Q1 2024 Tyson Foods Inc Earnings Call
Operator: Good morning, and welcome to the Tyson Foods first quarter 2024 earnings conference call. All participants will be in the listen only mode.
Good morning, and welcome to the Tyson Foods first quarter 'twenty 'twenty four earnings conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw your question.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone.
Operator: To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sean Cornett, Vice President, Investor Relations. Please go ahead.
Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Sean Cornett, Vice President Investor Relations. Please go ahead.
Sean T. Cornett: Good morning, and welcome to Tyson Foods fiscal first quarter 2024 earnings conference call.
Sean T. Cornett: Good morning, and welcome to Tyson Foods' fiscal first quarter 2024 earnings conference call. On today's call, Tyson's President and Chief Executive Officer Donnie King and Chief Financial Officer John R. Tyson will provide some prepared remarks followed by Q&A. Additionally, joining us today are Brady Stewart, Group President, Beef and Pork, and Chief Supply Chain Officer; and Melanie Bolden, Group President, Prepared Foods, and Chief Growth Officer. Wes Morris, Group President, Poultry, and Amy Toot, President, International.
Sean T. Cornett: On today's call tightened President and Chief Executive Officer, Donnie King Chief Financial Officer, John Archives.
Speaker Change: <unk> had some prepared remarks, followed by Q&A.
Speaker Change: Additionally, joining us today are Brady Stuart group, President deep important chief supply chain officer.
Speaker Change: And the only Bolton President prepared foods Chief growth Officer.
Speaker Change: Bless Morris group, President poultry and Amy <unk> President International.
Speaker Change: We've also provided a supplemental presentation, which may be referenced on today's call and is available on Titans Investor relations website or via the link on our webcast.
Sean T. Cornett: We have also provided a supplemental presentation which may be referenced during today's call and is available on Tyson's Investor Relations website and via the link in our 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 risks, uncertainties, and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statement disclaimers on slide 2, as well as our SEC filings, for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements.
Speaker Change: During today's call, we will make forward looking statements regarding our expectations for the future. These.
Speaker Change: These forward looking statements made during this call are provided pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Speaker Change: Forward looking statements include all comments, reflecting our expectations assumptions or beliefs about future events performance that is not relate solely to historical periods.
Speaker Change: These forward looking statements are subject to risks uncertainties and assumptions, which may cause actual results to differ materially from our current projection.
Speaker Change: 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.
Speaker Change: We assume no obligation to update any forward looking statements.
Speaker Change: Please note that references to earnings per share operating income and operating margin in our remarks are on an adjusted basis unless otherwise noted.
Sean T. Cornett: 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. Now I'll turn the call over to Doug. Thanks, Sean, and thank you to everyone for joining us this morning.
A reconciliation of these non-GAAP measures to their corresponding GAAP measures. Please refer to our earnings press release.
Speaker Change: Now I'll turn the call over to Don.
Don: Thanks, Sean and thank you to everyone for joining us this morning.
Don: As you may have seen in our press release. This morning fiscal 2024 is off to a good start with solid performance in Q1, giving us confidence in our full year outlook.
Donnie King: As you may have seen in our press release this morning, Fiscal 2024 is off to a good start, with solid performance in Q1 giving us confidence in our full-year outlook. The momentum we established in the back half of last year continued in Q1, highlighted by a $175 million improvement in adjusted operating income, 130 basis points of AOI margin expansion, and a near doubling of adjusted EPS, all on a sequential basis. As we begin fiscal 24, we're witnessing the benefits of our core multi-protein portfolio. Chicken and pork are offsetting beef headwinds, while prepared foods continue to generate strong profit dollars and margins. While we can't control the macro environment, our focus on what we can control has been evident in Q1.
Don: With them, we established in the back half of last year continued in Q1 highlighted by $175 million improvement in adjusted operating income of 130 basis points of margin expansion and near doubling of adjusted EPS on a sequential basis.
Don: As we begin fiscal 'twenty four we're witnessing the benefits of our core multi protein portfolio Chick.
Don: <unk> court are offsetting these headwinds while prepared foods continues to generate strong profit dollars and margins.
Don: Well, we can't control the macro environment, our focus on what we can control has been evident in Q1, our performance reflects our commitment to operational excellence.
Donnie King: Our performance reflects a commitment to operational excellence. We are a more agile, collaborative, and disciplined business than a year ago, and we have a long runway of opportunities in front of us. I'm proud of our team members' continued efforts to enhance operational performance and want to thank all of them for their high level of engagement and their part in delivering our results this quarter. We're controlling what we can to drive cash flow as well. Our disciplined approach to CapEx and working capital helped generate strong cash flow in the quarter.
Don: We are more agile collaborative and disciplined business than a year ago, and we have a long runway of opportunities in front of us.
Speaker Change: I'm proud of our team members continued efforts to enhance operational performance and want to thank all of them for their high level of engagement and their part in delivering our results in this quarter.
Speaker Change: We're controlling what we can to drive cash flow as well our disciplined approach to Capex and working capital helped generate strong cash flow in the quarter.
Donnie King: Credit Cash Deployment is part of our strategy to build financial strength and will position us well when market dynamics turn in our favor. You've seen us take bold actions to improve performance, and everything remains on the table to drive operational excellence and address inefficiencies. Our plan is working, and we're seeing tangible benefits of our efforts as evidenced by improvements in chicken and pork. While I'm pleased by the performance in Q1, we still have more work ahead of us, and we're cautiously optimistic and laser-focused on achieving what we set out to do this year. Our brands resonate with consumers, and we're maintaining strong market share despite comparing to our record position last year and some overall category consumption softness in Q1.
Speaker Change: Prudent cash department as part of our strategy to build financial strength and position us well when market dynamics turn in our favor.
Speaker Change: You've seen us take bold actions to improve performance and everything remains on the table to drive operational excellence and address the inefficiencies. Our plan is working and we are seeing tangible benefits of our efforts is evidenced by improvements in chicken and pork.
Speaker Change: While I am pleased by the performance in Q1, we still have more work ahead of us and we're cautiously optimistic and are laser focused on achieving what we set out to do this year.
Speaker Change: Our brands resonate with consumers and we're maintaining strong market share despite comparing to our record position last year and some overall category consumption softness in Q1.
Donnie King: We will continue to support our brands through innovation, marketing, and strong customer partnerships while meeting consumers where they are. I remain highly confident in our long-term strategy based on a broad portfolio of core proteins and strong brands and am optimistic about our future. We're leaving no stone unturned to drive long-term value for our shareholders. Now, let's delve into an update on the share position of our branded portfolio. Our Q1 pound share in our core business lines, which include product lines from our iconic brands, Tyson, Jimmy Dean, Hillshire Farm, State Fair, Adels, and Ballpark, remains at historically high levels despite a modest decline compared to record share in Q1 last year. In fact, our core business lines have grown pound share by more than 400 basis points since Q1 of 2019. While inflation is easing, consumers are still facing high prices compared to two years ago.
Speaker Change: We will continue to support our brands through innovation marketing and strong customer partnerships, while meeting consumers where they are.
Speaker Change: I remain highly confident in our long term strategy based on our broad portfolio of core proteins and strong brands and I'm optimistic about our future, we're leaving no stone unturned to drive long term value for our shareholders.
Speaker Change: Now, let's delve into an update on share position of our branded portfolio. Our Q1 pound share in our core business lines, which include product lines from our iconic brands Tyson Jimmy Dean Youll shower far state fair, a Dallas and ballpark remains at historically high levels. Despite a modest decline compare.
Speaker Change: To record share in Q1 last year in fact, our core business lines have grown pound share by more than 400 basis points since Q1 of 2019.
Speaker Change: While inflation is easing consumers are still facing high prices compared to two years ago. However, they are still willing to purchase brands. They know and trust and this is reflected in our share.
Donnie King: However, they are still willing to purchase brands they know and trust, and this is reflected in our share. We're also focused on customer elasticity and balancing our own costs. We believe our approach is working. The value proposition of our iconic brands resonates strongly with consumers. For example, over the past year, nearly three out of four U.S. households purchased a Tyson Corp. business line product, and this penetration rate is growing.
Speaker Change: We're also focused on customer elasticity and balancing with our own cost. We believe our approach is working.
Speaker Change: The value proposition of our iconic brands resonate strongly with consumers over the past year nearly three out of four U S households purchased a Tyson core business find product and this penetration rate is growing well.
Donnie King: What gets me even more excited is that our product line with the highest penetration rate is only in about a third of households, leaving us plenty of room for continued growth over the long run. Moving on to segment performance, starting with prepared food. Our food service volumes continue gaining traction as we strive to grow this business with a focus on customer diversification and margin-accretive channels. Operational efficiencies and lower raw material costs drove strong adjusted operating profits and margins. Our branded foods business remains a strategic growth pillar, and we are committed to supporting and growing our brands through innovation, price-packed architecture, high ROI marketing support, and strong customer partnership. This is critically important in an economic environment where consumers remain more discerning in their purchasing decisions.
Speaker Change: What gets me even more excited is that our product line with the highest penetration rate is only in about a third of households, leaving us plenty of room for continued growth over the long run.
Speaker Change: Moving on to segment performance, starting with prepared foods.
Speaker Change: Our foodservice volumes continue gaining traction as we strive to grow this business with a focus on customer diversification and margin accretive channels.
Speaker Change: Operational efficiencies and lower raw material costs drove strong adjusted operating profits and margins.
Speaker Change: Our branded foods business remains a strategic growth pillar and we are committed to supporting and growing our brands through innovation price pack architecture high ROI marketing support and strong customer partnerships. This is critically important in an economic environment, where consumers remain more discerning with their purchasing decision.
Speaker Change: <unk>.
Donnie King: In chicken, the momentum established in the second half of fiscal 23 continued in Q1, with a third consecutive quarter of over $100 million in sequential AOI increases. Operational improvements, including the bold actions we've taken, along with improvements in live operations, yield, labor efficiency, and customer service, as well as improving market conditions, were the primary drivers in Q1. In beef, limited cattle supply led to spread compression, as we expected. However, roughly half the loss in Q1 was related to an inventory valuation adjustment, which was primarily driven by highly volatile cattle.
Speaker Change: And chicken the momentum established in the second half of fiscal 'twenty. Three continued in Q1 with a third consecutive quarter of over $100 million in sequential NOI increase.
Operational improvements, including the bold actions, we take it along with improvements in live operations yield labor efficiency and customer service as well as improving market conditions were the primary drivers in Q1.
Speaker Change: And beef limited capital supply led to spread compression as we expected roughly half the loss in Q1 was related to an inventory valuation adjustment, which was primarily driven by highly volatile cat futures.
Donnie King: While spreads are expected to remain tight, our goal remains to be best-in-class operators so that we can manage the business as efficiently as possible. We have identified incremental opportunities to improve our execution and help offset some of the challenges from the current cattle cycle. Turning to pork.
Speaker Change: Spreads are expected to remain tight our goal remains to be best in class operators. So that we can manage the business as efficiently as possible.
Speaker Change: We have identified incremental opportunities to improve our execution and help offset some of the challenges from the current cattle cycle.
Speaker Change: Turning to port.
Donnie King: Better supply drove lower hog costs, leading to improved spreads. Our team's focus on operational execution allowed us to capture the benefits of these favorable market dynamics, which resulted in improved profits both on a year-over-year and sequential basis. Before I hand it over to Jon for a financial review, let's reiterate our priorities for the year. First, we're committed to improving our financial strength and driving cash flow to support our dividend, as demonstrated in Q1. Over the past year, we announced the closure of six of our older, less efficient plants and chicken and two of our smaller beef, case-ready, value-added facilities.
