Tyson Foods, Inc.

Good morning and welcome to the Tyson Foods fourth quarter 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask your question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. I would now like to turn the conference call over to John Cottle, Vice President of Investor Relations. Sir, please go ahead.

Good morning, and welcome to the Tyson Foods Incorporated Earnings Conference Call for the fourth quarter and fiscal year of 2020. On today's call are Dean Banks, President and Chief Executive Officer, and Stuart Glendening, our Chief Financial Officer. Slides accompanying today's prepared remarks are available as a supplemental report in the Resource Center of the Tyson Investor website at ir.tyson.com. Tyson Foods issued an earnings release this morning, which has been furnished to the SEC on Form 8K and is available on our website at ir.tyson.com. Our remarks today include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements reflect current views with respect to future events, such as Tyson's outlook for future performance on sales, margin, earnings growth, and various other aspects of its business. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. I encourage you to read the release issued earlier this morning and our filings with the SEC for a discussion of the risks that can affect our business including those listed in our 10K file this morning. I would like to remind everyone that this call is being recorded on Monday, November 16th at 9 a.m. Eastern Time. A replay of today's call will be available on our website approximately one hour after the conclusion of this call. This broadcast is the property of Tyson Foods, and any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Tyson Foods is strictly prohibited. Please note that our references to earnings per share, operating income, and operating margin in today's remarks are on an adjusted basis unless otherwise noted. For reconciliations to our GAAP results, please refer to this morning's press release. I'll now turn the call over to Dean Banks.

