Q4 2024 Tyson Foods Inc Earnings Call

Good morning and welcome to the Tyson Foods fourth quarter 2024 earnings conference call. All participants will be in 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, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Sean Cornett.

Sean Cornett: Good morning and welcome to Tyson Foods fiscal fourth quarter 2024 earnings conference call.

Sean Cornett: On today's call, Tyson's President and Chief Executive Officer Donnie King and Chief Financial Officer Curt Calaway will provide some prepared remarks followed by Q&A.

Sean Cornett: Additionally, joining us today are Brady Stewart, Group President, Beef, Pork, and Chief Supply Chain Officer.

Kyle Nairn, Group President, Prepared Foods

Wes Morris, Group President Poultry

Sean Cornett: Devin Cole, President International and Golden McDonald, and Melanie Bolden, Chief Growth Officer.

Sean Cornett: We've also provided a supplemental presentation, which may be referenced on today's call, and is available on Tyson's investor relations website and via the link in our webcast.

Sean Cornett: During today's call, we will make forward-looking statements regarding our expectations for the future.

Sean Cornett: 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.

Sean Cornett: 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.

Sean Cornett: Please refer to our forward-looking statement disclaimers on slide two, as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections.

We assume no obligation to update any forward-looking states.

Sean 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 reconciliation of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release.

Now, I'll turn the call over to Donnie.

Thanks, Sean, and thank you to everyone for joining us.

Donnie King: This morning, we reported our fourth quarter in fiscal year 2024 results. Performance in Q4 was strong, in fact, adjusted operating income and adjusted earnings per share for both the best results in the past eight quarters, and both more than doubled compared to Q4 last year.

Donnie King: The momentum we've built led to significant improvement in full year profitability in 2024.

Donnie King: For the year, AOI of more than $1.8 billion, nearly double versus fiscal 2023, while adjusted EPS of $3.10 increased more than 130%.

Donnie King: We're clearly pleased with our performance this year, where a significant turnaround in chicken, combined with strong results in prepared foods and improvements in pork, offset well-known challenges in beef.

Donnie King: Our disciplined capital allocation drove strong cash performance in 2024 as well. Free cash flow increased by more than $1.6 billion versus last year and came in at more than twice the dividend this year.

Donnie King: This result was driven by increased AOI and prudent CapEx management, while still investing for profitable growth. Overall, our financial health strengthened significantly from where we ended fiscal 23.

Donnie King: Each of our team members across the organization contributed to this strong performance in 2024. I'm very thankful for the hard work they do every day to make us a world-class food company and recognized leader in protein.

Donnie King: I want to point out that beyond the results in Fiscal 24, we're providing guidance for Fiscal 25, which builds on our momentum.

Donnie King: At the midpoint, AOI is growing and our financial strength is improving. It's important to note that our guidance at midpoint for prepared foods and chicken reflects AOI expectations of more than $2 billion combined.

Donnie King: Our outlook for next year highlights the benefits of our multi-protein, multi-channel portfolio. Our strategy remains the same and reflects the continued focus on our business fundamentals.

Donnie King: Our priority on controlling the controllables has clearly delivered positive benefits in fiscal 2024, and we expect that to continue in 2025.

Donnie King: I want to emphasize that I remain optimistic about our future and am highly confident in our ability to drive long-term value for shareholders.

Donnie King: Let's move to segment highlights, starting with prepared foods, which has been a solid and stable driver of profitability.

Donnie King: ALI results for the quarter and the year came in just as we expected, with the midpoint of our segment guidance remaining constant all year.

Donnie King: FY 24 AOI grew 2% year-over-year and was the best performance since fiscal year 18, overcoming headwinds of startup costs at our new Bowling Green plant and a challenging consumer environment.

Donnie King: Overall volume grew nearly 1% as we continue to broaden our customer base and expand our presence in broad line distribution categories.

Donnie King: Moving to chicken, AOI results came in above the high end of our most recent guidance range. While we benefited from lower grain costs, our focus on the fundamentals of live operations, where hatch and livability again improved year-over-year in Q4, and plant efficiencies also contributed to the strong results for the quarter and the year.

Donnie King: It's clear that we've built a fundamentally stronger chicken business as evidenced by the significant turnaround in AOI from fiscal 23 to 24, which was our best full year AOI performance in the past seven years.

Donnie King: While results in beef were better than anticipated for Q4, we continue to see compressed spreads versus last year, driving the decline of profitability for both the quarter and full year.

Donnie King: Obviously the current cattle cycle remains challenging as there are no clear signs of sustained herd rebuilding intentions.

Donnie King: We will remain focused on the things we can control as we've managed through it. Turning to pork. Improved spreads highlighting herd health and solid demand drove a 270 million dollar year-over-year increase in AOI for fiscal 24.

Donnie King: As I mentioned, our focus on controlling the controllables has produced solid results for fiscal 2024, and we expect this to continue.

Donnie King: We have five strategic enablers that drive our priorities for 2025 and beyond. This is our roadmap for success, and we're building on this foundation. Let's look at our enterprise priorities for 2025.

Donnie King: Operational excellence never gets old or goes out of style. For us, a key element of operational excellence is gaining enterprise scale and unlocking savings in our controllables. By modernizing our operations,

Donnie King: and driving performance to standards. You've seen the benefits of this in our results for 2024. And we've embedded this approach in our guidance for 25 across the business with a noticeable impact in prepared foods.

Donnie King: As we are in service to our customers and consumers, we are building on our iconic brands to value up our core proteins.

Donnie King: We have three of the top ten brands in protein, behind Tyson, Jimmy Dean, and Hillshire Farm. While our brands are healthy, we have opportunities to expand our household penetration by better serving consumers with innovation for new meal occasions, categories, and channels.

Donnie King: One of the ways we will achieve our strategic goals is by investing in our digital capabilities, utilizing big data, predictive analytics, and artificial intelligence for better decision-making and outcomes.

Donnie King: Our data and digital delivery priority enables improved yield and mix across many of our operations and is important as we modernize customer engagement and drive consumer insights.