Speaker Change: Better supply drove lower hog costs, leading to improving spreads our team's focus on operational execution allowed us to capture the benefit of these favorable market dynamics, which resulted in improved profits both on a year over year and sequential basis.
Speaker Change: Before I hand, it over to Jon for a financial review, let's reiterate our priorities for the year.
Jon: First we're committed to improving our financial strength and driving cash flow to support our dividend as demonstrated in Q1.
Speaker Change: Over the past year, we announced the closure of six of our older less efficient plants and chicken and two of our smaller b case ready value added facilities.
Jon: We're already seeing the benefits of these actions and we will continue to evaluate opportunities to drive efficiency across our segments.
Donnie King: We are already seeing the benefits of these actions and will continue to evaluate opportunities to drive efficiency across our segment and in Chicken. In Prepared Foods, we want to build growth momentum behind capacity additions coming online, increase our brand household penetration, and diversify and grow our food service business. In beef, we acknowledge the challenges and will be prepared for multiple outcomes during the current cattle cycle and Port.
Jon: And chicken our focus on enhancing our competitiveness continues.
Jon: In prepared foods, we want to build growth momentum behind capacity additions coming online increase our brand household penetration and diversify and grow our foodservice business.
Jon: And beef, we acknowledged the challenges and we will be prepared for multiple outcomes during the current cattle cycle.
Jon: In Port, we're gaining momentum in operational execution and are excited for continued improvements.
Donnie King: We're gaining momentum in operational execution and are excited for continued improvement. With that, I'll turn the call over to Jon to discuss our financial results and outlook. Thanks, Donny.
Jon: With that I will turn the call over to John to discuss our financial results and outlook.
John Colantuoni: Thanks, Tony I'll start with an overview of our total company results before moving on to our individual segments sales.
Jon: I'll start with an overview of our total company results before moving on to our individual segments. Sales in Q1 grew slightly year over year, as an increase in beef revenue was nearly offset by a decrease in chicken. The decline in adjusted operating profit was driven by lower profitability in beef, which was partially offset by growth in chicken and pork.
Sales in Q1 grew slightly year over year as an increase in beef revenue was nearly offset by a decrease in chicken.
John: The decline in adjusted operating profit was driven by lower profitability in beef, which was partially offset by growth in chicken and pork.
Jon: It's important to note that AOI improved significantly on a sequential basis, despite the modest decline versus last year. Adjusted EPS nearly doubled compared to last quarter, highlighting the ongoing improvement in our operational performance. Now, let's review our segment results, starting with prepared foods. In prepared foods, Q1 revenue was flat year over year.
Tony: It's important to note the AOE improved significantly on a sequential basis, despite the modest decline versus last year.
Tony: Adjusted EPS nearly doubled compared to last quarter, highlighting the ongoing improvement in our operational performance now let's review our segment results starting with prepared foods.
Tony: In prepared foods Q1 revenue was flat year over year volume growth was led by benefits from the Williams acquisition and continued recovery in our foodservice business lower pricing primarily reflects the mix impact of the lower contribution from retail.
Jon: Volume growth was led by benefits from the Williams Acquisition and continued recovery in our food service. Lower pricing primarily reflects the mixed impact of lower contribution from retail. AOR and Q1 were also in line with plan. Lower raw material costs and operational efficiencies were offset by increased brand support expenses, startup costs associated with new capacity additions, and AOI dollars and margin both increased significantly on a sequential basis due to strong operational performance and great seasonal execution by the company. Moving on to chicken, sales in Q1 declined 5.4% year-over-year, primarily driven by the impact of lower commodity protein prices. Volume declined 1.5% due to lower production, which was partially offset by continued sell-through of finished goods.
Tony: AOR in Q1 was also in line with last year, lower raw material cost and operational efficiencies were offset by increased brand support expenses startup costs associated with new capacity additions and mix.
Tony: Our dollars and margin both increased significantly on a sequential basis due to strong operational performance and great seasonal execution by the team.
Tony: Moving on to chicken sales in Q1 declined five 4% year over year, primarily driven by the impact of lower commodity protein prices volume declined one 5% due to lower production, which was partially offset by continued sell through of finished goods inventory.
Jon: Despite the decline in sales versus last year, AOI more than doubled in Q1, primarily driven by the benefits of our strategic actions and other operational... These include lower plant spend, improved yield, and better live performance. While input costs were a clear tailwind, these were largely offset by the impact of lower prices. As Donnie mentioned, this was the third consecutive quarter of more than $100 million of AOI improvement, as we were able to pull forward the benefits of closures of inefficient plants and improvements in our live operations. Now I'm moving to beef.
Tony: Despite the decline in sales versus last year more than doubled in Q1, primarily driven by the benefits of our strategic actions and other operational efficiencies.
Tony: These include lower plant spin improved yield and better loss performance.
Tony: While input costs were a clear tailwind these were largely offset by the impact of lower pricing.
Tony: As Dani mentioned this is the third consecutive quarter of more than $100 million of AUR improvement as we were able to pull forward the benefits of closures of inefficient plants and improvements in our live operations.
Tony: Now moving to beef.
Jon: In beef, revenue increased 6.4% year over year in Q1, with lower head throughput more than offset by higher prices. However, while revenue increased, AOI decreased versus last year, primarily reflecting compressed spread, as expected. As Donnie mentioned, in Q1, nearly half of the operating loss was driven by an unfavorable inventory valuation adjustment, which was primarily due to the rapid and significant decline in cattle. Moving to pork, Q1 revenue was down modestly as volume growth was offset by lower prices. However, AOI increased year over year, benefiting primarily from improved spreads driven by lower hog costs as well as better... And finally, a brief comment on our international business... AOI is improving as we begin to recover some of the startup costs of our newer facilities and continue to focus on improving execution, despite a decline in sales driven by macroeconomic challenges.
Tony: And beef revenue increased six 4% year over year in Q1, with lower head throughput more than offset by higher prices per pound.
Tony: While revenue increased.
Tony: Decrease versus last year, primarily reflecting compressed spreads as was expected.
Tony: As Dani mentioned in Q1, nearly half of the operating loss was driven by an unfavorable inventory valuation adjustments, which was primarily due to the rapid and significant decline in cattle futures.
Moving to Port Q1 revenue was down modestly as volume growth was offset by lower pricing. However, AOR increased year over year benefiting primarily from improved spreads driven by lower hog costs as well as better execution.
Tony: And finally, a brief comment on our international business.
Tony: <unk> improves we begin to lap some of the startup cost of our newer facilities and continue to focus on improving execution. Despite a decline in sales driven by macroeconomic challenges.
Tony: Shifting to our financial position and capital allocation, our commitment to building financial strength investing in our business and returning cash to shareholders, primarily via our dividend remains unwavering.
Tony: While market conditions remain challenging we are laser focused on disciplined management and deployment of our capital resources to drive cash flow.
Tony: Q1 showcase robust operating cash flow of $1 3 billion.
Jon: Shifting to our financial position and capital allocation, our commitment to building financial strength, investing in our business, and returning cash to shareholders, primarily via our dividend, remains unwavering. While market conditions remain challenging, we are laser-focused on prudent management and deployment of our capital resources to drive cash flow. Q1 showcased robust operating cash flow of $1.3 billion, above our expectations, and working capital was a solid source of cash as we continued to manage inventory. We were also disciplined with CapEx, which came in at just over $350 million in the quarter, below last year's expectations. During the quarter, we returned $171 million to shareholders via dividend.
Tony: Above our expectations and working capital was a solid source of cash as we continued to manage inventory levels. We.
Tony: We were also discipline with Capex, which came in at just over $350 million in the quarter below last year's exit rate during.
Tony: During the quarter, we returned $171 million to shareholders via dividends.
Tony: Our net leverage declined sequentially coming below four times, driven by our improved profitability and strong cash generation. We ended Q1 with more than $3 $7 billion of liquidity are.
Tony: Our balance sheet management approach remains unchanged, we are committed to building financial strength and maintaining our investment grade credit rating and returning net leverage to at or below two times net debt to EBITDA.
Tony: We remain committed to maintaining a disciplined yet opportunistic capital allocation strategy, ensuring that we deploy resources to maximize long term shareholder value.
Jon: Our net leverage declined sequentially, coming below four times, driven by our improved profitability and strong cash generation. We ended Q1 with more than $3.7 billion of liquidity. Our balance sheet management approach remains unchanged.
Tony: Now, let's take a look at our updated outlook for fiscal 2024.
Tony: Given the solid results in Q1, we have confidence that our financial performance in 2024 will improve versus last year. However, as it's still early in the new fiscal year and uncertainties remain especially in our beef segment. We have made only modest changes to our outlook.
Jon: We are committed to building financial strength and maintaining our investment grade credit rating and returning net leverage to at or below two times net debt each year. 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 take a look at our updated outlook for fiscal 2020. Given the solid results in Q1, we have confidence that our financial performance in 2024 will improve versus last year. However, as it's still early in the new fiscal year and uncertainties remain, especially in our beef segment, we have made only modest changes to our outlook. Our focus for fiscal 2024 remains to manage the business for profit and cash dollar generation, reflected in our guidance presented in dollar terms, rather than margin. With that in mind, we are reiterating our overall sales guidance to be roughly flat year over year. Moving to each of the segments.
Tony: Our focus for fiscal 2024 remains to manage the business for profit and cash dollar generation reflected in our guidance presented in dollar terms rather than margin percentages.
Tony: With that in mind, we are reiterating our overall sales guidance to be roughly flat year over year.
Tony: Moving to each of the segments.
Tony: Prepared foods had a solid start in a seasonally strong period for the remainder of the year. We expect strong volume results as we continue our momentum in foodservice and see the benefits of our capacity additions we.
Tony: We remain focused on operational efficiencies, while we support our brands and anticipate continued startup costs, taking all this into account, we're maintaining our <unk> guidance to be in the range of $800 million to $1 billion.
Tony: And chicken our operational turnaround is progressing as anticipated for the remainder of the year, we expect to return to normal seasonality, where Q2 is typically a weaker quarter given the strong start in Q1, and then we believe that there were more tailwind and headwinds we are tightening our <unk> guidance range to be between $500 million and $700 million.
Tony: And beef spreads are compressing as expected however, uncertainty remains around how the cattle cycle will progress. Therefore, we are maintaining our full year guidance at a loss of $400 million to breakeven.
Tony: And pork on the back of our strong Q1 results, we're now raising our guidance to be between breakeven and $100 million.
Jon: Prepare foods got off to a solid start in a seasonally strong period. For the remainder of the year, we expect strong volume results as we continue our momentum in food service and see the benefits of our capacity. We remain focused on operational efficiencies while we support our brands and anticipate continued startup costs. Taking all this into account, we're maintaining our AOI guidance to be in the range of $800 million to $1 billion.
Tony: For the total company AOR, we're maintaining our guidance of between 1 billion and one 5 billion, reflecting the portfolio nature of our segments.
Tony: To round out the key P&L items, we anticipate interest expense to be roughly $400 million and a tax rate to now be between 23% and 24%.
Tony: Turning to Capex, we're maintaining tight controls on spending in line with profitability and cash flow and we expect capex to remain between 1 billion and $1 $5 billion. This year.
