Tyson Foods, Inc.

day crafting a perfectly delicious dinner back in 1935 John Tyson's motto was when better chickens are good morning everyone and welcome to the Tyson foods third quarter 2021 earnings conference call all participants will be in a listen-only mode Should you need assistance, please email 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 a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Megan Britt, Vice President of Investor Relations. Ma'am, please go ahead.

Hello, and welcome to the third quarter fiscal 2021 earnings conference call for Tyson Foods. On the call today are Donnie King, President and Chief Executive Officer, and Stuart Glendening, EVP and Chief Financial Officer. We have prepared presentation slides to supplement our comments, and these are available on the investor relations section of the Tyson website and through the link to our webcast. During this call, we will make forward-looking statements regarding our expectations for the future. These statements are subject to risks, uncertainties, and assumptions which may cause actual results to differ materially from our current projections. please refer to our forward-looking statement disclaimers on slide two, as well as our SEC filing for additional information concerning risk factors that could cause our actual results to differ materially from our projections. Please note that references to earnings per share, operating income, and operating margin in our remarks are on an adjusted basis unless otherwise noted. For reconciliation of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. I'll now turn the call over to Donnie.

Thank you, Megan. As many of you know, I've been a Tyson team member for close to four decades. And in that time I've led every business segment. We've always believed in our mission and the vision of John W. Tyson, who founded this company nearly a century ago, because he wanted to find a better way to feed a growing country. Today on my first earnings call as CEO, I am incredibly proud to stand alongside our team members to continue that legacy. It's an interesting time to be in this industry, and we have a leadership team that together can capitalize on the strengths of this company and the opportunities ahead. Let's begin with a view of our overall performance this quarter. First, our retail performance. Twelve consecutive quarters of retail share gains in our core business lines is driven by strengths of our brands along with solid execution from our team. We are in a market that has demonstrated strong demand for protein, and people are reaching most for brands they trust. Our billion-dollar brands, Tyson, Jimmy Dean, and Hillshire Farms, have driven strong share growth with consumers buying more than ever before. Second, we saw in the third quarter growing volume in food service channel as reopening and recovery continue. We saw uptake from outlets nationwide reflected in our sales, which we were up $1.3 billion for the quarter. Our broad production and distribution network is well positioned to meet this growing demand. Third, the diversity of our portfolio demonstrated its value during the quarter. Led by beef, we delivered an exceptional result as a strong U.S. and export demand, coupled with ample cattle supply, supported elevated margins in that business. Fourth, we continued to build financial strength. This quarter, we used higher operating cash flow to reduce debt. The steps we've taken position us with a very strong balance sheet and high levels of liquidity. And finally, we are investing in future growth across our portfolio. We're in the process of bringing 12 new plants online globally to address capacity constraints and growing demand. In all, Tyson delivered a strong quarter. As we look to the future, we want to build on these strengths. Let's look at how we plan to do that. First, we have built a solid footing to drive consistent results. Our strengths include a diverse portfolio, well-known trusted brands, scale in meaningful markets, and an exceptionally strong balance sheet. Second, labor is our number one challenge, so we have continued our focus on improving our team member experience without compromising their health and safety. We are accelerating efforts to make Tyson the most sought-after place to work because we know how important team members are to our business. One way that we're doing this is to accelerate our investments in automation and technology. This not only helps us to eliminate more difficult, hard-to-fill tasks, but also reskill our label profile to enable their contribution to more value-added activities. Third, we are actively working to recover volume from pandemic lows, and in doing so, improve the reliability we offer our customers. Dynamic and evolving channel demand continues to create operational complexities. We took steps earlier this year to make our organization more responsive to demand signals and to accelerate our speed to market by getting our sales teams closer to their customers. There is more to do, however, and so our work here continues. Fourth, our focus on operational excellence and discipline cost management is especially important during periods of continued market volatility and increasing inflationary pressures. As you will hear today, we continue to be laser-focused in making progress in restoring the competitiveness of our checking segment. We are also accelerating actions across our enterprise to become more operationally excellent. Finally, we will continue to optimize our balance sheet, which will give us optionality as we prioritize the delivery of shareholder value. Turning to slide five. We improved our sales and earnings performance this quarter. The results demonstrate the benefit of our multi-protein, multi-channel portfolio. Sales improved 25% in third quarter and 8% year to date, reflecting improved