Adjusted EPS and adjusted operating income increased nearly 60% in the first half of fiscal 2024 compared to the previous year.
Operating cash flow rose by more than 50%, and CapEx decreased by more than 40%.
Sales in Q2 2024 were roughly flat year-over-year at $13.1 billion.
Adjusted operating income in Q2 2024 increased $341 million year-over-year to $406 million.
Adjusted EPS for Q2 2024 increased by $0.66 to $0.62.
Year-to-date operating cash flow reached approximately $1.2 billion.
Year-to-date free cash flow improved nearly $900 million compared to the first half of last year.
Net leverage declined to 3.6x in Q2, with $4.4 billion of liquidity available.
Segment Performance
Prepared Foods: Q2 revenue slightly down year-over-year.
Chicken: Sales declined 8.2% in Q2 year-over-year but AOI increased $326 million to $160 million.
Beef: Revenue up 7.3% in Q2 year-over-year; however, AOI decreased due to compressed spreads.
Pork: Q2 revenue increased 4.6% with AOI going from a loss of $31 million last year to a profit of $33 million this year.
Strategic Initiatives
Expanded offerings in seasoned and marinated meats across Beef, Pork, and Chicken.
Continued focus on operational excellence and financial strength.
Corporate rebranding to unify Tyson’s diverse portfolio and capabilities.
Emphasis on building brands and global expansion, particularly in Asia.
Digital capabilities enhanced for better decision-making and outcomes.
Tightened controls on CapEx in line with profitability and cash flow.
Outlook for Fiscal 2024
Overall sales guidance for 2024 remains roughly flat year-over-year.
Raised AOI guidance primarily due to an improved outlook for Chicken, now expected between $1.4 billion and $1.8 billion.
Adjusted outlooks for segments: Chicken AOI between $700 million and $900 million; Prepared Foods AOI between $850 million and $950 million; Beef AOI between a loss of $400 million and a loss of $100 million; Pork AOI between $50 million and $150 million.
CapEx range narrowed to between $1.2 billion and $1.4 billion for the year.
Commitment to funding dividends through free cash flow generation.
Question and Answer
State of the Business and Q3 Guidance
Question
How does management feel about the current state of the business, including plant closures and asset rationalization, and what are the expectations for Q3 compared to Q4?
Answer
Management is encouraged by the results but acknowledges there is still work to be done.
The company’s diverse portfolio and strong execution have driven improved performance, with Chicken and Pork offsetting Beef headwinds.
Q3 is expected to be relatively even with Q4 due to higher commodity costs, while the full-year guidance has been raised but uncertainties remain.
Prepared Foods Performance and Consumer Trends
Question
Can you provide more details on the performance of the Prepared Foods segment and any insights into the current state of the consumer, particularly low-income consumers and foodservice channels?
Answer
Prepared Foods results were in line with expectations, with strong brands and healthy market share, but persistent inflation is impacting the bifurcated consumer.
The company’s strategy is to offer products at various price points to meet consumer needs.
Both retail and foodservice consumers, especially lower-income households, are feeling the pressure of inflation and prioritizing essential staples over discretionary items.
In foodservice, there are shifts towards quick-service restaurants and more at-home meals, but Tyson is well-positioned as a supplier to both in-home and away-from-home channels.
Chicken Dynamics and Volume Performance
Question
Can you provide more details on the dynamics in the Chicken segment, specifically regarding volume performance, production adjustments, and the factors contributing to a lower supply outlook?
Answer
USDA projections for chicken supply growth in 2024 are around 1%, but the company believes the actual supply increase will be lower due to factors like elevated broiler mortality and hatchability issues.
Supply constraints are expected to persist due to genetic selection trends, the impact of no antibiotics ever practices, and the presence of diseases like Avian metapneumonia virus and Laryngotracheitis.
Tyson’s operations are well-positioned to maintain supply-demand balance and meet customer needs.
Beef Industry and Heifer Retention
Question
Have you observed any signs of heifer retention in the beef industry, and how might this impact the supply outlook and pricing dynamics in the future?
Answer
There are no significant indications of heifer retention at this time, but it could potentially begin in the fall, depending on factors like pasture conditions.
A decline in the number of cows going to slaughter suggests a transition phase, and the company is monitoring various metrics to understand the timing and potential impact of heifer retention.
Chicken Segment Outlook and Drivers of Improvement
Question
What are the key factors driving the increased outlook for the Chicken segment in the second half of the year, and how much of this improvement is attributed to market tailwinds versus execution and other factors?
Answer
The improved outlook is a result of the focus on fundamentals, including execution, footprint, and network optimization, with more than half of the $325 million year-over-year improvement coming from execution-related factors.
The company is experiencing solid demand and has a strong live performance, with plans to invest in the back half of the year, particularly in the value-added business and the ramp-up of the Danville plant.