Jon: In chicken, our operational turnaround is progressing as anticipated. For the remainder of the year, we expect a return to normal seasonality, where Q2 is typically a weaker quarter. Given the strong start in Q1, and that we believe that there are more tailwinds than headwinds, we are tightening our AOI guidance range to be between $500 million and $700 million. In beef, spreads are compressing as expected.
Tony: Finally on free cash flow, we're committed to managing working capital and Capex and we're even more confident now than we were last quarter that we will generate positive free cash flow for the year.
Tony: To further help model the shape of the rest of the year, we anticipate more typical seasonality across our business. As a reminder, Q2 is seasonally our weakest quarter for our cash flow driven by beef and chicken and as you may be aware. This January has already been impacted by severe winter weather disrupting operations and again, we expect startup costs in prepared foods to impact Q2.
Tony: Well.
Tony: So in summary, 2024 is off to a promising start and we're cautiously optimistic on our prospects for the remainder of the year as well as for the long term.
Jon: However, uncertainty remains around how the cattle cycle will progress. Therefore, we are maintaining our four-year guidance at a loss of $400 million to break. In pork, on the back of our strong Q1 results, we're now raising our guidance to be between break-even and $100 million. For the total company AOI, we're maintaining our guidance of between $1 billion and $1.5 billion, reflecting the portfolio nature of our sector. To round out the key P&L items, we anticipate an interest expense of roughly $400 million and a tax rate to now be between $23 and $24 billion.
Tony: Tyson is a leader in the global protein industry, we have strong brands, a broad portfolio of products and a great team all of which uniquely position us to win in the market.
Tony: With that I'll turn the call back over to Sean for Q&A instructions.
Sean T. Cornett: Thanks, John we will now move onto your questions.
Sean T. Cornett: Recall that our caution on forward looking statements and non-GAAP measures apply both to our prepared remarks and the following Q&A.
Sean T. Cornett: Operator, please provide the Q&A instructions.
Sean T. Cornett: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Jon: Turning to CapEx, we're maintaining tight controls on spending in line with profitability and cash flow, and we expect CapEx to remain between $1 billion and $1.5 billion. Finally, on free cash flow, we're committed to managing working capital in CapEx, and we're even more confident now than we were last quarter that we will generate positive free cash flow for. To further help model the shape of the rest of the year, we anticipate more typical seasonality across our business. As a reminder, Q2 is seasonally our weakest quarter for AOI and cash flow, driven by beef and chicken. And as you may be aware, this January has already been impacted by severe winter weather disrupting operations.
Sean T. Cornett: Please limit yourself to one question and one follow up.
Sean T. Cornett: If you have further questions you may reenter the question queue.
Sean T. Cornett: At this time, we will pause momentarily to assemble our roster.
The first question comes from Peter Galbo with Bank of America. Please go ahead.
Peter Thomas Galbo: Hey, guys. Good morning, Thanks for taking the questions.
Good morning, good morning, Peter.
Peter Thomas Galbo: Johnny was I was just wondering if you could give kind of maybe a brief state of the Union you know I know you gave some in your prepared remarks, but across the segments and then <unk>.
Jon: And again, we expect startup costs and prepared foods to impact Q2 as well. So, in summary, 2024 is off to a promising start, and we're cautiously optimistic about our prospects for the remainder of the year, as well as for the long term. Tyson is a leader in the global protein industry.
Johnny: Maybe specifically if you could start on prepared.
Johnny: Prepared foods, where you know unlike a lot of CPG peers, you're showing actual volume growth. Some of that may be acquired but just some of the dynamics around foodservice there seem to be a pretty important driver. So if you can unpack that for us would be would be great.
Speaker Change: Sure. Thanks, Peter I'll start off.
Jon: We have strong brands, a broad portfolio of products, and a great team, all of which uniquely position us to win in the market. With that, I'll turn the call back over to Sean for Q&A. Thanks, John.
Speaker Change: And maybe I'll have others to weigh in.
Speaker Change: Let me start off just kind of a state of the Union, we had a solid first quarter and we continue to build on the momentum in the back half of 2023.
We are seeing the benefits of our portfolio, where chicken and pork improvements are offsetting challenges in beef and we're prepared foods continues to deliver strong results.
Sean T. Cornett: We will now move on to your questions. Please recall that our cautions 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. We will now begin the question and answer session. To ask a question, you may press the star, then one, on your touchtone phone.
Speaker Change: We continue to restore performance in our chicken business.
Speaker Change: As I said earlier this was our third consecutive quarter of $100 million of improvement.
Speaker Change: Improvement in this our chicken business remains a top priority of mine.
Speaker Change: We're managing <unk> through the volatility in spread tightening of the cycle.
Operator: If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Peter Galbo with Bank of America. Please go ahead.
Speaker Change: We're making great progress in driving out the inefficiency all across the supply chain and pork.
Speaker Change: Prepared foods is performing to plan, while we have seen softness in the retail channel our brands have performed well.
Speaker Change: Core brand share remains near record levels, and we're regaining share in our foodservice business.
Speaker Change: And I'll talk more about that in a moment.
Speaker Change: We're cautiously optimistic about FY 'twenty four.
Speaker Change: We have considered our better than expected results in this quarter we.
Peter Thomas Galbo: Hey guys, good morning. Thanks for taking the time to answer the question. Good morning. Good morning. Donny was just wondering if you could give kind of maybe a brief State of the Union, you know, I know you gave some of your prepared remarks, but across the segments and then, maybe specifically, if you could start on prepared foods where, you know, unlike a lot of CPG peers, you're showing actual volume growth, some of that may be acquired, but just some of the dynamics around food service there seem to be a pretty important driver.
Speaker Change: We've considered our initiatives to improve performance.
Speaker Change: Well also still accounting for the ongoing macro uncertainty.
Speaker Change: And as John said in his opening statements Q2 is seasonally weaker.
Speaker Change: And our Q2 started off with has started off with several significant weather events, but having said all of that taken together. It's still early in the year and we don't want to get ahead of ourselves.
Speaker Change: We have lots of work ahead of us.
Speaker Change: And we are leaving no stone unturned.
Speaker Change: We're focused on Capex and working capital to drive cash flow and support our dividend.
Speaker Change: We are controlling the controllable and taking necessary actions, including right sizing and modernizing our footprint and network design to drive efficiencies.
Donnie King: Sure. Thanks, Peter. I'll start off, and maybe I'll have others to weigh in. Let me start off with just kind of the State of the Union. We had a solid first quarter, and we continue to build on the momentum of the back half of 2023. We are seeing the benefits of our portfolio, where chicken and pork improvements are offsetting challenges in beef, and where our prepared foods continue to deliver strong results. We continue to restore performance in our chicken business. As I said earlier, this was our third consecutive quarter of $100 million of AOI improvement.
Speaker Change: We are pleased with the quarter and believe we're taking the right steps.
Speaker Change: We are excited about our future and are focused on creating value for our shareholders specifically are a little bit more specifically in terms of prepared foods to your question Peter.
Speaker Change: And in the quarter, we had strong top and bottom line performance in the quarter with meaningful sequential improvement versus Q4 'twenty three.
Speaker Change: If you look at the makeup of the volume it was driven by our balanced portfolio between retail and foodservice, we're regaining some share loss.
Speaker Change: In the middle of the pandemic that.
Speaker Change: We couldn't support and we also had the acquisition from a volume standpoint of Williams sausage.
Donnie King: And this, our chicken business, remains the top priority. We're managing beef through the volatility and spread tightening of the cycle. And we're making great progress in driving out inefficiencies all across the supply chain in pork.
Speaker Change: Our branded core business line.
Speaker Change: A key focus.
Speaker Change: We have a competitive advantage with volume share near record levels and.
Speaker Change: And 400 basis points above Q1 19.
Speaker Change: Let me start with that Melinda anything you would add to what I've said, yeah. Tony I think you did a great job hitting the highlights the only thing I'll add for you Peter is as Donnie said, our foodservice performance was strong and I believe you asked about this question our growth this quarter was up 3% and that was due to.
Donnie King: Prepared Foods is performing to plan, but we have seen softness in the retail channel. Our brands have performed well. Core brand share remains near record levels, and we're gaining share in our food service, and I'll talk more about that in a moment. We're cautiously optimistic about FY25.
Speaker Change: Customer expansion.
Donnie King: We have considered our better-than-expected results in this quarter. We've considered our initiatives to improve performance, while also still accounting for the ongoing macro uncertainty. As John said in his opening statement, Q2 is seasonally weaker, and our Q2 has started off with several significant weather events. But having said all that, taken together, it's still early in the year, and we don't want to get ahead of ourselves.
Speaker Change: As this channel is rebounding.
Speaker Change: He used to be an important part of our portfolio. Our portfolio that we are focused on is we want to be where our consumers are at.
Speaker Change: So we're diversifying our customer base, we're building digital capabilities to drive demand and we are focused on profitable growth.
Speaker Change: Great. Thanks for all that and then just maybe quickly as a follow up on beef.
Donnie King: We have a lot of work ahead of us, and we're leaving no stone unturned. We're focused on CapEx and working capital to drive cash flow and support our dividends. We are controlling the controllables and taking necessary action.
Speaker Change: Dani.
Speaker Change: The cattle inventory report out last week.
Speaker Change: Like.
Speaker Change: Maybe we're nearing a bottom or seeing potentially some improvement but just.
Speaker Change: What's the conversation like with with ranchers at this point like what's it going to take to get them to actually start to have a retention process. Because I think that remains kind of the biggest linchpin in the whole chain and it doesn't seem like we have a lot of clarity there yet thanks very much sure sure.
Donnie King: Including rightsizing and modernizing our footprint and network design to drive efficiency, We are pleased with the quarter and believe we're taking the right steps. We are excited about our future and are focused on creating value for our shareholders. Specifically, or a little bit more specifically in terms of prepared foods, to your question, Peter, we had strong top and bottom line performance in the quarter with meaningful sequential improvement versus Q4 of 23. If you look at the makeup of the volume, it was driven by a balanced portfolio between retail and food service.
Speaker Change: I will tell you we look at it the same information that I'm sure you've seen and we saw the cattle on feed report that you referenced.
Speaker Change: Unfortunately, Peter the data does it indicate that heifer retention is taking place and Thats. Obviously, we wanted to sign posts were looking for.
Speaker Change: In the quarter, we continued to see volatility in spread tightening we expected that.
Speaker Change: As we think about our outlook.
Speaker Change: We continue to project.
Speaker Change: Hi, Cabot supplies for the balance of 'twenty, four and even beyond.
Donnie King: We're regaining some share lost in the middle of the pandemic that we couldn't support. And we also had the acquisition, from a volume standpoint, of Williams Saucer. Our branded core business line remained a key focus, and we have a competitive advantage with volume share near a record level and 400 basis points above Q1 of 2019. Let me stop with that.
Speaker Change: And let me, let me pause Brady youre going to add anything to that.
Brady Stuart: Thanks, Tony.
Brady Stuart: Peter that's a great question and one that we continually are studying.
Brady Stuart: And I think when you unpack that cattle on feed report Theres a few few comments that obviously, our lending itself to the numbers that we're seeing and part of it is relative to some slower turnover that we've seen.
Melanie: Melanie, anything you would add to what I've said? Yes, Donnie, I think you did a great job hitting the highlights. The only thing I'll add for you, Peter, is, as Donnie said, our food service performance was strong, and I believe you asked about that question. Our growth this quarter was up 3%, and that was due to customer expansion. Look, as this channel is rebounding, it continues to be an important part of our portfolio that we are focused on because we want to be where our consumers are. And so we're diversifying our customer base, we're building digital capabilities to drive demand, and we are focused on profitable growth. Great, thanks for all that.