Donnie King: We are accelerating digitalization in our end-to-end demand and supply planning, becoming platform-driven with an exception management strategy that optimizes working capital.

Donnie King: Capital allocation is an important strategic priority that unlocks fuel for the enterprise.

Speaker Change: As Curt will elaborate on shortly, we made tremendous strides in our cash management in 24, and we plan to be just as disciplined in 25 with a continued focus on managing capex and working capital to drive free cash flow.

Speaker Change: Importantly, we're focused on team member development as the foundation of our plan delivery and to build on our strong history of our winning culture.

Speaker Change: With these strategic priorities outlined, let's move to our segment priorities for the next year, starting with prepared foods.

Speaker Change: There is significant opportunity to drive profitability in prepared foods by operating with an increased level of discipline, increasing throughput and yield by performing the standards, eliminating waste, reducing complexity, and continuing to improve service levels.

Speaker Change: Our focus on data analytics drives insight into consumer preferences as well as disciplined investment to support and grow our core products and drive innovation.

Speaker Change: As an example, Jimmy Dean is one of our strongest brands, but there is still room to expand its appeal and market opportunities in adjacent morning eating occasions.

Speaker Change: To capture trends towards spicier foods and convenience, we recently launched Spicy Chicken Honey Biscuits, a restaurant-quality breakfast sandwich. We previously mentioned the success of our Grilled Cake platform, which has strong customer adoption and repeat rates.

Speaker Change: We're leveraging the success of these innovations and further leaning into our other top-performing SKUs to capture opportunities to expand distribution.

Speaker Change: Moving to chicken, there's no clear demonstration of the benefits of operational excellence and the efficiencies we drove in chicken in fiscal 24.

Speaker Change: We plan to sustain and improve our live and plant operations and maintain a disciplined SNOP process in 2025.

Speaker Change: As you've seen, when our live operations are running well and our demand plan is more accurate, we can operate much more efficiently while better servicing our customers and reducing inventory, all in support of generating more stable and predictable results.

Speaker Change: At the heart of our strategy lies a commitment to long-term partnerships with strategic customers. By fostering these collaborations, we ensure stable demand for our products and create mutually beneficial win-win relationships focused on growing the category with our customers.

Speaker Change: Next, I want to touch on how we can build value through investments in our branded and value-added chicken portfolio. Tyson holds the number one brand position in value-added chicken across both retail and food service.

Speaker Change: Over the past year, we've made significant investments to enhance and expand our portfolio of high-quality, innovative, and convenient products.

Speaker Change: We're also excited to debut our revitalized packaging which reflects Tyson's relentless focus on quality and generates consumer excitement. The new packaging rollout in October coincides with the launch of our new Tyson branded advertising campaign, Always Been Tyson.

Speaker Change: More broadly, our fully-cooked portfolio is a high ROI area where we will continue to deploy capital to expand our market presence and maximize returns.

Speaker Change: For example, we accelerated the ramp-up of our new Danville facility this year and are now exploring our next Danville-scale operation. This approach not only strengthens our financial performance, but also solidifies our competitive positioning in the industry.

Speaker Change: As you know, our beef business is challenged by the dynamics of the current cattle cycle. Our focus for FY25 and beyond is to build a best-in-class operation so that we are well prepared when the cycle turns as we fully believe it will.

Speaker Change: At the same time, we continue to align every aspect of our operations from procurement, where we are strengthening our relationship with key suppliers, to production and distribution to meet customer and consumer demand.

Speaker Change: In addition, we continue to improve our cost structure with tight spend management and increased efficiencies while enhancing yield and mix to add value.

Speaker Change: We're meeting consumers demand for convenience with an expanded assortment of pre-seasoned beef available in a variety of new flavors and forms. We are a leader in beef and we want to be a valued partner for our customers by having the right products at the right time to meet their needs.

Speaker Change: We made good progress on operational improvement in our pork business in fiscal 24, which allowed us to capture the benefits of a better market condition, and we expect to make incremental progress this year.

Speaker Change: The Network Optimization Initiative we completed in 2024 is expected to drive better capacity utilization and allow us to improve our mix by leveraging the capabilities of our remaining plants.

Speaker Change: We're also scaling up our use of data to make better decisions on mix and to improve yield. Like beef, our pork team has been expanding our portfolio of seasoned and marinated products to drive increased value-added offering while strengthening our partnership with key customers.

Speaker Change: Across the business, our focus on controlling the controllables can drive sustainable cash flow, better operational execution, and improved mix, and deliver a solid performance in fiscal 2025.

Speaker Change: Before I hand things over to Curt to review our financials in more detail, I want to share the positive results from the execution of our strategy, demonstrated by the momentum of our value-added businesses in prepared foods and chicken.

Speaker Change: But we are also managing through and acknowledging the challenges of the current beef cycle.

Speaker Change: As our value-added businesses grow and drive a larger portion of our profitability over time, we should expect a more stable earnings profile.

Speaker Change: Looking at prepared foods in fiscal 24, we delivered AOI growth of over 100 million dollars as compared to the five-year average from fiscal 19 to 23 and its share of overall profitability has increased from a quarter to a half.

Speaker Change: Additionally, at the midpoint of our fiscal 25 guidance, we're also expecting nearly 100 million dollar increase in earnings.

With that, I'll turn the call over to Curt.

Curt Calaway: Thanks Donnie. Total company net sales were up 1.6 percent year-over-year in Q4 and 0.8 percent for fiscal 24. Beef and chicken were the primary drivers for the quarter while beef and pork led the sales increase for the full year partially offset by chicken.

Curt Calaway: Q4 adjusted operating income of $512 million, margin of 3.8%, and adjusted EPS of 92 cents were the strongest quarterly results this year, all more than doubling versus Q4 of 23. And as Donnie mentioned, the best performance in the past eight quarters.

Curt Calaway: full-year AOI of more than 1.8 billion dollars, nearly doubled, and adjusted EPS of three dollars and ten cents grew over one hundred and thirty percent.

