Q1 2025 Tyson Foods Inc Earnings Call
Speaker Change: Good morning everyone and welcome to the Tyson Foods fourth quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please email a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone phones. To withdraw your questions, you may press star and two.
Please also note today's event is being recorded.
Speaker Change: At this time, I'd like to turn the floor over to Sean Cornett from the Investor Relations Team.
Sir, please go ahead.
Speaker Change: Good morning and welcome to Tyson Foods fiscal first quarter 2025 earnings conference call.
Speaker Change: On today's call, Tyson's President and Chief Executive Officer, Donnie King, and Chief Financial Officer, Curt Calaway, will provide prepared remarks, followed by Q&A.
Speaker Change: Additionally, joining us today are Brady Stewart, Group President, Beef, Pork, and Chief Supply Chain Officer. Kyle Nairn, Group President, Prepared Foods.
Speaker Change: Wes Morris, Group President Poultry, Devin Cole, President International and Global McDonald, and Melanie Bolden, Chief Growth Officer.
Speaker Change: We've also prepared 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.
Speaker Change: 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.
Speaker Change: Forward-looking statements include all comments reflecting our expectations, assumptions, or beliefs about future events or performance that do not relate solely to historical period.
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 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 projection.
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.
Speaker Change: For reconciliations of the non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release.
Now, I'll turn the call over to Donnie.
Donnie King: Thanks, Sean. Fiscal 2025 is off to a solid start. The strong results in the first quarter increase our confidence in the year ahead, enabling us to raise our full-year guidance.
Donnie King: Our results this quarter were driven by another robust performance in chicken, highlighted by the best first quarter adjusted operating income.
for this segment.
Donnie King: We delivered better than expected results in beef and significant improvement in profitability in international and other, while prepared foods continues to generate solid profits and margins.
Donnie King: Our first quarter performance sets the tone for what we anticipate will be another year of growth for Tyson.
Donnie King: This marks our third consecutive quarter of year-over-year increases across key metrics including sales, adjusted operating income, and adjusted earnings per share.
Donnie King: First quarter adjusted operating income increased by $248 million, a remarkable 60%. While our adjusted operating income margin expanded by 170 basis points versus last year.
Adjusted earnings per share grew by an impressive 65%.
Donnie King: We ended the quarter with our net leverage ratio at 2.3 times, a notable and deliberate accomplishment from 4.1 times at the end of 2023.
Donnie King: In total, our first quarter delivered the best quarterly performance in more than two years, while we have managed through ongoing challenges posed by the current cattle cycle.
Donnie King: Protein remains at the forefront of consumer preferences based on both per capita consumption data and consumer surveys.
Donnie King: While the consumer backdrop remains dynamic, one thing is clear to us. Consumers remain focused on prioritizing protein in their diets.
Donnie King: recognizing its nutritional benefits and its role in supporting a healthy lifestyle.
Donnie King: A recent study by International Food Information Council revealed that 71% of U.S. consumers in 2024 thought to increase their protein consumption. This is up from 59% in 2022.
Donnie King: Our diversified multi-protein portfolio delivered results with chicken helping to offset the ongoing challenges in beef.
Donnie King: Through disciplined execution and improved operational performance, we have demonstrated the power of sticking to the fundamentals, fortifying our foundation, and controlling what we can.
Donnie King: Turning to cash flow and financial strength, our first quarter stood out once again. Our disciplined approach to capital expenditures and working capital management has enabled robust cash flow, which we are deploying prudently through investment in the business and dividends.
Donnie King: When combined with improving profitability, we sequentially lowered our net leverage ratio and took another step towards our long-term target of less than two times.
Donnie King: This strategy ensures we're building financial strength and reinforces our commitment to shareholders.
Now let's take a closer look at segment performance.
Donnie King: Prepared Foods is on track for fiscal 2025. We have built our full year improvement plan almost entirely by controlling what we can, such as optimizing our operations, expanding distribution, and launching winning innovation.
Donnie King: Operationally, we made tremendous progress on our initiatives in the first quarter by outperforming our planned throughput and yield improvements, reducing the impact of distressed inventory, and lowering overhead costs.
Donnie King: We grew share quarter over quarter in our core nine categories driven by bacon, smacking, and smoked sausage.
Growth from innovation continues to drive momentum as well.
Donnie King: While the timing of input cost inflation put pressure on margins in the quarter, our market performance
Donnie King: coupled with our improved operational execution gives us confidence going forward. Our outlook for the year is unchanged.
Donnie King: In chicken, we achieved the best adjusted operating income of any quarter over the past eight years.
Donnie King: Year-over-year growth in adjusted operating income was driven in part by ongoing improvements at live and plant operations along with lower grain costs.
Donnie King: One core component of our strong performance has been the evolution of our commercial relationships to build long-term win-win partnerships, allowing us to jointly grow the category and improve order fill rates for the second consecutive year, all while stabilizing our earnings.
We have also returned to volume growth in this segment.
Donnie King: Importantly, we grew volumes in food service where momentum continues to build.
Donnie King: We feel good about our leading position in the marketplace and our ability to meet customer and consumer demand.
In beef, first quarter results were better than expected.
Donnie King: We continue to align all aspects of our operations, from procurement to distribution, with customer and consumer demand, while managing spend, enhancing yield, and shifting our mix to more value-added products.
Donnie King: Challenges from limited cattle supply remain, which, along with typical seasonality, are expected to impact the second quarter and the year. Therefore, our expectations for fiscal 2025 are unchanged for this segment.
