Tyson Foods, Inc. (TSN) Earnings Call Transcript & Summary

My name is George Wong, and I'm here to move the give each share an equal vote proposal filed by the New York State Common Retirement Fund. An equal voice in our company's governance for the shareholders who own the most Tyson Food stock is what the Fund's shareholder proposal seeks at this time at the Tyson Foods Annual Meeting of Shareholders. The Class A shareholders, the majority of shareholders, have 1 vote per share. And the Class B shareholders, the minority of shareholders, have 10 votes per share. Without equal voting rights, we have seen the majority of shareholders this past year unable to provide input, much less oversight, over management and the Board, resulting in entrenchment. This entrenchment has insulated our company from having to answer for its failure to quickly address the impacts of the COVID-19 crisis. A failure to take all necessary actions to prioritize the well-being of employees, to act responsively to employee concerns and to build trust in the company's actions has not only led to COVID-19 outbreaks and closures of Tyson plants but has resulted in economic harm to our company and hurt investor confidence in the company. The Fund asks the Tyson Board to consider working to give each share an equal vote. Thank you.

The Board of Directors' statement with respect to this shareholder proposal is set forth in the proxy statement and speaks for itself. Would the secretary please report the results of the vote regarding this shareholder proposal?

Votes cast favoring this shareholder proposal represented a minority of the votes cast. Votes cast against this shareholder proposal represented a clear majority of the votes cast.

With a clear majority of the votes cast against this shareholder proposal, I declare that this shareholder proposal has been defeated. The next item of business is a shareholder proposal regarding corporate lobbying. The Chair recognizes a representative of the proponent to present the proposal.

Mr. Chairman, members of the Board of Directors and fellow shareholders, my name is Louis Malizia, and I'm proud to represent the International Brotherhood of Teamsters General Fund and cosponsors, Oxfam America, and presenting [indiscernible] for easily accessed and transparent disclosure of corporate lobbying expenditures. As long-term investors, we demand sustainable best practices in Tyson Foods' corporate governance as well as its operations. A cornerstone's sustainable good governance is accountability through transparency. Good governance extends to Tyson's corporate political activity. Tyson has spent over $15.4 million on federal lobbying from 2010 through 2019. We know this because of federal reporting standards. But what we don't know is what can lead to risks and [indiscernible] risk management is a central function of our Board. We don't know what Tyson spends on state lobbying with disclosure being uneven or absent. We don't know about the memberships in and payments to politically active trade associations. Nor can we ascertain the amounts used by these associations for lobbying. Our company lags behind peer group companies such as Kraft Heinz, PepsiCo and Mondelez, who disclose this information to make it easily accessible. We are concerned that Tyson's lack of lobbying and trade association disclosure present reputational risk. Furthermore, Tyson states it's committed to protect food safety and workers' health and safety at the National Chicken Council, where Tyson serves on the Board, lobby to have the meat industry designated as an essential industry. While Tyson made headlines for COVID outbreaks in our plants, wrongful death lawsuits over handling of health and safety practices related to the pandemic and incurred $540 million in COVID-related expenses. The council also lobbied the USDA to increase line processing speeds that increase dangerous conditions for meat packing workers, the majority of which are people of color. Such lobbying can create misalignment in corporate priorities and confused stakeholders. Tyson uses the global reporting initiative for sustainability rewarding, yet currently fails to report any differences between its lobbying positions and any stated policies, goals or other public positions under [ DRI Standard 415 ]. Investigative journalists exposed how the recent legal challenges to fair and free elections in Pennsylvania and other states and the assault on the U.S. Capitol were funded by political organizations that received funding from the Republican Attorney General Association who count blue-chip companies as its donors. These companies likely never expected to see their names connected to these activities. These are the risks created when critical data is not measured because it is then not managed. Disclosure is the key to risk management, and Tyson shareholders agree. Approximately 60% of the independent shareholders voted for this proposal at the 2020 Annual Meeting. Please vote for accountability and transparency. Vote for Item 6.

The Board of Directors' statement with respect to this shareholder proposal is set forth in the proxy statement and speaks for itself. Would the secretary please report the results of the vote regarding this shareholder proposal?

Votes cast favoring this shareholder proposal represented a minority of the votes cast. Votes cast against this shareholder proposal represented a clear majority of the votes cast.

With a clear majority of the votes cast against this shareholder proposal, I declare that this shareholder proposal has been defeated. That concludes the business portion of our meeting. Therefore, being no further business, I declare the business portion of our 58th Annual Shareholders' Meeting adjourned. Now let's hear from Stewart, who will discuss the company's financial performance. Stewart?