Curt Calaway: Significant improvement in chicken profitability was the largest driver of year-over-year growth for both the quarter and the full year, with contributions from prepared foods and pork offsetting declines in beef.

Now let's review our segment results for Q4.

Curt Calaway: In prepared foods Q4 revenue declined 1.2% versus last year driven by lower retail volume.

Curt Calaway: It's worth noting that we continue to make progress in total volume growth outside of retail in both Q4 and Fiscal 24.

The

Curt Calaway: As we expected, AOI and Q4 increased noticeably year over year, benefiting from lower raw material costs, operational efficiencies, and reduced MAP spending as we have focused on reducing inefficient support costs.

Curt Calaway: These drivers also contributed to the best full-year AOI performance in the past six years, overcoming startup cost and unfavorable mix.

Moving to chicken.

Curt Calaway: Sales in the quarter increased 2.3 percent inclusive of a legal contingency accrual recorded in Q4 last year.

Curt Calaway: While volume declined modestly year over year, it grew approximately 1% versus Q4 of fiscal 22, as we continue to better align supply and demand.

AOI increased $281 million versus last year to $356 million.

Curt Calaway: Lower input costs, net of pass-through pricing, and improved operational efficiencies and execution drove the growth in AOI.

Curt Calaway: For the year, chicken AOI improved by nearly $1.1 billion, leading to the strongest AOI performance since fiscal 17.

Curt Calaway: In beef, revenue is up 4.6% year-over-year in the quarter primarily due to volume driven by higher average carcass weights and higher head throughput.

Curt Calaway: While revenue increased, AOI decreased, primarily reflecting compressed spreads as expected.

Curt Calaway: Moving to pork, Q4 revenue decreased 3.7% driven by lower pricing on drop credit items, partially offset by increased volume.

Curt Calaway: AOI increased 27 million dollars year over year benefiting from improved operational execution. For the full year AOI increased 270 million dollars highlighting improved spreads.

Curt Calaway: Shifting to our financial position, our commitment to discipline capital allocation remains constant. Our priorities are to maintain financial strength, invest in the business, and return cash to shareholders, all while maintaining our investment grade credit rating.

Curt Calaway: Full year cash flow from operations increased nearly $840 million, driven by improved profitability and working capital management.

Curt Calaway: Operating cash flows of 2.6 billion dollars was more than double our CapEx which came in at just over 1.1 billion dollars for the year, reflecting our disciplined capital deployment while continuing to invest for profitable growth.

Curt Calaway: Fiscal 24 free cash flow improved by more than 1.6 billion dollars year over year. This increase was driven by roughly equal contributions from higher operating cash flow and lower capex.

Curt Calaway: Free cash flow of nearly 1.5 billion dollars was more than two times our total dividend. As you saw in our earnings release, we raised our dividend for the 13th consecutive year, reflecting confidence in our cash flow generation.

Curt Calaway: We remain committed to the dividend as our primary way of returning cash to shareholders. Additionally, we ended the year with $4 billion of liquidity after repaying our 2024 senior notes in August for $1.25 billion.

Curt Calaway: Net leverage declined again sequentially, ending the fiscal year at 2.6 times. This is a full one and a half turns of improvement versus where we exited fiscal 23.

Curt Calaway: We've made good progress, but continue to focus on returning net leverage to our long-term target of at or below two times net debt to adjusted EBITDA.

Curt Calaway: Our plan for fiscal 24 was to apply our controlling the controllables approach to improve our financial strength. As you can see in our free cash flow and net leverage performance, we've clearly over-delivered on that plan and remain committed to deploying resources to maximize long-term shareholder value.

Now let's look at our guidance for fiscal 25.

Curt Calaway: We anticipate sales dollars to be flat to down 1%. We expect volume growth in chicken and prepared foods to be offset by lower beef and pork volumes.

Curt Calaway: However, total company AOI is expected to be between $1.8 and $2.2 billion, reflecting approximately 10% growth at the midpoint driven by prepared foods and chicken.

Curt Calaway: Rounding out key P&L items, we anticipate interest expense to be roughly $380 million and our tax rate to be between 24 and 25 percent.

Speaker Change: As Donnie mentioned, we're going to maintain tight controls on spending and CapEx to be between $1 and $1.2 billion this year.

Speaker Change: While there are a range of outcomes for AOI, we expect our free cash flow to exceed $700 million, which is approximately our new expected annual cash dividend.

Speaker Change: Moving to the breakdown of total company AOI by segment, starting with prepared foods.

Speaker Change: While we don't anticipate material changes in consumer behavior, we still see a pathway to significant growth in prepared foods AOI by focusing on operational improvements that are in our control, as you saw in our segment priorities for fiscal 25.

Speaker Change: and Donnie King. Thanks for joining us. We'll see you next time.

Speaker Change: We expect AOI to be in a range of 900 million to 1.1 billion, representing double-digit growth at the midpoint driven by these initiatives.

Speaker Change: In CHICN, we plan to sustain and build on the operational improvements we put in place in Fiscal 24.

Speaker Change: We are reinvesting a portion of these benefits into our value-added portfolio, highlighted by our master brand relaunch and new marketing campaign.

Speaker Change: We anticipate Chicken AOI to be in the range of $1 to $1.2 billion, highlighting high single-digit growth at the midpoint.

Speaker Change: Now on to our beef segment, where uncertainties remain, including the timing and pacing of meaningful herd rebuild intentions.

Speaker Change: These market dynamics are reflected in our range of outcomes for AOI for fiscal 25, where we expect a loss of 400 to 200 million dollars, which reflect a similar level of profitability year-over-year at the midpoint.

Thank you for tuning in.

Speaker Change: In pork, we also expect a similar level of profitability in 25, as in 24, with AOI in the range of $100 to $200 million.

Speaker Change: At the midpoint, benefits of our ongoing operational initiatives may be offset by tighter spreads.

Speaker Change: Our international business made strides in improving operations in Fiscal 24, leading to a notable increase in AOI. We expect to make further progress in Fiscal 24.

Thank you for your time. Have a great day.

