Tyson Foods

Grocery & Restaurants

Tyson Foods told analysts it was seeing higher sales thanks to higher prices for chicken and prepared foods

Tyson Foods’ CEO told analysts that their improvement in sales were “ largely driven by higher average sales price in chicken and prepared foods.” “Donnie King — President and Chief Executive Officer: Sales improved 8% for the third quarter and 16% year to date compared to the prior period. Our sales gains were largely driven by higher average sales price in chicken and prepared foods. Average sales price increased in these segments in response to persistent increase in the cost of goods. Prices were lower in beef, in line with expectations, and pork segment versus the same quarter last year.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods CFO reiterated that “Sales were up for both the third quarter and year to date, benefiting from our pricing initiatives to offset the increase in cost of goods.” “Stewart Glendinning — Executive Vice President and Chief Financial Officer: Thank you, Donnie. Let me turn first to a summary of our total company financial performance. We’re pleased to report solid results in the third quarter and year to date. Sales were up for both the third quarter and year to date, benefiting from our pricing initiatives to offset the increase in cost of goods. Volumes were down both for the third quarter and year to date due to supply constraints and a challenging macroeconomic environment impacting consumer demand. Looking at our sales results by channel. Retail drove $173 million of top-line improvement in the third quarter relative to the same quarter last year. In the third quarter, the ongoing recovery in the foodservice channel drove an increase of $165 million.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods CFO: “Our pricing actions, which partially offset the higher input costs, led to higher sales during the quarter.”“Stewart Glendinning — Executive Vice President and Chief Financial Officer: Our pricing actions, which partially offset the higher input costs, led to higher sales during the quarter. We saw continued increases in cost of goods across the business, in some instances, up to 15%. Notable examples were labor, feed ingredients, live animals, and freight costs. SG&A was $20 million unfavorable to the same period last year due to increased investment in advertising and promotional spend and technology-related costs, partially offset by lower commission costs incurred by selling direct to customers rather than via brokers. “(Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods’ CFO noted that sales increased in their prepared foods “despite a volume decline driven by higher average sales prices.” “Stewart Glendinning — Executive Vice President and Chief Financial Officer: Moving now to prepared foods. Sales were approximately $2.4 billion for the quarter, up 5% relative to the same period last year and up 9% year to date at $7.2 billion. Sales increased despite a volume decline driven by higher average sales prices. Note, part of the volume decline in the quarter was driven by the sale of our pet treats business. Our brand strength and category relevance has enabled continued strong performance across multiple categories. Operating margin for the segment was 7.6% or $186 million for the quarter, up versus last year. Year to date, operating margin is 8.9% and flat, compared to the prior year at $635 million. Cost of goods continues to increase, pressuring our cost of production.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods told analysts it had shifted its “pricing mechanisms,” allowing it to raise prices more quickly

Tyson Foods CFO specifically credited “our shift in pricing mechanisms to more variable structure” when describe higher prices for chicken. “Stewart Glendinning — Executive Vice President and Chief Financial Officer: Moving into the chicken segment’s results. Sales were $4.4 billion for the quarter, up 26%. Year to date, sales are up 25% at $12.3 billion. Average sales price increased in the quarter compared to the same period last year. Our shift in pricing mechanisms to more variable structures has reduced risk by allowing us to be more agile in response to increasing cost of goods. Chicken delivered adjusted operating income of $269 million in the third quarter representing an operating margin of 6.2%. Quarterly operating income increased over the same quarter last year due to higher average sales price and efficiency improvements, partially offset by increased cost of goods.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods told analysts “we’re pricing quarterly now versus what we would have done previously from a 52-week standpoint. So it’s given us a lot more flexibility in what we do.” “David Bray — Group President, Poultry: Yes. I think one other thing to mention to that, Ben, and it’s despite what we’re seeing from an inflationary standpoint and despite what we’re seeing from an overall grain volatility standpoint, we’re continuing to progress as planned. And a large part of that was changing the way that we worked with our great customers across the country and pricing more closer to what’s going on within the market as well as inflation. And we’re pricing quarterly now versus what we would have done previously from a 52-week standpoint. So it’s given us a lot more flexibility in what we do. But again, there’s a lot of other things that we are doing that will put us in a position to win. And again, the volume unlock that we will see coming into this quarter will go a long way to help us build a much more sustainable model.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

