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

All right. Well, good morning, and thank you very much for joining us. Next on stage, pleased to introduce Tyson Foods, one of the world's largest protein producers across all major proteins, chicken, pork, beef and the company also operates a very sizable Prepared Foods business. With us today, we got Curt Calaway, company's CFO; as well as Devin Cole, recently named Chief Operating Officer.

And with that, I'd like to kick it off actually over to you, Devin. I mean, recently, just a few days ago, you got a little promotion up to Chief Operating Officer. So really, the first question is, with that more expanded role versus what you previously oversaw, what are like the key priorities you are tasked to look at for the next couple of quarters?

Yes, sure. Thank you. Thanks for the question. Listen, I should first start by saying how grateful I am for the opportunity. We have a very robust succession mechanism in place at our company. And so this is thankfully not as a complete surprise to me or others and this will give me an opportunity to have a bit more visibility directly with all of our company. I certainly been involved with our Prepared Foods and our Poultry business over the years and was actually part of Tyson back when we did the IBP acquisition in early 2000s. So I've been around the beef and pork business a good bit. But to answer your question, listen, I think like as anybody should probably say in a new role, my first priority is to do no harm. We have exceptional talent at all levels of the organization, all the group presidents, all of the finance talent that we have. What I will always insist on in any organization is to make sure that we have great alignment, great clarity and great communication. And I think with this new role, that will only allow us to elevate that a bit to make sure that we're seeing across all of the proteins globally, quite honestly, with our international business as well, making sure that we have visibility to have best practices in place and to take advantage of any opportunity that we see anywhere that we have the ability to do business. So as I will be very inquisitive over the coming weeks and months, I don't see any major changes to our business because, thankfully, we're in a very good spot. And the thing that I'll assure our team members as well as our stakeholders is that we will do nothing but accelerate the momentum that we already have and that I am very fortunate to inherit.

Okay. Good stuff. Now obviously, one of the bigger themes here at the conference has all been talking about consumer health, and we've seen a lot of like discussions about like just cautious sentiment spending somewhat under pressure. So if you look at the different major protein categories within your portfolio, what have you seen in terms of like consumer behavior here? And how do you feel overall increased priority for protein consumption has helped you short term, but also will continue to be a driver long term?

Yes, sure. It has been widely reported. We are dealing with a cautious consumer, and that's not really new news. It's just a continuation of what we've been seeing. Customers, definitely, we see restaurant traffic counts being down and more of a pivot to a bit more retail shopping and probably a bit more frequent retail shopping with a lower ring size per occurrence. And so we're aware of all those things. I think the great news for us as a company is that, as you mentioned, protein is winning for a variety of reasons. And also protein, particularly animal protein, is seen as an essential part of people's diets more so now than ever. And so what we are seeing even at Foodservice, particularly with our Chicken portfolio is because of the value relative to the other proteins and innovation and the great partners that we have at Foodservice, we are seeing that value-added business grow. Thankfully, even with traffic counts being down. So that's great news for us. And then as you look at our retail business, I mean, we have an exceptional innovation pipeline across every place that we do business. And we talk a lot about value-added. And I want to make sure people understand that that's not just a term that we refer to for, say, partially cooked or fully cooked, which is a big part of convenience. But even in our fresh chicken, right, we see an opportunity throughout that category to provide better opportunities for people, maybe it's pack size, maybe it's the packaging itself, maybe it's the attributes that we offer even in fresh chicken. Our deli business is growing certainly as consumers want to have a restaurant quality experience even at home. And luckily, we have the expertise to know how to make those products where they're easily reconstituted, whether that be in an air fryer, an oven, a microwave, however people want to utilize those pieces of equipment. We understand that, and we're creating products for them. We also have across all of our branded portfolio, particularly in Prepared Foods, we have a great innovation with breakfast with Jimmy Dean items. We have great innovation with Hillshire Farms, both in lunch meat as well as snacking occasions. And then, of course, with our chicken offerings. I think we had 20-plus innovation items in our retail chicken this past year. We talked a lot about accelerated marketing spend. And that's not just in trade and marketing, although that's a piece of it. We also have spent a tremendous amount of money making sure we have the right quality products, making sure we have the right packaging, making sure that not only that, but we understand where that consumer is going. And when we do spend those trade dollars, we have better visibility than ever to make sure that we're spending them in the right way. It is driving the right behavior and that we're getting a returns on that.