Speaker Change: Our outlook for the coming year reflects the benefit of our multi-protein, multi-channel portfolio. The middle of our range highlights solid earnings growth and continued progress on our operations and financial strengths.

Now I'll pass things back to Donnie to wrap up.

Donnie King: Thanks, Curt. I'm proud of our fiscal 2024 results. We drove significant improvements in our P&L and on our balance sheet. These accomplishments are a direct result of our team's unwavering discipline in executing our strategic priorities.

Donnie King: I'd like to take this time and opportunity again to thank each of our team members. Your focus and commitment has been essential to our success.

Donnie King: Looking ahead, we still have room for improvement, but I'm optimistic about what's to come. We have a solid foundation as one team, one Tyson, and I'm confident we will continue making progress in Fiscal 25, building on our iconic brands to value up our core proteins.

and striving to operate with excellence.

Donnie King: Before we move to Q&A, I'd like to welcome Kyle Nairn as our new Group President of Prepared Foods. With more than two decades of industry experience, Kyle is a proven leader with strong operational expertise and a deep understanding of our business.

Donnie King: As you recall, Melanie Boland came to us as Chief Growth Officer in early 2023 and shortly after agreed to take on additional responsibilities as Group President of Prepared Foods.

Donnie King: I'd like to extend my gratitude to Melanie for delivering the fiscal 24 plan and creating momentum for growth in the future.

Donnie King: Her role as Chief Growth Officer remains central to our growth strategy, especially as we move forward with the most robust innovation pipeline in our company's history.

Donnie King: Her efforts to deliver continued breakthrough marketing and growth initiatives, including digital enablement, will be pivotal as we bring new consumers to the Tyson Foods portfolio.

Donnie King: Kyle's appointment has been a seamless transition. We're confident his experience and leadership will ensure continued momentum for the business.

Speaker Change: Thank you for your time today, and I look forward to updating you on our progress next quarter. Now, I'll turn the call back to Sean for Q&A instruction.

Thanks, Donnie. We will now move to your questions.

Sean Cornett: Please recall that our cautions on forward-looking statements and non-GAP measures apply to both our prepared remarks and the following Q&A.

Operator, please provide the Q&A.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up. If you have any further questions, you may re-enter the queue at any time. At this time, we will pause momentarily to assemble our roster.

Speaker Change: Our first question comes from Ben Torrer of Barclays. Please go ahead.

Speaker Change: Hi, good morning and thanks for taking my question. Donnie, team, congrats on a good finish of fiscal 24, first of all.

Thank you.

So thank you. Thank you.

Speaker Change: Along the lines, Q4 obviously was very strong and the full year came in even a little bit better than you expected.

Speaker Change: You're still calling for some nice growth looking into 2025, so Donnie, maybe help us unpack a little bit the puts and takes within your outlook for 2025, and maybe in a little bit more detail, what gives you confidence of growth into next year? That would be my first question.

Donnie King: Sure, and thank you, Ben, and good morning, everyone. Let me start with just saying how pleased we are with Q4 in the full year of 2024.

Donnie King: We continue to see the benefits of our multi-protein portfolio, where chicken, prepared pork, and international are all sitting the headwinds in beef.

In Q4, momentum continues to strengthen.

Donnie King: We saw significant cash generation with free cash flow more than two times our dividend and substantial reduction of net leverage ratio to 2.6 times.

Donnie King: In FY24, and this is why you should be confident, those enterprise priorities continue to deliver results.

Donnie King: Our focus on operational excellence are delivering best-in-class operations by gaining efficiencies and eliminating waste.

Donnie King: Our focus on the customer and the consumer is allowing us to strengthen our iconic brands to expand reach and deliver innovation for new occasions.

Donnie King: Our focus on data and digital tools allows us to use big data, analytics, and AI to improve operational decision-making and drive consumer insights and ultimate actions.

Donnie King: Our focus on capital allocation is improving cash flow by managing CapEx and working capital.

Donnie King: Our focus on team member development is foundational for our culture and delivering our plan.

Donnie King: We expect prepared foods and chicken each to deliver approximately 50% of our AOI in fiscal year 25, a significant shift to a more valuable mix.

Donnie King: Approximately 10% of our AOI growth in FY25 at midpoint is driven by prepared foods and chicken.

Donnie King: Now into each of the segments, a little color there. In prepared foods, AOI performance was the best full year since 2018. Would expect FY25 AOI to have double-digit profitability growth at midpoint.

Donnie King: and Chickens, best full-year AOI performance since fiscal year 2017. Market tailwinds and operational improvements driving results.

Donnie King: would expect FY25 AOI to have high single-digit profitability growth at the midpoint.

and Pork.

Better spreads and improved performance drove significant year-over-year AOI increase.

Donnie King: would expect similar profitability at midpoint in 2025. In beef, spread compression continues, driven by a tight cattle supply, but would expect similar profitability at the midpoint.

Donnie King: In international, a nice improvement, a nice AOI performance taken with the 4Q one-time adjustments. We expect FY25 AOI performance to continue to improve as execution and capacity utilization improves.

Donnie King: In total, we'd expect FY25 AOI growth to be 10% at midpoint on a range of $1.8 billion to $2.2 billion.

Donnie King: Now, five key takeaways from Q4, and as we think about 25.

Donnie King: We will continue to shift our mix from core protein to branded value-added.

Donnie King: Number two, we will increase household penetration in branded and value-added.

Donnie King: Number three, protein is part of every healthy diet and protein is a clear winner in food.

Donnie King: We will, number four, we will improve the returns on our invested capital and create shareholder value.

Donnie King: And number five, we will execute with excellence in all that we do. In terms of just one adder here, in terms of volume,

Donnie King: for the year. We expect beef based on tight cattle supplies to be volume to be down slightly, pork because of some of the network optimization should be down slightly. We would expect increases in volume in prepared foods, chicken.

Speaker Change: So that's the breakdown on the mix. With that, I'll turn a call or turn a question back to you, Ben.