Brady Stuart: We've seen placements.
Brady Stuart: For cattle on feed from some of the drought drought areas as well from a geographical perspective, and as you indicated which is the spotlight of the conversation as.
Brady Stuart: We have not seen significant heifer retention to date and continue to see those heifers.
Brady Stuart: Move into the cattle on feed report so.
Brady Stuart: Continuing to focus on a few factors relative to heifer retention, obviously, how these interest rates that we see today relative to the difference or the delta today versus some of the cycles in the pack.
Brady Stuart: In the past is.
Peter Thomas Galbo: And then maybe quickly as a follow-up on beef, Donnie, the cattle inventory report out last week seems like, you know, maybe we're nearing a bottom or seeing potentially some improvement, but just what is the conversation like with ranchers at this point? Like, what's it going to take to get them to actually start the heifer retention process? Because I think that remains kind of the biggest linchpin in the whole chain, and it doesn't seem like we have a lot of clarity there yet. Thanks very much.
Brady Stuart: As a highlight for us to continue to watch.
Brady Stuart: And we will continue to evaluate and understand.
Brady Stuart: Weather conditions or change in lend themselves into a more favorable heifer retention strategy for these ranchers.
Speaker Change: Thanks very much.
Speaker Change: Thanks Peter.
Speaker Change: The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Adam Samuelson: Yes, Thank you and good morning, everyone.
Adam Samuelson: Good morning, Adam Good morning, So maybe coming back to chicken.
Adam Samuelson: And John you gave some some color in your in your prepared remarks prevalent and expand on a little bit on just the profit drivers in the business in the quarter.
Donnie King: Sure, sure. I mean, I'll tell you, we look at the same information that I'm sure you've seen, and we saw the cattle feed report that you referenced. Unfortunately, Peter, the data doesn't indicate that HEPA retention is taking place, and that's obviously one of the signposts we're looking for. In the quarter, we continue to see volatility and spread tightening, but we expected that. As we think about our outlook, we continue to project high cattle supplies for the balance of 24 and even beyond. And, let me pause. Brady, do you want to add anything to that?
Adam Samuelson: There was $170 million of feed tailwind year on year, some offset with price, but can you walk through the year on year profit bridge and chicken a little bit more closely and I guess apart from seasonality in the fiscal first quarter.
Adam Samuelson: Our fiscal second quarter excuse me the first quarter.
Adam Samuelson: Would imply kind of track.
Brady: Thanks, Donnie. And Peter, that's a great question and one that we continually are studying. And I think when you unpack that catalog feed report, there are a few comments that obviously are lending themselves to the numbers that we're seeing. And part of it's relative to some slower turnover that we've seen. We've seen placements for cattle on feed from some of the drought areas as well from a geographical perspective.
Tracking too.
Adam Samuelson: At or above the high end of the segment profit guidance for the year. So I just want to make sure. We're understanding kind of some of the moving pieces Youre looking at.
Adam Samuelson: For the for the balance of fiscal 'twenty four.
Speaker Change: Yes, Adam Thanks for the question and maybe let me give a few.
Speaker Change: Uh huh.
Speaker Change: Points that will help you shape.
Adam Samuelson: 24 outlook compared to 23.
Adam Samuelson: I think the first thing to point out is we talked about the network moves operational performance improvement we started to realize that.
Brady: And as you indicated, which is the spotlight of the conversation, we have not seen significant heifer retention to date and continue to see those heifers move into the cattle on feed report. So continuing to focus on a few factors relative to heifer retention, obviously, how these interest rates that we see today relative to the difference or the delta today versus some of the cycles in the past is a highlight for us to continue to watch. And then we'll continue to evaluate and understand how weather conditions change and lend themselves to a more favorable heifer retention strategy for these ranchers. Thanks very much.
Adam Samuelson: And the adjustment in our guidance range.
Adam Samuelson: Taking the bottom end up by $100 million.
Adam Samuelson: Roughly equivalent in line with where we were ahead of expectations for the balance of the year.
Adam Samuelson: Or excuse me, where we were compared to expectations, then when I move through the balance of the year.
Adam Samuelson: I know one question is sometimes on investors' minds.
Adam Samuelson: Where is your return on sales guidance.
Adam Samuelson: Does that peaking or not peaking.
Adam Samuelson: We've heard we've heard some questions about that we didn't we're not go into a return on sales guidance, but there's reasons to believe.
Peter Thomas Galbo: The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead. Yes, thank you. Good morning, everyone.
Adam Samuelson: That our quarter, three and quarter four could be around where we delivered the result in Q1, but frankly, it's probably premature to make any strong assertion around that and then again Q2, we had weather impacts across all of our segments chicken was not immune to that and so that's.
Adam Samuelson: Morning, Adam. This morning, So maybe coming back to Chicken and John, you gave some color in your prepared remarks, but I'm hoping to expand on a little bit just the profit drivers in the business during the quarter. There was $170 million of feed tailwind year-on-year, some offset by price, but can you maybe walk through the year-on-year profit bridge in Chicken a little bit more closely, and apart from seasonality and the fiscal first quarter, or fiscal second quarter, excuse me, the first quarter would imply tracking to at or above the high end of the segment profit guidance for the year, so I just want to make sure we're understanding some of the moving And maybe I will give you a few points that will help you shape our 24 outlook compared to 23.
Adam Samuelson: That's kind of the overall.
Adam Samuelson: Picture that we can give today.
Adam Samuelson: Based on the shape of the year.
A couple of other things, we're saying we did talk about a couple of hundred million dollars in improvements on some previous earnings call is thinking about the benefits we've realized from the network moves. We believe that we have achieved that we have one facility is still going quarter in Indiana.
Adam Samuelson: And when we.
Adam Samuelson: To close out that.
Adam Samuelson: Process, then will be nearly finished there and.
Adam Samuelson: And then there are some tailwind from a market standpoint, I think last quarter Donny was the one who said more tailwind than headwind.
Adam Samuelson: That sentiment prevails, but as you know.
Adam Samuelson: It's not just green prices, but it's kind of the interplay between that and what chicken markets are doing and what's going on from a supply demand standpoint, the influence things. So I think overall.
Jon: I think the first thing to point out is that we talked about the network moves, operational performance improvement. We've started to realize that and the adjustment in our guidance range of taking the bottom end up by $100 million. Roughly equivalent in line with where, you know, we were ahead of expectations for the balance of the year, or excuse me, where we were compared to expectations. Then, when I move through the balance of the year, I know one question that is sometimes on investors' minds is, "Hey, where is your return on sales guidance?". How does that peaking or not peaking?
Adam Samuelson: The 500 to 700 range for a lot of those reasons is our best estimate today.
Adam Samuelson: Where we think the year will be.
Speaker Change: Yes, hopefully that hopefully that gives you a little extra color out west maybe you've got something to add in there for Adam.
Speaker Change: Couple of comments, Adam we expect to realize our strategic change funding throughout the year and specifically to your question on year over year, both grains and markets.
Adam Samuelson: We're both slower so we stayed focused on improving our fundamentals.
Jon: We've heard some questions about that. We're not going to return on sales guidance, but there are reasons to believe that our quarter three and quarter four could be around where we delivered the result in Q1. But frankly, it's probably premature to make any strong assertions around that. And then again, in Q2, we had weather impacts across all of our segments. Chicken was not immune to that.
Adam Samuelson: Over a year did have a little tailwind, but it is mostly the material change we made in our fundamentals.
Adam Samuelson: We improved our live performance, specifically hach and <unk> ability.
Adam Samuelson: We have a very disciplined process.
Got really.
Adam Samuelson: Tied in Q1.
Adam Samuelson: And our sales are not only sold out position, but our forecast accuracy has allowed us to do a better job fill in orders.
Jon: And so that's kind of the overall picture that we can give today based on the shape of the year. A couple other things worth saying. We talked about a couple hundred million dollars in improvements on some previous earnings calls, thinking about the benefits we've realized from the network moves. We believe that we have achieved that. We have one facility still going, Core in Indiana.
Adam Samuelson: It wasn't material and less working capital.
Speaker Change: And so that's that's very helpful color and then just as a follow up.
Speaker Change: Especially in chicken and prepared foods, just wondering if you have any views on changes in consumer behavior, and how consumer demand elasticity has been evolving as you kind of enter as the calendar flipped and how youre thinking about the state of the U S consumer over the balance of calendar 'twenty four.
Jon: And when we, you know, close out that process, then we'll be nearly finished there. And then there are some tailwinds from a market standpoint. I think last quarter, Donnie was the one who said there were more tailwinds than headwinds.
Speaker Change: Thanks, Adam So I'll start first to talk about how we're looking at it from our prepared foods.
Jon: I think that sentiment prevails, but as you know, it's not just grain prices, but it's kind of the interplay between that and what chicken markets are doing and what's going on from a supply and demand standpoint that influences things. So I think overall, you know, the 500 to 700 range is our best estimate today of where we think the year will be. And yeah, hopefully that gives you a little extra color.
Speaker Change: Perspective, and our branded portfolio. So generally we're seeing elasticity is returning to pre COVID-19 levels and as you know we seek to balance both price and volume growth to maximize the value of our branded portfolio, but at the end of the day, we do understand the financial uncertainty that our consumers.
Speaker Change: <unk> faced with as inflation remains elevated which is why we continue to leverage our strong revenue growth management capabilities in support of our brands and we're prioritizing their health and their profitability when determining our pricing strategy and additionally across the board for any of our branded business.
Wes: Wes, maybe you have something to add to Adam's question? Yeah, I had a couple comments. We expect to realize our strategic change funding throughout the year. And specifically to your question on year over year, both grains and markets were both lower. So we stayed focused on improving our fundamentals.
Speaker Change: We remain focused on understanding our category dynamics assessing our competition and of course meeting our consumer need when making pricing decisions.
Speaker Change: Yes.
Speaker Change: Ed that we are seeing the seeing really good dark meat demand, we've seen a reemergence of our weighing demand.
Wes: Year over year, we did have a little tailwind, but it's mostly the material change we made in our fundamentals. We improved our live performance, specifically hatch and livability. We have a very disciplined S&OP process that got really tight in Q1, and our sales are not only sold out, but our forecast accuracy has allowed us to do a better job filling orders with material and less working capital. And now that's a very helpful caller.
Speaker Change: We're seeing a slight shift towards foodservice.
Ed: Alright, that's all that's all really helpful. I'll pass it on thank you.
Speaker Change: Thanks, Ken.
Speaker Change: The next question comes from Ken Goldman with Jpmorgan. Please go ahead.
Ken Goldman: Hi, Thanks, so much.
Ken Goldman: I wanted to ask a little bit about competition on the prepared foods side are there any of your more important categories that you are starting to feel maybe a little incremental pressure in terms of competition, whether it's on the pricing side or however, you want to.
Adam Samuelson: And then just as a follow-up, especially in chicken and prepared foods, just wondering if you have any views on changes in consumer behavior and how consumer demand elasticity has been evolving as you kind of enter, as the calendars have flipped, and how you're thinking about the state of the U.S. consumer over the balance of calendar 2020. Thanks, Adam. So I'll start by talking about how we're looking at it from a prepared foods perspective in our branded portfolio. So generally, we're seeing elasticities returning to pre-COVID levels. And as you know, we seek to balance both price and volume growth to maximize the value of our branded portfolio. But at the end of the day, we do understand the financial uncertainty that our consumers are faced with as inflation remains elevated.