Donnie King: In pork, performance was in line with our expectations. Higher hog costs led to compressed spreads versus last year. However, our operational improvements around yield, mix, and spin continued to deliver results.
Donnie King: As we continue through fiscal 2025 our priorities remain clear. First, we will continue our focus on cash flow and operational execution.
Donnie King: This includes driving innovation and strengthening customer partnerships across all segments while enhancing product mix, reducing inefficiencies, and expanding our market presence.
Donnie King: Operational excellence is at the core of our strategy. We are scaling the enterprise, driving cost savings, and addressing inefficiencies boldly to deliver exceptional performance.
Donnie King: and we will continue to deliver on taking more cost out in 2025 as the year progresses.
Donnie King: Our iconic brands like Tyson, Jimmy Dean, and Hillshire Farms continue to resonate with consumers, even amidst high inflation and softer category consumption.
Donnie King: In fact, nearly 75% of U.S. households purchased a Tyson product in the past year, and we see significant opportunities to grow our presence in underpenetrated segments as consumers seek to add more protein to their diets.
Donnie King: Digital transformation is another key enabler. We continuously work to improve how consumers and customers discover our products by leveraging the power of generative AI.
Donnie King: As an example, in our food service channel, we implemented a more intuitive browsing and search experience that delivers highly relevant content.
Donnie King: This enhancement goes beyond influencing purchases. It offers Tyson Foods invaluable insight into the evolving needs of our customers.
Donnie King: Capital allocation remains disciplined, with a focus on sustaining free cash flow through prudent management of CapEx and working capital.
Donnie King: Finally, our team members are our greatest asset. By fostering development and encouraging growth across the organization, we ensure that the right talent and skills are in place now and for the future.
Donnie King: Before handing things over to Curt, let me say that we are confident in our fiscal 2025 outlook and our long-term strategy, powered by the strength of our diversified multi-protein portfolio and iconic brand.
Speaker Change: Our first quarter is another indication of strong execution as we commit to controlling what is within our control as we seek to drive profitable growth over time.
Speaker Change: We continue to push ourselves to do more and to leave no stone unturned as we strive to be best-in-class operators.
Speaker Change: Through innovation, marketing, and operational excellence, we are well positioned to generate shareholder value and continue our legacy as a leader in protein at a world-class food company.
Curt Calaway: With that, I will turn the call over to Curt to review our financials in more detail.
Curt Calaway: Thanks Donnie. First quarter total enterprise net sales grew 2% year over year, driven by growth in beef, pork, and chicken.
Curt Calaway: Our adjusted operating income increased 60% year-over-year and adjusted earnings per share grew 65%.
Curt Calaway: Looking at segment performance in prepared foods, volume in our food away from home channels was relatively flat versus last year. We, like others in the industry, continue to navigate a dynamic consumer environment which primarily impacted our retail volumes and drove the decline in sales.
Curt Calaway: Adjusted operating income decreased primarily due to higher raw material cost, particularly the sharp rise in belly and sow prices in the quarter. We anticipate recovering some of these increases through price pass-through.
Donnie King: As Donnie mentioned, we made progress on operational improvement initiatives and we continue to repurpose inefficient marketing and promotion support costs while lapping the impact of startup costs last year.
Donnie King: Chicken also continues to be a bright spot in our portfolio with sales increasing due to higher volumes in the food service channel where our value added products are gaining traction.
Donnie King: Adjusted operating income almost doubled year-over-year, making this a record first quarter performance and the best quarterly performance in the last eight years. This was driven by lower input cost, continued strong execution in live operations, and improved plant performance.
Donnie King: In beef, revenue increased primarily from higher volume, highlighting increased carcass weights and higher head throughput.
Donnie King: Adjusted operating income improved due to an increase in our value-added mix and an inventory valuation adjustment impacting first quarter last year.
Donnie King: Meanwhile, in pork, revenue grew driven by a higher cutout, though adjusted operating income declined due to compressed spreads partially offset by ongoing operational improvements.
International and other delivered record quarterly adjusted operating income.
Donnie King: supported by strong results in Asia along with favorable raw material cost.
Donnie King: Turning to our financial position, our disciplined capital allocation priorities remain unchanged. We are focused on maintaining financial strength, investing in business growth, and returning cash to shareholders.
Donnie King: In the first quarter, we generated $1 billion in operating cash flows.
Donnie King: Capital spending remained disciplined and in line with expectations at $271 million, leading to free cash flow of $760 million.
Donnie King: which our board increased to a quarterly rate of $0.50 per Class A share, reinforcing our commitment to shareholder returns.
Donnie King: Our net leverage declined to 2.3 times, our fifth consecutive quarter of improvement, and we continued our focus on disciplined cash management.
We ended the quarter with $4.5 billion in liquidity.
Donnie King: Given the cash generation of our business, in January we paid off the 750 million dollar term loan that was due in 2026. As we prioritize financial strength, our investment grade credit rating, and long-term shareholder value creation.
Donnie King: Now, let's take a moment to review our updated outlook for Fiscal 25.
Donnie King: Looking ahead, we remain confident at achieving improved financial performance compared to Fiscal 24.
Donnie King: We are raising our sales guidance and now expect to be between flat to up 1%, driven primarily by volume, highlighting healthy demand for protein.
Donnie King: Total company adjusted operating income is now raised to be between $1.9 to $2.3 billion, building on our strong performance in the first quarter.
