.
And that will likely move back more to the middle ground right and so when we used.
Instead of more recent trends and I think is sort of what we're talking about when we say normalized.
And a lot of global demand for these products and.
And I think is and analysts group you would want to spend some time really understanding whether or not.
The ground and shifted and the sense that beef is growing demand for beef around the world and.
Not a lot of Geography's actually that can produce this is one of them.
I agree with you and I appreciate and answer. Thank you have a great day and stay safe and.
Thanks again.
And ladies and gentlemen, with that we're going to and today's question and answer session and I'd like to turn the conference call back over to Dan for any closing remarks.
Sure. Thanks, Thanks, everyone for your interest and Tyson foods, and I want to give a big thanks to our team members can.
Communities, and which we operate our suppliers for farmers and all of our investors.
From all of US here Tyson foods, we wish you a happy holiday season.
Ladies and gentlemen, and with that we will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.