Ken Goldman: Frame it and.
Ken Goldman: And I guess, how comfortable are you with your price gaps versus these competitors today just in a general sense.
Ken Goldman: So.
Ken Goldman: In terms of competition I mean, regardless of the business I mean, there's we have some very strong competitors in every space that we play in so I'll leave that.
Ken Goldman: There but.
Ken Goldman: <unk> Mellon the opportunity to talk about more specifics in categories.
Mellon: For example.
Mellon: Would just simply say that we saw a strong performance.
Mellon: And breakfast sausage and cocktails and we had some headwinds in our lunchmeat and our frozen protein breakfast area.
Speaker Change: Mentally you want to add to that yes.
Mellon: Yes, I would just say.
Speaker Change: Ken at the end of the day. This is a challenging consumer environment and boy competition is stepping up we're not only seeing.
Melanie: Which is why we continue to leverage our strong revenue growth management capabilities in support of our brands, and we prioritize their health and their profitability when determining our pricing strategy. And additionally, across the board for any of our branded business, we remain focused on understanding our category dynamics, assessing our competition, and, of course, meeting our consumer needs when making pricing decisions. Yeah, Adam, I've just said that we're seeing really good dark meat demand, we've seen a re-emergence of our wing demand, and we're seeing a slight shift towards food service. All right, that's all really helpful. I'll pass it on.
Speaker Change: Competition setup setup from branded players, but also private label is a factor and I think overall, we're doing very well and holding our position, but at the end of the day. We are just focused on our own retail business in particular and making sure that we're doing what we have to drive consumers to address.
Speaker Change: Any price gaps and make sure that we are maintaining our leadership position and which as you know in eight of our 10 category. So right now we are focused on making sure.
Speaker Change: That we growth through high ROI merchandizing width.
Wes: Thanks, guys. The next question comes from Ken Goldman with JPMorgan. Please go ahead. Hi, thanks so much.
Speaker Change: A strong feature and display at shelf, we're increasing our map investment to continue to grow our household penetration.
Ken Goldman: I wanted to ask a little bit about competition on the prepared food side. Are there any of your more important categories that you're starting to feel, you know, maybe a little incremental pressure in terms of competition, whether it's on the pricing side, or however you want to frame it? And I guess how comfortable are you with your price gaps versus these competitors today, just in a general sense? So in terms of competition, I mean, regardless of the business, I mean, we have some very strong competitors in every space that we play in. And so I'll leave that there, but I'll give Mellon the opportunity to talk about more specifics in categories. For example, I would simply say that we saw a strong performance in breakfast sausage and cocktails, and we had some headwinds in our lunch meet and our frozen protein breakfast area.
Speaker Change: We've got strong innovation on shelf now and also coming which is going to offer.
Strong.
Speaker Change: Engagement with consumers and very importantly to address pricing, we're making sure that we're enhancing our price pack architecture offerings.
Speaker Change: So we can share that we are maximizing our distribution footprint and we think all of these steps together.
Starting to see actions in the marketplace and are confident in our full year outlook.
Speaker Change: Thank you for that and then a follow up is on chicken as we look at some of the export data and I realize some of the monthly data is a couple of months in arrears, usually but.
Speaker Change: The export data in general in terms of pounds for chicken they've been a little bit weaker as 2023 any way progressed in yet as we start into 2024 at.
Donnie King: Melanie, you want to add to that? Yeah, I would just say, you know, Ken, at the end of the day, this is a challenging consumer environment, and boy, competition is stepping up. We're not only seeing competition set up to step up from branded players, but also private label is a factor.
Speaker Change: At least according to earn or Barry leg quarter prices have done pretty well which might be.
Melanie: And I think, you know, overall, we're doing very well and holding our position. But at the end of the day, we are just focused on our own retail business in particular, and making sure that we're doing what we have to to drive consumption to address any price gaps and make sure that we are, you know, maintaining our leadership position in, which, as you know, in eight of our 10 categories. So right now, we are focused on making sure that we grow through high ROI merchandising with a strong feature and display at shelf. We're increasing our MAP investment to continue to grow, you know, our household penetration.
Speaker Change: What one might expect at first glance, you're seeing the trade numbers. So just curious for a little bit of your thoughts on how to think about like demand for leg quarters export demand in general any color there would be would be helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Yes, I'll take that Ken thanks.
Speaker Change: A lot of disruption in the export side.
Speaker Change: Specific to leg quarters Frazier stocks are at a really low level.
Speaker Change: And <unk> seems to be robust enough to clear it.
Speaker Change: At very attractive prices.
Speaker Change: Thank you.
Speaker Change: The next question comes from Ben <unk>.
Melanie: We've got strong innovation on the shelf now and also coming, which is going to offer, you know, strong engagement with consumers. And, very importantly, to address pricing, we're making sure that we're enhancing our price pack architecture offerings. So we can ensure that we are maximizing our distribution footprint. And we think all these steps, you know, together, we're starting to see action in the marketplace, and, you know, are confident in our full year outlook. Thank you for that.
Ben: <unk> with Stephens Inc. Please go ahead.
Ben: Hi, Thanks, good morning.
Ben: Good morning, Ben.
Ben: I wanted to ask I know chicken has gotten a lot of focus congrats on the quarterly results John I wanted to drill down on the <unk> commentary that you provided recognizing there it sounds like there were some operational headwinds and disruptions from weather early in the year.
Speaker Change: What I'm curious on is if.
Speaker Change: Fundamental commodity fundamentals continue to improve in grain prices stay low supply demand comes into better balance is that enough.
Ken Goldman: And then a follow-up on chicken, you know, as we look at some of the export data, and I realize, you know, some of the monthly data is a couple months in arrears, usually, but, you know, the export data in general, in terms of pounds for chicken, they've been a little bit weaker as 2023, anyway, progressed. And yet, as we start into 2024, you know, at least according to Erneberry, leg quarter prices have done pretty well, which might not be, you know, not what one might expect at first glance, just seeing the trade numbers. So just curious for a little bit of your thoughts on, you know, how to think about demand for leg quarters, and export demand in general. Any color there would be would be helpful. Thank you. Yeah, I'll take that, Ken.
Speaker Change: Positives to offset the <unk>.
Temporary operational dynamics that we saw in the second quarter.
Speaker Change: I think there are.
Speaker Change: There are reasons to believe why some of that could offset it but I think.
Speaker Change: It would be.
Speaker Change: I think to quantify exactly what that offset is we're not we're not really ready to do that but let's zoom out and talk about the broader year.
Because I think I just wanted to hone in on some factors that are at play about why we remain cautious on the chicken outlook and.
Speaker Change: It has to do with what's going on in the total protein markets beef continues to be volatile I think we've had predictions about where beef prices and beef markets, we're going to go to some of <unk>.
Speaker Change: There is the projections for more port to be on the market. This year, we've already talked about the consumer today. So.
Wes: Thanks. You know, we've seen a lot of disruption on the paw export side. Specific to lead quarters, freezer stocks are at a really low level.
Speaker Change: I just wanted to make sure that we land the message today.
Wes: And demand seems to be robust enough to clear it at very attractive prices. Thank you. The next question comes from Ben. Bienvenu with Stephens Inc. Please go ahead. All right, thanks. Good morning.
Speaker Change: While there were cautiously optimistic about chicken there remains a lot of uncertainty and a lot a lot a lot of time.
Speaker Change: Left in the year so.
Ben Bienvenu: Morning, Ben. I want to ask, I know Chicken's gotten a lot of focus, congrats on the quarterly results. John, I wanted to drill down on the 2Q commentary that you provided, recognizing there sounds like there are some operational headwinds and disruptions from weather early in the year. What I'm curious about is, if...
Speaker Change: I think I addressed at least parts of your question hopefully that hopefully that's helpful.
Hey, John it's great if I could add one thing there are couple of things to that as it relates to chicken.
John: Those operational improvements at all of us have talked about in chicken.
John: Those continue and those fundamentals, while we are improved.
Jon: Fundamental commodity fundamentals continue to improve, and grain prices stay low, supply and demand come into better balance. Is that enough? Positives to Offset the Temporal Operational Dynamics that we saw in the second quarter. Um, I think there are reasons to believe why some of that could offset it, but I think it, you know, it would be, I think to quantify exactly what that offset is, we're not totally ready to do that.
John: There is still a.
John: Lot of work left to do there and we got a really good team working against those things but.
John: Keep that in mind as you are looking at Q2 and the balance of the year as well.
Speaker Change: Okay very good.
Thinking about the cash flow statement.
John Randall: John Randall.
John Randall: You guys came into fiscal 'twenty, four bringing down your capex budget materially you have sustained.
John Randall: Again this quarter is there yet still room to tighten that budget as we move through the year or do you think that number is more set in stone with potentially improvements coming into 2025.
Jon: But let's zoom out and talk about the broader year. Because I think I just want to hone in on some factors that are at play about why we remain cautious on the chicken outlook. And it has to do with what's going on in the total protein markets. Beef continues to be volatile.
Speaker Change: That's a great question I think there's probably room to tighten it a little bit, but let me kind of talk about the total picture when we gave guidance in the first quarter, we talked about.
Jon: I think we've had predictions about where beef prices and beef markets were gonna go that have, some have held true, some have not. There are projections for more pork to be on the market this year. We've already talked about the consumer today.
Speaker Change: Striving to be free cash flow positive that we would pay attention to our ability to manage the business and working capital as well as our operational results and that would influence.
Speaker Change: Our thinking.
Jon: So I just want to make sure that we land the message today that while we're cautiously optimistic about chicken, there remains a lot of uncertainty and a lot of time left in the year. So Ben, I think I addressed at least parts of your question. Hopefully, that's helpful.
Speaker Change: In terms of the total spin if you just extrapolate where we are in Q1 that would take you towards the higher end of that one five range.
Speaker Change: But that's really just a product.
Speaker Change: Lot of good projects in flight that we have.
Speaker Change: Our efforts to slow down from the from the spin that was projected at north of $2 billion in recent years.
Donnie King: That's great. If I could add one thing or a couple of things to that as it relates to chicken, those operational improvements that all of us have talked about in chicken, those continue, and those fundamentals, while we are improved, there's still a lot of work left to do there, and we have a really good team working against those things. Keep that in mind as you are looking at Q2 and the balance of the year. Okay, very good. Thinking about the cash flow statement, John Randall, you guys came into fiscal 24 bringing down your CapEx budget materially, and you've sustained the range again this quarter. Is there still room to tighten that budget as we move through the year, or do you think that number is more set in stone with potential improvements coming into 2025? That's a great question. I think there's probably room to tighten it a little bit.
Speaker Change: <unk>.
Speaker Change: I would just say, we're not trending to that higher end, because hey, we've made some adjustment in our opening up the capital Floodgates again, we remain very committed to getting that spend down to the midpoint of our range or below as we move through the balance of this year and next year. So that's what I want you to take away from a capex guidance standpoint.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thanks, Matt.
Speaker Change: The next question comes from Andrew <unk> with BMO. Please go ahead.
Andrew: Hey, good morning, Thanks for taking the questions.
Andrew: My first one is actually on the pork segment in the outlook there.
Andrew: If I look at the performance in the quarter and it seems like.
