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

Good day, and welcome to the Tyson Foods Third Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jon Kathol, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Tyson Foods Third Quarter Fiscal 2026 Earnings Conference Call. On today's call, Tyson Foods' President and Chief Executive Officer; Donny King; Chief Financial Officer, Curt Calaway, and incoming Chief Executive Officer, Jeff Schomburger, will provide prepared remarks. Also joining us today and available for Q&A is Wes Morris, our new Chief Operating Officer. Following the prepared remarks, we will have a Q&A session. We have also provided a supplemental presentation, which may be referenced on today's call and is available on Tyson's Investor Relations website and via the link on our webcast. During today's call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking 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 2 as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Segment results are presented on a segment operating income level and will be discussed on an adjusted basis. Please note that references to earnings per share, segment operating income, operating income and operating marg in our remarks are on an adjusted basis for our fiscal periods unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I will turn the call over to Donnie.

Thank you, Jon, and good morning to everyone joining us today. Overall, I am pleased with our performance in the third quarter. This is the 12th consecutive quarter of doing what we said we would do. Our strategy is working, and I want to take a moment to reinforce what we have built at Tyson. A differentiated and diversified protein-centric company positioned to capture growing demand for high-quality protein. Animal protein remains a top priority for consumers and continues to gain momentum as a foundational part of a healthy diet. As consumers increasingly prioritize nutrient density and protein quality, including those adopting newer wellness and weight management routines, our portfolio aligns exactly with the foods they are choosing. We are directly tied to and stand to benefit from consumer preference as protein is economically advantaged versus every other food category. Before I discuss the segment details, I want to emphasize how proud I am with the progress this team has made, improving our operational performance and execution, strengthening our portfolio and positioning this company for continued long-term growth. We are the leader in the industry, have a portfolio of iconic brands that consumers are drawn to. And I am confident in where we are headed. Our brands are winning in the retail marketplace. In Prepared Foods, all 13 weeks of Q3 showed continuous volume and revenue share gains including our highest volume share ever, with volume share up 70 basis points, unit share up 70 basis points and dollar share up 50 basis points. This performance was driven by strong consumer demand disciplined promotional execution and targeted marketing investments. We hold leading positions across lunchmeat, dinner and smoked sausage, and we are managing price gaps and promotion with discipline to compete more effectively. Prepared Foods is a branded protein platform that raises the quality and the predictability of our earnings. Innovation and distribution gains remain key engines for this business with notable brand wins in the quarter such as Hillshire Snacking up 18.4%; Hillshire Farm lunchmeat, up 7%; Adele's dinner sausage up 5.8% and Hillshire Farm and right smoked sausage up 3.4% and Jimmy Dean refrigerated breakfast up 2.7%. Our Tyson-branded chicken categories continued their momentum in retail at 0.9% for value-added chicken category and 3.1% for fresh chicken. Innovation is central to our strategy and is showing up across our entire branded portfolio. Last quarter, we launched our Jimmy Dean high protein platform, which continues to perform, earning broad retail distribution and resonating with younger consumers looking for convenient protein-centric options throughout the day. This quarter, I want to highlight Hillshire brand. This is a brand built for innovation, and our portfolio reflects that. Hillshire Farm brand anchors that everyday occasion, smoked sausage, lunchmeat and ham that consumers have trusted for decades. The Hillshire brand has also extended into snacking, where the line is rapidly growing with consumers seeking convenient, on-the-go options. And with the launch of Hillshire Reserve lunchmeat, we're now capturing consumers seeking premium offerings. Craft-inspired Chef Quality lunchmeat for a more elevated eating experience. Together, these brand extensions reach new consumers with a multi-tier offering. These launches share our common thread. They deliver on the priorities driving demand across our business, protein focused, bold flavors and everyday convenience, whether through simple ingredient renovation of our core product new high-protein forms. We are innovating exactly around what consumers are looking for, and we see meaningful runway to expand distribution and bring new products to market. Now let me walk you through our third quarter results, a view of the current and future environment before Curt covers the financials and updated outlook. In the third quarter, Prepared Foods continued to outpace broader category performance in both retail and foodservice. Q3 marks our third consecutive quarter of volume and sales growth with sales up 1.7% or $42 million year-over-year to $2.6 billion. Prepared Foods segment operating income was $321 million, with a margin of 12.6%. Operating income was down slightly year-over-year, as roughly $30 million of higher commodity costs in the quarter outpaced pricing, which continues to