Speaker Change: Alright, that was that was very complete. One quick one on chicken, and this is really just like kind of maybe stretching a little bit of the expectations here. If we go back 12 months in time,

Speaker Change: You were kind of looking for maybe up to $700 million in AOI for chicken, and then it turned out to be more than $1 billion in FY24.

Speaker Change: So, as we think about this and obviously how the market conditions performed over the last couple of months and quarters now, how much of that do you think you can potentially carry over and what are potential upside scenarios that would take you even beyond the current chicken outlook of call it maybe $1.2 billion at the higher end?

The

Speaker Change: Ben, I would just I would just say we have a fundamentally different and better chicken business than we had even a year ago Certainly two three years ago, but our guidance for 25 the range is from 1 billion to 1.2 billion

Speaker Change: which is really a high single-digit growth at midpoint. We're doing that at the same time we're investing back in the business with the new ad campaign, product innovation and so forth, something on the order of about $100 million. So with that, Wes, do you want to add anything?

Wes: Yeah, I'd love to. Ben, thank you for the question, and let me give you a little background so that it'll clear up a little bit, and I'd like to answer specifically your question around 25.

Wes: And so we executed our strategy in 24. It was a great team effort as we drove over a half a billion dollars in operational improvement across live plants and then matching up our supply and demand.

Wes: And so we delivered our strongest Q4 in history. But here's the part that most people don't know. While we were working on the cost side, we were also resetting the stage for the revenue side and winning with consumers. And so Donnie mentioned our number one shared retail value added.

Wes: We did a complete do-over in which we upgraded our quality to the point that our testing exceeded consumer expectations. Not, I like it, but it exceeds my expectations.

Wes: We've got a big innovation pipeline, both experimental and better for you, and experimentals form and flavor what I call where food meets fun.

Wes: And then the better for you is capitalizing on the protein content.

Wes: We upgraded our packaging and it's based on basic decision trees of shopper's form, shopper's shop.

brand and then form and flavor.

Wes: Donnie referenced our new advertising campaign and what's exciting about that is that campaign resonates with our core shopper.

Wes: But just as importantly, it resonates with the younger shopper, creating sustainability of demand over time. And so we do have a stronger business and an impressive leadership team. We're well positioned into 25 and beyond.

Wes: to have a successful, sustainable business. And let me make one more comment about commercial because that's something we've not talked about on the calls and a big step change going into 25.

Wes: Our speed and improvement and go-to-market has been greatly increased and so business growth and R&D are a highly functioning team.

Wes: to not only understand them about consumer needs, but to create products and get them to commerce quickly.

Wes: We've got the strongest pipeline of new products that I've seen in my career across any segment.

Wes: And so with that, let me transition to your question around 2025 Outlook and how good is the number.

Wes: And let me start with, hey, last year my team surprised me with the speed and intensity of the improvement, right? So yes, we did say 700, and we continued to perform faster and better than I anticipated.

Wes: We think we've got good balance, good analytics, and good insight into what 2025 looks like.

Wes: I'm very encouraged by 2025 as we've got a good team, we've got better fundamentals.

Wes: Overarching markets appear stable. We've got a plan, performance improvement plan more than offsetting inflation. Then we'll spend around $100 million driving that mixed change of value added.

Wes: And while our volume looks a little soft last year, our fully cooked mix was up 5%. So we've already started that mix adjustment to improve profitability.

Wes: And so all in all, we got a better cost structure, we got strong value-added go-to-market hitting with a lot of intensity in 2025. And so our guidance, based on current market outlook, understanding we're more insulated than most companies, I feel good about.

Wes: Now we also think we're realistic about the macroeconomic impact of, you know, total demand, what's the industry supply potential, any impact to exports.

Wes: ongoing weather patterns, which seem to be more frequent, and feed costs and global feed stocks. And so we feel very good that, based on what we know, our guidance is more accurate than any time in the past.

Okay, thank you very much. Congrats again.

Speaker Change: Thank you. Our next question comes from Heather Jones of Heather Jones Research. Please go ahead.

Good morning. Congratulations on the quarter. Good morning, Heather.

Good morning.

Speaker Change: I have, my first question is a follow-up to Ben's. As far as on the chicken guide, I was, y'all have made a lot of changes in your operations there where you pulled some complexes. So I was just wondering if you could give us a little more specificity as far as your year-on-year growth for that cycle.

Speaker Change: you know, things that Tyson can control as far as cost savings, more productivity, and how much is it you're assuming as far as the overall market dynamics.

Sure.

Speaker Change: You know I will tell you that the chicken business is performing. Wes just a moment ago talked about a number of those things, but think of this as a continuous mindset.

Speaker Change: continuous improvement mindset, operational excellence, you know those are the gifts that keep on giving, if you will, and you know for us that's not going out of style and you know we'll do many of those same things as we

Speaker Change: you know, here in 2025. We're off to a good start in 2025. Wes, why don't you touch on some of the specifics around...

Speaker Change: I think in an effort to keep it fairly simple, if you use 2023 as a baseline, we have materially made a step change that has nothing to do with markets of over $500 million.

Speaker Change: We know where the continuous improvement opportunities are from there, so I'm going to bake in another 185.

Speaker Change: that has nothing to do with markets. And so we made a major step change that regardless of meat values or corn values, those fundamental improvements are worth between five and seven hundred million dollars a year.

That's super helpful.

basically

Speaker Change: production there, just due to new feed additives, longer time on feed, just production has come in much higher than anyone would have expected this year and those weight gains are likely to continue in 2025.

Speaker Change: Given that we haven't had this hole in supply that was expected, the wholesale price gap between chicken and beef has...

Speaker Change: been pretty narrow. It's narrowest in two years whereas the retail price gap is the highest ever.

Speaker Change: And so just wondering what y'all are hearing from retailers, given that supply has not been as bad as people thought, is there a possibility that retailers start promoting beef more at the expense of chicken at $25? Just would love your thoughts on that.