Thank you, John, and many thanks to everyone listening for their interest in Tyson Foods. We hope you're all safe and healthy as we continue to navigate the pandemic. I'm thankful for the efforts of every one of Tyson's nearly 140,000 team members and want you to know their health and safety remain our top priority. The dedication of our team members and the future of our business have me excited to be in my first earnings call as CEO. We have an exceptional leadership team with tremendous experience across protein production, consumer insights, innovation, technology, and more. And I am truly excited about the growth and success we will drive as a team. We've recently faced unprecedented and unfamiliar times, but our business is settling down and we're uniquely positioned to fulfill our long-term strategy. Our business performed well and delivered strong fourth quarter and full year results. Our team members, agricultural partners, and customers have shown resilience. This has enabled us to maintain and accelerate our efforts to provide global consumers with a safe and accessible food supply. Before we talk about fourth quarter results, I'd like to cover our team's accomplishments over the last 12 months. At the onset of the pandemic, we launched an internal task force to address the virus. We made substantial investments in our personal protective equipment, social distancing safeguards, and other increased health and safety measures across our business. We've seen a dramatic reduction in active cases involving our team members since last spring, In an effort to stay ahead of the virus, we've launched a new industry-leading monitoring strategy that involves weekly testing of a sample of team members, which has so far proven to be invaluable. We had $540 million in direct incremental COVID-19 costs for the full year, including about $300 million of thank you bonuses and other benefits paid directly to our team members for their efforts. We managed core expenses aggressively in an effort to partially offset the increased costs related to COVID-19. Our beef and pork segments both delivered a strong performance on the year, while prepared food showed positive momentum, including a continuation of share gains across many retail categories. Our core retail lines grew volume in every quarter of the fiscal year, up over 17% during the latest 52 weeks. Our chicken business is still performing below our long-term earnings expectations. While our Tyson frozen value-added and premium air chilled products have performed strongly, other businesses have not. The biggest drivers of our underperformance are not having full staffing levels, a portion of which can be attributed to the ongoing effects of the coronavirus, operational execution, and pricing. The majority of our improvement opportunity lies in reducing the mix and yield impacts of the three drivers I just mentioned, and most of this is centered in a handful of our plants. The inefficiencies driven by reduced staffing levels and poor execution has translated to higher costs per pound. We expect progress toward these issues to face headwinds from absenteeism and other COVID-19-related complexities during the first half of the year, but remain hopeful that a vaccine and a gradual return to normalcy in the second half will result in a net improvement for the year. We continue to demonstrate our commitment to sustainable business practices and corporate social responsibility. Our efforts included the following, enhancing our framework to promote equity, inclusion, and diversity in the workplace, including $5 million in committed donations to organizations that are advancing the cause of lasting change. Our work to verify sustainable cattle production practices on more than 5 million acres of grazing land in the largest beef transparency program in the U.S., record protein donations across the country, and the development and recently announced forest protection standard to reassert that we have virtually no deforestation risk across our global supply chain. In the alternative protein space, we bolstered the company's offerings under the Raisin Rooted brand while extending our retail presence to 10,000 stores in less than a year, entering the quick service restaurant channel, and launching products in Europe. Over the past year, we have seen our plant-based offerings retail sales increase over 250%, and we are excited to build on this momentum alongside our customers as we meet evolving consumer demand for years to come. Now, let's discuss some high-level takeaways from our fourth quarter. In the U.S., the pandemic continued to drive higher levels of retail demand and overall lower levels of food service volume. While quick service restaurants are close to or better than pre-COVID levels, Full-service restaurants continue to operate at about 80% of normal with wide variations by geography, while schools and cafeterias are operating at levels significantly below normal. These channel impacts, as well as higher levels of absenteeism, increase the cost and complexity of our operations. Europe has a similar operating environment as the U.S., while our Asian businesses are almost back to normal. The continued strength of at-home consumption is driving historically high retail and e-commerce sales, and Tyson is winning. Our retail core business lines experienced their ninth straight quarter of share growth and continued to outperform the top 10 food manufacturers. Volumes in these lines were up nearly 15% during the latest 13 weeks, leading to nearly two percentage points in volume share growth during that period. As consumers increasingly shifted towards little or no contact buying methods during the pandemic, we experienced e-commerce sales growth of 99% on a full-year basis and 126% in the fourth quarter compared to last year. With this growth, Tyson's online sales penetration through its e-commerce channel partners is now estimated at over $1 billion, and we expect continued relevance of this channel moving forward. The company experienced solid results during the fourth quarter driven by strong operating income performances in our beef, pork, and prepared foods businesses. The performance of these segments offset lower results in our chicken business. In total, we delivered almost $1 billion of operating income for the fourth quarter in spite of the negative impacts of $200 million associated with COVID-19. This represents an operating income improvement of $275 million versus Q4 of 2019. an increase of almost 40%. Our prepared foods business delivered strong Q4 results. Our brands and products continue to resonate with consumers, as demonstrated by our track record of share growth, nine quarters in a row. We have a balanced mix of distribution channels, giving us a resilient business model that's able to effectively react to external factors, including obstacles caused by COVID-19. Improved operational execution as well as lower commercial spend also helped to drive strong Q4 results. We're also pursuing SKU rationalization and optimization opportunities across our production network. Our beef and pork businesses continue to be an important part of our company's portfolio strategy. They generated very strong returns during the quarter, enabling investments in key value-added and international growth initiatives across our business. The beef segment delivered solid earnings as the cutout margin remained strong while live cattle prices, driven by plentiful supplies, remained relatively low. This was set against the backdrop of continued strong consumer demand. Our operational performance recovered substantially from the early COVID-19 impacts and volumes were up 31% versus the third quarter. Exports have also been strong for our beef segment. which serve as a way for us to optimize all parts of the animal, including products that aren't traditionally consumed within the American diet. We expect to see continued adequate cattle supplies during fiscal 2021. The pork segment also delivered very strong earnings during the quarter, despite a narrowing of the spread as hog costs increased and the cutout came down. The hog supply remained strong, while our plants faced less disruption and produced significantly improved volumes versus Q3. The plentiful conditions we've seen in the hog supply are beginning to moderate as a result of the industry's ongoing recovery, but we expect adequate supplies in the near term. In an effort to support the independent hog farmers who rely on us for consistent and reliable outlet for their livestock, we've worked hard to safely maximize our processing capacity. African swine fever has persisted overseas, moving into Germany's wild boar population. This infection quickly led to certain nations banning German pork exports, which we expect to create incremental global demand for U.S. pork. We're beginning to see some level of herd rebuilding in China, but we agree with industry analysts that a complete recovery may depend on eradication of ASF and or the success of a commercial grade vaccine. Our view is that full recovery could still be a multi-year event. Until this occurs, we expect to see a continued redistribution of global pork supplies. Within the U.S., export demand has increased at a pace that has helped to offset increased pork supplies domestically. This demand has been supportive of hog prices, which is critical for U.S. independent hog farmers. Our Q4 chicken results improved sequentially compared to the third quarter as we saw some recovery in our operations and experienced lower COVID-19 costs. However, the results were not better than our prior year as a number of the challenges, which I outlined earlier, are still with us. Having said that, we've seen tremendous performance within our branded retail value-added poultry lines, including more than 24% volume growth during the quarter with simultaneous volume and dollar share gains. The impacts of COVID-19 on channel volumes and operating efficiency resulted in net negative volumes for the quarter and higher operating costs. We also saw a dramatic softening of the leg quarter market during the quarter, which has since leveled out. As I mentioned, we are aggressively executing a variety of operational and supply chain efficiency programs to better position us for long-term competitiveness. Additionally, we are continually identifying ways to drive costs out of our structure while remaining keenly focused on operational improvements and customer service. As COVID-19-related absenteeism rates have improved, Although not yet back to historical levels, we are focused on the operational improvement programs mentioned in fiscal 2020. We still believe the original target of $200 million in cost savings as a result of these improvement initiatives is attainable. Our international portfolio continues to give us great opportunities for growth and synergy. Our view remains that the vast majority of global protein consumption growth will happen outside of the U.S., so we are positioning our company to meet that need. During the last quarter, we found new, profitable international outlets for U.S.-based byproducts that would otherwise realize relatively low values domestically. By leveraging our U.S.-based scale with our newly acquired and legacy international businesses, we've identified repeatable opportunities to margin up bulk export products into a convenient, value-added, and retail-ready format for international markets. The benefit of these value-added sales, which originate in our domestic business and are sold throughout Our international network is an example of how our one Tyson approach helps us meet global demand while enhancing the company's margin structure. We'll continue to seek out and leverage these and other synergistic opportunities across our global network as we expand abroad and continue to learn from consumers in these growing markets. We also recently announced our plans to build new production capacity in China and Thailand, as well as expansion of our facility in the Netherlands. These initiatives will add substantial, fully cooked poultry capacity to our network, which will help us serve emerging markets and strategic customers. And last, we plan to accelerate our focus on initiatives to ensure a competitive cost structure moving forward, which includes optimizing organizational structures and other cost reduction activities. In summary, I'm pleased by our fourth quarter performance, and I'm excited about our future. I'd now like to turn the call over to Stuart to walk us through our Q4 financial performance and fiscal 2021 financial outlook.