catch up. As commodity costs moderate, that benefit will take time to flow through production and inventory. We expect it to be realized later in the fourth quarter and into fiscal 2027. Our results demonstrate continued execution on the controllables and the continued momentum of our strategy and diversified portfolio of leading brands and proteins. We delivered yet another impressive quarter in chicken with segment operating income of $488 million, an increase of $40 million year-over-year at a margin of 11.2%. Demand remained robust and our customer-centric approach continued to drive volume gains. Our retail and foodservice volume up 3.8%, nearly 4x our total volume growth of 1%, reflecting the strength of our strategic customer partnership and consumer demand. We hold the #1 brand of chicken, and our differentiated chicken model continues to outperform commodity producers. The outperformance is grounded in structural drivers, including end-to-end execution, live performance, branded and value-added mix and strategic customer relationships. We continue to strengthen live performance, yields, asset utilization, labor productivity and supply chain discipline, supporting our seventh consecutive quarter of year-over-year volume and sales growth, and reinforcing the consistency of our chicken business. Importantly, our chicken results are increasingly driven by consumers and customers rather than commodity markets, supported by a favorable mix of value-added and branded products, disciplined revenue management and strong operational execution. Notably, our net price realization increased versus the prior year, even as input markets softened, further evidence that our results are driven by mix, innovation and execution rather than commodity pricing. To put that into context, industry checking cutout values fall, yet our commercial model, anchored in improving mix, volume commitments and value-added pricing structures enabled us to grow net price realization. In beef, we continue to navigate the well-documented challenges of the current cattle cycle. These segment operating income was a loss of $138 million. Sales reflected that environment. Volume declined 15.9%, while pricing rose 12.1% as constrained supply pushed input costs and pricing higher. Our footprint optimization actions from the second quarter delivered as expected. However, it was more than offset by USDA margin compression. We remain focused on what we control, customer mix, revenue management, network productivity, cost discipline within a footprint better aligned to current supply environment. The recent announcement of a phased reopening of the Mexican border for the importation of cattle shows potential improvements to a long-term cattle availability. We appreciate and support the USDA efforts to protect and to reopen the border. Although the reopening won't have a material impact on the remainder of this fiscal year, which ends in September, it does provide the potential for some level of improvement in 2027 and beyond. To be clear, the reopening of the Mexican border will not solve the entire gap of beef losses we are currently seeing. We are not waiting passively for the cattle cycle to turn, and we continue to focus on improving the variables within our control. Simply stated, our mission in beef is to be the best operators in the areas in which we compete. Our Pork segment continued to operate in a stable environment. Operating income was $60 million with a margin of 3.8%. Consumer demand was solid and hog supplies were adequate. Together, these factors has kept the pork value chain well balanced, supporting more consistent and predictable operating margins. We also continue to benefit from greater integration with Prepared Foods, allowing us to optimize product mix and direct raw materials towards their highest value uses. We remain focused on improving mix and further integration across the value chain. Finally, our International segment continued its steady performance, International segment operating income was $48 million, with a margin of 8%, supported by continued cost discipline and improved execution across key markets. We remain on track with our annual outlook for this segment. Let me briefly address the macro environment. While consumer sentiment continues to be pressured and inflation remains elevated, demand for protein remains resilient. Consumers are making value-conscious voices in protein-centric foods, including our Tyson, Jimmy Dean, Hillshire Farm, Ballpark, Wright, State Fair and Adels are winning that consideration. The breadth of our brand and product offering allows us to fulfill the need of the consumer wherever they are on their journey. Food service volume remained constructive throughout the quarter growing 1.8% versus last year, and our retail performance continues to outpace the broader food and beverage category. This reinforces the enduring nature of our protein-centric portfolio across economic cycles. Our scale operational capabilities and brand strength allow us to serve customers and consumers effectively even in a challenging macro environment. And we believe these advantages will compound as conditions improve. We will continue to be disciplined and intentional about where we invest, whether in brand support, innovation, automation, supply chain capabilities, our network optimization. Our focus is on projects that strengthen service, improve productivity and drive cash flow and long-term shareholder value. Looking ahead to fiscal 2027, I am confident in the year ahead. In many respects, we expect it to look a lot like 2026, building on the momentum of our end-to-end execution that has defined this year. With that, I will now turn the call over to Jeff Schomburger, our incoming CEO, for a few introductory remarks.