Donnie King: We anticipate interest expense of approximately $375 million and a tax rate of around 25% while maintaining tight CapEx controls between $1 and $1.2 billion.
Donnie King: As for free cash flow, we expect typical seasonality in the second quarter and we have updated our full year free cash flow expectations to be in the range of 1 to 1.6 billion dollars.
Now to provide more color on our segments.
Donnie King: We are maintaining Prepared Foods Adjusted Operating Income Guidance at $900 million to $1.1 billion, driven by efficiency gains.
Donnie King: Unlike typical seasonality, we expect a more balanced first and second half with the first quarter being the lowest quarter of the year due to timing related factors and the ramp-up of operational improvements.
Donnie King: As a reminder, our forecast assumes double-digit growth at the midpoint, enabled by internal initiatives without factoring in or assuming significant changes in consumer behavior.
Donnie King: In CHICN, given the strong first quarter performance, we are raising adjusted operating income guidance to 1 to 1.3 billion dollars as we sustain operational improvements while reinvesting in our value-added portfolio and marketing.
Donnie King: Our beef guidance remains unchanged with an expected loss of $400 million to $200 million, balancing operational improvements against tighter spreads throughout the remainder of the year.
Donnie King: Our port guidance also remains unchanged at $100 to $200 million, with ongoing operational improvements offset by tighter spreads.
Donnie King: Finally, our international business continues to show momentum and profitability. Following approximately 50 million dollars of adjusted operating income last year, we expect international and other to be between 50 and 100 million dollars this year.
Now, I'll turn the call back over to Donnie.
Donnie King: Thanks, Curt. I'd like to thank our 138,000 team members across the globe for their hard work and dedication, which drives our success.
Donnie King: I'd also like to thank our customers and suppliers for their partnership. By operating as one team, one Tyson, we're off to a great start in fiscal 2025 and have optimism for the year, highlighted by our guidance raised.
Donnie King: With increasing consumer focus on protein, combined with our market leadership, strong brand portfolio, and operational discipline, we are positioned well for the future.
Donnie King: As always, we remain committed to financial strength, shareholder returns, and operational excellence as we execute our strategy. With that, I'll turn things over to Sean as we move to your questions.
Thanks, Donnie. We will now move to your questions.
Speaker Change: 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.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phones.
Speaker Change: If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys.
Withdraw your questions you may press star and two.
Speaker Change: If you do ask, please limit yourselves to one question and one follow-up. If you do have further questions, you may re-enter the question queue.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: Our first question today comes from Heather Jones from Heather Jones Research. Please go ahead with your question.
Good morning. Congratulations on the quarter.
Thank you, Heather.
You're welcome. First thing I was wondering...
Speaker Change: It was a strong quarter and I was just wondering if you could just outline the things that you're wanting investors to most take away from the call today and then I have a follow-up.
Sure, and thank you for the question.
Speaker Change: We're pleased with our Q1 results. We continue to see the benefits of our multi-protein, multi-channel portfolio.
Speaker Change: Q1 was the best quarterly performance in more than two years and the third consecutive quarter of year-over-year increases in sales, adjusted operating income, and adjusted earnings per share.
Speaker Change: Our strategy of fortifying the foundation and growing our branded and value-added business is clearly working.
Speaker Change: In terms of the enterprise priorities for the balance of the year, we will continue to shift our mix to branded and value-added and increase household penetration.
Speaker Change: Protein is part of every healthy diet and consumers are increasing consumption. In fact, 71% of consumers are seeking to increase their protein consumption.
Speaker Change: We will continue to improve return on invested capital, creating shareholder value.
Speaker Change: and we will continue to execute with excellence in everything that we do. In terms of the individual segments, chicken. Chicken has the best Q1 adjusted operating income performance ever.
and the strongest quarter in eight years.
Speaker Change: We are winning with customers and consumers, and we've returned volume growth, particularly in food service.
Speaker Change: In the beef segment, we had better than expected results. Our view on the year remains unchanged. We are focused on operating efficiently from procurement to distribution while shifting our mix to more value-added.
and Pork.
Speaker Change: In prepared foods, we're on track for the year. Despite Q1 timing-related commodity impacts, we expect counterseasonal performance due to planned phasing.
Speaker Change: In international, we had the best ever adjusted operating income, supported by strong results in Asia.
Speaker Change: So, five key takeaways for you in terms of 2025. Number one, we are growing profitably. Both chicken and prepared foods in FY25 assessed operating income growth at double-digit rates at midpoint.
Speaker Change: Number two, we have reduced growth and net debt by driving net leverage from 4.1 times to 2.3 times over the last five quarters.
Speaker Change: Number three, we built 4.5 billion dollars of liquidity, enabling another 750 million dollar debt reduction in January.
Speaker Change: And we're doing all this while managing an unprecedented beef cycle. And five, finally, we're focused on controlling the controls. And we're also adapting with agility to manage the impact of tariffs, immigration, and market dynamics.
Speaker Change: We considered these impacts as we raised our guidance by a hundred million dollars to a range of 1.9 billion dollars to 2.3 billion dollars. And for your follow up, Heather.
Speaker Change: Thank you for that and I actually did want to ask on
terrorists.
Speaker Change: there's been reports that they're going to put tariffs on U.S. pork and then obviously the imports tariffs the U.S. put in place affects cost of hogs and cattle but we I mean we send roughly 10% of every hog
to Mexico.
