Q4 2022 Tyson Foods Inc Earnings Call
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Yes.
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Good morning.
Welcome to the Tyson Foods fourth quarter 2022 earnings conference call.
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Now I'd like to turn the conference over to granted Tucker Senior manager of Investor Relations. Please go ahead.
Hello, and welcome to the fourth quarter fiscal 2022 earnings conference call for Tyson Foods.
Prepared remarks today will be provided by Donnie King President and Chief Executive Officer, and John <unk> EVP.
EVP and Chief Financial Officer.
Additionally, Shane Miller group, President Fresh meats Stewart Glendinning group, President prepared foods, David Bray Group, President poultry and Amy to group President International and C. E O who joined the live Q&A session.
We have prepared presentation slides to supplement our comments, which are available on the Investor Relations section of the types of website and through the link to our webcast.
During this call we will make forward looking statements regarding our expectations for the future. These statements are subject to risks uncertainties and assumptions, which may cause our actual results to differ materially from our current projections.
Please refer to our forward looking statement disclaimers on slide two 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.
On an adjusted basis.
Yes, otherwise noted for.
For reconciliations of these non-GAAP measures.
Their corresponding GAAP measures. Please refer to our earnings press release.
I will now turn the call over to Dani.
Thank you Brandon and thank you to everyone for joining us for the call earlier today, we announced our fourth quarter and total fiscal year 2022 results, which showed record annual financial performance, including revenue adjusted operating income and earnings per share.
I am 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.
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 one fifth 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 in addition to growing sales.
We're also aggressively mitigating inflationary cost and SG&A expenses through disciplined revenue management and enterprise wide productivity actions, including investments in automation to improve operational excellence and efficiency as.
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 child care 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 reduce turnover.
Before I discuss our financial performance, let me provide a bit of a strategic context.
As you are well aware, we have a strong and disciplined strategic growth plan and this past year, we continue to methodically execute against this plan as we strengthened our position as a global protein leader our growth strategy is built on five 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 executed 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 later and driving value creation for our shareholders is the most important goal for our team.
Having the right leadership team in place. It is also imperative as a global protein leader 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 beef performed better than expected and prepared foods, you're seeing positive volume momentum exiting the year with that strategic context, let's turn to our financial performance.
<unk>.
Compared to our initial fiscal year guidance, we exceeded our total company sales in 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 fourth quarter and 13% year over year, we delivered record sales revenue as a company and across each of our four largest operating segments.
We delivered record annual adjusted operating income of $4 $4 billion up 3% over the prior year.
As expected our fourth 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 fourth quarter and a record $8 73 for the full year up 5% from last year.
Turning to our results one volume, we're continuing to optimize our existing footprint and 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 fourth quarter as total company volume increased two 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 one 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, 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 of remaining elevated relative to prepay.
Dammit.
In a few slides, we will discuss our strong share performance.
Compared to prior year beef volumes were up five 1% for the quarter driven by higher head throughput in carcass weight, improving from a full year volume deficit of 1.5% in the third quarter. We finished the year relatively flat.
Pork volumes were down one 1% for the quarter compared to prior year due to the limited hog supply and reduced export demand.
And international volumes continue to grow up seven 3% compared to the prior year quarter, driven by our investments in capacity innovation and brands to 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 brand Tyson, Jimmy Dean <unk> 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.
According to Nielsen data Tyson core business lines grew volume share by two six 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 seven of these nine 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 he'll sharp arm and ballpark all whole favorite brand status with consumers and 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 were elevated in consumption.
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 physical 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 in volume.
Additionally.
We took various degrees of pricing in our key categories earlier this fiscal year to offset the inflationary cost pressures recently, we are seeing competitors, followed by increasing their prices narrowing tie since 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 historical levels.
We're investing strategically in merchandising and advertising to support the long term health of our brands as air 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's focus six 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. Some.
<unk> track data.
The Tyson focus six 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.
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 wellbeing of our.
Team members total rewards and team member growth and our one Titan culture with digitalization is a key enabler.
We're now seeing business results from investing in becoming the most sought after place to work.
Examples of these investments our free education child care solutions.
And chip support transportation maternity and paternity leave and expanded mental health and wellbeing benefit.
In August we received national recognition for our innovative ride sharing program benefiting team members across the nation.
