Q3 2023 Tyson Foods Inc Earnings Call
Good morning, everyone and welcome to the Tyson Foods third quarter 2023 earnings Conference call.
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After todays presentation, there will be an opportunity to ask questions.
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Please also note today's event is being recorded.
This time I'd like to turn the floor over to Sean Cornett from Investor Relations.
Sir Please go ahead.
Good morning, and welcome to Tyson Foods fiscal third quarter 2023 earnings conference call.
On today's call Titans, President and Chief Executive Officer, Donnie King and Chief Financial Officer, John are tightened and will provide some prepared remarks, followed by a Q&A.
Additionally, joining us today are brain Stewart president fresh meat.
Sure Glenn Dini group, President prepared foods, West Morris Group, President poultry and Amy to President International and Chief administrative officer.
We've also provided a supplemental presentation, which may be referenced on today's call and is available on Titans Investor Relations website and.
And via the link in our <unk>.
Webcast.
During today's call, we will make forward looking statements regarding our expectations for the future.
These forward looking statements made during this call are provided pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements include all comments, reflecting our expectations assumptions or beliefs about future events or performance that do not relate solely to historical periods.
These forward looking statements are subject to certain risks uncertainties and assumptions, which may cause actual results to differ materially from our current projections.
Please refer to our forward looking statements 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 that references to earnings per share operating income and operating margin in our remarks are on an adjusted basis unless otherwise noted.
For reconciliations of these non-GAAP measures to their corresponding GAAP measures. Please refer to our earnings press release, now I will turn the call over to Don.
Thanks, Sean and thank you to everyone for joining us. This morning before we review the results I'd like to start out by discussing my vision for Tyson and the decisive actions that we're taking to successfully navigate the current market environment.
We remain fully committed to our vision of delivering sustainable topline growth and margin improvement over the long run.
With our leadership team, we're executing a multi point plan focused on efficiency and modernization, including taking a much closer look at our cost structure across the business to drive operational excellence.
We are already seeing tangible benefits of our efforts we've been through market cycles before and I'm confident that we have the right strategy seasoned leadership and team members in place to emerge stronger from this one we are making good progress and saw sequential improvements in our results in Q3, we're not yet where we need to be so.
We continue to focus on what we can control.
Earlier today, we announced our intention to close more and more of our chicken facilities, demonstrating our commitment to taking bold actions to improve performance.
Beyond these important actions I remain optimistic about our future. We are a leader in our industry and we continue to innovate and take market share in most of our categories.
I remain very confident in our long term strategy and we are leaving no stone unturned to maximize value for shareholders.
Diving into our results, we continue to compare against strong performance across our segments last year. However, I'm encouraged by the sequential improvements we made in Q3, let me start with chicken.
Market conditions in chicken are still challenged with commodity prices across most cuts remaining significantly lower compared to last year.
However, adjusted operating income improved by more than $100 million sequentially without any material benefits of market tailwind.
The sequential increase was primarily due to internal actions. We took for example in our fiscal Q2, we decided to close two of our plants convert to others to boneless and rationalize our skus inventory and other assets in Q3, the team made significant improvements in yield span and.
Efficiency, leading to strong improvement in profitability in just one quarter.
As we become more productive with automation and team member engagement, we can further optimize our footprint and reallocate resources to more efficient plant, while still having ample capacity to service and grow with our customers. This enabled us to announce today that we plan to close four additional chicken facilities, bringing the total announced.
Closures to six this year.
We also recently made the decision to transition away from the no antibiotics ever labeling for Tyson branded chicken to a no antibiotics important for human medicine approach Dave.
Data suggests the use of article where it can lead to more uniform birds, but consistent way in turn we can more accurately forecast supply and demand helping to meet the needs of our customers and consumers.
And I want to emphasize that we will continue to evaluate all options, including more actions like these across all of our businesses and beef we performed better than expected. Our results were driven by our disciplined approach to balancing supply with customer demand, while taking advantage of seasonal increases in cutout values.
However, the beef industry will likely continue facing headwinds as you may have seen in the latest USDA cattle inventory report herd liquidation continues to tightened supply leading to higher cattle cost narrowing spreads and difficult export market conditions.
Pork remains under pressure across the industry and we continue to see headwinds there with both our internal live production and our external sourced hog supply.
<unk> feed cost and low cut outs drove spread compression through our results. We also had incremental negative impacts in Q3 from a fire at one of our processing facilities.
Finally to prepared foods, which is a key growth pillar for the future the business performed well in Q3 in retail our core business lines saw strong volume growth in the quarter and continued to gain pound and dollar share.
In Broadline Foodservice Tyson's focus six continues to outpace the industry in volume growth. This led to better than anticipated margins in prepared foods.