Pork Industry and Supply Dynamics
Question
With costs falling, are you seeing any signs of the pork industry, in terms of hog supply, making better profits and potentially ramping up supply?
Answer
The compression in feed costs has improved profitability for some producers, but genetic improvements and favorable herd health conditions over the past decade have led to ample supply, and the potential for expansion remains uncertain.
Chicken Business Performance and Cost Reduction Opportunities
Question
Can you provide more insights into the improvements in live operations, operational efficiency, and supply-demand balance in the Chicken business, and what are the remaining opportunities for cost reduction and margin expansion?
Answer
The company has made significant progress in its Chicken business but acknowledges there is still work to be done.
The focus remains on managing working capital, optimizing the footprint and network, and restoring Chicken performance.
The company is confident in its ability to deliver best-in-class results over time but recognizes the need for continued improvement.
While not providing specific operational performance targets, the company’s guidance range reflects the opportunities for improvement across the portfolio.
Beef Business and Mitigating Potential Supply Challenges
Question
If heifer retention and herd rebuilding efforts were to lead to a further drop in volume and throughput in the Beef segment, what are the controllable factors and strategies that could help mitigate the impact and potentially allow the business to remain profitable through that period?
Answer
The company has developed a strategy that considers a range of potential outcomes and focuses on operational excellence, efficiency within assets, managing mix, and delivering to customers.
The company is confident in its strategy and the progress made in controlling the controllables, regardless of the specific supply-side outcomes.
Chicken Volume Decline and Future Production
Question
Will the production decline in the Chicken segment continue going forward, and was it primarily due to lower outside meat purchases or lower internal production?
Answer
The decline in chicken volume in Q2 was primarily due to the difficult comparison with Q2 of the previous year, which was an atypical period with missed demand signals and issues with profitable sales.
The company’s current volume is in line with expectations, and it is positioned well for supply-demand balance and future growth.
Beef Demand and Margin Trends
Question
More recently, beef demand seems to have been more challenged. Can you provide a sense of how your margins are tracking relative to Q2 and whether there has been any deterioration?
Answer
Beef demand has been strong, particularly in retail and promotional activity, while the foodservice sector has not seen as much promotional activity.
The company is monitoring the situation and will continue to assess the impact on margins.
Chicken Segment Improvement and Market Conditions
Question
As we look to the balance of the year, is the improvement in the Chicken segment expected to be similarly split between operational and market factors, or will the contribution of operational improvements diminish?
Answer
While the company has made significant progress, there is still work to be done in the Chicken segment.
The improvement is expected to be influenced by a combination of factors, including grain market volatility, supply and demand dynamics, and consumer sentiment.
Long-Term Earnings Power and Guidance
Question
In the past, the company has provided insights into its normalized earnings power. When might we expect to receive a similar update, considering the changes and improvements that have been made?
Answer
The company plans to potentially provide an update on its long-term outlook and normalized earnings power as it progresses through the current year and looks towards 2025.
The guidance revision and optimism for the balance of the year reflect the company’s confidence in its performance and the opportunities ahead.
Impact of ColdSnap on Chicken Operations
Question
Can you quantify the impact of the ColdSnap in January on production operations and overall segment profitability?
Answer
The impacts of the ColdSnap were not significant enough to have a disproportionate impact on earnings.
Prepared Foods Start-Up Costs and Leverage
Question
How much longer are start-up costs in the Prepared Foods segment expected to remain a headwind, and do you have a forecast for where leverage might end up by fiscal year-end?
Answer
Start-up costs in Prepared Foods may continue to be a headwind in Q3 but are expected to diminish, with the majority hitting in Q2.
The company is trending towards lower leverage, with a long-term target of 2x or below.
Beef Segment Profitability and Range of Outcomes
Question
What are the key factors that could drive the Beef segment’s performance towards the top or bottom end of the profit range, and how do supply dynamics, demand, and pricing interact in this context?
Answer
The range of outcomes for the Beef segment’s profitability is influenced by a combination of factors, including beef cutout and drop pricing, live cattle costs, and the balance of cattle grades with consumer demand.
CapEx Outlook and Priorities
Question
How should we think about the CapEx outlook going forward, considering the improved profit environment, and what are the priorities for potential increases in CapEx?
Answer
The company is managing CapEx tightly and is focused on a range of $1.2 billion to $1.4 billion, reflecting a balanced approach to investment and a return to a normalized level of spending.
The primary areas of focus for potential CapEx increases are the prepared foods and value-added chicken portfolios, along with ongoing maintenance and repair needs.
Chicken Footprint and International Margin Runway
Question
How does the company view its chicken footprint in terms of supply-demand balance and future production needs, and what is the margin runway for the international segment and the potential paths to ramping up profitability?
Answer
The company’s network moves have been successful in improving efficiency and cost structure without losing business, and there is still capacity for growth within the current footprint.
The international segment is focused on operational excellence, capacity utilization, and improving conversion costs to drive margin expansion.