Speaker Change: So, if you could just go through your operations and how you're thinking about how the net impact is going to play out for you guys, and I think you did say that your guidance gives effect to this, but if you could just flesh that out of how you're thinking about the net impact on Tyson.
Speaker Change: Sure, Heather. Let me start off, and there may be someone else in the room that would want to add something, but I did mention we considered these these risks when we did our R&O's in raising the guidance of 100
A hundred million dollars.
Speaker Change: You know, just how we're approaching this, our teams continuously engage in contingency planning to minimize business disruption from trade or supply chain changes.
Speaker Change: As we've done in the past, we'll leverage our global expertise to identify the best markets for our products.
amid evolving conditions.
Speaker Change: And we've been doing this for 90 years and been navigating various administrations.
We remain confident in our ability to adapt and succeed.
Speaker Change: We look forward to working with the new administration in Congress to support the U.S. economy and will continue to monitor and respond to new policies accordingly.
Okay, thank you.
Thank you, Heather.
Speaker Change: Our next question comes from Ben Tora from Barclays. Please go ahead with your question.
Thanks.
Ben Tora: Good morning, and thanks for taking my question. Congrats, first of all, on this very strong first quarter.
Ben Tora: Thank you. So, actually, my main question would have been the one on tariffs, so...
Ben Tora: obviously an initial update from USDA just a few days ago.
And it doesn't feel like there's...
Ben Tora: much hope maybe in those numbers, but just wanted to understand what is your first take as to
Ben Tora: the report and how you think the conditions are for HEPA retention potentially happening and how that then would impact your beef results lower versus higher end of that $200 to $400 million loss for the year.
Ben Tora: Sure, thanks for that question around beef. I think I will flip this over to Brady and let him give you great detail as it relates to our beef business.
Brady: Thanks for the question and I think it's it's really important to understand that the beef business has cyclicality in it and at the top side of these cycles we see a curve and at the bottom end of these cycles we see a curve as well and it really feels like we are at the absolute bottom of
Brady: of the cycle here relative to curve, relative to that curve. And there's a few leading indicators that I think are really important to
Brady: continue to evaluate and it's what we we add into our model and first and foremost
Brady: Pasture conditions are in an improved state versus the last several years and so that definitely provides an opportunity for
us to increase the herd as we move forward.
Brady: Second, relative to the fact that we have record high live cattle prices and record high live feeder prices, there's profitability to be had by cow-calf operators and so that certainly provides a tailwind as well.
Brady: The third indicator is what are we actually seeing from a cow harvest perspective and we're seeing cow harvest numbers down nearly 19% year over year which provides some some solid base in terms of the beef cow herd as we move forward as well.
Brady: And then the last thing I think that's really important to acknowledge is the pastures that beef cows graze, their best use has been and will continue to be used as pasture for beef cow production.
Brady: And when you couple all those things, I think it's just really important to understand that we're at a point in time relative to these inventories, but we have several indicators that are providing us
Brady: some support that we will see rebuilt here in the future.
Speaker Change: Okay, thanks for that, Bray. And then just a quick follow-up. It's more like, as you think about the cadence, and I think you mentioned the usual seasonality into 2Q, but you also said maybe first half, second half a little bit more balanced.
Brady: Give a little bit more detail as to the seasonality of the four major segments and the balance between the four major segments as you think about it for the year.
I'm having trouble hearing your question.
She'll try it again. It's better now.
Yeah.
Speaker Change: Okay, sorry, Mike moved a little bit. No, the question is you said to expect the typical seasonality into the second fiscal quarter, but more or less a more break-even kind of first half, second half. So could you help us maybe understand on a per-segment basis the four major segments as we think about it, what goes into then 2Q and how to think about the second half, if there's any particularity you would like to highlight so we're aware of that
as we update our assumptions.
Curt Calaway: Hey thanks Ben, this is Curt, I'll answer that. So I think the most specific one we provided some guidance on was really prepared foods where we said that would be a little counter the normal seasonality.
Speaker Change: where we typically would see stronger performance in the front half.
Speaker Change: versus the back half. But this year, we expect to be more balanced across the year, really, as some of our plans, we implement some of the plans relative to efficiencies, will really tilt that a little unusual more to a back half year.
Speaker Change: I think if you look at the guidance that we provided and particularly the midpoint of each of the ranges
Speaker Change: You can come to your own conclusion relative to specifically how Q2 versus a second half would lay out.
Speaker Change: But broadly speaking, generally chicken is strongest in Q1 and Q3.
Speaker Change: Across our chicken and beef segments and pork, we would expect a more, normally, kind of a little bit of a seasonal challenge in Q2, just as we manage through weather.
Okay, perfect. Thanks for that, Curt.
Thank you.
Speaker Change: Our next question comes from Andrew Strelzik from BMO. Please go ahead with your question.
Andrew Strelzik: Hey, good morning. Thanks for taking the questions. I had two, and the first one is digging in a little more on...
Andrew Strelzik: what you were saying on the prepared kind of layout for the rest of the year.
Andrew Strelzik: input costs will continue to be a headwind or maybe even more of a headwind as you go forward.
Andrew Strelzik: just kind of curious if you could dig in a little bit more on the pieces or the levers to deliver the guidance that you talked about in terms of
Andrew Strelzik: pricing and the elasticity that you've been seeing or would anticipate to see and any color that you can give on kind of the flow of productivity through the year to offset some of those headwinds.