In short our results this quarter demonstrate that chicken is gaining momentum and our branded foods business remains an area of strength.
Let me add some further color on the performance of our branded business versus our top peers as I mentioned earlier, our Tyson core business lines, including the iconic retail brands Tyson, Jimmy Dean Hilscher farm and ballpark continued outpacing total food and beverage and our peers in volume.
Growth.
5% versus a year ago.
We believe this points to the strength of our core brands and sets us up well for the future.
We continue to show market share leadership in most of the retail categories in which we compete delivering both dollar and pound share growth in the aggregate and across day parts.
Eisen, Jimmy Dean he'll shower farm and ballpark all whole favorite brand status with consumers over our nearest competitor by a wide margin.
Our share performance and brand strength demonstrates the momentum we gained with consumers and they will continue to spend on brands. They know and trust. Likewise, we will continue to invest in merchandising and advertising to support our brands.
While we are pleased with our brand strength and share performance, we're constantly building new innovations to expand the appeal and market opportunities for our products.
Over the past few years, our innovations have generated roughly $2 billion in annual sales.
Let me highlight a few products we've launched this fiscal year that I'm most excited about.
Earlier this year, we announced the Tyson original chicken breast sandwich for retail channel.
Which one the people magazine Food award for best Frozen Sandwich <unk>.
Furthermore, we were excited to see that more than 70% of the buyers were new to the Tyson brands and more than 20% were new to the category.
We also launched Tyson chicken sandwiches, and foodservice space, where our sandwiches won awards from food and beverage industry National Air Ground Marketing Association and National Association of convenience stores as you can see our innovation in chicken is able to be deployed across channels and occasions, highlighting the power of our SKU.
Oh.
Moving to Jimmy Dean, which is already a clear leader in the breakfast meal occasion, we're expanding with differentiated capability based innovation by launching handheld breakfast items for instance, this year, we launched the Jimmy Dean Biscuit roll ups, and foodservice channel and Maple Grill cakes, and toaster pop ups in retail we are <unk>.
Strong customer adoption of these products and promising early consumer demand.
And he'll shower farm one area of focus and retail has been the trend toward healthy Snacking for instance, we lost hills shower farm snack kids with 100% real premium meats cheeses and crackers, all ready to eat on the go.
If you haven't already I encourage you to try our snack kits like oven roasted, Turkey breast cheddar cheese and crackers.
We launched these products at attractive price points and have already seen strong acceptance with major retail customers.
In the foodservice channel, we are now participating in the fast growing cutting pepperoni category with our very own he'll sharp branded cutting pepperoni product.
We are always on the lookout for how to keep our brands on trend across channels.
Now I'll turn things over to John to review, our financial results for the quarter in more detail.
Thank you Dani.
Let me start with a quick summary of our total company results and then review our individual segments.
Our sales were down two 6% year over year, driven by pork and chicken, where we saw a reduction in price per pound.
More than 90% of the decline in adjusted operating profit was driven by lower profitability in our beef and chicken segments.
Higher input cost per pound was primarily due to the increase in cattle costs, along with unfavorable derivative impacts and higher labor costs.
But these were partially offset by lower hog costs reduced outside of purchases in our chicken segment and lower raw material costs in prepared foods.
While profit was down substantially versus last year, it's important to note that it improved meaningfully versus last quarter and adjusted EPS increased 19% on a sequential basis.
<unk> were made but we continue to improve efficiencies by controlling what we can and believe we are heading in the right direction.
Now on to the individual segment results starting with beef.
In beef revenue was essentially flat year over year with lower head throughput offset by higher pricing.
Operating profit was down primarily reflecting higher capital costs, which increased $610 million on a light per pound basis.
Operating margin of one 6% was down from the historically strong margins of more than 10% in Q3 last year.
On a sequential basis disciplined yield and procurement benefits along with seasonal cut out improvement helped drive better than expected operating profits.
Beef is likely to continue to face headwinds and we don't expect the ongoing tightening of cattle supply and spread compression to abate until herd rebuilding is well underway.
Now moving to Port revenue was down 18%, driven primarily by lower pricing due to softer demand.
The operating loss in the quarter was $70 million is spread compression continue to pressure our mortgage.
This was exacerbated by market pressures in our live operations lower exports and the operational impact of a fire at our Madison facility.
Moving on to chicken.
Sales declined three 5% year on year, driven by lower pricing, partially offset by volume growth the.
The decrease in pricing reflects the challenging commodity market.
While volume grew modestly versus last year and decreased more than 4% on a sequential basis. The sequential decline is more than historical seasonality, reflecting steps, we took to align internal production to consumer demand. While also reducing finished good inventory by $70 million.
Year over year profitability was negatively impacted by market conditions, and higher feed costs and a $65 million net derivative loss in the current quarter compared to a $23 million loss in the prior year period.