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 Titan and corporate office consolidation to World headquarters in Springdale, Arkansas. The move will enable excellence in execution by bringing our corporate business unit rolls together on one campus driving a culture that optimize collaboration innovation accelerate speed and facilitates career growth.
Our team members the feedback we've received from our customers for this change has been well received.
These investments were 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 three core pillars of our ESG framework the formula to feed the future. Those three pillars are re imagining people and community impact driving product.
<unk> ability from farm to table and working toward achieving net zero.
In July we released our sustainability report for 'twenty, 'twenty, one, 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're particularly proud of a more than 30% increase in our Dow Jones sustainability index score year over year and were taking more steps to continue to improve our standing with E. S T stakeholders.
In the past fiscal year, our productivity program outperformed on our commitments delivering over $700 million in savings impact across all components of our business.
This performance indicates how Tyson has remained focused on optimizing our business processes digitalized, our supply chain and increasing automation and aggressively managing SG&A across our operations.
We expect the productivity program will continue to outperform our original expectations of more than $1 billion in recurring savings by the end of fiscal year 'twenty 'twenty for 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 and I'm very pleased with the aggressive rollout of automation technologies across all segments in fiscal year, 2022 including continuing to scale depot and 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 the fourth quarter.
Thank you Dani.
Let me turn first to a summary of our total company financial performance. We're pleased to report resilient fourth quarter and record annual performance in the fiscal year.
Sales were up for both the fourth quarter and fiscal year benefiting from our pricing initiatives to offset the increase in cost of goods volumes were up for the fourth quarter and relatively flat for the full year as we overcame supply constraints and elevated inflationary environment pressuring consumer demand.
Looking at our sales results by channel for the fiscal year retail drove $1 4 billion of topline improvement while the ongoing recovery in the foodservice channel drove an increase of 2 billion.
Fiscal year sales in international markets, including both domestically and internationally produced products were 1.3 billion greater than the prior year as we leverage our global scale to grow our business Dani.
Dani covered our operating income and earnings per share results. So I wont repeat.
Slide 16 bridges operating income for the fiscal year, which was 126 million greater than the fiscal 2021.
We significantly improved earnings in our chicken segment and generated higher earnings in prepared foods, which more than offset the expected decline in beef earnings our pricing actions, which offset the higher input costs led to higher sales during the year. We saw a notable year over year increases of 20% to 25% across the business and cost of goods, including labor feed ingredients lavina.
<unk> and freight cost.
Investment in growth is our priority to facilitate this growth an additional $80 million in SG&A expenses compared to last fiscal year was invested in team members marketing advertising and promotional spend to support our brand and digitalization initiatives among other things.
While SG&A expenses increased SG&A as a percentage of total sales was down to four 2% from four 5% in the prior fiscal year, reflecting our continued focus on assessing all expenses across the business to identify non value added spend and continuing to build leverage across the scale of our business.
As mentioned by Donnie, we significantly accelerated our productivity actions to improve efficiency across all segments. During the past year. We just had a meaningful positive impact on our margin profile our year to date results clearly demonstrate that our diverse portfolio supports our growth objectives of growing faster than the overall market improving operating margins and driving strong returns for our shareholders.
Now moving to the beef segment sales were approximately $4 9 billion for the fourth quarter down 3% versus the same period last year, but up 10% for the fiscal year at nearly 20 billion.
Sales in the quarter remained strong supported by higher volume, but offset by lower average sales price.
Global consumer demand for beef products remained strong we expect volumes to remain stable next year, a bit of 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 billion.
But we have sufficient livestock available to finish the year and we continue to have ample supply to support our operations.
We delivered segment operating income of $2 5 billion for the year in 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 6 billion for the quarter and $6 4 billion for the fiscal year down three and up 2% respectively versus the prior year.
Global demand remains challenged by high domestic retail prices and the strong U S dollar, making U S pork relatively expensive as compared to alternative sources globally for.
For the year the average sales price increased four 1% offsetting the decrease in volume of one 9%. We expect these headwinds to impact port volumes next year to a lesser extent in the past year.
Segment operating income and margins were $198 million and three 1% respectively for the fiscal year.
The operating income deterioration was driven by herd health issues negatively impacting hog costs, and a constrained cut out compressing pork margins and the elevated inflationary environment, increasing operating costs overall.
While the Q4 result was negative operating income we do expect to flip back to positive returns in Q1.
Moving now to prepared foods.