After being pressed on when it would spend more on stock buybacks, Tyson Foods noted it had increased by over 10 times compared to 2021

A Goldman Sachs analyst pressed Tyson Foods on whether it would increase share repurchases given their “excess cash building on the balance sheet.” “Adam Samuelson — Goldman Sachs — Analyst: OK. All right. And then maybe another question for Stewart. If I look at the balance sheet trends in the quarter, net debt to EBITDA, you bought back a little bit of stock in the fiscal third quarter. But I guess, just looking forward into the next — over the next 12 to 24 months, I mean I’m just — the balance sheet is kind of comfortable with your leverage target. You’re already investing quite aggressively on the organic capex side. And so I guess I’m just trying to make sense of kind of the comfort level you have with the balance sheet kind of where it is versus what it would take to a significant releveraging event, but maybe a bigger step-up in share repurchase that there isn’t continued excess cash building on the balance sheet from here. So any added color that you could provide just in priority of share repurchase moving forward?” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods’ CFO defended the company, saying “I mean, last year, this time, we spent about $50 million on buybacks. This year, we’ve got almost $700 million.” “Stewart Glendinning — Executive Vice President and Chief Financial Officer: Sure, of course. Well, look, first, I mean, we’re very pleased with the strength of our balance sheet. When you look at our leverage levels, we haven’t seen leverage levels like these since 2011, that sort of time frame. So we’re pleased with having come through COVID and put ourselves in a place where we’ve got a rock-solid balance sheet. With respect to the capital allocation, our capital allocation approach, we’ve got a very good balanced approach. And that is strengthening our balance sheet, which we’ve done investing in our business, which you pointed out. We have ramped up our spend on capex, and that is good spend because it’s coming in at strong returns. And it’s helping to grow our business. And then, of course, your question really about why don’t we go to the share buyback, I mean, last year, this time, we spent about $50 million on buybacks. This year, we’ve got almost $700 million. And part of that is catching up on the dilution that we had from last year. So we’ll see how that goes, but we’re very pleased with where we are from a balance sheet standpoint.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods said “drought conditions” were causing “herd liquidations”, which would likely lead to higher beef prices in coming years

Tyson Foods’ CFO told analysts that beef prices were lower due to less demand for premium cuts. “Stewart Glendinning — Executive Vice President and Chief Financial Officer: Moving to the beef segment. Sales were approximately $5 billion for the third quarter, flat versus the same period last year, but up 15% year to date at nearly $15 billion. Sales in the quarter remained strong, supported by higher volume but offset by lower average sales price driven by softer consumer demand for premium cuts of beef. Global consumer demand for beef products remain strong, and we expect volume to continue to improve in the fourth quarter as improved labor participation supports higher plant productivity.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods CFO noted that it had spent nearly $500 million more on live cattle but “higher herd liquidation due to drought conditions” provided “sufficient livestock” “Stewart Glendinning — Executive Vice President and Chief Financial Officer: On expenses, we incurred greater costs during the third quarter versus the comparable prior-year period as live cattle costs increased approximately $480 million in the quarter. We had sufficient livestock available in the quarter driven by higher herd liquidation due to drought conditions.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

Tyson Foods CEO predicted that there could be higher prices for beef in 2023 and 2024 because “with the herd liquidation, there’s going to be fewer — there’s going to be fewer cattle in the harvest.” “Donnie King — President and Chief Executive Officer: Based on what was quoted in the prior call, USDA is reporting a 1%, maybe a flat, I think that’s probably realistic. I think our demand is going to be stronger than that as we go into ’23. And from a beef perspective, with the herd liquidation, there’s going to be fewer — there’s going to be fewer cattle in the harvest. And you’re going to have more and more packers chasing those heads, particularly the — those which have better genetics that grade better that provide additional revenue and margin opportunity. And so that’s going to become very tight. And as we move into ’23 and even into ’24, beef is going to see some — you’re going to see some higher cutouts and higher-priced cattle in the marketplace.” (Tyson Foods Q3 2022 Earnings Call, 8/8/2022)