Okay. I mean along the line of these like focused spending, et cetera, you've done a lot of production improvements over the last couple of years. Anything that's still pending? I mean we've seen a few things, obviously, in chicken that clearly has started to pay off more recently. I think you've done a few things within pork. So what is it you're currently reviewing from an operations side where you see opportunities to potentially further improve?

Yes. I think what we're always mindful of and what will really create consistency in this business over a very long-time horizon is what we control. Certainly, there are inputs relative to that particular part of our business that we are mindful of. We don't see anything on the horizon there that would be disruptive. And even in the most recent quarter, if you look at what we -- what our results were really driven by, it was our own operational excellence, and it was also making sure that we have the right innovation. So the way I think about that business is we've done some work with our footprint. We feel like we're in a very good place in terms of not only the footprint that we have, but the capacity that we have within that footprint. And so if you think about today's construction cost, for example, obviously, we want to utilize the post or the prior investments that we've made to the utmost before we go out and spend incremental CapEx. So it's made us better, I think, investors of our capital. But it's also given us a real insight into how good these facilities can be. And I think that we're running the best operational piece of our business that I've ever seen. But I would also tell you, we're not sitting still. It's like anything else. Everyone is improving constantly, and we recognize our leadership position. We also recognize that it only matters if we are continually getting better, and we are doing that. So I look at all of our businesses, quite frankly, with the same lens, whether that be international, whether that beef, pork or prepared foods or chicken, what has really driven the results is our high level of execution and having visibility into how we get better from here.

I mean, clearly, chicken is currently kind of like the bright spot within the commodity piece for you. I remember you talked about like certain investments up to $100 million, if I remember right, in the chicken business for the second fiscal half. But you still, after third fiscal quarter kind of like upped your outlook here for operating income. How are these investments coming together? Is that still on track? And is that something as we move into next year, you probably don't have that, assuming margins stay where they are, there's additional upside from where you are right now?

Yes. So we are still on track. We will, of course, wrap up here in the next few weeks, our Q4, and we'll fully have exercised our commitment against those marketing dollars, the spend dollars. And we've already set our planning in motion for FY '26 and what I would tell you is, again, going back to the visibility that we have, the analytics, the team that we have in place, the data, how we're talking to these consumers today in a new way, it's one more -- way more efficient than it's ever been in terms of our marketing dollars. But just the visibility and the partnership that we have with our customers tells us that we are on the right track, and we see no reason to change that trajectory based on the results that we are seeing, and we will have the same discipline moving forward.

Okay. Within chicken, the value-added sales obviously has kind of like gained share internally. How sustainable is that? And where do you think there's maybe further opportunity to improve?

Yes. Listen, I'm very, very bullish on our ability to continue. We've seen some very large gains, both in volume, dollar share, household penetration, whatever metric you want to look at, across retail and Foodservice with our value-added portfolio, which only says next year, we will have to achieve that and something greater than that. And I fully believe that we will do that. And the reason I do is I have had the opportunity to have a glimpse at our innovation pipeline. And it's all those things that I've talked about. It's not just a complete turnover of our products because one thing I would point out is that innovation can be expensive. So we're making sure when we place these bets that we are not only getting trial, but getting repeat across every day part, particularly in snacking, we've had tremendous success more recently. And it's not just line extensions, I should point out, too. It is truly a lot of white space for us. And so I think that we will continue to grow within the category or within the segments that we're known for, but I think people will be excited and surprised to see some of the things that are in particularly the Prepared Foods pipeline for next year that they might not expect from us.