Donnie King: Sure. Good morning, Andrew, and thanks for the question. You know, I just remind you, in prepared foods,
We continue to grow distribution in our prepared business.
Donnie King: We have the largest innovation pipeline we've ever had at Tyson in prepared foods.
and we continue to optimize our operations.
So, with that, Q1 was...
Speaker Change: was we saw a rapid increase in inputs and certainly had an impact and I talked about that a little earlier but let me pass it over to Kyle Nairn and he can give you a little greater detail as it relates to the balance of the year.
Yeah, thanks, Donnie, and thanks, Andrew, for the question.
Kyle Nairn: As Donnie mentioned, we built our full year improvement plan on controlling the controllables surrounding growing distribution, launching winning innovation, and optimizing our operations.
Kyle Nairn: And I would tell you that in Q1 we made tremendous progress in all of those areas. We grew distribution, or share, 40 basis points quarter over quarter in our key categories.
Kyle Nairn: We continue to be pleased with the performance of our Jimmy Dean bacon and Hill Shower snacking items as both remain two of the fastest growing brands in their categories. And we had another great season with consumers on our Jimmy Dean Roll sausage where we continue to realize shared growth as the category leader.
Kyle Nairn: And our chicken biscuit is growing distribution and actually has higher trial and repeat purchase rates than the griddle cakes did six months through its launch.
Kyle Nairn: We're also excited about the pipeline of additional items that we'll be launching in the back half of the year.
Kyle Nairn: And then the third initiative around optimizing our operations, I would tell you we're off to a great start with those initiatives. We remain focused on operating with discipline and establishing standardized processes that allow us to be world-class operators.
Kyle Nairn: So, although we had simply some timing of input cost inflation in the first quarter that put pressure on margins.
Speaker Change: Okay, great. Thank you for that. And my other question was on the chicken.
Speaker Change: business in the Chicken Outlook, and it was great to see raising the top end of the guidance range there and, you know, on the back of the strong quarter that you put up, but I was a little surprised that you didn't, that you left the bottom end of the range.
Speaker Change: unchanged and so I guess can you can you just kind of walk through some of the
Speaker Change: factors that kept you from lifting the lower end of the range or maybe you know some of the risks that you see that would drive you or scenarios that would drive you to the lower end of the chicken guidance range. Thanks.
Sure, Andrew. You know, as I mentioned earlier,
Speaker Change: Very proud of what we've been able to do in our chicken business. I'll also point it out that when we built our plan, we considered all the, you know, the R&Os that you do as it relates to tariffs, market dynamics.
Speaker Change: as well as immigration. We've built that in to our model but you know we did raise guidance
in our chicken business on the top side and...
Speaker Change: So, let me flip that over to Wes, and I know he's been here. He's ready to respond to something. So, Wes. Yeah, good morning, Andrew. Thanks for the question. Let me start by saying I feel really good about the midpoint of the range. You know, Q1 was on plan. We see solid demand going forward.
Speaker Change: We're well-balanced supply and demand, and the industry looks more well-balanced than it did earlier in the year.
Speaker Change: Strong fundamentals, strong customer service, and a strong consumer reach program for the balance of the year. It would take a major extraneous event for us to be on the low end, whether it be major weather or bird health issues.
Got it. Okay. Thank you very much.
The End.
Speaker Change: Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.
Peter Galbo: Hi, good morning. Thanks for the question. Just wanted to follow up on Andrew's questions around prepared foods.
Speaker Change: You know, Kyle, just having been in the seat now for several months.
Peter Galbo: as you take a look at the division with fresh eyes and obviously some of the optimization plans. I mean, are you satisfied with kind of the state of the current portfolio, whether that's
Peter Galbo: you know, legacy brands or legacy categories that you may be in that maybe need re-evaluation.
Peter Galbo: Again, just as we kind of consider the margin profile in the business, you know, while it's on the right trajectory, it's still, you know, trailing the peers pretty meaningfully. So would appreciate kind of more detail there.
Peter Galbo: Yeah thanks for the question Peter. You know let me just start by saying I'm I'm very pleased with our iconic brand and product portfolio. You know having three of the top ten brands in protein and having category leadership in eight of the ten categories we play in is
Peter Galbo: what I would call a world-class portfolio. The reason I would remain confident for the balance of the year is because of some of the new distribution gains we have in retail that will begin to materialize in the back half of the year.
Peter Galbo: Our performance in food service continues to outpace the industry and we continue to see growth in broad line distribution and commercial chains.
Peter Galbo: And as I mentioned previously, we continue to see the benefit of our robust innovation pipeline and we expect to continue to build on the remarkable success of our Jimmy Dean griddle cake and chicken biscuit.
Peter Galbo: Yo, yes, as mentioned before, we did see some some margin pressure in Q1 due to the input calls.
Peter Galbo: But as stated, we're controlling the controllables. We're executing the plan that we've laid out as part of our multi-year strategy.
Peter Galbo: We'll continue to focus on growing quality share with consumers and customers. We'll continue to launch world-class innovation and we'll be world-class operators in our assets.
Speaker Change: Got it. Thanks for that. And Donnie, you know, I think probably the market this morning is looking for a bit more detail as it relates to tariffs. I know Heather asked the question, but...
Peter Galbo: you know anything more you can provide just how you see the moving pieces and there are quite a bit of them by protein across beef pork and chicken
Peter Galbo: even if it's at a high level, you know, and it's encouraging to hear, you know, you're going to work with the administration, but
Peter Galbo: Just how you see the trade dynamics kind of unfolding, even if it's in the very near term.
