The operator welcomes everyone to the Tyson Foods Fourth Quarter 2023 Earnings Conference Call and introduces the speakers. The speakers will provide prepared remarks and then open the call for Q&A. The call will also include forward-looking statements and participants are encouraged to refer to the provided supplemental presentation and SEC filings for more information.

The speaker, Donnie King, thanks the team for their efforts in delivering positive results in the fourth quarter and fiscal year 2023. Despite challenges in the protein market, the company's branded business performed well and market share increased. Chicken saw sequential improvements and the Prepared Foods segment had solid operating income. Beef and pork faced challenges, but the company remains focused on efficient operations. Their priority is to execute with excellence.

The company has seen improvements in operations and has a long-term plan for continued success. They are focused on efficiency and modernization and are taking bold actions to improve performance. The company's brands continue to outpace the food and beverage category in volume growth and they have shown market share leadership in most of their retail categories. They are also seeing growth in their foodservice segment and are aligning with key customers for future success.

Tyson has been recognized for their success in winning over customers and has made the Top 10 in the Kantar Power Rankings for the second year in a row. In the Prepared Foods segment, their brands have performed well and have seen an increase in household penetration. They plan to continue supporting their brands with marketing and advertising efforts. While chicken had a modest loss in AOI for the full year, there has been sequential improvement in Q4 and the team has made operational enhancements and improvements in yield and live operations. This has led to a positive margin at the end of the year.

The company expects a better outlook for input costs in the new fiscal year, but also anticipates challenges due to limited cattle supply and imbalances in the pork industry. They will focus on operational discipline and improving financial strength, while remaining committed to returning cash to shareholders through dividends. The company also plans to evaluate their production footprint and network for increased efficiencies.

The company has made significant changes in chicken production by closing older plants and shifting production to larger, more efficient facilities. Similar moves are being considered in other segments. The focus is on enhancing competitiveness and sustaining profit in Prepared Foods, being prepared for potential outcomes in the current cattle cycle in beef, and driving operational improvements and synergies in pork. The company is also reviewing its cost structure and implementing productivity initiatives to strengthen the business.

The company's overall sales and adjusted operating profit were down in Q4 and for the full year, driven by lower profitability in beef and chicken. However, there was improvement in Q4 compared to the previous quarter and the company is making efforts to improve operations. In the Prepared Foods segment, revenue was down slightly but AOI improved due to productivity initiatives and offsetting inflation. In the full year, AOI grew by over $100 million. In the chicken segment, sales declined due to lower pricing, but volume grew and there was a focus on balancing supply with customer demand.

The company's profitability declined due to lower chicken pricing, but was partially offset by lower input costs and operational efficiencies. Revenue increased in the beef and pork segments, but operating profit was down due to higher costs. The international business performed well. The company's capital priorities include building financial strength, investing in the business, and returning cash to shareholders. They reduced their planned CapEx spending by $600 million due to market conditions affecting profitability and operating cash flow.

In fiscal year 2023, the company was successful in managing working capital and ended the year with $3 billion in liquidity and a net leverage of four times. They are committed to maintaining financial strength and returning to a net leverage of two times. They returned $670 million to shareholders through dividends and share repurchases and will continue to have a disciplined capital allocation strategy. In fiscal year 2024, their focus will be on managing the business for profit and cash generation, and they will be giving guidance in dollar terms instead of a margin percentage. They expect overall sales to be similar to fiscal year 2023 and anticipate solid performance in the prepared foods segment, with adjusted operating income in the range of $800 million to $1 billion.

In order to adapt to potential changes in consumer spending, the company is focusing on efficient marketing and promotions to drive ROI and consumer engagement. They have invested in new capacity for value-added brands and expect to incur start-up costs in fiscal '24. The chicken segment is showing improvement, while the beef segment is uncertain due to heifer retention. The pork segment is expected to improve, leading to a total company AOI of $1.0 billion to $1.5 billion for fiscal '24. The company does not expect any extreme fluctuations in any one segment, and quarterly phasing will provide further understanding of the year's performance.

The company predicts that the upcoming year will follow a more typical seasonal pattern, but factors such as start-up costs, prepared foods, and rising cattle costs will affect profitability in the first half of the year. They are also monitoring potential impacts of higher interest rates and inflation on consumer behavior. Interest expense is expected to be $400 million and the tax rate around 23%. The company plans to maintain tight control on spending, with an expected CapEx of $1.0 billion to $1.5 billion. They aim to generate positive free cash flow for the year. Despite current challenges, the company remains optimistic about their long-term prospects due to their strong teams, growing demand, and product portfolio. The call is now open for Q&A.

Adam Samuelson asks John and Donnie about the high and low end of segment profit ranges in chicken, beef, and prepared foods. Donnie King responds by stating that 2023 was an unusual year where all core protein categories were challenged, but the company's brands continue to outperform the broader food and beverage category. The demand for protein remains strong and the company is focused on efficiency, modernization, and cost structure. They have taken bold actions to improve performance, manage cash, and reduce capital spending. The company will continue to return cash to shareholders and has been ranked in the Top 10 for the second year in a row by Kantar Power Ranking. Donnie expects fiscal 2024 to be better in terms of cash flow and profitability, with chicken AOI improving and prepared foods continuing to perform well. Overall, the company's plan is working and delivering tangible results.

The company is optimistic about the start of FY '24 and has a good plan and team in place. The profitability of the chicken segment will be influenced by an aggressive operational improvement plan, timing benefits from closures, and market movement. The range for beef reflects a range of outcomes and may tighten as the year progresses. The prepared segment will be driven by execution, consumer demand, and brand performance. The company has provided AOI dollar guidance ranges to give investors a more precise estimate of outcomes.

