On this conference call, Tyson Foods' President and Chief Executive Officer, Donnie King, and Chief Financial Officer, John R. Tyson, will provide some prepared remarks followed by Q&A. They are joined by Brady Stewart, Stewart Glendinning, Wes Morris, and Amy Tu. The call is being recorded and any forward-looking statements made are subject to certain risks and uncertainties. The supplemental presentation is available on Tyson's Investor Relations website.

Donnie King starts by discussing his vision for Tyson and the decisive actions they are taking to navigate the current market environment. He is confident that they have the right strategy and team in place to emerge stronger from this. They have announced their intention to close four chicken facilities to improve performance and are taking market share in most of their categories. He is encouraged by the sequential improvements they made in Q3 and is confident in their long-term strategy.

In Chicken, Tyson has taken internal actions to improve profitability, such as closing two plants and converting two others to boneless, as well as transitioning away from the “no antibiotics ever” for Tyson branded chicken. In Beef, Tyson has performed better than expected due to a disciplined approach to balancing supply with customer demands. However, the beef industry is likely to continue facing headwinds.

The latest USDA cattle inventory report shows that herd liquidation is continuing to tighten supply, leading to higher cattle costs and narrowing spreads. Pork is also under pressure due to increased feed costs and low cut out spreads. In the third quarter, Tyson Foods saw strong volume growth in their core business lines, such as Tyson, Jimmy Dean, Hillshire Farm and Ball Park, which outpaced the industry in volume growth. This led to better than anticipated margins in Prepared Foods. Tyson's core brands are also gaining market share and hold a favorite brand status with consumers over their nearest competitor.

Tyson has invested in merchandising and advertising to support their brands, resulting in around $2 billion in annual sales from innovations. Tyson has launched the Tyson Original Chicken Breast Sandwich, Jimmy Dean biscuit roll-ups, Maple Grill Cakes and Toaster Pop-Ups, and Hillshire Farms Snack Kids. These products have been well-received by customers and have helped to expand the appeal and market opportunities for Tyson products.

Donnie Tyson reviewed the company's financial results for the quarter, which saw a 2.6% year-over-year decrease in sales due to lower price per pound for pork and chicken. Operating profit was down significantly, primarily due to higher cattle costs, which increased $610 million on a lines per pound basis. However, profit improved meaningfully from last quarter and adjusted EPS increased $0.19.

Beef is likely to continue to face headwinds due to tightening of cattle supply, while Pork revenue was down 18% due to lower demand and a fire at the Madison facility. Chicken sales decreased 3.5% year-on-year due to lower pricing and a $65 million net derivative loss, while Prepared Foods sales declined 2.6% due to lower volume in Food Service and lower pricing in bacon. Despite these challenges, disciplined yield and procurement benefits and seasonal cutout improvement helped drive better than expected operating profits.

Operating profit was up $34 million due to lower raw material cost and productivity gains, but was partially offset by other factors. The goodwill impairment charge impacted the reported numbers, but is not reflected in the adjusted results. The capital allocation strategy includes building financial strength, investing in the business, and returning cash to shareholders. Operating cash flow was $660 million, and CapEx is expected to be below the prior guidance of $2.3 billion.

Smithfield Foods reported $3.7 billion of liquidity and 3.2 x net leverage for the quarter. They returned $167 million to shareholders and are committed to maintaining a disciplined capital allocation strategy. For fiscal 2023, they are expecting total company sales of $53-$54 billion with flat sales growth, beef margins of a loss of 1% to a gain of 1%, pork margins of a loss of 4% to a loss of 2%, chicken margins of a loss of 1% to a gain of 1%, and prepared foods margins of 8-10%. They are reducing their expectations for CapEx to $2.1 billion and their expectations for net interest expense and tax rate remain unchanged at around $340 million and 22% respectively.

Donnie King thanked Alexia Howard for her question and stated that markets remain challenging for everyone. Despite this, the company had the best execution in Q3 since pre-pandemic times, with a sequential improvement across all businesses, led by Chicken. The company is focusing on their cost structure, aligning supply to demand, and controlling the controllables. They expected the beef and pork results.

Donnie Smith and Brady Stewart discussed the challenges Tyson Foods has faced in the Pork and Beef business. This includes losses in the quarter due to live operations and the fire in Madison. Tyson has taken decisive actions to right-size and modernize their footprint, invest in automation and digitalization, invest in their team members, and pursue growth in value-added and branded categories. They believe the markets will take care of themselves and are excited about the future of the company.