Thanks.
Sure, I will take another shot at that.
Peter Galbo: In terms of Mexico, the product that we have going in there, the concern, and what we've been contingency planning on is pork. We also have
Peter Galbo: chicken, really a couple parts of chicken, you know, we have mechanically separated chicken, we have
Peter Galbo: chicken leg quarters going into Mexico. Mexico is a large trading partner for us. So essentially what we would do, whether it be pork or whether it would be chicken, is we would find other markets. We would leverage our
global knowledge and expertise to try it.
to move those products if necessary, but...
Peter Galbo: We saw the information over the weekend. There's still some details to be worked out in that from what I have seen. But what I would tell you as it relates to Mexico, and you could say the same about Canada.
Peter Galbo: In Canada, you know, you have some, we have some chicken products, but it's very small going into Canada. It's predominantly heavy file going into Canada.
We have
Peter Galbo: We have some feeder cattle and some hogs coming in to the U.S. out of Canada, so, you know, depending on what happens there, we would adjust accordingly, but we've been
Peter Galbo: We've been preparing for this, making adjustments. We now have to execute some of those things, but we think we have risk-adjusted in our guidance the implications of all of those.
Thank you.
Speaker Change: I think I would leave it there, and Brady, anything you would add to it from, or Wes, from a chicken or pork perspective?
Thanks, Donnie.
Speaker Change: I think you really covered the situation well, so very early in this process we've seen tariff instances in the past, and they can be very dynamic.
Speaker Change: the two trade entities continue to to work together. I think the real call out relative to pork and that's that's one of the big question marks that sits out in front of us is the fact that we really operate as a supply chain and when we have pork producers
Speaker Change: Pork Packers, and then our trade partners that are in Mexico as well. It really operates as a true global supply chain, and where that value gets pushed back and forth within the supply chain is certainly something that we will keep an eye on.
Speaker Change: Yeah, Peter, this is Wes. On poultry, I would say, look, we shipped over 3 billion pounds in our Q1 and less than 80 million pounds of that went to Mexico. And then, as Donnie said, Canada's predominantly heavy hens.
Speaker Change: But if you think about a global level supply and demand dynamic, what you're really talking about is a disruption of who's selling and who's buying and when.
Thank you.
Awesome. Thanks very much, guys. Appreciate it.
Thank you. Thank you.
Paul Murph: I'm Paul Murph from Citi. Please go ahead with your question.
Hey, thanks for the questions, guys.
Speaker Change: I wanted to first ask, in the 10-Q, there's reference to a network optimization plan that began during the fiscal first quarter. Just any detail on the changes that might accompany this plan and which segments will be impacted? And then, is there a targeted cost savings figure associated with this program?
Curt Calaway: Hey, thanks Tom. This is Curt. So yeah, we did disclose in the quarter the new network optimization plan.
Curt Calaway: And we provided some more details in the queue, as you did point out. And the charges we took for Q1 were really just actions that we have already discussed or talked about that occurred earlier this quarter.
Curt Calaway: but really more importantly, right, we as Donnie has said multiple times continue to review our network with an absolute desire to continually improve on that network optimization across all segments.
Curt Calaway: And that's what you should expect in that network optimization plan. There's not a specific target that we have.
Curt Calaway: but really just as we continue to evaluate the network and moves necessary to be as optimal as we can around the entire product, moving our products around in production and where they get distributed to.
Speaker Change: Thanks for that. Then on the beef segment, look, industry data might have suggested something a bit weaker than what you ultimately reported. You noted the higher weights but also the the increased value-added sales.
Speaker Change: Could you maybe give some added detail on the value-add piece? What products comprise value-add and is there a specific channel to highlight where you're really seeing strength?
Speaker Change: Thank you for the question. And first and foremost, I want to thank our team for brilliant execution in the first quarter. So we laid a plan out to ensure we had continuous improvement and controlled what we could control.
Speaker Change: within this beef cycle, and the team did a great job of delivering that in the quarter.
Speaker Change: You mentioned volume and certainly we're seeing heavier cattle weights relative to the fact that we have less expensive input costs and really high live cattle
Speaker Change: values as well. So it's really promoting that feeder to continue to put weights on.
Speaker Change: But when we actually talk about what we control, our team did a fantastic job of
Speaker Change: taking the type and kind and mix and grade of cattle that we are procuring and making sure we translate that into greater value in the quarter. And you can really see it come through relative to our numbers and how we delivered. From a demand perspective, demand has been strong.
Speaker Change: and where we've seen abnormally strong demand has been on the end cuts and in the grinds.
Speaker Change: and continuing to provide value-added solutions for our customers and the consumers that tailor to that demand-driven impact is extremely important to us, specifically in the grind complex as well.
Speaker Change: and so we've seen really good demand on on lean beef grinds, we've seen really good demand on patties and other value-added products that come out of our grind stream as well.
Thank you. Bye-bye.
Thank you.
Thank you.
Speaker Change: Our next question comes from Michael Lavery from Piper Sandler. Please go ahead with your question. Thank you. Good morning.
Good morning.
Michael Lavery: I just wanted to unpack chicken margins a little bit more. They're the strongest in about eight years or so, and you touched on the feed costs being favorable, but you also mentioned plant performance and execution. Can you just maybe elaborate a little bit on some of what that is and how sustainable we should expect that to be as well?