Sales were approximately $2 5 billion for the quarter of 12% relative to the same period last year.
For the fiscal year sales increased nine 4% driven by the higher average sales price increase of 13, 5%, partially offset by the volume decline of four 1% and which 0.9% of the decline was due to the sale of our pet treats business.
Volume performance improved in the fourth quarter as our investments in brands and merchandising drove an increase in portfolio market share. Our fourth quarter result, which was roughly flat versus last year was our strongest performance this year and better than the competition, which underscores the strength of our brands.
We expect volume to grow sequentially next year, driven by foodservice recovery improve supply and continued investment in our brands.
Operating margin for the segment was five 8% or $147 million for the quarter up four 1% compared to last year.
For the fiscal year, our operating margin was eight 1% of 0.5% compared to the prior year at $782 million.
Now onto the chicken segment's results sales were $4 6 billion for the quarter up 19% and for the full year sales were up 24% at 17 billion.
Volumes improved both for the quarter and fiscal year as we gain momentum and the improvement of our live operations. We expect this operational improvement to continue driving sequential quarterly volume growth into next fiscal year.
Average sales price increased by approximately 18% for both the quarter and the fiscal year compared to last year, our shift in pricing mechanisms to more variable structures, allowing us to be more agile in response to market conditions was a key decision by our management team.
Chicken delivered operating income of $337 million or seven 3% for the fourth quarter and $926 million or five 5% margin for the total fiscal year.
Respectively. This represents margin improvement of 10.2, and five 3% over the prior year comparable periods.
This quarter, we surpassed our goal of processing 40 million head per week by the end of the fiscal year.
We intend to continue to grow next year to 42 million head per week, enabling us to maximize our fixed cost leverage and grow market share along with our value added business with live operations on a positive trajectory. We will continue optimizing our plant network and portfolio mix to maximize the profitability of our chicken segment.
I'm pleased with the tremendous progress we've made against our road map to restore our competitiveness in this business.
However, there is still work to do to attain industry, leading performance and I look forward to more great things to come from the team on this one.
Now turning to slide 20, our healthy cash flows and improved balance sheet, a continued to support our disciplined capital allocation approach with a focus on total shareholder return we remain focused on building financial strength investing in our team members and business and returning cash to shareholders.
We produced $2 7 billion of operating cash flows in fiscal year 'twenty. Two this is after funding a $2 $1 billion increase in working capital, which included an investment of $1 billion in inventory to better service, our customers as well as the impact of cost inflation.
Additionally, we had other planned working capital outflows associated with taxes paid on the Divesture of our pet treats business payment of a portion of deferred payroll taxes from the cares Act and the settlement of certain legal accruals.
Our leverage ratio finished the year at one three times net debt to adjusted EBITDA, demonstrating our powerful balance sheet and our continued capital allocation optionality.
Investing in our business for both organic and inorganic growth and operational efficiency will continue to be an important priority as we utilize a disciplined capital allocation and balance sheet management approach to invest in desirable projects brands categories and geographies.
We also maintain a disciplined M&A approach investing in opportunities that fit well with our existing portfolio or our growth objectives, such as the recent acquisition in Saudi Arabia, providing access to the growing halal market.
While M&A will always be a consideration for growth we're focused first on investing in growth in our existing footprint.
This will facilitate tyson increasing production capacity market capabilities and profitability, providing return on capital generation above the market and at a minimum of 12% return on invested capital for our shareholders as our long term target.
To address projected demand growth over the next decade, we invested $1 9 billion and our business in the past fiscal year focused primarily on new capacity and automation objectives.
Finally, we remain committed to returning cash to shareholders through both dividends and share buybacks for the fiscal year. We returned nearly $1 4 billion in cash to shareholders through $653 million in dividends.
$702 million of share repurchases as we continue to prioritize shareholder return.
Let's now discuss the fiscal 2023 financial outlook.
We anticipate total company sales between 55 and $57 billion and also expect volume growth compared to the prior fiscal year.
Both total company sales and volume growth in fiscal 'twenty, three will largely be driven by our chicken and prepared foods and international businesses as we work to run our plants full optimizing our existing footprint and utilizing new capacity expansions.
To grow volumes in our chicken and prepared foods international businesses construction is in progress of six new plants all to be in operation by the end of fiscal 2023.
We're building a value added chicken plant in Danville, Virginia, and we're growing our bacon business with a new location in bowling Green, Kentucky.