Speaker Change: Well, good morning, Heather. I appreciate the question. This is Brady. First of all, I think it's really important to point out just where we sit from a beef demand perspective, just kind of set the stage. And when we look at 24 versus 23, you know, we saw it from a choice cutout perspective increase just relative to the wholesale price as well, and it was up a little more than 2 percent.

which

Speaker Change: signals really good beef demand and we've seen that in our business as well. Then when we go and we kind of dissect it by primal and by product it gets a little bit more interesting as well.

Speaker Change: and so really kind of flattish prices across the board on the rib and the loin.

Speaker Change: but we've seen a significant increase in price on the grinds and so I'm not sure that every single one of the products on beef is really a clear substitute.

Speaker Change: You know with with chicken and with pork But where we have seen that increased demand in price has really been on on lean trim It's been on the grind and we've seen some substitution opportunities between the round complex

Speaker Change: and in the Lean Complex as well. From a retailer perspective, we have seen several different strategies deployed. And because we've seen the...

Steady demand for beef

Speaker Change: We know that the consumer is going to stay in there, continue to buy beef.

Speaker Change: And so, some retailers have certainly taken that promotional opportunity to work on that rib and loin complex to drive those market baskets higher in general.

Speaker Change: I guess the overarching sentiment just relative to beef is really good, really good demand even with these higher prices and expect that to continue into 25.

Speaker Change: Hi Ms. Heather, this is Wes again and I was so focused on the call side of your question I think I should have mentioned

Speaker Change: A big unlock on the revenue side as well as we go into 2025. So, as you know, we opened five fully cooked lines.

Speaker Change: in our Danville, Virginia, new plant earlier in 2024. Through great efforts from both retail and food service, that plant is actually sold out. And so that mixed change that I referenced earlier also changed in economics.

Speaker Change: is baked into our 25 plan, and I'm excited to announce that we're already starting to work on the next five fully cooked plans.

Wonderful. Thank you so much.

Thank you.

The next question comes from Ken Goldman of J.P. Morgan.

Please go ahead.

Hi, thank you. I'll stay with chicken.

Speaker Change: And thank you for all the help, both of you, in terms of...

Speaker Change: the mixed changes and, Curt, in terms of some of the permanent dollar changes to your operating income that you would expect. I wanted to ask, though, you know, is it possible

Speaker Change: that there's a potential partial offset coming in the next year just from higher supply.

Speaker Change: and I know, you know, we're getting some mixed signals there, but we have seen chick placements increase to some extent. I'm just curious, you know, not to, not trying to rain on what's a pretty great parade here, but just wanted to get a sense for what's in your guidance for potentially higher industry chicken supply in the coming months.

Speaker Change: Thanks, Ken. Let me start out and answer that question and if we want to go into more detail I'll give it to Wes, but I would tell you in our guidance that 1 to 1.2

Speaker Change: We have contemplated all those things that you just mentioned. So we're comfortable with the guidance.

Speaker Change: that we've given. I think one thing that I'll just add to in terms of...

Speaker Change: how this mix is shifting for us, not only in chicken, but for the other businesses, but for chicken specifically today. If you look at volume, while it is positive or projected positive for 2025, what you don't see in that is this.

Speaker Change: that the outsized growth of the value-added branded business is up about five percent.

Speaker Change: Thus, we're filling up the Danville, Virginia plant, and then we're looking at another plant to do that. So, what we're doing in shifting this core, our commodity, into more value-added is working, which has been part of the Tyson history for many decades now.

Speaker Change: And so we'll do more of that, and we're aware of the market conditions, but we're trying to operate and be a company that is a little different in terms of what we do.

Speaker Change: Yeah, I'll share my perspective, if I could. I'll share my perspective real quick. You know, we see the record egg sets, and I think it's reflecting strong demand for poultry, plus the industry's continued challenge in hatch and livability. You know, fortunately, Tyson's performance has dramatically outpaced the industry. We're able to service our customers.

Speaker Change: You know, we referenced the 2.6% increase for the full year, but given the robust demand, I think there's good reason to believe that supply and demand are fairly balanced.

Speaker Change: But I want to be clear on something that that we talk about internally. You know, we really grow chickens for two reasons. We don't grow a lot of chickens to sell for whatever they're worth next Wednesday.

Speaker Change: We grow a lot of chickens for strategic customers to create win-win solutions who are looking for a continuity.

Speaker Change: And that has built-in mechanisms that if we perform, we make money. And then the second reason we grow chickens is as ingredients to our fully cooked and par-fried business, which we're growing exponentially. So that the industry will do whatever it's going to do.

I think we're well positioned to win either way.

Speaker Change: Thank you. And if I could just ask a quick follow-up. You have a new administration coming in the White House, I think.

Speaker Change: A lot of uncertainty, maybe both on the upside and downside.

Speaker Change: I'll leave this question open-ended, but just in terms of labor, tariffs in both directions, regulations, is it possible to even analyze, you know, what might be some upside and downside drivers at this time, or is it just way too early to say?

Speaker Change: Well, you know, there's a lot that we don't know at this point, but I would remind you that we've successfully operated this business for over 90 years, no matter the party in control, the environment.

Speaker Change: You know, we look forward to working with the incoming administration.

Speaker Change: Like all businesses, we'll assess any new policies and plan accordingly. So we're going to control, again, what we can control in this environment, so I'll leave it at that.

Thank you.

Thank you.

Speaker Change: The next question comes from Puran Sharma of Stephen Sink. Please go ahead.

Speaker Change: Hey, thanks for taking my questions and congratulations on a strong quarter. Thank you.

Speaker Change: I was hoping just to gain a little bit more clarity for myself on beef and kind of your outlook and more specifically just wanted to understand just heifer retention or herd rebuilding dynamics. I understand we haven't seen that yet but just looking at your guidance

At the midpoint for beef, we're kind of looking flat-ish.

going to slaughter plants.

Speaker Change: going even lower, which fundamentally to me would put more compression on margins.

It was the...

Speaker Change: Does the lower end of your operating income range factor in potential heifer retention?

Speaker Change: you know, help me kind of think about potential heifer retention in your beef outlook for next year.

Speaker Change: Sure, let me start off with that in terms of the guidance.