On a sequential basis, it's worth, noting the AOE improved by more than $100 million.
In prepared foods sales declined two 6% driven by both volume and price.
The volume decline was driven by foodservice is the trajectory of this channel's recovery remains a little uneven.
Tony mentioned, our focus six categories are outpacing broadline industry and maintaining their share or.
Lower foodservice volumes were partially offset by continued growth in retail highlighting the strength of our brands.
Lower pricing was primarily driven by lower bacon prices, reflecting the underlying cutout values for bellies.
Compared to the prior year period operating profit was up $34 million due to lower raw material costs and productivity gains, which was partially offset by lower sales higher packaging costs and increased map investments.
Despite increased spending and brand building efforts, we were pleased with our operating margin of nine 2%, particularly so given the challenging retail food environment.
Our prepared foods segment remains key to our strategy, providing a high margin stable business with many growth opportunities ahead, helping to offset the pressures and volatility in commodity prices.
Before moving onto the balance sheet items I want to provide some context on the goodwill impairment charge that impacted our reported numbers on a GAAP basis, the details of which will be provided in our 10-Q when we file. It later this week.
The interim impairment testing, we did this quarter resulted in noncash charges in the reporting units that we have been disclosing is at risk in our filings going back to last fiscal year.
Impacts of the charges are not shown in our presentation. This morning is theyre not reflected in our adjusted results, but all reconciliations to reported results can be found in the appendix.
Now to our financial position and capital priorities, we're building financial strength investing in our business and returning cash to shareholders remain the priorities of our capital allocation strategy.
Q3, operating cash flow was $660 million in line with expectations with prudent working capital management, partially offsetting lower profitability.
Inventory reduction was the primary driver of improved core working capital, we still see some opportunity to improve inventory days and drive better cash flow.
Year to date Capex is roughly $1 $6 billion, we continue to moderate our pace of spending.
Based on this pace, we don't expect capex to exceed $2 $1 billion below our prior guidance of $2 $3 billion.
We ended the quarter with $3 $7 billion of liquidity and net leverage of three two times, our balance sheet management and approach remains unchanged as we are committed to building financial strength, maintaining our investment grade credit rating and targeting net leverage of at or below two times net debt to EBITDA for the long term.
During Q3, we returned $167 million to shareholders via dividends and $11 million in share repurchases.
We remain committed to maintaining a disciplined yet opportunistic capital allocation strategy, ensuring that we deploy resources to maximize long term shareholder value.
Now, let's review our updated outlook for fiscal 2023.
We are maintaining our total company sales guidance range of $53 billion to $54 billion and we.
To be at the lower end with roughly flat sales growth for the year.
Turning to AOR and beef based on our year to date results offset by anticipated live cattle cut out spread compression, we expect full year margins to be at the higher end of our range of between a loss of 1% and a gain of 1%.
Were poor due to ongoing market dynamics impacting our pork segment, we now expect full year margins to be between a loss of 4% and a loss of 2%, but at the higher end of that range.
And chicken, we're gaining momentum, but with our results year to date, including net derivative losses, we expect full year margins to be at the lower end of our range of between a loss of 1% and a gain of 1%.
Prepared foods has generated strong margins throughout the year with continued investment to support our brand we expect margins to be at the higher end of the 8% to 10% range for fiscal 2023.
And as I mentioned earlier, we're reducing our expectations for capex to approximately $2 1 billion.
Our expectations for net interest expense and tax rate remained unchanged at around $340 million and 22% respectively.
So in summary, while the current operating environment is difficult and several of our businesses, we are making improvements across our operations and we are optimistic on our long term growth opportunities.
We have great teams across our segments, we've got growing demand for our products and the right portfolio mix to win in the marketplace. So now I'll turn the call back over to Sean for Q&A instructions.
Thanks, John we will now move onto your questions. Please recall our caution on forward looking statements and non-GAAP measures apply both to our prepared remarks and the following Q&A.
Operator, please provide the Q&A instructions.
Ladies and gentlemen at this time, we'll begin the question and answer session to ask a question you May Press Star and then one using a touchtone phone.
If you are using a speaker phone with USB. Please pickup your handset prior to pressing the keys.
Withdraw your question you May press Star two.
We do ask that you please limit yourselves to one question and one follow up.
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 Alexia Howard from Alliance Bernstein. Please go ahead with your question.
Good morning, everyone.
Good morning, good morning.
Okay. So there's obviously a lot of moving pieces here on the quarter. It could be maybe take a step back and get your I will take on the quarter I'm glad we're in the recovery of your commodity segments I'm, just trying to put things into context here and then I have a follow up.
Okay, well good morning, Alexia This is Donnie King let.
Let me start out with good thank.