A question was asked about the company's cash flow and whether it would be free cash flow positive after dividends. The CEO clarified that they are committed to supporting the dividend for the year and have given a range of CapEx numbers to reflect this. The company will also consider opportunistic M&A opportunities. The next question was about the company's CapEx guidance, and the CEO explained that they have lowered it from previous estimates due to various factors, but did not provide specific details.

The speaker provides three or four data points on the company's CapEx. They communicated last year that they were trending towards a $1.5 billion number and Q4 was at $370 million. They have a lot of capacity expansion projects finishing up and the average investment in the business before this period was $1.25 billion. The other speaker adds that the company had outsized capital expenses in 2022 to support growth in their branded portfolio and operations outside the US.

The speaker addresses two questions, the first being about the company's footprint and capacity utilization. The speaker emphasizes that they are leaving no stone unturned in evaluating opportunities and mentions recent announcements of plant expansions and closures. They also mention the efficiency of their core plants enabling them to eliminate redundant capacity. The second question is not mentioned.

Ken Goldman asks about the possibility of Tyson providing longer-term EBIT ranges instead of margin ranges, and John Tyson responds that they are currently focused on 2024 and will revise guidance when appropriate. Ken also asks about the options for Tyson's pork business, and Donnie King mentions supply-demand imbalances and controlling controllable factors. Brady will provide more information.

The Pork business team is praised for their world-class work and they are working with Prepared Foods to unlock new opportunities. The team has seen improvement in their business due to controlling their controllables and focusing on efficiency and yields. They are expecting over $100 million in improvements for the next year and have developed strategies for the future. The analyst asks for further clarification on the guidance for Prepared Foods.

The speaker, Donnie King, welcomes Melanie Boulden, the new Chief Growth Officer responsible for Prepared Foods, and discusses the performance of the Prepared Foods category in the current competitive environment. He mentions that the company's brands have performed well and that the category is a key growth pillar for the future. Melanie adds that the Q4 results were in line with expectations, despite the seasonal impact and start-up costs, and the company saw its second-highest Q4 result in the past five years.

The speaker has confidence in the growth potential of their Prepared Foods business for the full year of 2024. They are investing in automation and production facilities to meet increasing demand. However, there may be some start-up costs in the first quarter that could impact profits. The seasonality of Prepared Foods is not expected to be significantly different from previous years. The speaker also mentions that the beef cycle recovery may be delayed due to missed opportunities for heifer retention. They are still focused on margining up the beef business through consolidation of case-ready operations.

The speaker discusses the current state of the beef industry and the potential future outlook. They mention the high number of heifers being retained and the possibility of a U-shaped curve in supply. They also mention the company's focus on maintaining capacity and servicing customers. Another speaker adds that it's important to evaluate beef across the entire 10-year cycle and that the industry has shifted from making money to discussing the downside.

Tyson Foods' CEO John Tyson emphasizes the importance of looking at the company's performance across the cycle. He also notes that they have redundant capacity and have improved operations. The company continues to evaluate all options and has best-in-class assets, team members, and customers. In regards to their chicken business, the company factors in both operational improvements and market conditions in their guidance for next year.

Wes Morris is discussing the company's improvements and how they are divided between market-driven and fundamental improvements. In the fourth quarter, there was a nice improvement in live production, with increases in capacity and yields and decreases in turnover and absenteeism. The company also has a disciplined supply-demand balance process in place. John Tyson adds that one-third of the improvements are driven by markets and two-thirds by performance. In response to a question about the balance sheet for next year, John confirms that any upcoming maturities will be refinanced and the total interest expense will increase due to the combination of fixed and floating rates. Ben Theurer from Barclays asks the next question.

An unidentified analyst asks about the closure of two chicken factories and the current capacity utilization and reduced costs. Donnie King clarifies that the $333 million write-down in fees is not related to the closures, but rather to discount rates. He also states that their goal in the chicken market is to be the best and they are becoming more competitive, with Wes Morris adding that five of the six closures are complete and they have seen a material increase in capacity. However, he also mentions that mix is important for profitability.

During a conference call, Michael Lavery from Piper Sandler asks Tyson Foods about their decision to raise their dividend despite their stated priority of being disciplined with cash. John R. Tyson explains that the 2% increase was modest and within their capital allocation plans. Donnie King adds that their capital expenditure levels are returning to normal after major investments in capacity in previous years. Lavery also asks about the difficult consumer environment and Tyson Foods' efforts to meet consumer needs.

In response to a question about the company's pricing strategy, Melanie Boulden explains that they prioritize balancing pricing and volume in a volatile market. She also mentions their strong revenue management capabilities and leading brands. Donnie King adds that the beef segment is expected to have a stronger second half of the year, but there are many factors that could impact profitability.

The company considers various factors such as seasonality and supply when making forecasts and setting goals for the future. They have seen improvement in their business performance and expect this trend to continue in the next year. They anticipate a slight increase in leverage in the first part of the year but expect it to decrease after that. The company is now more focused, collaborative, and efficient compared to the previous year.

The company's plan and decisions have resulted in sequential improvements for the second quarter in a row, despite an uncertain macro environment. Their focus is on controlling what they can with discipline and agility, and their strategy is working. The company has a strong leadership team and their bold actions are expected to drive long-term opportunity and shareholder value. The conference call has now concluded.

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