And we're also expanding our footprint and increasing volumes outside the U S with three plants going live in China, and one in Malaysia during 2023.
These investments and our 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 $3 million to $400 million savings during fiscal 2023, as we build upon the foundation laid across the enterprise this year with focus on operational and functional excellence digital solutions and programmatic automation initiatives.
To continue to capitalize upon the organic growth opportunities ahead for our business, we expect to increase capex spending to approximately $2 $5 billion during fiscal 2023 to pursue a healthy pipeline of projects with strong return profiles.
We currently expect our adjusted tax rate to be around 23% and we anticipate net interest expense of approximately $320 million.
Liquidity is expected to significantly exceed our minimum target and net leverage is expected to remain below two times net debt to adjusted EBITDA.
We expect strong and meaningfully better operating cash flows in fiscal 2023, as we do not expect to invest as much in working capital as experienced in the past fiscal year.
Now finally, let's look at how each of our segments will contribute to our total company performance as.
As mentioned earlier, we continue to expect future beef segment margins to be in our normalized range of 5% to 7% for the long term. However, based on current market dynamics, we expect fiscal 'twenty 'twenty three to be at or below the low end of that range.
In pork, we expect return on sales between two and 4%.
Due to normal seasonality for our pork segment, we expect the front half of the year to outperform the back half of the year.
We continue to invest behind our expanded case ready capacity, increasing volume through organic growth with new and existing customers underpinned by product innovation for both our beef and pork segments.
Prepared foods is expected to deliver margins during fiscal 2023 between eight and 10% driven by volume growth productivity and disciplined revenue management, we expect volume sales revenue and operating income to all increase through the fiscal year with stronger quarters in the second half of the year compared to the first half of the year.
And chicken our operational turnaround progressed as forecasted and we are now increasing our focus on optimizing our mix to maximize profitability of our value added portfolio.
We expect to deliver full year margin to 6% to 8% driven primarily by progressively growing volume and sales revenue while at the same time, realizing additional operational improvements.
And in international we anticipate improved profitability from our operations in fiscal 2023, driven by volume growth from capacity expansion is ramping up.
Our segments individually and in aggregate have clear and compelling roles within Titans portfolio strategy, we make products that provide options for consumers across proteins and up and down the value chain delivering performance that supports the company's long term earnings objectives and desirable returns for shareholders.
To sum it up.
2022 was a record year in revenue operating income and EPS and as a result, we are in a strong financial position as we enter fiscal 2023 to support continued investment in our existing footprint new capacity expansion more automation and support for our brands as we continue to grow our business.
Now before I turn the call over for your questions I want to take a moment to address an important issue I'm sure you've seen the news about the recent incident involving me I'm embarrassed and I want to let you know that I take full responsibility for my actions I also want to apologize to our investors is I have to our employees as.
This was an incident inconsistent with our company values as well as my personal values.
I just wanted you guys to hear this directly from me and to know that I'm committed to making sure that never happens again.
And with that I'll turn the call back over to Dani.
Got it.
Thanks, John I would like to take a moment to make one final point.
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 am confident in this independent process.
With this said and before I turn the call back over to Brandon for your questions.
Like to remind you that 2022 was a record year for sales for operating income as well as EPS and we look forward to a strong 2023.
Thanks, Donnie we will now move onto your questions. Please recall that our caution on forward looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A.
Operator, please provide the Q&A instructions.
Thank you we will now begin the question and answer session.
You ask a question you May press Star then one on your Touchtone phone.
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To withdraw your question. Please press Star then two.
Please limit yourself to one 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.
Our first question comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
Good morning, good morning.
So I guess my first question is thinking about the outlook for fiscal 2023 in beef and you're kind of staying at or below the low end of the normalized range clearly theres been some hard 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 kalahari, what's going to keep going to keep shrinking can you help us think about.
How we would aggregate how we'd get back to that normalized range in the next few years with a with a smaller herd.
Talk about kind of what you're doing from a productivity from mix in case ready capacity that would be.
Be abolished to margins.
It would seem like a more challenging kind of multiyear outlook.
Hey, Adam this is John and thanks for the question.
I think look at first I would reiterate what we see as a long term guidance.
Further beef business.
And that's.
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 would say is you know where we're at Titan 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.
One we see that.
Quality generally speaking around the industry is stronger and better the his kind of supported demand for beef cattle.
