Tyson Foods Inc Q3 2023 Earnings Conference Call Insights

Key highlights from Tyson Foods Inc (TSN) Q3 2023 Earnings Concall

Management Update:

• [00:04:30] TSN said Chicken was the most challenged segment, but the company is making progress through internal actions such as closing plants and optimizing its footprint.

• [00:06:24] Pork was also under pressure, with increased feed costs and low cutouts driving spread compression.

• [00:11:04] More than 90% of the decline in adjusted operating profit was driven by lower profitability in the beef and chicken segments.

• [00:12:18] TSN expects challenges from the tightening of cattle supply and spread compression to continue until herd rebuilding is well underway.

Q&A Highlights:

• [00:19:14] Alexia Howard from AllianceBernstein asked about an overall take on the quarter and the recovery of commodity meat segments. Donnie King CEO said that TSN reported sales decline of 3% YoY to $13.1 billion. The company is focusing on driving growth in its core protein business, aligning its supply to demand, and pursuing growth in value-added and branded categories. Pork business faced challenges in the quarter due to the liquidation cycle in the pork industry and the fire in Madison, while the beef business is focusing on aligning supply with demand and driving value-added products.

• [00:23:40] Alexia Howard from AllianceBernstein enquired what has changed in the environment that has affected the recovery of chicken margins and how quickly the business can get back on track. Donnie King CEO replied that TSN’s chicken business saw a sequential improvement in 3Q23, with a focus on cost structure, supply alignment, and controlling controllables, while the team also improved yields, labor efficiency, line efficiency, and spend, as well as order fill and on-time delivery.

• [00:25:23] Ben Bienvenu at Stephens asked about the net impact on production after closing four facilities and how the production will be distributed among the remaining facilities in the chicken business. Donnie King CEO said it announced the closure of four more chicken plants, bringing the total to six closures this year, as part of cost-cutting efforts. The plants being closed are typically smaller in scale and require significant capital investment to remain viable. The company expects to see a $200 million run rate uplift from the closure of 6 plants, including the four announced in 3Q, and other operational changes, which will improve asset utilization and reduce the need for capital investment in older facilities.

• [00:28:12] Ben Bienvenu with Stephens asked how the pork packer margins are expected to change for the rest of the year despite the facility fire impact and the cutout rally. Brady Stewart replied that 3Q was challenging, but the company is focused on controlling the controllables and using its assets to get closer to the consumer. The Supreme Court’s ruling on Proposition 12 is still being evaluated, and the industry is in the midst of a sell liquidation cycle.

• [00:30:26] Peter Galbo from Bank of America asked about the outlook for the beef business over the next 18 months, and whether negative packer margins are within the consideration set. John Tyson CFO said that TSN faced challenging market conditions in 3Q, particularly in the beef and pork segments due to factors such as herd liquidation and the Supreme Court’s ruling on Proposition 12, but the company remains focused on controlling what it can and making operational improvements.

• [00:32:52] Peter Galbo of Bank of America queried if there are any further anticipated impairments that may have to be taken for the 4 chicken facilities or if it was all contemplated. Donnie King CEO answered that there was a goodwill impairment in the Chicken business in 3Q, and that the details of the charges related to the asset closures would come through in 4Q, with more clarity on the asset impairments and one-time cash costs.

• [00:41:38] Andrew Strelzik from BMO asked why it makes sense to close chicken facilities and not across the beef and pork businesses given the supply contraction, and how the chicken dynamics compare to the beef and pork operating environment. Donnie King CEO replied that TSN is evaluating all of its businesses, including beef and pork, to identify opportunities for improvement. The company is focused on asset efficiency and projected capital requirements, and it expects chicken to recover most quickly from the current headwinds.

• [00:44:11] Andrew Strelzik from BMO asked about the reason for the change in capex guidance for 2023 and its implications for 2024.  John Tyson CFO replied that TSN has pared back its capex and is targeting a $1.5 billion annual spend. The company is also focused on improving its working capital efficiency and is comfortable with its current leverage position.

• [00:47:03] Benjamin Theurer from Barclays asked for more details on company-specific initiatives to improve pork margins, such as plant closures. Brady Stewart replied that TSN is evaluating its pork business in totality and is focused on improving efficiency, expenses, and price, yield, and mix to maximize margins.

• [00:50:14] Michael Lavery from Piper Sandler enquired if there is any rationalization or reduction beyond cutting some chicken facilities that would make sense given the market dynamics and the industry supply and pricing pressures. John Tyson CFO said TSN has optimized its network and improved capacity utilization to drive profitability, while focusing on controlling what it can and getting closer to customers through plant closures and operational improvements.