In 2011, it was reported that drought conditions led to a short term decline in beef prices as more cattle were sold to meat processors.  “A prolonged drought from Kansas to Texas probably forced U.S. ranchers to sell more cattle to feedlots last month, signaling increased supplies for meat processors including Tyson Foods Inc. and lower beef prices. Deteriorating pasture conditions in the southern Great Plains and record cattle prices prompted the sale of 1.935 million head to feedlot operators, up 4.2 percent from March 2010, according to a Bloomberg survey of 14 analysts. The U.S. Department of Agriculture will disclose the feedlot inventory today at 3 p.m. in Washington.” (Bloomberg, 4/21/2011)

Tyson Foods reported record profit margins thanks to price hikes it characterized as inflation driven

A Tyson Food executive said “we’re pleased with the market performance that we’re seeing despite the price increases” and “we believe we have the right building blocks in place on our path to deliver sustainable double-digit margin.” “Noelle O’Mara – Group President, Prepared Foods: I can give you a bit of context to what we’re currently seeing. So demand continues to be strong across both retail and foodservice driven by our strong equities in our diverse portfolio. And as you said, we’re pleased with the market performance that we’re seeing despite the price increases, which is really due to the strength of our brands and the strong partnership and relationships that we’ve built with our customers. Elasticity has been less than the historical models that Donnie has mentioned, but it’s clearly something that we’re watching closely. And so we’re constantly reviewing our pricing and revenue management strategies. As the landscape changes, we’ll continue to take thoughtful approaches on those critical levers. As you also heard in the comments, we’re taking significant actions to transform our cost base and we’re creating good momentum there. And so on the year, we continue to feel good about the 7% to 9% range that we’ve given, and we believe we have the right building blocks in place on our path to deliver sustainable double-digit margin. “(Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Thanks to price increases, Tyson Foods more than offset costs of inflation and reported a record operating profit margin for the company. “The average price charged per customer for beef was up 32 per cent year on year, pork 13 per cent and chicken 20 per cent. While wages, along with meat and logistics prices have risen substantially, Tyson’s pricing power more than made up for those higher production costs. The company recorded an operating profit margin of 11.3 per cent — only the fourth time since 1990 that this figure has been in the double digits, according to data from S&P Global.” (Financial Times, 2/7/2022)

Tyson Foods’ operating income was up 40% compared to the same quarter the previous year. “Stewart Glendinning – CFO: First quarter operating income of $1.4 billion was up 40% relative to the same quarter last year due to increased earnings in Beef, Pork and Chicken. Driven by the strength in operating income, first quarter earnings per share grew 48% to $2.87. Higher operating income led to higher adjusted earnings per share compared to the same period last year. And first quarter EPS also benefited from lower interest expense and taxes.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

The CEO of Tyson Foods: “We’re also making sure that our pricing incorporates inflationary cost pressures on our business.” “Donnie King – President and Chief Executive Officer: We’re also making sure that our pricing incorporates inflationary cost pressures on our business. In the quarter, our cost of goods sold was up 18% relative to the same period last year. We are seeing higher costs across our supply chain, including higher input costs, such as feed and ingredients. We’re also managing higher cost of labor, transportation due to strong demand and limited availability. With these higher costs, we work closely with our customers to achieve a fair value for our products.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Foods’ CFO said sales increasing 24% was “largely a function of our pricing initiatives to offset inflationary pressures.” “Stewart Glendinning – CFO: Thank you, Donnie. Let me turn first to a summary of our total company financial results. We’re pleased to report a strong overall start to the year. Our sales were up approximately 24% in the first quarter, largely a function of our pricing initiatives to offset inflationary pressures. Volumes were also up slightly, although impacted by continued labor challenges. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Foods executives repeatedly stressed that they saw no impact on demand from price hikes