Secondly.
The global demand is pretty strong up a little bit tempered by FX that we're seeing in our business, but generally speaking I think that that makes this cycle that we're heading into a slightly different.
I'll, let Shane maybe comment on some of the investments, we're making around the business and get a little more detail as it relates to the outlook on beef.
Thanks excuse me. Thanks for the question Adam You know John touched on a couple of things that I think to think about that is a bit different this cycle versus.
Previous cycles as one.
John touched on the <unk> quality.
That's extremely different this go around than last time, we went through this cycle.
The second component is globally beef has remained and still has been a.
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, we've not been big buyers of USB and then finally, if you think about even though we do have the <unk>.
<unk> quality, that's coming out of the meat meat products, but you have items such as our.
Our specialty products fats and oils are off all items items like that that typically haven't been large contributors that this go around or significant contributors. So if.
If you think of it in direction in relationship to the last cycle I think we have an opportunity here to do to scale engineering to do much better than the.
The last go around so I think.
All of those things, coupled together give us confidence and hope that we're going to continue to be able to drive this type of return.
Okay. That's helpful and if I can just maybe switch gears to that to the chicken business.
And if you think about the exit margins coming out of fiscal fourth quarter and a seven 3%.
Can you just help us think about the trajectory of chicken from here I think there was some mark to market derivative gains in that in the quarter, but how.
How do we think about the volume scaling it kind of a mixed contribution and help us think about kind of what would get you to the 8% versus the 6% at the upper and lower bounds of your of your guidance range.
Thanks, Adam This is donnie thanks for the question. The chicken turnaround continues we've made a lot of progress David and his team.
<unk> got our chicken business and in a better place than it's been in some time.
But we haven't arrived yet there are still things to do and we.
We get better sequentially, each quarter and would expect that to continue I would point out that we're guiding to a 6% to 8%.
For 'twenty three and.
And we feel very good about that and we feel good about investing in our Tyson brand in and continuing to to use that but.
Let me just flip it over to David and this is a guy who's been doing all the work he and his team and let him add some additional color for your perfect perfect guys. 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 is 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 and capacity and that's incredibly important to us as we move into 2023 as a team we're focused on making sure that our customers are serviced that we feel their plants and they were taking care of our team members and in total we've got a very strong plan for 2023, and John John mentioned, the guidance between 6% to 8% and we feel very good about the plan we have in place to deliver those numbers.
Great I'll pass it on thanks.
Thanks, Adam.
Our next question comes from.
Anyway.
Please go ahead.
Hey, Thanks, good morning, everybody.
Good morning, Good morning, So I wanted to ask you about the prepared foods business and you talked about the cadence of improvements that we should expect that as we move through the year could you talk about the critical path to achieve that cadence of improvement through the year and if we think about the pricing that you've taken today.
Is that sufficient to cover the costs to get to that 8% to 10% range or are there additional pricing that you might need to take.
Let me, 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 our productivity capacity utilization and mix improvements.
We anticipate improved volume sales and Oi for 'twenty three.
Our foodservice recovery is a little slower.
And the pace than expected, but we feel very good about this segment and the performance.
I'm personally very proud that we have Stewart, leading this business and Stuart why don't you add some.
Yes, Thanks, good morning, Dan.
I'll start by saying that it's great to run this business because when you look at the construct of the prepared foods.
Yeah.
On the retail side out of the nine categories. We've got the number one position in <unk> and on the on the foodservice side. When I think about 19 categories. You saw there and then in the majority of those we've got the number one position. So we're really starting from a position of strength just from a portfolio standpoint.
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 our business up 23 as you can go through 'twenty three we're gonna be recovering from.
From the five 8% to get up to the 88, and that's really going to have a couple of big drivers. The first one of the most important is volume and if you look back in the volume history. We shared last quarter that we had 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 on that and seeing improvement week over week.
Has the pricing, we'll see how the how the year goes in this fourth quarter. We saw a strong volume performance some of that came on the back of <unk>.
Increased promotions, but I'd note that our promotions were in line with what 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 that will also contribute to getting us to the 8% to 10%.
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 rates as a kind of around right now.
Is that where you are are you on track you mentioned the commentary in your slides that you are on track with your patch improvement goals are we kind of now at a new cruising level and shouldn't expect further improvement from here or could that continue to improve would you want it to.