The End
Michael Lavery: Yeah, good morning, Michael. This is Wes. Let me start by saying thank you to the team that I'm pleased with our Q1 performance. We're focused on the right work.
Michael Lavery: Foundationally we're a good chicken company and we continue to look for ways to get better but I think the genesis of your question is really in this next part and it's around winning with customers and consumers and so
Michael Lavery: We had the best order fill that we've had in eight years at 98, over 98 percent.
Michael Lavery: Both protein and convenience continues to win with consumers and we're the market share leaders there. Our value-added growth rate is two times our total. We have the number one share in retail and food service and both are growing.
Michael Lavery: And one of the biggest unlocks is shifting our mix to align with consumer demand. And so over the last year, through a lot of different moves, we've accomplished that. And then aligning with strategic customers to create win-win solutions.
Michael Lavery: And then the one I'm really excited about creating tailwinds is our Q1 relaunch of our retail fully cooked is progressing well.
Michael Lavery: I would say it this way, we've fortified our foundation, we're winning with customers, and we're meeting consumer demand at a different level than we have in a long, long time.
Speaker Change: And just to follow up on the order of fill rates, is there a process that's changed or something kind of structural and could that translate to any other segments in terms of improving fill rates more broadly?
Speaker Change: Yeah, Michael, that's a really good question. Last year I referenced in one of our three strategic pillars
Speaker Change: really doing a good job at our supply and operations planning and so our demand planning has gotten much better, our forecast accuracy has improved.
Speaker Change: Our scheduling and execution at the plants have reduced waste and put product in the right place at the right time. And so that's really driving a lot of value.
Okay, thanks. I'll pass them on.
Speaker Change: Our next question comes from Alexia Howard from Bernstein. Please go ahead with your question.
Good morning, everyone.
Good morning.
So I think most of the...
Speaker Change: specific meat questions have been answered. Can I ask two things? First of all, on labor, are you seeing any impact of the broader deportation activity that's recently begun on
Speaker Change: worker attendance or worker availability, your ability to recruit if that labor market is tightening up, any impact that you're anticipating on that front, and then I have a follow-up.
Speaker Change: Thank you for the question, Alexi. Let me take that one and start out by saying that everyone that works at Tyson Foods is legally authorized to do so.
Speaker Change: We're confident that we'll be able to continue to successfully run our business.
Speaker Change: Maybe to remind everyone that there are different statuses for immigrants. For example, you have DACA, Refugees, Barolees, and temporary protected status, and we're in a complete compliance on every one of those.
Speaker Change: There have been no immigration or ICE visits to any of our facilities.
Speaker Change: We led the way as a company with E-Verify and the mutual agreement between government employers, the IMAGE program. We provide a competitive compensation and benefits package to attract and retain front-line talent.
Speaker Change: We've also done scenario planning depending on different potential changes coming from the new administration.
Speaker Change: and even today we're tracking absenteeism across all plants and to date have not seen any changes in attendance.
and so
Speaker Change: Great, thank you. And then as a follow-up, could I just dig into the free cash flow coming down a little bit from last year?
Speaker Change: What was the driver of that? On the CAPEX side, we're seeing an uptick, and I guess on the CAPEX side specifically, I know you pulled that back quite a bit over the last couple of years because leverage was trying to be brought down.
Speaker Change: Are there projects on the capital side that need to come back? Should we expect an increase in capex over time? Thank you and I'll pass it on.
Speaker Change: Thanks. This is Curt. Let me start on the free cash flow question. Really, on the change versus prior year, you are correct, right? We were about $946 million first quarter last year, $760 million this year.
Speaker Change: But I will hurry on to comment that we did update our guidance on.
Speaker Change: on overall free cash flow for the year to be a range of between $1 to $1.6 billion.
Really, the Delta almost exclusively for this quarter.
versus a year ago was just change in working capital.
Speaker Change: We had some timing effects that were more favorable to us last year, less so in this particular quarter for this year. But, you know, hurry on to make reference to still a very supportive free cash flow overall with a guidance range of 1 to 1.6 billion dollars.
Speaker Change: With respect to your CapEx, certainly, you know, it's been a very focused effort for us to land a CapEx range that's right for us. And certainly,
Speaker Change: The last couple of years in 22 and 23, we were fairly high at about 1.9 billion in each of those two years. But the longer term average for us is really more in that 1 to 1.2 range.
Speaker Change: And remember that those years high in 22 and 23 were really driven by, you know, double-digit number of new facilities that we put on during that time that definitely
inflated it.
Speaker Change: but I would applaud the team. We have taken a very disciplined approach.
Speaker Change: in capital, not only for the projects you're seeing roll through now, but as we're planning over the next three years.
to ensure that we're getting the return that we expect.
Speaker Change: with that capital level of deployment that we have. And even at that, even at the rate that we pulled it back, we are still trending in excess of a normal depreciation level.
Great. Thank you very much. I'll pass it on.
Speaker Change: Our next question comes from Puran Sharma from Stevens. Please go ahead with your question.
Puran Sharma: Great. Thanks for the question and congratulations on an exceptional quarter.
Thank you.
Puran Sharma: Just wanted to start out, I know everybody here has kind of asked about chicken already, but wanted to dive into it a little bit further. You've done a lot of work. You said there's more left on the table. I think on the last call you mentioned there was about 500 to 700 million of self-help opportunity.