Thank you for the question and.
No surprise.
<unk> continued to be challenging and there are challenging for everyone.
I will tell you that we continue to execute our strategy.
And I would tell you we've hedged with best execution in our Q3, we've had since pre pandemic times.
In Q3, we saw sequential improvement across all businesses led by chicken.
As well.
By chicken as we focused on our cost structure.
We have aligned our supply to our demand as we pursue profitable growth.
We are controlling the controllable is across all businesses.
I would tell you that we're not surprised by beef and pork results we expected.
We are happy to report that we're winning with customers and consumers and gaining volume and dollar share.
We are taking decisive actions as we talked about this morning, right sizing and modernizing our footprint, we continue to invest in automation and digitalization.
We continue to invest in our team members and their work experience.
We are pursuing growth in value added and branded categories.
In chicken behind the number one brand in chicken Tyson and prepared foods behind Jimmy Dean <unk> and ballpark.
We are number one in eight of nine categories, we compete in at retail.
We hold a number one or number two positions in most foodservice categories.
And as I said this morning, we will continue to evaluate everything we do.
Tyson has been around since $19 35, and I have been around since the early eighties and we've seen many cycles before.
We always come out better stronger and faster and we will this time as well.
That said, we have more to do and we're excited about our future our leadership team and a 140000 team members that are aligned to maximizing shareholder value.
That's a little bit of color, let me flip it over to Brady and he can speak to a little bit.
The pork and beef business.
Sure well, thanks, Dani first of all on the pork.
In our pork business I think it's important to break the port business into two different segments first.
John and Donny indicated in the opening remarks.
We faced some challenges relative to the economics in the port business specific with live operations.
It's well documented that the pork industry is in the midst of a liquidation cycle right now.
We believe that the markets will in fact take care of themselves, but over half of our losses in the quarter were attributable to live ops and price discovery relative to live ops with some of our suppliers.
Fresh pork.
On the other hand, the other half of that segment.
<unk> was impacted by the fire we had in Madison.
And outside of that we saw strong improvement in terms of operational execution in our pork business. We're excited about the team that we've assembled here in springdale.
And believe we have a bright future in front of us as we continue to execute on those operations.
On the <unk> side, we will continue to focus on what we can control relative to moving through this.
Cycle, we're going to continue to align our supply with demand.
And drive the value added.
Including case ready to make sure that we continue to be closer to our customer and try to decommodify ties that business.
Thanks for the question.
Great and then.
If I go back to Yeah. I mean, this time last year, you were looking for a strong and speedy recovery and the chicken margins based on improved attach rates and capacity utilization, obviously that was that the hiccup over the holidays with.
The forecast in Carolina.
Seems as though the environment has changed materially at what what has changed in the environment and how quickly do you think you can get back on track on the chicken side of the business. Thank you and I'll pass it on.
Thank you Alexia.
We are encouraged by this.
The sequential improvement in <unk> and especially in June .
Yes.
We have much luck much work left to do but we're on the right path and I think that's important to call out we're controlling the controllable better than before and I mentioned earlier that.
The best I've seen in terms of execution since pre pandemic, but let me flip that over to west I'll, let him add a little bit more color on chicken, yes sure.
I'm encouraged by the sequential improvement the team is focused on what they do day in and day out and we've seen a big step change in the improving yields labor efficiency line efficiency in span.
At the same time, we've seen great improvement in order fill in on time delivery.
Yeah.
Thank you and I'll pass and Lady.
And ladies and gentlemen, our next question comes from Ben Bienvenu from Stephens. Please go ahead with your question.
Hey, good morning, Thanks for taking my questions.
Morning, Ben.
So I wanted to start on the chicken business Donnie you noted the sequential improvement in the business are you also called out the the actions you took to close four facilities I recognize not all of those are a lot Carol harvest facilities.
But I do think theres some sizable facilities in that footprint. So could you talk a little about what the net impact to production might look like as you layer some of that production into the rest of your facilities and and then think about what the go forward looks like.
Sure Ben I'll add a few comments and I'll flip it to west to add a little more color.
In terms of the plant closings closing plants is never easy for anyone involved in fact, it's it can be gut wrenching.
But I would tell you with a great deal of gratitude and thanks to our team members our family farmers and the communities impacted we made those decisions.
Earlier today, we announced the closure of the four plants, bringing the total to six this year.
The facilities that we're closing just to give a little color about them. They are typically smaller in scale and in need of major capital to make them viable.
And so that's an important detail and I'll flip it over to.
To west to give you a little color on the capacity.
Yes, Ben.
I would answer it simply this way, we're moving our existing soils.
Two more efficient assets and so no material change in.
Volume in any way shape or form.
In excess of 90% once implemented.