We are well on track we are very pleased with the work that our life 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 so we are on track and feel good.
Okay. Thank you best of luck.
Thank you.
Next question comes from Alethia Halloween.
Please go ahead.
Good morning, everyone.
Good morning, good morning.
Great and can I ask about the productivity savings program you obviously over delivered in fiscal 'twenty, two relative to where you were expecting to get to them can you talk about what it was that went better than expected and I guess linked to that second question is the automation part is going fast.
Other than expected how quickly its total employee count coming down and how much more is that you can go on that front. Thank you.
Sure. Thanks for the question.
So the productivity program.
We laid it out was a three year program and we are well ahead of that in 2022, and we talked about this in terms of really three buckets.
Automation is obviously one of those.
Digital is another and then operational and functional excellence in all of those are working together really really well.
We will meet our commitment by the end of this fiscal year 'twenty three.
But at.
It seems like every rock we turnover we find something.
New and and we capture that and we will continue to do that the automation piece, specifically is progressing faster than what we had planned.
Of course, we're happy about that but.
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And remember the automation piece was too.
To eliminate some laborious difficult high turnover.
Titan positions and.
And the program is I think it was in the script that I mentioned.
In chicken the depot and automation project.
We also in a programmatic approach to automation.
Focused in our pack out area.
And we've also launched.
Our digital enablement group as we take technology throughout Tyson and we're progressing on all of those and we will we will update you each and every quarter on how we're doing.
In that in that area.
Great and anything on the head count side of things.
I have nothing to 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 positions throughout the company.
Great. Thank you very much I'll pass it on.
Thank you.
Our next question comes from Robert Moskow with Credit Suisse. Please go ahead.
Hi, Thank you.
Well those of US who have followed Titan 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 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 two of your headquarters consolidated into Springdale Dani.
Donnie what are you doing to mitigate execution risk during this kind of high turmoil period.
Thank you in short we have a plan.
So 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.
We're still working through trying to finalize which team members are moving in.
Ones or not we certainly realize its a difficult decision for those team members and.
We're committed to providing the resources in <unk> and the way we characterize that here at Titan is 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.
We see in terms of being better being more agile and delivering better results being more productive all of those type attributes and in order to get that.
We had to do our project concept now in terms of the people.
I'd remind you at Titan we have.
We have a.
Our succession planning process is very robust.
And we're working that program, it's a living document.
And we did.
To your point made some decisions I would I would start with.
I am very pleased with the decisions that we've met.
Around John Randall around.
Stuart and Amy to these are very talented individuals and all of them have experienced in other areas.
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And then they brought that to Titan so.
We're comfortable with the team that we've got.
The team feels good but the leaders that they have and I already see great progress in the work that they're doing and.
But.
Where I am perfectly comfortable with the people we put in place.
I appreciate that Don maybe a follow up.
When do you expect it 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.
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 Thats open we've asked them to commit to us.
What their intentions are and.
In fact today I don't know the numbers yet, but today was the day, which we needed to know that and we've really approached it 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 us.
Other leaders have to come to northwest, Arkansas, 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 they are replacement could be hire and train so that we have no business interruption or interruption of business continuity.
Makes sense. Thank you.
Thank you.
Our next question comes from Ben Theurer with Barclays. Please go ahead.
Hi, Good morning, Hi, good morning.
So either.
My question is regarding your Capex plans for the next few years.
Can be provided.
But could you provide a little bit more blakeman.
Uh huh.
The jewelry spending what should we expect more in the medium to long term.
Hey, there you are kind of muffled on our end I think your question was about Capex and just wondering if we could expand upon that is that right.
Yeah.
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.
And 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 the priorities.
I would tell you that.
In our value added segments, we're trying to grow capacity.
And some of our.
Chicken and prepared foods and fresh meats businesses, we see opportunities for network optimization. So I don't think its any departure from what you would expect us to be investing in.
A decent balance of growth and productivity investments I would I would emphasize back to the question that that.
Someone asked earlier automation is a huge part of our agenda and what we like about those investments as we see sustained productivity as we reapportion team members to different parts of our operation and so we feel really confident.
Some of the more programmatic investments, we're making around our automation agenda.
Okay.
Cancel them.
Our next question comes from Ken Goldman with Jpmorgan. Please go ahead.
Alright, thank you.
Yes, I wanted to ask about your guidance for the sales range of 55 to 57 billion I.