Puran Sharma: And on this call, you mentioned there's costs to take out for just Fiscal 25. Just wondering if you have an update to this number or just kind of help us think about how much opportunity is left within Chicken.
Puran Sharma: Yeah, good morning, this is Wes. Yes, we continue to deliver lower controllable cost and continuous improvement is part of what we do every day.
Speaker Change: I'd ask you to think about the Fortified Foundation and the operational improvements.
Speaker Change: It is really how you invest in insights, innovation, and message consumers. So it's being the low-cost producer and drive revenue at the same time. And so I'd say it this way.
Speaker Change: We're well positioned to offset the increased consumer spend in 2025 through operational efficiencies. The full-year outlook looks neutral on markets, and so you can calculate the differential as operational improvement.
I appreciate that insight.
I guess my follow-up, I wanted to ask about pork.
Speaker Change: The USDA is projecting higher hog supplies, particularly in the back half of the year. And given the results that you kind of just posted.
Speaker Change: With the cadence of higher hog supplies in the back half of the year, do you think you could see material improvement in pork margins, particularly in the back half of the year when you do see higher hog supplies?
Speaker Change: Thanks for the question and I think it's really important first and foremost before we get into the macro economic environment we're operating in on the pork side is to
Speaker Change: commend the team on really, really solid performance relative to our operational improvements. We have significant efficiency gains year over year.
Speaker Change: that the team has realized. Extremely proud of the world-class team that we have here in Springdale operating our pork business as well. And we've seen improvements really across the board.
Speaker Change: from a plant operations perspective in terms of cost to operate.
Speaker Change: from a margin improvement in terms of converting and converting margins.
Speaker Change: really really solid performance as well. So we feel really comfortable with our team, we feel comfortable with our plan as we move forward as well. From a macro standpoint I think it's important to point out a few things.
number one is
Speaker Change: versus the last several years we have lower input costs and that's really providing an opportunity following the liquidation cycle that we saw in 2023 and part of 2024 from a SAL perspective to provide stability to to the producers to have appropriate margins as we move forward as well. So I think that really provides the tailwinds or the foundation for potential expansion or at least stability within the numbers we have.
Speaker Change: as well. In terms of actual margins, we'll continue to monitor that, but as we all know, we've got a good supply situation in front of us, really good disease.
Speaker Change: impacts, so low-loaded disease impacts in the industry that certainly helps provide that incremental supply that you mentioned.
Speaker Change: Great, I appreciate the call and congrats again on the quarter.
Thank you.
Speaker Change: Once again, if you would like to ask a question, please press star and then 1.
Speaker Change: Our next question comes from Nanav Gupta from UBS. Please go ahead with your question.
Nanav Gupta: Thank you for squeezing me in. Your leverage continues to drop. It was 2.6 last quarter. It's now 2.3.
Nanav Gupta: By all estimates, it should be below the target by the end of the first half.
Nanav Gupta: Just trying to understand where we go from here. Sometimes companies then revise the leverage target lower. Sometimes they continue to operate a lower number. And in some cases, companies come back and say, going ahead, as we have hit our leverage target, excess cash goes to shareholders. So I'm just trying to understand how the management is thinking about that.
Speaker Change: Yeah, thanks. Certainly appreciate taking note of the improvement we've made in leverage from 4.1 times down to 2.3 across the last five quarters.
Speaker Change: And I'll reiterate from the earlier comments, right, that was really driven by operational excellence, commercial execution, focus on working capital, focus on our CapEx type controls and getting returns, as I said to an earlier question.
Donnie King: And as Donnie pointed out earlier this morning in January, so that was a subsequent event of this quarter.
We did pay off $750 million term loan.
Donnie King: It was a term loan that was due in May of 26, that will further reduce our gross debt and reduce cash, but obviously that would be net debt or net leverage neutral.
Donnie King: You did make comment to our long-range target of at or below two times, so while we're very pleased with the journey from 4.1 to 2.3 times across the last five quarters, we do still have a little bit ways to go.
Donnie King: But we, you know, it is not unusual for us to also maintain leverage below that target. But our financial capital priorities will remain the same around maintaining that strength.
Donnie King: taking opportunities to invest in our business as we see them either for growth or profit improvement. And then lastly, you know, returning cash to Chola's. I would just add as I finish
Donnie King: You know, we did announce on the November call and paid recently our dividend increase. So that makes 13 consecutive years of a dividend increase.
Thank you.
Speaker Change: And ladies and gentlemen, at this time we'll conclude today's question and answer session. I'd like to turn the floor back over to Donnie King for any closing remarks.
Donnie King: Thank you and so I have an announcement to make this morning and as you remember a little over two years ago I asked Wes Morris to come out of retirement and get our poultry business back on track and develop a strong succession plan.
Donnie King: At the time I asked Wes for three years and we're now in the final year of the three-year commitment.
Donnie King: So, over the balance of the year, Wes will be transitioning out of the coffin and back to his ranch with his wife Carrie, their happy place.
Donnie King: I think Wes has clearly gotten our business back on track and developed a great team. And I am forever indebted to Wes and thank him for his leadership and his friendship.
Thank you. Thank you.
Donnie King: In the coming weeks, I'll announce the new president of poultry and we will have a seamless transition over the balance of the year.
Donnie King: So thank you, Wes, for your time. Thank you for your talents, and thank Carrie for allowing her to let us have you for the three years. So, with that, thank you for your time today and interest in Tyson Foods. We look forward to updating you on progress in the next quarter.
Speaker Change: Ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.