Hey, Ben This is John if I can just add in a little bit because I think you were trying to ask what's the impact on these moves so you heard Don talk about.
No.
Adjusting the needed for capital investment in some of the older facilities, we see that as a benefit with these moves.
I think number two we're talking about taking out around 10% of harvest capacity, which puts our assay utilization with all the things are said and done closer to that 90% out of the low <unk>.
And not just talking about the the asset closures, but when you think about the asset closures.
E to NIH M move and some other operational.
Changes that we're making we've talked a lot about unless you're on mix et cetera.
We would expect somewhere around a $200 million run rate uplift from those moves and so exactly when all that comes to fruition and the end of 'twenty three 'twenty four we can't peg it all in one day, but that's kind of order of magnitude what we're talking about.
Okay, that's very helpful. Thanks.
Maybe thinking about the pork business.
Noticed that facility.
Fire impact in the quarter.
We have been seeing that cut out rally pretty materially so kind of a two part question one.
I know despite the guide down for the balance of the year and pork are how would you expect pork packer margins.
To migrate as we move through the rest of this year and then two as you have seen.
Some of the cut out costs.
Prices rallied pretty materially what impact does that have to cost of goods sold on the prepared foods business as well.
So Ben if I could make a couple of comments and I'll, let Brady add color too.
Q3 was challenging and we expected it to be.
But as Brady mentioned earlier, we are absolutely laser focused on those things in which we can control.
I'll, let Brady if you would speak to the from the hog side as well as from a reporting perspective.
Sure. Thanks, Donnie I think Theres, a number of things that play here that we will continue to evaluate.
As we learn more about these markets and obviously one of the biggest impacts relative to the supply demand equation.
We've seen in the last <unk>.
Several months as the Supreme Court's ruling on proposition 12, I think is a industry, we still learning what total impact that has from a supply demand perspective, I think it's somewhat difficult right now to totally forecast with great accuracy, how that all plays out coupled with the fact that as I referenced earlier.
<unk>, we're in the midst of a sale liquidation cycle as well in the industry. We're going to continue to monitor these macroeconomic factors that impact our business, but let me be clear we have the opportunity to continue to control the controllable continue to use our footprint with our key.
This ready and value added.
The assets to get closer to the consumer.
And I feel good with the team that we have here in Springdale, we've stood up to manage the port business and are seeing significant operational improvements in that business.
And ladies and gentlemen, our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.
Hey, guys. Good morning, Thanks for taking the questions.
Peter.
Donnie maybe if we can actually start on beef.
I think he said it came in better than you expected in the quarter, but again your outlook here in <unk>.
Maybe a bit weaker and just wanted to give you a chance to talk about.
Kind of how you see that business playing out over the next 18 months.
Asking for formal guidance, but I think the last time, we were in this part of the beef cycle.
In 14, and 15 that you went through an extended period, where packer margins were actually negative then.
Is that within your consideration set is that in your outlook.
Just would be helpful to hear from you.
So Peter let me start off with.
We did in fact have a better quarter than expected.
We were not surprised necessarily buy beef results.
As Brady has mentioned and John did in the opening remarks that we continue to see herd liquidation.
We are focused on what we can control let me, let me flip it over to John and let him add some commentary around Hey, Peter Yeah. Just regarding your question on the outlook I think a couple of things. So you did note right just on what the implications are with our guidance ranges on the balance of or 'twenty three.
And we based that on dynamic market conditions, we're obviously being as.
Is intentional and aggressive as possible to try to balance that supply and demand to manage the spread.
But knowing what we know today, that's that's where things sit as we think about 'twenty four we expect to give you guidance in November as has been customary for us.
In the past.
Kind of annual cycle, but.
As it relates to making any.
Projections.
Projections or estimations about what the future looks like as we move into the fall we will start to see some data around where pasture conditions were.
What are the herd numbers looking like what is the Cao harvest and I think from there at that point in time, we might be able to make better projections about what 'twenty four 'twenty five look like and so I think that's probably as much as we can we can tell you on that today.
No. That's helpful. John Thank you for that just kind of as we think about watch outs.
And then maybe just back on back on Chicken Die just two questions or two part question first.
With the four facilities you have today are there any further anticipated impairments that you may have to take or kind of was that all.
Contemplated today, and then secondly, maybe more broadly you know Donnie.
Donnie this mark to market hedging program and chicken seems to kind of.
Be an unexpected headwind a lot of quarters, just curious as you're reevaluating all parts of the business. I mean is there a thought process on just unwinding the hedging program and kind of go into a more hand to mouth approach. Thanks very much.
Sure. Thanks, let me.
In terms of the plant closures.
As I said earlier, we're continuing to evaluate everything as we as we.
Automate and modernize these assets.
So.
We will continue to look.
I will tell you from a execution standpoint again.