I do appreciate that there are six new plants coming on and that you'll have some.
Some additional pricing and some mix improvements I guess one of the questions. We're getting from investors. This morning is.
Is it reasonable.
So expect the high end of that range, just given some of the.
Well the potential trade down coming as consumers potentially face some more challenging and more importantly, where we're seeing chicken prices today, So I guess I'm curious.
Can expand a little bit perhaps on how much production.
Plants are expected to cumulatively add I think that would help people that was kind of maybe bridge the gap there it's about hiring perhaps.
Let me start out and say this I mean, we feel very confident in what we've laid out in terms of outlook could we move to the higher side perhaps.
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 and.
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 of those things and coming up with this plan and we rolled it up as a team and we all signed off on it but I'll pass it to John if he wants that Donnie I think thats it.
There was a fair summary, I mean, there is a balance in that projection between the volume growth and what we see from a sales growth from 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 Newbuild.
And I think without going into details in each of those.
The operations a little bit of that is dependent on the timing of when things come online in 'twenty, three but I think overall, what we want you to take away is that we feel confident in the range at this standpoint.
Ah is a rollout of multiple factors that go into the number.
Okay. Thank you and then 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 'twenty previously you had kind of guided into 'twenty. Four is it fair to assume that there will be still significant productivity savings. After 'twenty three now that you've pulled those forward a little bit and if so when might we get a little bit of color on that.
Dollar or percentage of them out there.
So great question.
First thing I would I would say to you is we had a good 22 and we feel very good about delivering a year early in 2003.
Our nature is is that we are have a continuous improvement mindset.
So we will identify and continue to identify opportunities to.
Come more productive become more efficient.
To run lines.
<unk> better to automate do all those type things that we will continue to bring money to the bottom line.
Feel good about that and I think you could expect that.
We would have another program our continuation of this program I don't know what that I don't know what that is at this moment John using nothing that has done anything.
Our next question comes from Peter Galbo Bank of America. Please go ahead.
Hey, guys. Good morning, Thanks for taking the questions good morning, Peter.
John I, just wanted to maybe clarify.
A couple of points you made on the volume growth assumptions.
Some of the segments.
Thank you.
You are calling for in chicken as maybe like a 5% growth in 'twenty three just given that the weekly slaughter levels.
I 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 volume you were thinking it could be relatively stable I don't know if that meant flat for the year or how you were thinking about that.
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 in our numbers. We're looking at part of which is volume.
In our poultry business.
We do feel comfortable about.
The sequential growth Directionally speaking that we're talking about as we head into FY 'twenty, three and I think on the beef business even amidst the.
Total environment and USDA, calling out the harvest.
What I'd point to is some of the investments we make in terms of our business model around our relationships with suppliers.
Investments into kind of the value added parts of our business and continuing to grow in specific channels.
I think we've seen it is critical.
To preserving the outlook for 'twenty three.
And maybe you have a little bit to add on the beef segment, Peter I think one of the things to keep in mind too. When you look at beef as you are 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 five days of animals harvested and processed in five days six days really turned into a flex days. So on top of that from the supply component. You are right. I mean, we are we are in the middle of a drought still and we're seeing.
Drought induced movement into the feed yards continues to show lower weights at placement, which in essence means that calendar 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.
Got it no. Thanks, that's very helpful.
And Donnie I guess just to follow up on on Ken's last question around chicken.
You know just given that you have transitioned more of your contracts to a more variable pricing structure, what we've seen in the spot markets in terms of pricing can you just.
Kind of remind us where you stand today in terms of how commodity markets or commodity chicken markets might impact pricing relative to history, where maybe it wasn't as impactful to your business.
Well, let me let me.
Mentioned, a few things and then I'll, let David add some additional color yeah, we feel very good about that I would remind you that.
In our portfolio the percentage of our portfolio that has value added is significant.
A significant portion of that is branded and so we have a lot more.
We have a lot more discretion with that some of the pricing variability is is essentially more associated with some of the.
Segments like.
Fresh chicken are.
Things like that but.
But we feel very good if you go back and look at US through history, you will find when the market goes up really high in breast meat, and I think a quarter or so ago breast meat was trading at around $2 60.
Dean by that for about 90 today.
We never got to high of that based on our model and we never get the Lowe's either so we trade within a range here and we have.
On purpose and have more.