Thank you, Mr. Chairman. Good morning. I'll begin with the required cautionary language stating that today's remarks 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 or performance that do not relate solely to historical periods. 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 go to ir.tyson.com for this morning's earnings release and 10-Q for a discussion of the risks that can affect our business. We assume no obligation to update any forward-looking statements. I must also tell you that any references to earnings per share, operating income and operating margin are on an adjusted basis unless otherwise noted. Reconciliations to GAAP can be found in our earnings releases for the fourth quarter of fiscal 2020 and the first quarter of fiscal 2021. Now let's get into the company's financial performance. It's been a few months since we reported our fiscal 2020 results. So to recap those revised numbers: Earnings were $5.42 per share. Sales were a record $42.4 billion. Operating income was approximately $3 billion with a return on sales of 7.1%. Operating cash flows for the year were just under $3.9 billion. Capital expenditures were $1.2 billion as we invested to grow our business with additional production capacity. In fiscal '21, we expect to spend slightly above this level as we finish the fresh chicken plant in Tennessee, continued construction on our new case-ready fresh meat plant in Utah and invest in other growth initiatives. At the end of 2020, net debt was $9.9 billion, including cash of $1.4 billion. We've continued to prioritize debt reduction in our capital allocation strategy. And in the fourth quarter last year, we paid off $700 million of senior notes, primarily with cash generated in the quarter. At year-end, our total liquidity was $3.2 billion. And for the year, we repurchased approximately 2.5 million shares or $207 million. Continuing our dividend growth trend in November, the Board of Directors increased the annual dividend for fiscal 2021. It's currently expected to be $1.78 for Class A shares, which is a 6% increase over 2020. We're well into fiscal 2021. And this morning, we announced our first quarter results. First quarter EPS was $1.94, up 28% from Q1 last year. Operating income was $1 billion, up 24% over last year. Sales were down 3% to approximately $10.5 billion, with return on sales of 9.5%. Sales volume was down with a 4.4% decrease. Tyson has the right ingredients. Our countercyclical multi-protein business model across brands, channels, categories and geographies puts us in a stable position as we orient our portfolio toward future growth. Our significant scale and portfolio allows us to meet consumer demand in an array of formats in geographic regions and brands that resonate with consumers. Our balance sheet, liquidity, scale and portfolio of businesses differentiate Tyson from other food companies and position us for long-term growth as we execute against our strategic plan with a constant focus on maximizing long-term shareholder value. And now I'll turn it over to the President and CEO of Tyson Foods, Dean Banks.

Thanks, Stewart, and good morning, everyone. The last 12 months have certainly presented a host of challenges and learnings. But our team has shown great commitment and dedication in fulfilling our mission of delivering an accessible and affordable food supply to global consumers. The health and safety of our team members remains our highest priority. Not only has this manifested itself through increased investments in preventative safety measures and testing protocols, but also through the development of a broader culture of wellness, which will help our team members lead overall healthier lives. Our partnership with Matrix Medical has enabled quick, data-driven and decisive actions to promote a culture of wellness, which includes the ongoing rollout of on-site medical clinics at our facilities. We've also hired a Chief Medical Officer, a new but important role within our organization that will help the company execute on its culture of health, safety and wellness. Fiscal [indiscernible] was highlighted by strong sales and continued progress towards delivering our strategy for long-term growth. We will drive that growth through the delivery of superior value to consumers and customers, coupled with operational and financial excellence. We will continue to narrow our focus on driving fundamental performance improvements across our operations. For example, we are sharpening our focus on risk areas that impact our performance, including a more systematic approach to assessing potential material risks to our business, assessing when we can strategically retire risk and working on ways to enhance our visibility across the enterprise so that we catch and correct problems early. Our core retail business and total Tyson retail sales continue to lead top branded food companies and volume growth. This now makes 10 straight quarters of growth. And we must capitalize on and continue to grow our iconic brands such as Jimmy Dean, Hillshire Farms and Tyson by mastering and protecting what put us in these leading positions to begin with, all while driving superior product and category innovation that will support further growth upon these fundamentals. And to further complement our portfolio of protein, we must continue to extend our offerings in the alternative protein space. While we have great plant-based products in our raised and rooted brand, which is now available in over 10,000 retail locations and growing partnerships with foodservice customers, we must continue to evolve our alternative offerings so we can lead in the spaces where our customers want us to go. And we must continue to expand these offerings to Tyson's markets throughout the world. As we have said, it is not a question of one or the other, it's and, not or. There is room for all of these solutions in feeding the world and meeting the growing demand for high-quality protein across brands, channels, categories and substrates. We also continue to make strides in sustainable business practices in order to responsibly utilize the resources entrusted to us. We continue to enhance our sustainability initiatives, including verification of sustainable beef production practices on over 5 million acres of U.S. cattle grazing land. We're also very proud of our efforts to enhance the company's framework to promote equity, inclusion and diversity in the workplace, including $5 million in donations to organizations that are advancing the cause of lasting change. We are proud of the diversity of our team members and of the communities where we live and work and of the local governments and municipalities that have helped us succeed. Tyson's success is only because of the great team that we have and the core values that we live by. Our team is passionate about what we do and the way we do it. And while we have many accomplishments to celebrate, we have more to achieve, not just this year but for years to come. Today, Tyson is the world's leading protein company because of our foundational core values and financial and operational excellence over the last 86 years. And while we cannot rest on the successes of the past, they have positioned our team well for the future. But that future is not guaranteed. We must work diligently every day to ensure that our team succeeds in understanding and meeting the world's growing and evolving protein demands. I'd now like to turn it back to John for closing remarks.

My thanks to the shareholders for attending our first virtual meeting today. We've got a great team, we've got a great company, and there is a lot to be excited about. The Annual Shareholders' Meeting is adjourned. Everybody, have a great week. Everybody, take care of themselves. Thank you all.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.