Brady Stewart and Wes Morris both express their encouragement with the improvement in operational execution in the Pork business and the sequential improvement in the Chicken business seen in 3Q. They attribute the improvement to better execution of controllables, such as improving yields, labor efficiency, line efficiency, and spend, as well as better order fill and on-time delivery.

Donnie King and Wes Morris discussed the closure of four plants, which brings the total to six this year. The facilities that are closing are typically smaller and in need of major capital investments. Wes Morris mentioned that there will be no material change in volume and that 90% of the sales will be moved to more efficient assets. John Tyson added that these moves will result in a reduction of the need for capital investments in some of the older facilities.

Donnie and Brady discuss the benefit of taking out 10% of harvest capacities and the expected runrate uplift of $200 million. They also talk about the impact of the facility fire in the quarter, and the cutout rally, which will affect the Pork packer margins and the Prepared Foods business. They are focused on controlling what they can and will continue to evaluate the supply and demand equation.

Donnie King and John discussed how the Beef industry in the quarter was better than expected, but the outlook for the 4th quarter is a bit weaker. Donnie and John discussed how the team in Springdale was able to manage the Pork business and see improvements, and that they are focused on what they can control in the Beef industry. They are aware of the herd liquidation, but cannot predict with great accuracy what the total impact will be from a supply and demand perspective.

John Tyson and Donnie King answer Peter Galbo's questions about the Outlook, guidance ranges for balance of '23, and projections for '24 and '25. They also discuss the impairments that may be taken for the four facilities they have and the mark-to-market hedging program in Chicken. They explain that they are continuing to evaluate and automate assets and may consider a more hand-to-mouth approach.

John Tyson and Peter Galbo both provided insight into the company's chicken business. Tyson discussed the hedging program and the potential for impairments in the fourth quarter, while Galbo asked for more clarity on the asset closures and one-time cash costs. Adam Samuelson from Goldman Sachs then asked a question about the benefits of plant closures and production shifts.

John Tyson emphasizes that the company's improvements in operational execution are due to their own efforts, rather than changes in the market. He also confirms that the run rate of $200 million in profit is achievable, but that it is too early to give any predictions for fiscal year 2024. He notes that the recovery of the commodity market would help them, but they are focusing on what they can control.

John Tyson and Donnie King comment on how Tyson's Chicken business has been more resilient than the rest of the industry in the last 6 to 12 months. They attribute this to the path they have been on for the past two years, which includes improving their genetics, operations, and demand picture. Despite some asset impairments and plant closures, they are now in a more balanced position and are executing better than before.

Donnie King explains that Tyson is looking at all of their businesses and taking meaningful steps to get their cost structure back in balance, including the closures of two Chicken facilities and the NAE move. He also points out that the market conditions have remained the same in the last nine to twelve months and that Tyson is delivering on operational execution. He then explains that Tyson is looking at all their businesses, not just Chicken, and is considering all options.

John Tyson and Brady Stewart discuss the multiple factors that go into making decisions about poultry, pork, and beef. They note that poultry recovery is expected to be the quickest, followed by pork, and then beef. They also emphasize the importance of asset efficiency and projected capital requirements when making decisions.

John Tyson explains that the company has decreased their capital expenditure quarter-over-quarter and that they are targeting to get to a $1.5 billion spend annually. He also mentions that the company is sitting on a sound balance sheet and that they are targeting to maintain a two-time leverage number for the long term.

Donnie King and Brady Stewart addressed a question concerning pork margins and company-specific initiatives to improve operations. They discussed the need to unpack the pork results into the live and fresh pork segments and evaluate the business in its entirety. They also mentioned plant closures as a potential option.

Donnie King and Brady Stewart discuss their strategy for Chicken, which includes focusing on expenses and efficiency, price and yield, and mix matrices to maximize margins. They are comfortable with their team and approach, and are evaluating everything from asset utilization and strategy to business moving forward. They have been consistent in emphasizing capacity utilization as a driver for profitability.

The company has optimized their network, and is focusing on what they can control. They are getting closer to their customers and gaining momentum on both sides by right-sizing capacity and growing at the same time. The company has intentionally invested in capital to have more value-added branded type capacity, and the plant closures will reduce the capital spending for the rest of 23 and possibly 24.

Donnie King, CEO of Tyson Foods, concluded the conference by thanking everyone for attending and expressing his confidence in the company's long-term outlook. He emphasized the importance of operational excellence and focus on what the company can control in order to maximize value for shareholders. He also noted that Tyson Foods is currently over 90% capacity, with room to grow, despite the macro headwinds they are facing.

This summary was generated with AI and may contain some inaccuracies.