Performance was much better in Q3, and a lot of momentum moving into Q4 in our chicken business.
We were still growing with customers and we still have capacity to be able to do that going forward.
But in terms of.
In terms of in terms of mark to market.
I see it as well.
We've talked about it a great deal and what the other options are for that in the business. So let me let me see.
Send it over to John and let me add a little color about that.
I think there were two questions in there one around the impairments and one around the <unk>.
The Mark to market program I think on the hedging program look we we manage that try to manage for margin for ourselves and as part of our relationship with our customers. We're always evaluating how we can do things different and better and recognize that it could create a little bit of noise in the numbers, but at this point in time don't have any plans to change our approach.
And how we do that Thats number one and then on the impairment I think it is worth pointing out.
There was a goodwill impairment in our chicken business in our Q3, but as it relates to these asset closures. The details of those charges would come through our Q4, and we'll give a little more clarity on that as it relates to the asset impairments.
The onetime cash costs, which all continue to get worked through as we can.
<unk> worked through the details of the closure.
Great. Thanks, very much John .
Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.
Yes, Thank you and good morning, everyone.
Adam Good morning.
So maybe just continuing in chicken.
And John you gave some helpful color and quantifying kind of the benefits from some of the <unk>.
Plant closures and production shift.
On the business and you quoted a $200 million kind of profit run rate.
That would.
It would equate to give or take 110 or 20 basis points of margin at different revenue levels.
So as we think about where you're exiting fiscal 'twenty three with the business in a loss position.
The cumulative effect of those actions would get you to.
Functionally marginal levels of profitability. So help us think about beyond that so these are things you can control when they get you slightly profitable is it really a.
Market dependent question on chicken demand has to improve chicken commodity chicken pricing has to improve is what would actually get you to that historical 5% plus margins that.
The company had been previously install still aiming for longer term.
Yeah, Adam I think I would point out to a couple of things. There. So first off we were talking about the sequential improvements in operational execution.
And more or less.
You haven't seen market conditions materially change.
Quarter to quarter. So I guess, we just knew emphasized that as a proof point that we're talking about execution upholding the external data, mostly static we're starting to see that come through and you did pick up correctly on the 200 is kind of a run rate number and again when we talk about making the same amount of food and a smaller footprint.
We do have some we have confidence in and just what that cost elimination means from an overall profitability.
We obviously are subject to where commodity markets move on both the input and the market side. So.
Recovery, there helps us because it does everyone in the industry.
We tend to focus on what's in our control and I think beyond.
What I've just said it's probably.
Too early to issue any numbers for 'twenty four we.
We will be able to look at that when we get to the November November .
November call. So hopefully that's somewhat more helpful than what you were looking for.
No it isn't and I guess, so I think philosophically historically the company would always talk about.
Profitability in chicken and.
Less volatility than the industry as a whole and not seeing the lows that others in the industry fee not seeing the same highs and I guess not.
Not saying that others in industry haven't seen real lows in the last six to 12 months, it's been a real challenge for the for the whole industry.
I guess the historical model would have maybe made us think that tyson's chicken business would be more resilient. So how do you how does the experience of the last year.
Inform how you would think about.
Tysons relative performance versus the industry and the margin potential of the business as currently constructed I'll, let I'll, let Don comment on that one.
As I said earlier Adam.
We believe in chicken, we're on the right path.
I would tell you is the right path.
<unk> been on that path for about two years now and we've had a number of fits and starts from.
From the from the breeder side.
To demand the demand picture.
We're on our way to healing from a genetics perspective on the life side.
In terms of.
In terms of our operations they are performing better than half, but then the third one and it really it really impacted us in Q1 last year as the demand picture that we struggled with getting a really accurate view of that I would tell you. The good news is in in Q2, we were able to get that.
Done we actually started seeing benefit.
With that in Q3, and so we feel like we have a better picture of what the demand truly and consumption truly looks like.
That informs us again in terms of supply.
So we feel more balanced today than we have over the past two quarters and the execution.
Elements that we've talked about.
We're obviously doing those a lot better than before and then if you look at the bridge that you are trying to create.
Basis. Your question, Yes, there is some asset impairments, yes, there are some plant closures.
Typical labor yield and all those type things that we're managing.
But.
We are doing every one of those things and so I feel really good about where we are in chicken in the path that we're on and the future looks really really good to me John Yeah, and Adam I, just wanted to add and emphasize something we already talked about but I don't remember exactly how you asked the question, but something to the effect of Haywood, what's different right now we're looking.
Backwards and it's worth pointing out I think we've taken pretty meaningful steps to get the cost structure back in balance.
That includes the two closures back in the March timeframe. The in a move that we've talked about as well as these additional ones. So I think just pointing to that as evidence and then when you look at quarter over quarter market conditions. The same we're delivering on the operational execution there are multiple proof points.