The CEO of Tyson Foods said “customer demand continues to outpace our ability to supply products.” “Donnie King – President and Chief Executive Officer: Still, customer demand continues to outpace our ability to supply products. So we have targeted actions in each segment to improve volumes. This is key to delivering on our commitments. To realize our volume goals, we must be able to fully staff our plants across the company. We continue to take meaningful action toward becoming the most sought after place to work.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Foods CEO said it was “exciting” that price elasticity was “less or lower than what they have historically been.” Donnie King – CEO: Well, let me start off with and tell you that we really got off to a good start in Q1. And there are a number of factors with Q1 and what we saw in Q1 and our optimism as we look to the balance of the year. We’ve adjusted a number of pricing mechanisms to be more variable in nature. We’ve seen prior elasticities, for example, in Prepared Foods being less or lower than what they have historically been, which is exciting there. We’ve been able to maintain volume in this inflationary environment. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

A Tyson Food executive said “we’re pleased with the market performance that we’re seeing despite the price increases” and “we believe we have the right building blocks in place on our path to deliver sustainable double-digit margin.” “Noelle O’Mara – Group President, Prepared Foods: I can give you a bit of context to what we’re currently seeing. So demand continues to be strong across both retail and foodservice driven by our strong equities in our diverse portfolio. And as you said, we’re pleased with the market performance that we’re seeing despite the price increases, which is really due to the strength of our brands and the strong partnership and relationships that we’ve built with our customers. Elasticity has been less than the historical models that Donnie has mentioned, but it’s clearly something that we’re watching closely. And so we’re constantly reviewing our pricing and revenue management strategies. As the landscape changes, we’ll continue to take thoughtful approaches on those critical levers. As you also heard in the comments, we’re taking significant actions to transform our cost base and we’re creating good momentum there. And so on the year, we continue to feel good about the 7% to 9% range that we’ve given, and we believe we have the right building blocks in place on our path to deliver sustainable double-digit margin. “(Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Food’s CEO wouldn’t answer if they were expecting changes in elasticities due to price hikes. “Michael Lavery – Piper Sandler: The inflation headwinds are obviously clear and certainly a driver of the pricing. But just maybe expect to some of your assumptions on the elasticities. Maybe, at a very high level, do you assume they revert to more normal levels or that they can hold at sort of what we’re seeing currently? Donnie King – CEO: They are where they are right now. And I know that’s not a very good answer. I mean there is a price point where it could be impactful. But at Tyson, we play across the spectrum from the most value-added products to the most commodity of commodity products and we meet the consumer wherever they are on the value chain. And so we intend to continue to grow our business and serve those consumers wherever they are. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Despite record margins, Tyson executives characterized price hikes as asking customers to “pay for inflation”

Tyson Foods CEO: “We’re not asking customers or the consumer ultimately to pay for our inefficiencies. We’re asking them to pay for inflation.” “Donnie King- CEO: Yes. I would add this to what Noelle said, we have seen a lot of inflation. But I would remind you that cost of food in the U.S., while it is higher, is relative to the balance of the world. Labor costs have been up 20%, cattle costs are up — have been — they’re up 22%. Grain has been up 29% this year and freight, I mentioned earlier, is up 32%. We’re not asking customers or the consumer ultimately to pay for our inefficiencies. We’re asking them to pay for inflation. And the rest of what we do is we try to find ways to be more productive, to lower cost and increase throughputs and so forth. And we feel good about our ability to do a lot of that while serving our customers. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Food’s CEO noted that freight costs had increased but “we have been successful in being able to get the transportation and we’ve asked our customers to pay us for that and pay us for freight, and we’ve been successful in doing so.’ Donnie King- CEO: Let me start with that one. Let me start with simply saying that freight costs are up 32% for us. I talked about some of the technology we use to — in my opening remarks, where we would intersect between our private fleet contract fleet outside carriers and try to optimize how we do that. And we’ve seen a lot — we’ve had a lot of success. It took like a lot of the inflation happened so rapidly. It took a bit to get on top of that. But thus far, we have been successful in being able to get the transportation and we’ve asked our customers to pay us for that and pay us for freight, and we’ve been successful in doing so. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Foods CEO: “this freight being up 32%, that’s what it cost to get the product moved and delivered to a customer, and we’re asking our customers to pay for that.” Donnie King – CEO: Not — as I look around the room and from all those leading the businesses, I don’t think if you’re a branded portfolio versus a more commodity-oriented business, I don’t think that really matters. What we tried to do with our customers is say, freight is freight and the price of the product and the price of the product, and we don’t — we try not to blend the 2. And so I don’t — I wouldn’t say one is any easier than the other. But I think the fact of the matter is what — this freight being up 32%, that’s what it cost to get the product moved and delivered to a customer, and we’re asking our customers to pay for that. Anything to add? (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson executives committed to ongoing stock buybacks