Andrew: Some solid performance is probably continuing into the second quarter. It doesn't seem like there's much baked into the back part of the year. So I guess, how are you thinking about pork margins from here evolving through this.
Andrew: A year and kind of the puts and takes as we get into the back part of the year.
Speaker Change: Let me start off and then I'll flip it to Brady to talk about now.
Jon: But let me kind of talk about the total picture. When we gave guidance in the first quarter, we talked about striving to be free cash flow positive, and we would pay attention to our ability to manage the business and working capital as well as our operational results. And that would influence our thinking in terms of the total spend. If you just extrapolate where we are in Q1, that would take you toward the higher end of that one and a half range.
Brady Stuart: Hog supply drove lower hog costs.
Brady Stuart: Leading to improved spreads.
Brady Stuart: We are seeing.
Brady Stuart: A number of benefits of better execution in pork.
Brady Stuart: We have assembled a really really strong team in our pork business led by <unk>.
Brady Stuart: He and his team have.
Brady Stuart: Really.
Brady Stuart: Taken out inefficiencies from procurement all the way to the customer consumer and very proud of that work, but I would also tell you there's still room for more.
Brady Stuart: And you will probably continue to hear that from us as there's every time, we excuse me every time, we turn over rocks, we find something else.
Jon: But that's really just a product of a lot of good projects in flight that we have, our efforts to slow down from the spin that was, you know, projected in north of two billion dollars in recent years. And I would just say we're not trending to that higher end because, hey, we've made some adjustments in our, you know, opening up the capital floodgates again. We remain very committed to getting that spin down to the midpoint of our range or below as we move through the balance of this year and next year. So that's what I want you to take away from CAPEX guidance. Great, thanks so much. The next question comes from Andrew Stralczyk with BMO. Please go ahead. Hey, good morning.
Brady Stuart: But where we are.
Brady Stuart: Our mode.
Brady Stuart: As one of continual improvement in Brady any big Nuggets.
Brady Stuart: Thanks, Donnie and Q1, obviously is seasonally the strongest quarter of the year end.
Brady Stuart: We would expect to see some typical seasonality as we move through specifically.
Brady Stuart: The latter part of this year as well.
Brady Stuart: Team understands it's their responsibility to control the controllable and as Don indicated done a really good job of being able to take advantage of some of the spreads we have seen in Q1, and certainly expect those improvements to continue through the course of the year as well.
Andrew Stralczyk: Thanks for taking the questions. My first one is actually on the pork segment and the outlook there. If I look at the performance in the quarter, and it seems like, www.youtube.com.uk, Let me start off and then I will flip it to Brady to talk about Fort, hog supply drove lower hog costs leading to improved spread. We're seeing a number of benefits of better execution in pork, and we have assembled a really, really strong team in our pork business, led by Kyle Nairn, and he and his team have really You will probably continue to hear that from us. Is there every time we, excuse me, every time we turn over a rock, we find something else? But we're, our mode is one of continual improvement. And Brady, any big nuggets that I have not?
Brady Stuart: Really seeing some increased operational efficiencies and the team has done a great job increasing the true business performance through the data and analytics platforms that they've stood up that allows for better decision, making and really adaptation of some of these market trends.
Brady Stuart: Under current conditions.
Brady Stuart: Okay, Great. That's helpful and then on the.
Brady Stuart: The B side.
Speaker Change: I guess.
Speaker Change: When I look at the typical seasonality in and I look at kind of the performance in the first quarter and then.
Speaker Change: The commentary around the second quarter. It seems like you would need to have pretty solid improvement in the back part of the year.
Speaker Change: Not to be kind of towards the lower end of that range and I know there is seasonality involved there as well I guess I'm just curious can you.
Donnie King: Thanks Donnie. And Q1 obviously is seasonally the strongest quarter of the year, and we'd expect to see some typical seasonality as we move through, specifically, the latter part of this year as well. The team understands it's their responsibility to control the controllables and, as Donnie indicated, has done a really good job of being able to take advantage of some of the spreads we have seen in Q1 and certainly expect those improvements to continue through the course of the year as well. We are really seeing some increased operational efficiencies, and the team has done a great job increasing the true business performance through the data and analytics platforms that they've stood Okay, great. That's helpful. And then on the B side.
Speaker Change: Talk about maybe what would get you to the high end and low end of that range I understand certainly theres a lot of uncertainty as we move through the year and then maybe can you clarify also when we think about the second quarter.
Speaker Change: Are you thinking about sequentially lower off the number that you reported adjusted operating income in the first quarter or is that kind of once you back out the.
Speaker Change: The inventory adjustment thanks.
Speaker Change: Well thanks for the question.
Speaker Change: As you pointed out there I think it's really important to emphasize what both John and Donnie indicated in your opening remarks, which was in Q1, we saw that rapid.
Decline in cattle futures now as the driver for that inventory valuation adjustment that was run.
Andrew Stralczyk: You know, I guess. When I look at the typical seasonality, and I look at kind of the performance in the first quarter and the... The commentary on the second quarter seems like you would need to have pretty solid improvement in the back part of the year to be kind of towards the lower end of that range. I know there's seasonality involved there as well. I guess I'm just curious, can you talk about maybe what would get you to the high end and low end of that range?
Speaker Change: Lastly, $56 million in the first quarter and really as we look at the first quarter.
Speaker Change: Obviously, we saw some headwinds relative to some decrease value and the drop we saw the spread compression and obviously with lower supply not only in Q1, but as we move through the rest of the year.
Speaker Change: We see that lower opportunity for a cost dilution.
Speaker Change:
Speaker Change: Our overhead structure relative to these volumes, but let me be really clear.
Andrew Stralczyk: I understand certainly that there's a lot of uncertainty as we move through the year. And then maybe can you clarify also when we think about the second quarter? Are you thinking about sequentially lower off the number that you reported adjusted operating income in the first quarter? Is that kind of once you back out?
Speaker Change: We see we see a path to improvement as well and.
Speaker Change: From an operational excellence perspective, how we manage the business today versus the past in a different economic cycle is very important.
Andrew Stralczyk: The Inventory Adjustment. Thanks. Well, thanks for the question. And as you pointed out, I think it's really important to emphasize what both John and Donny indicated in their opening remarks, which was that in Q1, we saw that rapid decline in cattle futures, and that was the driver for that inventory valuation adjustment, which was roughly $56 million in the first quarter. And really, as we look at the first quarter, obviously, we saw some headwinds relative to some decreased value in the drop. We saw spread compression, and obviously, with lower supply, not only in Q1, but as we move through the rest of the year, we see that lower opportunity for cost dilution of our overhead structure relative to these volumes. But let me be really clear.
Speaker Change: On efficiency yield and really balancing supply and demand not only by a cut my cat basis and through our grind complex.
Speaker Change: But also in terms of.
Speaker Change: Yield and efficiency is going to be Paramount important to the team and they are dialed in on that as well.
Speaker Change: We've made changes that certainly provide us opportunity in the future as well as we mentioned last quarter.
Speaker Change: We've right sized our <unk> value added business really to match.
Speaker Change: Customer needs.
Speaker Change: And what we're seeing from a supply perspective as we move through this.
Speaker Change: And again as I've mentioned before.
Speaker Change: We are a well capitalized asset base and.
Speaker Change: I believe we're really able to manage through a variety of headwinds and market conditions that we expect to see as we move through the cattle cycle.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Brady: We see a path to improvement as well. And from an operational excellence perspective, how we manage the business today versus the past in a different economic cycle is very important, focus on efficiency, yield, and really balancing supply and demand not only on a cut by cut basis but through our grind complex. But also in terms of yield and efficiency, which is going to be paramount and important to the team, and they're dialed in on that as well. We've made changes that certainly provide us with opportunity in the future, as we mentioned last quarter. We've right-sized our beef value-added business really to match our customer needs and what we're seeing from a supply perspective as we move through this.
Speaker Change: Next question comes from Ben <unk> with Bank of America, or excuse me with Barclays. Please go ahead.
Ben: Hi, Good morning, Dani John Thanks for taking my question good morning.
Ben: Thanks.
Ben: So just wanted to kind of understand a little bit some of the dynamics as it relates to the export business because if I remember right that used to be some sort of a headwind Nielsen beef. So if we look into the details on sales into the international channels, particularly beef.
Ben: Contrary to the rest of it was actually even down on sales could you elaborate a little bit on the dynamics in the export markets as it relates to beef in particular, but also if you could just mentioned briefly what youre seeing on exports for chicken and pork that will be my first question. Thank you.
Brady: Again, as I mentioned before, we have a well-capitalized asset base and believe we're really able to manage through a variety of headwinds and market conditions that we expect to see as we move through this cattle cycle. Great, thank you very much. The next question comes from Ben Tyra with Park Lease. Please go ahead. Good morning, Donnie, and John. Thanks for taking my question. The Ultimate Parody Site-Limi
Speaker Change: Sure well. Thank you for the question and I think it's really important to understand.
Ben Theurer: So just wanted to kind of understand a little bit some of the dynamics as it relates to the export business, because if I remember correctly, that used to be some sort of headwind also in beef. So if we look into the details on sales into the international channels, particularly beef, which, kind of contrary to the rest of it, was actually even down on sales. Could you elaborate a little bit on the dynamics in the export markets as it relates to beef in particular, but also, if you could just mention briefly what you're seeing on exports for chicken and pork? That would be my first question.
Speaker Change: Really been working within historically high rates from a beef product or cut out perspective.
Speaker Change: And when we talk about.
Speaker Change: The arbitrage opportunity between.
Speaker Change: Domestic sale and an export sale really puts the domestic beef business and industry at a disadvantage right now we're seeing large supplies.
Speaker Change: From some of our competing countries that are in the southern hemisphere.
Speaker Change: And they are really on the opposite side of the cycle from we are from where we are and so that's really led to increased opportunity for some of those competing countries and a decreased opportunity for us.
Brady: Sure. Well, thank you for the question. And I think it's really important to understand we've really been working within historically high rates from a beef product or cutout perspective, and when we talk about the arbitrage opportunity between a domestic sale and an export sale, it really puts the domestic beef business and industry at a disadvantage right now. We're seeing large supplies from some of our competing countries that are in the southern hemisphere, and they're really on the opposite side of the cycle from However, we have seen strong domestic beef demand that has led the held these cutout values at a historically high level as well. Yeah, and Ben, this is Wes.
Speaker Change: Here in the U S. However, we have seen strong domestic beef demand has led the held these cutout values at a historically high.
Speaker Change: Level as well.
Yes, Ben this is Wes I'll touch briefly on chicken as I said earlier pause have been interrupted due to.
And leg quarters were seeing frozen inventory in the U S. Almost record lows our inventory continues to be in check in and the pricing has been very good going forward.
Speaker Change: Okay perfect. Thank you very much and then just quickly following up with as it relates to the.
Speaker Change: The prepared foods business can you quantify what the Williams sausage volume contribution was because I didnt find that I know it was positive, but if you could quantify that that would be helpful.
Wes: I'll touch briefly on chicken. As I said earlier, you know, paws have been interrupted due to AI. And on leg quarters, we're seeing frozen inventory in the US at almost record lows. Our inventory continues to be in check. And, and the pricing has been very good going forward. Okay, perfect. Thank you very much.
Speaker Change: Yes, we haven't broken.
Speaker Change: That out but.
Speaker Change: It's.
Speaker Change: We haven't broken that out specifically been.
Speaker Change: Okay. That's okay. Thank you.
Speaker Change: The next question comes from Tom Palmer with Citi. Please go ahead.