volumes, which are up 10% for the quarter and flat year to date. It also reflects effective pricing strategies in all of our segments during this inflationary environment. We delivered strong operating earnings performance, resulting in approximately $1.4 billion in operating income for the quarter. This represents an 81% increase compared to prior year and translates to $2.70 in earnings per share. Our earnings reflect our three key priorities, one, to be the go-to supplier for customers and consumers, two, to be the most sought-after place to work, and three, to be operationally excellent. We want to be the most sought after place to work. This starts with an unrelenting focus on safety every minute, every shift, every day. Health and safety have been and will continue to be our top priority. We have a history of using all the tools at our disposal to protect our team members, and the vaccine is no different. As many of you will have seen, last week we announced that Tyson will require COVID-19 vaccinations for our entire U.S. workforce by November 1. We do this now because the Delta variant is more contagious, and getting vaccinated is the single most effective thing people can do to protect themselves, their families, and their communities. We have raised wages in many markets to ensure we're competitive and are exploring other ways to make Tyson the most sought after place to work in the communities where we operate. For example, we are piloting childcare facilities at some of our plants, and we have opened medical clinics to make healthcare more accessible to team members and their families. Finally, we are accelerating investments in automation and advanced technologies to make team members' jobs easier. We look forward to providing more detail on automation and technology roadmap at our upcoming investor day. We're taking aggressive actions to add new capacity to meet demand, adjust our product mix by plant, and match our portfolio more closely with customer and consumer needs. We're listening to our customers and are committed to improving reliability of supply. In the third quarter, we improved volume levels across all segments. In prepared foods, we continue to optimize our product portfolio, remove processing and supply chain complexity, and prioritize products with the highest demand, resulting in lower cost and better service to our customers. In beef, ample cattle supply, heavier animal weights, and strong demand have driven volumes higher year-to-date. In pork, our volumes are up year-to-date versus pandemic lows yesterday. We are pleased to have additional capacity coming online at Eagle Mountain, Utah and Columbia, South Carolina. Both facilities are expected to grow our prepackaged beef and pork products. In chicken, volume declined year-to-date despite improved food service demand led by QSRs. We also saw sustained retail demand, including the frozen value-added poultry category. Limited capacity and persistent labor challenges have impacted customer fill rates in this segment. However, our new plant in Humboldt, Tennessee continues to ramp up production, including harvest capacity. This ramp up is helping us improve customer fill rates. Chicken remains a top priority for me and for our company. We continue to execute against our roadmap to bring operating income margin to at least the 5% to 7% range by mid-fiscal 22. Our goal has not changed, and we remain committed to restoring top-tier performance. We are making progress. The first imperative is to be the most sought-after place to work. I've outlined the investments we're making to enhance our team member experience in my earlier comments. The second imperative is to improve operational performance. Last quarter, we highlighted the impact of lower hatch rates on our chicken operations. We have begun to deploy new male parent stock. Where this stock has been deployed, hatch rates are improving. We expect a full rollout of this breeder stock to be complete this fall with harvest capacity improvements occurring by mid-fiscal 22. Our rate of outside meat purchases has declined 25% versus last quarter and will continue to decline as hatch rates and utilization improve. We have identified opportunities to reduce mix complexity across our chicken footprint, which will help us operate more efficiently. The final imperative is to service our customers on time and in full. We're pleased by the continued share performance of our value-added products like Tyson Chicken Nuggets, Crispy Strips, and Air Fried. We gained share during the third quarter and the last 52 weeks. Looking ahead, we expect further growth, and as a result, we're investing in line upgrades and increased capacity to drive branded product growth. We have increased prices to help offset significant raw material and supply chain cost inflation. Pricings improved nearly 16% in the quarter versus the comparable period last year. We will staff our plants, service our customers, grow our business, and be the best chicken company, period. Part of being customer-centric means being as efficient as possible and taking costs out where you can. without compromising our ability to execute against our strategic and operational priorities. We have ongoing efforts across the business to reduce costs. But we must also find new, innovative ways to be better and stronger. This means investing in advances like automation and artificial intelligence to deliver productivity gains and competitive advantage. We have already delivered strong productivity gains in fiscal year 21, Across our business, we're looking to build upon the strength of those actions in the months and years to come, which we will detail at the Investor Day later this year. These improvements come at a time when we are investing heavily in capacity and term demand. I'll now turn to our financial results in detail.