Tyson Foods’ CEO boasted the company paid out over $500 million through in dividends and share buybacks in the previous quarter. “Donnie King – President and Chief Executive Officer: And we continue to return cash to shareholders. During the quarter, we returned over $500 million in dividends and share repurchases.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Food’s CFO: “we are committed to returning cash to shareholders through both dividends and share buybacks.” “Stewart Glendinning – CFO: Finally, as our track record has demonstrated, we are committed to returning cash to shareholders through both dividends and share buybacks. We finished the quarter with a powerful balance sheet and continued capital allocation optionality.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

In 2021 Tyson executives noted their price hikes more than offset cost inflation they were experiencing

Tyson CEO: “we have relationships with customers that allow us to be able to take to them part of our inflation that we see in the marketplace and be able to pass that on ultimately to the consumer. “ “Donnie King – President and Chief Executive Officer: Around pricing and responsiveness and we don’t expect customers to pay for inefficiencies. But we’d like to think that we have relationships with customers that allow us to be able to take to them part of our inflation that we see in the marketplace and be able to pass that on ultimately to the consumer. And so that’s the way we thought about our model. That’s how we’ve adjusted our model and it’s been a year-long really a year-long we’ve doing that and we are in a pretty good place right now.” (Tyson Foods Inc  Q4 2021 Earnings Call, 11/15/2021)

Tyson CEO: “Our sales gains were largely driven by higher average sales price. Average sales price trends reflect successful pricing strategies during the ongoing inflationary environment…” “Donnie King – President and Chief Executive Officer: Now turning to financial results, let me give you some highlights overall. I was pleased with both a strong quarter and full year. Sales improved 20% in the fourth quarter and 11% during the full year. Our sales gains were largely driven by higher average sales price. Average sales price trends reflect successful pricing strategies during the ongoing inflationary environment, but we still have opportunities specifically in prepared foods where we delivered softer results than anticipated. Like many other companies, we were faced with a range of higher levels of inflation notably higher grains, labor, meat and transportation cost.” (Tyson Foods Inc  Q4 2021 Earnings Call, 11/15/2021)

Tyson CEO: “Our teams have worked together with our customers to pass along that inflation through price increases. “ “Donnie King – President and Chief Executive Officer: Our teams have worked together with our customers to pass along that inflation through price increases. On volume, we saw improvement in the second half relative to the same period last year. Volumes were up 3% for the second half or nearly 350 million pounds. Although we are working diligently to achieve optimal throughput across our segments, labor challenges are still impacting our volumes and ability to achieve optimal mix across our processing footprint.” (Tyson Foods Inc  Q4 2021 Earnings Call, 11/15/2021)

Tyson CFO: “Our pricing actions and strength in the beef segment led to approximately $5.6 billion of sales price mix benefit, which more than offset the higher COGS price-mix of $4.6 billion.” “Stewart F. Glendinning — Executive Vice President and Chief Financial Officer: Slide 12, bridges year-to-date operating income which was about $1.3 billion higher than fiscal 2020. As I mentioned previously, volumes were down slightly during the year primarily result of a challenging labor environment. Our pricing actions and strength in the beef segment led to approximately $5.6 billion of sales price mix benefit, which more than offset the higher COGS price-mix of $4.6 billion. We saw inflation across the business, notable areas where in wages, grain cost, live animal costs and pork, meat cost and prepared foods and freight costs across the enterprise.” (Tyson Foods Inc  Q4 2021 Earnings Call, 11/15/2021)