Better more predictable results.
David.
I think that was perfect, especially when you talk about our exposure.
And the amount of big bird breast meat that we actually have a part of but the other piece to that is we have great customers of 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 the prices go up and that things to make their prices go down and we will continue to have those conversations despite soft times <unk> seasonality.
So a lot of progress has been made against that and again, we've done a lot of work to shift into more of a value added mix.
Our next question comes from Ken Zaslow with BMO. Please go ahead.
Hey, good morning, guys good.
Good morning.
Hey, John Stuart can you tell us.
And to the new rules.
Is your key actions do you expect.
You within the next call it six to 12 months and how that role for you will evolve.
Contribution you will actually have to the changes that need to be done.
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.
For going on a few years now involved in the senior leadership level for more than that so I don't think from a capital allocation.
Allocation standpoint, our strategy standpoint, you should expect too many significant changes or departure.
From how things have been handled in the past I guess, that's the first point I'd make Stuart and I are sitting here next year.
Stylistically you might see a few differences between the two of us, but I think.
Overall.
Overall, I think the direction of the company.
Stays the same I think check back with me in a quarter or two to see if there's any new ideas, but I think overall just to provide the perspective that I think these leadership moves are kind of at a boat for continuity rather than radical change of any kind.
Yeah, Ken maybe first just with the background point.
Thanks.
13 years before that's in the beer business 10 of those as an executive officer of Florida does have the CFO six 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.
Starting off if you look at the volume performance prepared foods over the last number of years, while shares has been good volume could be stronger.
And so as I started this job.
I see real opportunity for volume improvement, particularly in the foodservice business and I'm pressing hard against that that means filling the orders, we already have and it means selling out the capacity that exists in our network and both of those have a big big opportunity now in our company I also by the way I look at our at our cost structure and believe that.
We've got the ability to run our business.
Lean our way and still achieve the.
The growth goals that we that we want to see in the company.
And then I will probably finish up by saying that.
I further believe that on the innovation side, we have lots of runway in.
And lots of opportunity to press out in the market site I come into the wrong call.
<unk> and believing that we have we have a strong pathway ahead.
If I might can just a couple of thing Stuart touched in fairly great detail.
His prior experience and he does have great experience coming in to Tyson.
John Randall.
He said experience outside of Tyson These had escalating levels and responsibility in banking and venture capitalism prior to joining Tyson.
But.
You may not know that within Titan for the last four years. He has led the M&A strategy ventures and other areas of the company. So.
Forget about the fact that.
He has been involved in this business essentially his whole life. So a lot of experience there, let me mentioned Amy to 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&A strategy and commercial as well as a legal background and she is very talented personnel 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.
Great.
I was not minimizing the experience I just wanted to see the actions, particularly in prepared foods.
That you are 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 beef 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.
It really dependent on the market in terms of just making sure that kind of means.
<unk> quarter.
Is that.
Single biggest thing that has 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 thank you guys.
Let me Ken. Thank you let me let me just 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.
Outside of the United States are looking for.
High quality grain that U S beef.
And so we're able to meet that but we've also invested heavily to be able to take.
Box beef up the value chain with our investments most recently in the Eagle Mountain, Utah and also in Columbia, South Carolina. So we continue to take beef and pork value chain and.
So we feel better we feel.
The drought is real we see that we're not we're not.
We're not kidding ourselves about that but we intend to manage through it.
And performed better than we did the last time through Shane.
Excuse me. Thanks for the question Donnie I think you hit on all of the key point, joining I would I would mention is no matter what the market conditions are and where the cattle supply we feel good about all of these investments to differentiate our beef business model and on top of that if you think about the investments that we've made and we are making.
Our supply chain on on beef and cattle sustainability. These.
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 backup into the feed Europe , but even further back into the ranch and due to to maintain and preserve resources and have focused on sustainability for the future.
I very much appreciate it thank you guys.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Donnie King for any closing remarks.
We have a powerful and diverse portfolio across proteins channels and geographies, we are improving operational efficiencies and have a team that is positioned to take advantage of the opportunities in front of us for these reasons. We are confident we will grow revenue and maintained strong profitability in fiscal year 2023 and have fewer.
Your long term growth ahead of us at Tyson, we're focused on making food affordable accessible and nutritious for customers and consumers around the world. Thanks again for your interest in Tyson Foods, we look forward to speaking again soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.