A lot in the last call. It nine to 12 months that I think we are we believe are indicative of the trajectory of this business.
Okay. That's helpful color I'll pass it on thanks.
Our next question comes from Andrew <unk> from BMO. Please go ahead with your question.
Hey, good morning, Thanks for taking the questions.
My first one is related to the to the chicken facility closures that you just announced that.
I'm wondering if you could kind of compare and contrast, the chicken dynamics to what's going on in the beef and pork operating environments, you talked about controlling the controllable and utilization rates and certainly you spoke about how difficult decisions are to close plants, but why does it makes sense.
To do that in chicken and not across your beef and pork businesses given the.
<unk> got supply contraction that youre talking about.
Sure Let me, let me start out and.
And remind you that I said, we were looking at everything.
And we are in and so I get your question around why not look at beef and pork.
And.
Again I would tell you we are looking at everything in terms of.
How it works.
Yeah.
Across the board.
Under mentally we are focused on execution excellence across all businesses and functions at Tyson, including the overhead and cost structure at our corporate facilities and.
So we're doing that well I'm, not saying I'm not telling you that we're not looking at beef and pork.
No.
In the same manner that we have looked at chicken, we're evaluating everything and I think thats, probably the biggest takeaway from that but there was a first part of that there was a chicken components.
I think the thing the specific question was comparing chicken to beef here and how do you think about that.
I think look there are multiple factors that go into making decisions like this.
Asset efficiency and projected capital requirements are a big driver here and when we talk about poultry today, when we just think about the older.
Slower less efficient assets compared to where we're moving the birds, we see that as a big uplift and we make those same kind of evaluations across.
The whole network.
I will make the comparison there I think I think the other thing to point out we've talked about this on previous calls.
We are in this kind of special moment of facing headwinds in chicken pork and beef segments. The recovery timeline in each of those is different we would expect to see chicken recover mode.
Just quickly pork is a little different than the beef cycle and those dynamics I think are well documented so it's just worth.
Re calling attention to that.
I would say this John .
One final thought as we think about chicken and you mentioned John that chicken would recover faster.
Thats all true.
But I think if you look at the chicken business today versus where we were just a quarter ago, there are more tailwind and headwinds in the chicken business.
In the near to long term here.
Great.
Really helpful color and then I guess for my second question.
Just wanted to go back to that to the change to the Capex guidance for the year can you talk about some more specifically the change there and does it have any implication for 'twenty four capex and I guess, just generally as you think about the flexibility of your Capex budget is there a way given the projects that are already underway et cetera to think about kind of a minimum capex budget for.
Next year I don't know if theres a way to frame that thank you.
This is John I'll take that question, let me, let me talk a little bit of Capex, and just kind of maybe some other related matters on.
On the balance sheet and leverage so I think.
First off.
We have pared back the capex kind of quarter over quarter, we've been managing the spend throughout the year.
And we feel good about that based on our guidance today, you would expect to see.
$500 million in Q4, which just worth pointing out that it's still above what has been our historical annual run rate for us of about $1 5 billion.
We are targeting to get to that $1 $5 billion spent annually.
And.
I think it would be premature to say, where the 24 number of lands, but safe to say that we are trending in that.
Direction.
I think it's also worth just taking a second to talk about where we are with leverage.
And <unk>.
Because capital obviously the capital is then obviously influences that.
The headline for US is we are sitting on a sound balance sheet.
And that's really a product of the capital allocation choices. We've made through the last few years, where we're really focused on kind of preserving.
A good financial position targeting at or around that two times leverage number for the long term.
No.
Leverage has increased.
Where profitability has been on an LTM basis.
But I think overall, we feel we feel good about where we are where we are from being able to manage a capital spend standpoint.
And everything else that we've got going on we've made a couple of moves just tried to be tighter on working capital we've pulled that down about $100 million inventory. This quarter, just despite what's going on in the market. So I think overall capital spend working capital efficiency.
All in line with the long term leverage number have been.
With where we sit today.
Great. Thank you very much I'll pass it on.
Yes.
Yes.
Our next question comes from Benjamin Theurer from Barclays. Please go ahead with your question.
Hi, good morning, Thanks for taking my question.
Pork margins after these Jordan Sherman.
You already commented on market conditions.
We'll provide more by them.
Any specific initiatives.
Maybe some plant closures.
And maybe that could be an option to cancel.
You can pull out.
Towards improving operations there.
It's kind of hard to understand your little muscle do you mind repeating that question sorry, because that was there was a lot in there.
Sure on the book by June .
You already revised needs and you mentioned the market conditions.
We sold but can you provide more light on companies with some continued shipments maybe some plant closures that would be an option for muscle chicken.