Speaker Change: We're guiding to a loss of $400 million to a loss of $200 million. So the challenge continues, but as I mentioned earlier,

This 2025 will be similar based on.

all of our modeling to 24.

There's some influx, yes, heifer retention.

Speaker Change: And, you know, we're not seeing meaningful heifer retention. But there's also the influx of heavier weight cattle. There's the influx of some dairy into the supply and a number of other things. I'll flip it to Brady to let him give you some of the finer details of that.

Brady Stewart: Sure, thanks Donnie. I think it's also important to understand what Tyson can control and I'm proud of the team.

Brady Stewart: relative to some of the improvements we made in 24. And so to have operating costs in our plants that are lower in 24 versus 23, when we saw some inflation and some lower headcount numbers, is really meaningful to the outlook of our business as well and provides some visibility in terms of where we can control. This is one of the most dynamic beef environments in history and we've gone through these cycles approximately every decade.

Brady Stewart: but this one's this one's really unique and we've seen record cutout prices, some record weights that you referenced as well.

Brady Stewart: and how all of these different pieces shape into the outlook is very interesting. So, we've layered on a significant amount of data platforms to help us analyze our business better than we ever have before and make better business decisions that really drive outcomes that are important and meaningful.

Brady Stewart: And so, from a cutout perspective, I mentioned earlier that we've seen really, really good demand. And we need to continue to understand that that good demand and really high cutout values

Brady Stewart: provides greater importance now on our yields than it ever has in the history of the business as well. And so there's initiatives to continue to move forward and continually improve in that area as well.

Brady Stewart: Grinds is very, very important. I mentioned the record high prices we've seen on lean trim. How we convert lean trim into chubs or patties or other grind material to meet the consumer wherever they want to go is a good opportunity for us and we've seen great initiatives and move in that area.

Speaker Change: Donnie mentioned the seasoned marinated progress and we want to provide convenience to our customers as well and provide different platforms for them to purchase our beef products.

Speaker Change: really proud of the team to continue to innovate and come up with different solutions for the future. And then just lastly, I just want to go back and reiterate, the efficiency improvements that we have made year over year are absolutely meaningful as well and will help us navigate.

Speaker Change: through whether we start to see additional heifer retention and potentially some lower harvest numbers or it's more of a static demand case.

and Donnie King. Thank you. Thank you.

Great. No, I appreciate it. Thanks for the caller.

Speaker Change: I guess for my second question, just kind of wanted to shift over to the work you've done to optimize your network. If maybe you could just remind us of all the work that you have done, how many plants you've closed, and then do you see further kind of work being done? You know, you guys are...

Speaker Change: really kind of seeing benefits from operational excellence so just want to kind of get a sense for how you're thinking about it in the future.

Speaker Change: Sure, great question, and I won't hit on every specific location, but I will tell you how we start. We start with controlling the controllables in the business.

Speaker Change: And then we began, as many have talked today, about executing with excellence.

Speaker Change: We simply want to be best-in-class operations end-to-end. I don't care if it's chicken, beef, pork, prepared, international, or a function across Tyson Foods.

So let's start with that.

Speaker Change: So when we look at the network, we consider a number of things. We consider the age of the asset. We consider the profitability of an asset. We consider the scale of an asset. We consider, you know, how competitive it is in the marketplace. Can it win?

Speaker Change: And we also then look at, you know, what future capital would be spent on that particular asset.

And as we run all these things through a funnel...

We make a long-term decision.

Speaker Change: And I must tell you, these are always challenging, painful decisions to make. But I think we have demonstrated the ability to look everywhere, to challenge ourselves to be the best, and then make decisions accordingly based on what we find.

Our next question comes from Thomas Palmer of Citi.

Please go ahead.

and Donnie King.

Speaker Change: Good morning and thanks for the question. I was hoping to get a little more specific on the expected drivers for prepared foods.

Speaker Change: Sounds like mix is a factor. I wondered maybe about your outlook for other items, anything maybe quantifiable on volume expectations, and then kind of thinking about COGS inflation and productivity. And then just kind of in context to that expected improvement in prepared foods, would you expect to see this 10% operating profit growth starting in the first quarter, or is there a period later in the year where we might see outsized growth? Thanks.

Speaker Change: Yeah, great question and thank you for that. You know, I would remind you that in 2024 it was the best year we've had since 2018. I've said on calls, this call before, that there's upside to our prepared foods business.

what we are doing.

Speaker Change: What we did in 24, 23, and we'll do in 25 and beyond is continue to drive out waste from our business.

Speaker Change: will continue to connect with that consumer and our customer with new and meaningful innovation.

Speaker Change: I've talked about what protein's impact is and where it sits relative to inside the category of food.

Speaker Change: But we're literally pulling every lever within prepared foods. We're already seeing benefit of that. We saw it in 24. We see that momentum continuing in 25 and beyond. And a reminder, we...

We're at midpoint. We are expecting a 10% growth.

Speaker Change: from 24 to 25. Now let me introduce you to Kyle Nairn who now leads our prepared foods business. Thank Melanie for outstanding 2024 and Kyle give us a little more color relative to the question.

Kyle Nairn: Yeah thanks Donnie and thanks Thomas for the question. You know as I look at 24 you know we were entering the beginning of our multi-year strategy focused on operating our business with discipline.

Kyle Nairn: And that's exactly what we did, as Donnie mentioned, the best performance in six years and in line with expectations.

Kyle Nairn: I guess I'll start by thanking all of our team members for their contribution to the improvements that we recognized in 24.

Kyle Nairn: The key drivers for that performance were really along three pillars. Our operational performance is delivering tangible results.

Kyle Nairn: We experienced significant improvements in yield and throughput. Our service levels improved over a hundred and seventy points year-over-year. Distress sales down 26 percent.

Kyle Nairn: When you look from a commercial execution perspective, we're delivering some sizable wins. We continue to see distribution increases across our core business, gaining over 240 TDPs on our core items that have proven to add value to our customers and consumers.