Ben Theurer: And then just quickly following up as it relates to the prepared foods business. Can you quantify what the Williams sausage volume contribution was? Because I didn't find that I knew it was positive.
Tom Palmer: Good morning, and thanks for the question.
Tom Palmer: Maybe could ask on feed costs, how locked in as your exposure. This year and then when we look at the downward moves over the past few months.
Tom Palmer: Benefit your current fiscal year or if it continues is this more of a 2025 flow through because it does seem like there's some incremental favorability.
Ben Theurer: But if you could quantify that, that would be helpful. Yeah, we haven't broken that out. But, It's a we haven't broken that out specifically. Okay, that's okay. Thank you. The next question comes from Tom Palmer with Citi. Please go ahead.
Yes, Tom this is Wes I'll touch on that we have a very diverse commodity risk management group.
Wes: We also have different pricing mechanisms with customers.
Wes: Some of the grind flow through through pricing.
Tom Palmer: Morning, and thanks for the question. Maybe you could ask on feed costs: how locked in is your exposure this year? And then when we look at the downward moves over the past few months, does this benefit your current fiscal year, or if it continues, is this more of a 2025 flow-through? Because it does seem like there's some incremental favorability.
Wes: I would tell you it's moderate in the back half of the year.
Speaker Change: Okay. Thank you.
Speaker Change: And then I wanted to follow up on the on the prepared food side maybe.
Speaker Change: Maybe going back to Peter <unk> question, just on on the new customer wins are there particular products that you are seeing these wins greatest Dan or particular channels within foodservice.
Wes: Yeah, Tom, Mr. West, I'll touch on that. We have a very diverse commodity risk management group. We also have different pricing mechanisms with customers in which some of the grains flow through through pricing. I would tell you it's moderate and in the back half of the year.
Speaker Change: Okay.
So Tom your question was.
I just want to make sure I'm clear are we are there particular products way, where we are seeing more success can you just repeat your question for me.
Tom Palmer: Yes, sorry, exactly agents you'd noted some.
Wes: Okay, thank you. And then, maybe going back to Peter Galbo's question, just on the new customer wins, are there particular products that you're seeing these wins greatest in or particular channels within food service? Thanks.
Tom Palmer: Growth was driven by some new customer wins.
Tom Palmer: And just curious what products were really driving that for you right now within prepared foods. Thanks, Yeah. So I'd say that when I was talking about the customer expansion, we are making great strides in that area and that area on the foodservice side of the business and then I would say on the retail side.
Tom Palmer: So Tom, your question was, I just want to make sure I'm clear, are we, are there particular products where we are seeing more success? Can you just repeat your question for me? Yes, sorry, exactly the same.
Tom Palmer: The business we are seeing.
Tom Palmer: Just you'd noted some, some of your growth was driven by some new customers when, and I was just curious what products were really driving that for you right now within prepared foods. Thanks. Yeah, so I'd say that when I was talking about customer expansion, we are making great strides in that area on the food service side of the business. And then I would say on the retail side of the business, we're seeing strong growth in distribution with our existing customers behind our core business lines. But we're also seeing excitement behind some of our, a lot of our new innovation. And in particular, I want to highlight our Jimmy Dean maple griddle cake that we launched last year with great success. And we are planning in a couple of months to launch an extension of that product item. Does that help, Clem?
Tom Palmer: Strong growth in distribution with our existing customers.
Tom Palmer: And our core business lines, but we're also seeing excitement behind some of our a lot of our new innovation and in particular I want to highlight our Jimmy Dean Maple Griddlecake that we launched last year to success and we are planning in a couple of months to launch an extension of that product item does that help.
Tom Palmer: Tom.
Tom Palmer: Tom Let me. Thank you, let me add a little more color as it relates to foodservice there.
Tom Palmer: As a reminder to everyone in the middle of the pandemic.
Tom Palmer: We had some operational issues being able to produce enough product for our customers.
Tom Palmer: We essentially had to give up some business.
Tom Palmer: And we've been since the pandemic trying to go and regain that.
Tom Palmer: But we have a.
Donnie King: Tom, let me add a little more color as it relates to food service there. As a reminder to everyone, in the middle of the pandemic, we had some operational issues being able to produce enough product for our customers, and we essentially had to give up some business. And we've been, since the pandemic, trying to go back and regain that, but we have a nice diversification between what are traditionally quick service restaurants and as well as broad line distribution.
Tom Palmer: A nice diversification between.
Tom Palmer: What are the traditionally quick service restaurants, and as well as broad line distribution.
Speaker Change: Okay. Thank you.
Speaker Change: The next question comes from Michael Lavery with Piper Sandler. Please go ahead.
Michael S. Lavery: Thank you and good morning.
Tim.
Michael S. Lavery: I want to come back to chicken.
Michael S. Lavery: Trying to understand obviously the lift in the quarter was cost and margin driven but.
Donnie King: Okay, thank you. The next question comes from Michael Lavery with Piper Sandler. Please go ahead. Thank you. Good morning.
Michael S. Lavery: When you pointed to the strategic actions and those benefits can you help us understand maybe how to think of them kind of longer term and.
Michael S. Lavery: I want to come back to chicken and just try to understand, obviously, the lift in the quarter was cost and margin driven. But when you pointed to the strategic actions and those benefits, can you help us understand maybe how to think of them kind of longer term and whether that would put you at the higher end or above, you know, kind of a five to seven percent margin range? I know you don't want to think about margins as how you, you know, guide for the year. But you gave a little bit of breadcrumbs for the second half. That's all really helpful. But maybe just looking a little further out, is the structure really different enough that, under normalized conditions, you would rethink what it's capable of, you know, what its earnings power is longer term? So let me let me start. This is Donnie. Let me start with a couple of points, and then I think John probably has a couple to add.
Michael S. Lavery: Would this put you at the higher end or above kind of a 5% to 7% margin range I know you're.
Michael S. Lavery: Not wanting to think about margins as how are you.
Michael S. Lavery: Guide for the year, you gave a little bit of.
Michael S. Lavery: Bread crumbs for the second half that's all real helpful, but maybe just looking a little further out.
Michael S. Lavery: It is the business structurally different enough that under normalized conditions, you would rethink what it's capable of what its earnings power is longer term.
So let me let me start this is Donny let me start with a couple of points and then I think.
Donny: John probably it is a comfortable to add but.
John: In terms of being prepared to give guidance.
Speaker Change: We're not prepared to do that today and talk about that.
Speaker Change: But what I can tell you is what we're doing as a company we talked about the third consecutive quarter of over $100 million.
Donnie King: But, you know, in terms of being prepared to give guidance, we're not prepared to do that today and talk about it. But what I can tell you is what we're doing as a company. We talked about the third consecutive quarter of over one hundred million dollars of AOI improvement in the midst of that. But what I can also tell you is marketing, whether that's for grain or the meat side, those are largely offsetting. So the improvements are coming from operational improvements, operational excellence, both in plant and in live production, and really driving out waste from the business. But we also, as we said earlier, are realizing the benefits from plant closures, in terms of modernizing and right sizing our footprint. So we're seeing all of those. But this plan doesn't really... We've modeled the markets as they are today for the balance of the year, but this is all about operational excellence and being more competitive and being better at what we do at the same time, driving up raw materials to a more value-added and branded within the chicken segment. John.
Speaker Change: Improvement in.
Speaker Change: In the midst of that.
Speaker Change: What I can also tell you is marketing and thats for grain or the meat side. Those are largely offsetting one another so the improvements are coming from operational improvements operational excellence, both in plants and in live production and really driving out waste from the business, but we also as we said earlier.
Speaker Change: We're realizing the benefits from plant closures.
Speaker Change: That.
Speaker Change: And in terms of modernizing and right sizing our footprint. So we're seeing all of those.
Speaker Change: But.
Speaker Change: This plan doesn't really.
Speaker Change: I mean, we've modeled the markets as they are today for the balance of the year, but.
Speaker Change: This is all about operational excellence and being more competitive and being better at what we do.
Speaker Change: At the same time drew.
Speaker Change: Driving up raw material.
Speaker Change: To a more value added and branded within the chicken segment John.
John: Yeah, Don, that's a nice summary. I think, again, without touching on what the long-term outlook is like, the things I would point out about how the strategic moves we made have a sustaining impact on our business are a couple of things. First, we're just taking costs out of the system while still keeping the same amount of volume with our customers. Over the long run, that means not putting capital into older and more tired assets but rather investing in those assets where we think we can achieve our target ROIC numbers.
Speaker Change: It's a nice summary, I think.
Speaker Change: Again without touching on what the long term outlook is like the things I would point out about how the strategic moves we've made have a sustaining impact in our business as a couple of things first.
Speaker Change: We're just taking cost out of the system, while still keeping.
Speaker Change: The same amount of volume with our customers.
Speaker Change: Over the long run that means not.
Speaker Change: Putting capital in the older more tired assets, rather investing in those assets, where we think we can.
Speaker Change: Achieve our target ROIC numbers, and then I think the other thing too.
John: And then I think the other thing, too, is that we have really, in the last year, refocused our growth to be demand-backed and to be in those subcategories within the chicken segment where we see favorable trends from a growth and margin standpoint. So I think with that, over the long run, we project to be competing and performing as a best-in-class chicken company from a margin standpoint, and that's how we realized that. I think the other big move that we made, and we've seen it in our live performance results this year, is the switch from NAE to NAIHM, and that's provided us with a lot more consistency in order to meet customer demands and expectations from a live standpoint.
Speaker Change: As we have really in the last year refocused.
Speaker Change: Our growth.
Speaker Change: To be demand back in to be in those subcategories within the chicken segment, where we see favorable trends from a growth and margin standpoint, So I think with that.
Speaker Change: Over the long run we project.
Speaker Change: To be competing in performing as a best in class Chicken company from a margin standpoint.
Speaker Change: And Thats, how we realize that.
Speaker Change: The other big move that we've made we've seen it in ROI performance results. This year is the switch from <unk> to NII Chan and.
Speaker Change: It provides us for a lot more consistency in order to meet customer demands and expectations.
Speaker Change: From a from a large standpoint.
Michael S. Lavery: Okay, that's helpful. Great. And just to follow up on prepared foods, I understand it's obviously always competitive, and you touched on some of those dynamics, but, Can you give a sense on promotional levels? Would you say they're normalized again? Do you see increasing activity there? You know, you called out some of the mixed headwinds. What was price otherwise?
Speaker Change: Okay. That's that's helpful. Great and just a follow up on prepared foods I understand it's obviously always competitive and you touched on some of those dynamics, but can.
Speaker Change: Can you give a sense on promotional levels would you say, they're normalized again.
Speaker Change: See increasing activity there.
Speaker Change: You called out some of the mix headwinds.
Speaker Change: Was price otherwise.
Speaker Change: Flat or I guess, maybe could you dissect the price.
Speaker Change: Mix pieces of that and just a sense of how the environment looks from a promotional perspective is it is it getting more intense or does it seem to have stabilized whats your sense of how that looks.
Melanie: http://www.globalonenessproject.org Yeah, so this is Melanie. I would say that promotional activity is continuing, you know; we are continuing to see intense promotional activity. In terms of how we are operating, we have, you know, our highest performing, highest ROI merchandising initiatives in place to drive our feature and display and choice at shelf, and we are seeing it working. But to your point, competitive activity in this area is strong, and we're just, you know, focused on controlling our controllables.
Speaker Change: Yes. So this is.
Melanie I would say that.
