Tyson Foods, Inc.

Good morning and welcome to the Tyson Foods first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing 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 then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Megan Britt, Vice President of Investor Relations. Please go ahead.

Hello and welcome to the first quarter fiscal 2022 earnings conference call for Tyson Foods. Prepared remarks today will be provided by Donnie King, President and Chief Executive Officer, and Stuart Glenn Denning, EVP and Chief Financial Officer. Additionally, David Bray, Group President Poultry, Noel Omara, Group President Prepared Foods, Shane Miller, Group President Fresh Meats, and Chris Langholz, Group President International, will join the live Q&A session. We have prepared presentation slides to supplement our remarks, and these are available on the investor relations section of the Tyson website and through the link to our webcast. During this call, we'll 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 filings 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 reconciliations 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, and thank you to everyone for joining us for the call today. Earlier today, we announced our first quarter physical 2022 results. Tyson Foods once again delivered strong financial results. I would like to start by thanking our team members for their dedication, Herculean efforts this quarter as we managed a complex and dynamic operating environment. At our investor day, I shared our plan to grow our top and bottom lines aggressively over the next three years. This meant EPS growth of high single digits relative to a 2019 baseline and volume growth ahead of the market. Our results this quarter put us firmly on that path. We achieved double-digit sales and earnings growth, both of which were driven by ongoing demand strength, productivity savings, and improving execution across our segments. Our diverse protein portfolio, omni-channel capabilities, leading brands, and value-added products contributed to our results. Strong performance in our beef segment earlier than expected recovery in prepared foods and improvement in chicken and pork all supported strong earning results. Our retail core business lines, which include our iconic brands, Tyson, Jimmy Dean, Hillshire Farm, and Ballpark, maintain their volume share position even as we work through price increases to address inflationary pressures. And our food service focus six product lines grew share year over year in broad line distribution. This growth was driven in large part by value-added chicken, which outperformed industry recovery, and breakfast sausage, where we were seeing improved fill rates. Importantly, and despite the continued impact of COVID-19, our volumes improved slightly across the company relative to the same quarter last year. Chicken was a bright spot. where we saw our volumes improve 3.6%. While this is a good start, we are not where we want to be on volume. So we're taking actions, segment by segment, to improve our volume performance. These actions include investing in our team members, in additional capacity, and in brands and product innovation. As discussed at Investor Day, we're also in the process of building 12 new plants. Each of these is progressing, and each will enable Tyson to address capacity constraints and meet the growing global demand for protein. Bottom line, we're committed to improving our total company volumes during the year. 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're seeing higher costs across our supply chain, including higher input costs such as feed and ingredients. We're also managing higher costs 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. As a result, our average sales price for the quarter increased 19.6% relative to the same period last year. This helped us capture some of the unrecovered costs due to the timing lag between inflation and price. Finally, our balance sheet and overall liquidity position are strong, providing optionality to pursue strategic growth priorities and investing growth across our portfolio. We have a disciplined approach to deploying capital to support capacity expansion while achieving improved returns on invested capital. Our first quarter results clearly demonstrate that we are making progress on our growth objectives, that we remain focused on outpacing the overall market, improving operating margins, and driving stronger returns for our shareholders. While we're growing our business, we are mindful of our corporate responsibilities around environment, social, and governance goals. For example, we committed to investing in and supporting our communities in rural America and around the world. Last year, Tyson Foods donated more than 16 million pounds of protein, the equivalent of 64 million meals, to fight hunger. We're incredibly proud of this work and the people that make it possible. Tyson is a great company with a great team doing great things, and I'm pleased that this was recognized just last week by Fortune magazine. who announced that for the sixth year in a row, Tyson Foods was number one in our sector in their rankings of the world's most admired companies. Now let's look at a few financial highlights from the first quarter. Our results included double-digit top and bottom line growth. We delivered solid operating income performance, up 40% for the quarter. This performance was broad-based across segments, where continued strong consumer demand and effective pricing to mitigate the impact of inflation drove higher earnings. On volume, we are up slightly, and while we're working to achieve optimal throughput across our segments, labor challenges are still impacting our volumes and the ability to achieve optimal mix across our networks. Compared to pre-pandemic levels, our volume performance is outpacing our peer set. In retail, despite substantial market pressures, core business lines held share in the first quarter, led by strong performance in lunch meat, hot dogs, snacking, and bacon. We also realized strong e-commerce results with Tyson Foods outpacing total food and beverage growth and our core lines gaining share in the quarter. Still, customer demand continues to outpace our ability to supply products, so we have targeted actions in each segment to improve volume. 