And congrats on profitability.
Okay.
Yeah. Thanks. Thanks, Benjamin This is Brady Stuart I appreciate the question as Tony just indicated we are evaluating our business in totality and first and foremost.
Really I think we need to unpack those pork results back into the live and the actual fresh pork.
Segments that roll up to the specific Bu I'm going to speak specifically to our plants and operations from the fresh pork perspective.
Comfortable with our strategy moving forward, obviously from a.
Impact perspective, we're focused on everything from our expenses and expense structure that we have within our assets the efficiency of our assets. We have plans in place to make sure that we focus on better efficiency within those assets and then obviously traditional price yield and mix matrices that really provides.
Is the opportunity to maximize the margins.
And our opportunity to go to market. So that's the approach we take we feel very comfortable with the team. We have in place will feel very comfortable with the strategy that we have in place I feel very comfortable from an operational.
Execution perspective that we're making strides and improvements in net.
Particular segment.
Okay. So no branch closures in exports.
Chicken Nuggets.
As Don indicated earlier.
We literally are evaluating everything.
And.
That's that's both asset utilization along with how we frame our strategy and our business moving forward and we're comfortable with.
With our approach as we move forward.
Okay perfect. Thanks Shlomo.
Thank you.
Once again, if you'd like to ask a question. Please press star and one.
Our next question comes from Michael elaborate from Piper Sandler. Please go ahead with your question.
Good morning, Thank you.
Good morning.
I just wanted to come back to chicken and then how you think about I guess capacity.
Impressive to be able to cut some facilities and maintain.
The volume output is obviously from an efficiency standpoint, but.
I guess, just given the industry supply and where pricing is so pressured.
Is there any any rationalization or.
Kind of where production beyond that that would make sense just to just given the market dynamics.
Sure I think there is a couple of things to say on that.
We've been pretty consistent going back to the last year talking about.
As our capacity utilization is the driver for profitability in this business.
<unk>.
We were in the low <unk> in 'twenty, two and so.
With the balance of growing our business and rationalizing some of the footprint, we feel as though we've now optimized the network and continue to push toward those utilization levels that would be in line with.
You know the historical drivers for profitability for US I think Thats. The first thing and then you talked about you asked about.
Where demand is or what the customer is doing or the industry dynamics, we don't mean to make any projections about what's going on in the industry and focus on what we can control and I think that with.
With these moves we're going to get closer to our customers, which is a benefit.
How we're how we're moving things around and.
So I think we feel good about the choices on that front I don't know if you've got anything to add west or Donnie Yeah. Michael I think just as a reminder, we talk about it often that where demand backwards slaughter production organization and so when you look at.
Our customers forward demand curve post from their business we've picked up.
Literally gaining momentum on both sides right sizing capacity and growing at the same time.
Yes, and maybe I could add one additional thing to that.
There's been a lot of conversation this morning about capital and what is that going to be going forward.
Obviously talked about the App.
Assets that were closing.
<unk>.
What you may not understand is how all of those fit together.
So maybe I can help with that.
A couple of years ago, we heavy up pensions.
Essentially in capital too to get ourselves in a position to have capacity specifically more value added.
Branded type capacity and.
So that's where a lot of the extra spending above and beyond the one 5 billion I think it's also important to to link the plant closures that we talked about with the reduction in the capital that we're going to spend for the balance of 'twenty, three and probably what that looks like in 'twenty for that work is done today.
And these assets that we're shuttering would have required significant capital in order to.
To make them competitive in.
If you look at the returns on those it really didn't make sense to do that but.
But I would tell you in terms of chicken, specifically and the capacity with even with the 10% reduction we're just over 90% capacity.
And we still have we still have room to grow with the customers and as the market grows.
Okay, great. Thanks, so much.
Thank you.
Sure.
And ladies and gentlemen, im showing no additional questions. This will conclude our question and answer session I would like to turn the floor back over to Donnie King for any closing remarks.
Alright, Thank you and thanks, everyone for being with US today as you've heard today, we're executing in the face of macro headwinds and we're seeing early success demonstrated by the sequential improvement in Q3 I remain optimistic.
Optimistic about our long term outlook, our customers and consumers are behind us, we're winning with both while we remain focused on operational excellence and we will continue to combat the current environment by focusing on what we can control all in an effort to maximize value for shareholders I'm very thankful for the hard work that our team members do every.
To support these efforts.
As we continue to build a world class organization positioned to take advantage of the opportunities in front of US we remain confident that our strategy will deliver long term growth and shareholder value.
Thanks for your interest in Tyson Foods, and we look forward to speaking soon.
Yeah.
Ladies and gentlemen, the conference has now concluded we thank you for attending today's presentation. You may now disconnect your lines.