Melanie: Promotional activity is continuing.
Melanie: We are continuing to see intense promotional activity.
Speaker Change: In terms of how we are operating.
Speaker Change: We have our highest performing our highest ROI merchandizing initiatives in.
Speaker Change: In place to drive our feature and display and choice at shelf and we are see it and we are seeing it working.
Speaker Change: But to your point competitive activity in this area is strong and we're just focused on controlling our controllable and in addition to our promotional activity. We're focused on as I said before increasing our map investment to engage consumers.
Melanie: And in addition to our promotional activity, we're focused on, as I said before, increasing our MAP investment to engage consumers. You know, again, we've got strong innovation in place. And we're enhancing, when you asked about price, we're making sure that we enhance our price pack architecture structure to address competitive pricing as well. Okay, great. Thanks so much.
Speaker Change: Again, we've got strong innovation in place and we're enhancing when you asked about price, we're making sure that we enhanced our price pack architecture.
Speaker Change: Structure to address competitive pricing as well.
Speaker Change: Okay, great. Thanks, so much.
Alexia Jane Howard: Thank you. The next question comes from Alexia Howard with Bernstein. Please go ahead. Good morning, everyone. Good morning, Luke.
Speaker Change: Thank you.
Speaker Change: The next question comes from Alexia Howard with Bernstein. Please go ahead.
Alexia Jane Howard: Good morning, everyone.
Alexia Jane Howard: Good morning.
Luke: Okay, so two one. Firstly, on the financial side, your leverage has obviously come down, but it sounds as though... The question is whether there will be more sequential improvement in operating income next quarter in CBD given the weather issues. Do you expect leverage to continue to come down from here, or could next quarter be the high point? Yeah, thanks. Thanks, Alexia. So I think there are two questions in there. The first is just independent of weather; I want to make sure we're tracking independent of weather. You know, we expect our Q2 to typically be one of the softer quarters from an operating income standpoint, and so then that's exacerbated by weather a little bit.
Alexia Jane Howard: Okay. So two Q1s.
Alexia Jane Howard: Firstly on the financial side your leverage has obviously come down but it sounds as though.
Yes.
Alexia Jane Howard: Whether there'll be more sequential improvement in operating income next quarter.
Alexia Jane Howard: Given the weather issues.
Alexia Jane Howard: Do you expect leverage to continue to come down from here or could next week next quarter.
Alexia Jane Howard: Points.
Speaker Change: Yes. Thanks, Thanks, Alexia So I think two questions in there. The first off is just independent of whether we want to make sure we're tracking independent of weather.
Speaker Change: We expect our Q2 to typically be one of the softer quarters from a from an operating income standpoint, and so then thats exacerbated by weather a little bit.
Alexia Jane Howard: In the long run, we are projecting for leverage to continue to come down. That's driven by a couple of things. One, we're getting more efficient with working capital; we've talked about some inventory clearing in our, around our segments. Exactly kind of where things happen in the first half of the year, we can say that we would expect to end fiscal 2024 in a better net leverage position from a ratio standpoint than last year. That's evident also in, you know, our pull down on CapEx and what we've projected, which is to be a better, better year from an operating income and EBITDA standpoint than 2020 and 2023. So that's.
Speaker Change: In the long run.
Speaker Change: We are projecting for leverage to continue to come down.
Speaker Change: That's driven by a couple of things one we're getting more efficient with working capital we've talked about some inventory clearing in our <unk>.
Speaker Change: Round our segments.
Speaker Change: Exactly kind of where things happened in the first half of the year, we can say that.
Speaker Change: We would expect to end.
Speaker Change: Our fiscal 2024 and a better.
Speaker Change: Net leverage position from a ratio standpoint than last year. That's evident also in our pull down on capex than what we projected which is to be a better better year from an operating income and EBITDA standpoint, then.
Speaker Change: And then 'twenty three so thats.
John: We're trending in the right direction, aggressively pursuing that at or around two times the net leverage ratio, and we would project that we'll get to do that, continue to invest in our business, and also support our dividend from a capital allocation. Thank you. And then just as a follow-up, on sticking with prepared foods, it sounds as though this mixed shift into food service is obviously a good thing overall, but it is pushing the prices down, and potentially there might be a negative mixed shift with margins. Are you able to clarify whether that price pressure will continue in future quarters? And are you able to talk about the margin differential between branded retail and food service and private label, which I assume is lower? Okay, Alexia. This is Don.
Speaker Change: We're trending in the right direction aggressively pursuing that.
Speaker Change: At around two times net leverage ratio and we would project that we will get to do that and continue to invest in our business and also support our dividend from a from a capital allocation standpoint.
Speaker Change: Thank you.
Speaker Change: And then just as a follow up.
Speaker Change: Picking with perpetual.
Speaker Change: It sounds as though the mix shift into foodservice.
Speaker Change: It's obviously a good thing overall, but it is pushing the pricing down and potentially.
Speaker Change: Might be a negative mix shift with margins are you able to.
Speaker Change: To clarify whether that price pressure will continue in future quarters.
I'll just talk about the margin differential between branded retail and <unk>.
Speaker Change: Service and private label, which I assume is Lola.
Speaker Change: Okay. Alexia. This is done at a lot of questions in there here's what I can tell you relative to foodservice and keep this in mind, we've talked about it today, because we have seen some volume improvement.
Donnie King: There are a lot of questions in there. Here's what I can tell you relative to food service. Keep this in mind. We've talked about it today because you have seen some volume improvement relative to food. I would remind you that we had given up some business in the middle of the pandemic, and the nature of those contracts can be quite lengthy, and we're starting to get back in when those open up and get some volume. We have maintained in Prepared Foods the capacity that produces those products, so if you think about it from that perspective, this overhead and these assets have been a drag on our business to some degree. But we've gotten new volume to put into those assets, so that's one piece of it.
Speaker Change: Relative to foodservice I would remind you that.
Speaker Change: We had given up some business in the middle of the pandemic and the nature of those contracts can be quite lengthy.
Speaker Change: And we're starting to get back in Windows open up and get some volume we have maintained in prepared foods capacity, which produces those products. So if you think about it from that perspective this overhead.
These assets have been a drag on our business to some degree.
Speaker Change: Got new volume to to put into those assets. So that's one piece of it we're probably not going to talk about the differential in the margin structure between foodservice and retail.
Donnie King: We're probably not going to talk about the differential in the margin structure between food service and retail, but it's important that we regain that volume in food service, but our retail, our iconic brands in retail, continuing to support those and grow those and... and innovate and do merchandising like Melanie has talked about before. Those are all still critical, mission critical for us.
Speaker Change: But.
Speaker Change: It's important that we regain that volume in foodservice, but.
Speaker Change: Our retail our iconic brands and retail continuing to support those and grow those in.
Speaker Change: <unk>.
Speaker Change: And innovate and do merchandising like mentally has talked about before.
Speaker Change: Those are all steel critical mission critical for us.
Melanie: Yes, and the only thing, Alexia, I would like to add, because I think Donnie did a nice job of highlighting more of the top line, but also, as we think about our business and, you know, our performance, one of the reasons that we were able to deliver a solid quarter and what we plan on continuing to do is focus on the controllables, the things we can control, especially from an operational efficiency standpoint. So, you know, we're really focused on improving our service levels, maximizing our asset utilization by driving down our overhead and increasing our yield and labor efficiencies, and importantly, we're driving automation to improve our supply chain execution. So, from a top line perspective, yes, your question was about mix, but I just wanted to reiterate that we're also working all levers of the P&L to ensure that we drive a strong bottom line as well. Great, thank you very much.
Speaker Change: And the only thing.
Speaker Change: Yes, I would like to add because I think Donnie did a nice step up highlighting more of that top line, but also as we think about our business and our performance.
Speaker Change: One of the reasons that we were able to deliver a solid quarter and what we plan on continuing to do is focus on our controllable, but the things we can control, especially from an operational efficiency standpoint. So.
Speaker Change: Really.
Speaker Change: Focused on improving our service levels and maximizing our asset utilization by driving down our overhead and increasing our yield and labor efficiencies and importantly, we're driving automation to improve our supply chain execution. So from a top line perspective, Yes. Your question was about next but I just wanted to.
Speaker Change: Reiterate that we're also working all levers of the P&L and to ensure that we drive strong bottom line as well.
Speaker Change: Great. Thank you very much I'll pass it on.
Alexia Jane Howard: I'll pass it on. This concludes our question and answer session. I would like to turn the conference back over to Donnie King for any closing remarks. Hey, before Donnie wraps this up, I just want to make sure we make one final point related to our outlook for 2024. And we've had a lot of great discussion this morning about our various segments. We obviously moved the range on chicken and on pork. But I just want to highlight our reaffirmation of the total company guidance of one to one and a half billion dollars, based on a lot of different macro factors and the interplay between all of our segments. I think we have reasons to believe while we could achieve a range of outcomes in that window, the midpoint, you know, plus or minus. We designed it that way for a reason. It feels like a way to think about the total look.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Donnie King for any closing remarks.
Speaker Change: Before before Donnie.
Donnie King: <unk> is up I, just want to make sure. We land one one final point related to our outlook for 2024, and we've got a lot of great discussion. This morning about our various segments.
Donnie King: We obviously move the range on chicken and encore.
Donnie King: But I just want to highlight our reaffirmation of the total company guidance from one to one 5 billion.
Donnie King: Based on a lot of various macro factors.
Donnie King: And the interplay between all of our segments I think we have reasons to believe well we could achieve a range of outcomes in that window.
Donnie King: The midpoint plus or minus we designed it that way for a reason and feels like.
Donnie King: A way to think about the total look and then obviously as we move through Q2 and through the balance of the year, we'll give any revisions as necessary but.
John: And then obviously, as we move through Q2 and through the balance of the year, we'll make any revisions as necessary. But cautiously optimistic, promising start to the year, but still a lot of factors at play around total protein availability, consumer sentiment, and the other unpredictable factors that would get us to where we are. So, Donnie, I think with that, I'll hand it over to you.
Donnie King: Cautiously optimistic promising start to the year, but still a lot of factors at play around total protein availability consumer sentiment.
Donnie King: And other unpredictable factors that would get us to where we are so Don I think with that.
Don: Hand, it over to you.
Donnie King: Okay, I want to say once again thank you to all 139,000 of our team members. We're here today and have a good story to tell because of those 139,000 team members who contribute to us each and every day. Their efforts are what make and drive this business forward. Our strategy is working, we have the right leadership team in place to deliver, and we're poised to drive long-term opportunity and shareholder value. We've taken some steps in the right direction, but we have a lot of work to do. Thanks for your continued interest in Tyson Foods, and we look forward to speaking with you again soon. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. www.larryweaver.com BF-WATCH TV 2021, The Ultimate Parody Site!
Don: I want to say it once again say thank you to.
Don: All 139000 of our team members.
Don: We're here today and have a good story to tell because of those 139000 team members who contribute.
Speaker Change #101: To us each and every day there are efforts are what mix and what drives this business forward.
Speaker Change #101: Our strategy is working we have the right leadership team in place to deliver.
Speaker Change #101: Poised to drive long term opportunity and shareholder value.
Speaker Change #101: We've taken some steps in the right direction, but we have a lot of work to do.
Speaker Change #102: Thanks for your continued interest in Tyson foods, and we look forward to speaking with you again soon.
Speaker Change #103: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change #103: Okay.
Speaker Change #103: Okay.
Speaker Change #103: [music].