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. For example, we provided our hourly team members with more than $50 million in bonuses during the first quarter. We are piloting subsidized and onsite childcare, and we're adjusting schedules to flex with workforce needs. These actions are bearing fruit as we see some improvement on the labor front. And while we have seen some labor challenges during the Omicron surge, we are generally seeing lower turnover and absenteeism. We saw chicken volumes grow 3.6% in the quarter, driven by strong fundamental demand and improved live production. What is important to note is that we grew ahead of the market and gained market share. In prepared foods, volumes were down 2.6% in the first quarter. About half of the decline was related to pet treats divestiture. We expect to sequentially improve these results over the remainder of fiscal year 22 as we take actions to expand and improve capacity utilization. In beef, Volumes were down 6.2% driven by labor shortages previously mentioned. In addition, pork congestion has also dampened export volumes in the segment. We expect these headwinds on volume to normalize over the course of fiscal 2022. In pork, we have sequentially improved our capacity utilization. We are still working to optimize the mix. In international other, while we are starting from a relatively small base, our investment in capacity, innovation, and brands are supporting our market share growth objective. Overall, we expect to grow our total company volumes by 2% to 3% in FY22, outpacing protein consumption growth. Chicken remains a top priority, and we continue to execute against our roadmap to achieve an operating income margin of 5% to 7% on a run rate basis by mid-physical 2022. I remain confident we will meet this goal. In the first quarter, we've started to see profitability improvement resulting from our actions. For example, we're investing aggressively in automation and technology to help us address some of the most hard-to-fill roles, This is not a series of projects, but is a well-planned program of automation designed to use common designs and equipment across our plants to optimize cost, maintenance, and asset utilization. The second imperative is to improve operational performance, and critical to improving performance is maximizing our fixed cost leverage, which means having enough burrs to run our plants full. Since September, we've seen an improvement in our hatch rate ahead of our expectations. We continue to expect full recovery in this year. We were pleased with our volume growth in the quarter and expect further improvements as we grow our harvest capacity utilization from an average of 37 million head per week in FY21 to 40 million head per week by year end. We've noted previously that strength in spot prices for commodity chicken products put our buy versus grow program at a relative disadvantage. We have reduced our reliance on outside meat accordingly. We will staff our plants, service our customers, grow our volumes, and be the best in the business. The plan we have continues to be the right plan, and our commitment to winning with our team members, winning with our customers and consumers, and winning with operational excellence is delivering results. Last year, we announced the launch of a new productivity program designed to drive a better, faster, and more agile organization that is supported by a culture of continuous improvement and faster decision-making. The program aims to deliver $1 billion in recurring productivity savings by the end of fiscal 24 relative to a fiscal 2021 cost baseline and has three critical focus areas. which are operational and functional excellence, digital solutions, and automation. We're making some good progress on this front. I spoke just a minute ago about our investments in automation, but we've also attacked other issues. In prepared foods, we're making use of supply chain digitization and advanced analytics. Our digital manufacturing platform allows us to analyze real-time data to take actions to optimize process conditions that drive better yields, lower costs, consistent quality, and increased output. In transportation and logistics, we have established ongoing optimization of the mix and allocation of our private fleet, dedicated fleet, and third-party fleet, mitigating inflationary pressures and supporting better on-time deliveries to our customers. In addition, we continued the expansion of our direct shipment program, reducing miles driven and product touches in our supply chain. As a result of projects like these, we're on track to deliver $300 to $400 million of savings in fiscal 2022. We shared at our investor day that we're taking actions to accelerate our growth and drive disciplined return on invested capital. The five imperatives on this slide show how we will achieve our commitments and drive value creation. This starts first with our commitment to our team members with a focus on ensuring their health, safety, and well-being, as well as ensuring an inclusive and equitable work environment. We are proud of our COVID-19 vaccine policy implemented last year in the U.S. and of the broader investments that we have made to keep our team members, their families, and our communities safe. Because of our policy, our team members are better protected, and the cases we do see have been mild or asymptomatic, resulting in an extremely low number of hospitalizations. We are strongly encouraging boosters in our hosting clinics to make it easier for our team members and their families to get boosted. Second, we are working to enhance our portfolio and capacity to better address demand. This includes increasing the contribution of branded and value-added sales. As a result, we expect our volume to outpace this growing market. Third, we are aggressively restoring competitiveness in our chicken segment. This starts by returning our operating margin to the 5% to 7% level by the middle of fiscal 2022. Fourth, we're driving operational and functional excellence and investing in digital and automation initiatives. This is at the heart of our new productivity program. We're working diligently to drive out waste, minimize bureaucracy, and enhance decision-making speed across the organization. Fifth, to address projected demand growth over the next decade, we are using our financial strength to invest in our business. On capital alone, we're expected to invest $2 billion in fiscal year 22 with a disproportionate share focused on new capacity and and automation objectives. And we continue to return cash to shareholders. During the quarter, we returned over $500 million in dividends and share repurchases. To wrap it up, we are committed to winning with our team members, customers, and consumers, as well as winning with operational excellence. I am more excited about the future of Tyson Foods with each passing day, and I will now turn the call over to Stuart to walk us through our financial results in detail.