Okay. Clearly, chicken can be very volatile, very fast, and you always warn about the downside risks, no matter what. So just remind us a little bit what are you seeing in the market? What could go wrong, right? What could go wrong in chicken to kind of like reverse course and have a little more of a negative impact maybe in the next couple of months? Is it too much production because hatch issues are solved? Or what are the key things you're watching?

I think if you think about the industry sort of biomarkers that are widely talked about, it appears to us that it will continue to be a stable environment. So as I think about USDA projections on grain, yes, there's certainly some calls and puts relative to tariffs and some of the imports and exports. But I don't see anything disruptive on the grain front. In terms of overall production, it's certainly something that we watch. We have very thankfully managed our live production footprint very well. We're confident in the breed that we use, but we're more confident in our team because at the end of the day, it really is about the execution in that part of the business and the management of it. And so luckily, we have seen relative to the public data that's out there, a better performance on that side of the business. So I don't see a lot of numbers that are available that would tell me there's going to be a huge uptick in production next year. If you look at USDA forecast across all the proteins, it's pretty minimal, and I think the demand will more than outweigh that. So I don't see anything from an industry perspective. But I would also tell you this, too, in our value-added Poultry business, if we did see an opportunity where the industry were to produce more than they could consume, we certainly can go take advantage of that and bring that into our operations. And so I think what I focus on is our business, how fast our business is growing and making sure that we have the right supply to take care of our customers. The one thing I'm very proud of across prepared and poultry is that we've maintained a 98-plus percent fill rate. And so we are not only making sure we have the right quality, but it's in the right place at the right time for our customers. So what could go wrong? Listen, this is a difficult business. And what I have confidence in is that the things that could go wrong are largely execution. And I think we're proving ourselves as being very confident in execution. But I would also tell you, I don't say that with any ego, meaning that we wake up every day realizing we need to do the same thing today or better than we did yesterday. It is about continuous improvement for us, and that is what we're focused on.

Good stuff. Obviously, opposite of the cycle kind of like great in chicken, but pretty challenging in beef still. Have you seen -- what signs have you seen over summer? Are you getting a little more, call it, excited or optimistic about some of the rebuild happening? What are like kind of the markers? And more short term, how much of an impact does it have on your business that there is this restriction from Mexican cattle because of screwworm coming into the U.S.

Curt?

Yes. So certainly, start with an overview relative to beef. It's been certainly limited availability, right, has been the journey we've been on. And we've seen a spread volatility during that time period as well. But I think from our business, we have continued to focus on the efficiencies within our business and controlling what we can. We have seen, to your question, an environment where we've said for the first time, about a quarter ago, if we haven't reached the point, we could see it from where we're at, and we talked a bit more definitively last month that we believe the signs are there that herd rebuilding is in place. We've talked about the beef cow -- or the cowherd. We've talked about heifer retention, and we talked about beef cow slaughter being down year-over-year as well. All signs positive. Certainly a number of other macroeconomic environment conditions that we've seen that we believe we're at that point, right? Now that's going to take a while. Once right, that -- once heifer retention has begun, that's going to take a cycle as it works its way through before those animals are available for us. You mentioned New World screwworm and the Mexico border currently closed, continues to present another challenge. While not hugely meaningful, it is meaningful and more meaningful to the southern part of the beef cattle processors. But ultimately, as we work our way through the cycle, and we said that it's likely to be '28 before it gets to the point in which you can see meaningfully back to a sustainable level of a cattle herd into the processing plants. But in the meantime, we're going to continue to run our operations as efficiently as we can. We're going to continue our cost savings programs, just as Devin had illustrated, we're doing in other parts of the business. But most importantly as well, we're going to continue to meet where the consumer is. So as the consumer continues to seek protein, they continue to seek protein from animal sources and they're looking for fresh and convenient alternatives. And we're meeting that need with not only fresh items but continuing to add season and marinated options and more convenient options for the consumer. That's going to be the difference as we manage our way through '26, '27 and beyond in '28.