Kyle Nairn: We continue to see momentum from an innovation perspective relative to the launch of our Jimmy Dean griddle cakes and our chicken biscuit. We continue to realize increased distribution on those items on the backs of high trial and repeat rates.

Kyle Nairn: And then we continue to leverage our data and digital to drive promotional efficiency and long-term share growth.

Speaker Change: And so, as I wrap that up, Thomas, and I think of the momentum we carry into 25, which would be year two of this multi-year strategy, I would just call out that over 100 percent of the step change in profitability is built on controllable improvements.

Speaker Change: Those key drivers will remain unchanged. We will continue to be focused on the growth initiatives that I mentioned on core distribution and launching items from our robust innovation pipeline.

Speaker Change: And from an operational perspective, we are laser focused on our performance to standard. We'll continue to focus on running our assets at standard on every line every day. We'll continue to be focused on reducing complexity and eliminating waste.

Speaker Change: and so again expect to carry that momentum from that we gained in 24 into 25 as we continue to execute this multi-year strategy.

Curt Calaway: Tom, this is Curt. I might add just on top of Kyle as well, part of your question I think was was around kind of the cadence that you might see it materialize. I think this would be a year where it might be a little more balanced across the year, different than kind of more of our historical norms, a little bit of seasonality, which is really what Kyle was speaking about relative to the operational efficiencies we continue to gain throughout the year.

Thank you.

Speaker Change: The next question comes from Michael Lavery of Piper Sandler. Please go ahead.

Speaker Change: Thank you. Good morning. I just wanted to come back to chicken supply. I know you gave some thoughts on how you're factoring that in and thinking about it. I guess just would love to follow up on you cite the USDA expectations for around 3% supply growth.

Speaker Change: More recently we've seen that the egg set and chick hatched up closer to 6%. Do you expect that to come in? I guess, how do you think about just, you know, reconciling those two data points?

Speaker Change: Yeah, I'd be glad to take that and good morning, Michael. You know, the industry's continued challenges on both hatch and livability. These increased egg sets and chicks placed physically aren't making it to the processing plants. And so that...

Speaker Change: That makes a big difference. It's been a much tougher grow out environment between avian influenza, metamnemovirus,

Speaker Change: And so, I think you'll continue to see that disconnect as we go through 2025. The only offset being in higher bird weights, and that's actually driving the 2.6% increase is through bird weight per head.

Speaker Change: Okay, that's helpful. And just back on prepared foods, I know you're lapping the plant startup costs. Can you just help us remember how to quantify that?

Speaker Change: Yeah, thanks for the question, Michael. Startup cost year over year.

Speaker Change: are what we realized in FY 24 was somewhere around 20 million dollars but I would remind you certainly that we are you know would be lapping a first half with with lower depreciation from an overhead perspective as well.

Okay, great. Thanks so much.

Speaker Change: Our next question comes from Andrew Strilzyk of BMO. Please go ahead.

Speaker Change: Hey, good morning. Thanks for taking the questions. My first one, I wanted to go back to...

Speaker Change: some of the operational improvements in the beef segment that you're talking about. My understanding or assumption was that, you know, there wasn't a whole lot internally that you could do to really cushion against the market environment, but you sound

Speaker Change: We're optimistic on that now and certainly listed a number of things that you've been working on so

Speaker Change: I was just curious if you could quantify kind of how much you think that can move the needle similar to what you said in chicken or just maybe give a framework for how that could impact the business relative to kind of underlying margin environment.

Yeah, thanks for the question, Andrew.

just relative to how we look at the business.

Speaker Change: 85% of the business really is somewhat uncontrollable relative to these market spreads and so that obviously provides some outsized weighting but when you talk about the amount of

Speaker Change: resources that we deploy from a labor perspective, the amount of opportunity we have at $3 plus cutouts.

Speaker Change: to continue to improve on yield. It's certainly meaningful on how we push forward and move forward in the business as well.

Speaker Change: And so I'll just say that there's a great opportunity for us to continue to march forward towards world class.

Speaker Change: We want to make sure that we minimize the losses in this challenging cycle and we really have the right to win relative to the utilization of our six harvest assets as we move forward throughout the bottom side of this cycle.

Speaker Change: All right, that's helpful. And my other question is just on.

Speaker Change: capital deployment and cash flow generation, I guess. You know, leverage has been coming down. I know you're not quite to the target levels yet, and this will be still a pretty disciplined year. I guess I'm just curious if this, you know, if the business is headed in the direction that it seems to be.

Speaker Change: you know, are we getting closer maybe next year to a time when maybe you can start to loosen the purse strings a little bit on that front? Or how are you thinking about whether it's CapEx or other investments, returning cash to shareholders kind of more broadly over the next several years? Thanks.

Speaker Change: Thanks for the question and appreciate the comments. We certainly did have a very disciplined approach from cash deployment scenario in 2024 and drove net leverage down from 4.1 times to 2.6 times across the year.

Speaker Change: But we did still invest, you know, $1.1 billion in CapEx. And at the guidance range that we've provided for next year, you know, we would invest between a billion and $1.2 billion in CapEx.

Speaker Change: in 2025, and we also had a comment in our guidance relative to free cash flow that would exceed our annual dividend, expected to be in the range of about $700 million.

Speaker Change: But we'll stay very constant relative to our capital allocation priorities.

around build financial strength, but also investing in our business.

Speaker Change: and returning cash to shareholders, as you said. And obviously, make note, we did increase our dividend announced this morning as well.

Speaker Change: and you know very proud of the accomplishments we've made but we stay committed to our investment grade credit rating and our long-term target leverage of at or below two times.

Speaker Change: So Andrew, if I could, just maybe one additional comment just to make sure to take away from from the first question I answered this morning.

Speaker Change: We will continue to spend capital and return money to shareholders, but...

Speaker Change: one of our focal points right now is to improve the return on the capital that we have already invested and so there's a lot of upside in that and so that's also a priority as you think about this in terms of the whole mix.

Got it. That's very clear. Thank you very much.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Donnie King for closing remarks.

Donnie King: Thanks for your continued interest in Tyson Foods and we look forward to speaking with you again soon.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.