Thank you, Donnie, and a huge thank you for your years of leadership and the strong foundation the team has built. This puts us in a position to build on our strong momentum going forward. I want to take just a minute to introduce myself to our investment community. I'm looking forward to meeting you all soon. . While my title is new, Tyson Foods is not new to me. I've had the privilege of serving on the Tyson Foods' Board of Directors for more than 10 years. And over that time, I have developed a deep respect for this company, its people, culture, brands, customers and long-term potential. I've watched this management team navigate complex cycles, make disciplined decisions and build a more consistent organization. I spent time over the past few weeks meeting with our team members visiting facilities, engaging with our customers and consumers in their homes, and I'm excited about their energy and passion. As one team, one Tyson, we will remain focused on operational execution, strengthening the iconic brands and our multi-protein portfolio, investing behind differentiated capabilities and generating long-term shareholder value. Innovation, quality, affordability and understanding what consumers want, will be critical to our brands continue to earn a place at tables around the world every day. To our shareholders and analysts on the call today, I look forward to getting to know you better. sharing more about our priorities and continuing to earn your trust through consistent results and transparency. With that, I'll turn it over to Curt to walk through the financial details.

Thanks, Jeff, and welcome. It's great to have you on the call. Total company sales were $13.9 billion, essentially flat compared to the prior year as a 3.4% increase in average sales price offset a 2.8% decline in volume. The latter driven largely by tighter cattle supply and beef. Third quarter segment operating income was $779 million, an increase of $18 million versus the prior year, driven by stronger results in chicken, pork, and international, partially offset by lower beef results. Corporate expenses and amortization were lower by $24 million compared to the same period last year, driven by disciplined cost management. Total company adjusted operating income was $547 million, a margin of 3.9%. Adjusted earnings per share for the quarter were $0.99, up 9% compared to last year. Turning to our financial position. Our approach to capital allocation remains disciplined, deliberate and forward-looking, supported by a strong balance sheet. Our priorities remain balanced, investing in the highest return areas of our business maintaining balance sheet strength and our investment-grade credit profile and returning cash to shareholders over time. Free cash flow remains central to our strategy, and we are encouraged by the cash generation trends through the first 9 months of the year. Operating capital for the first 9 months of the year was $1.47 billion, and capital expenditures were $556 million, resulting in free cash flow of $913 million. We ended the quarter with $4 billion in liquidity and net leverage of 2.1x. In the quarter, we repurchased $31 million of our shares, and year-to-date, we have returned $652 million to shareholders, including dividends. Since quarter end, we have repurchased an additional $49 million of our shares. Our balance sheet remains very healthy as we continue to prioritize financial strength, our investment grade credit rating and cash management to drive long-term shareholder value. Let's take a moment to review our updated outlook for fiscal 2026. As a reminder, our accounting cycle results in a 53-week year in 2026 compared to a 52-week year in 2025. Our guidance is presented on a comparable 52-week basis. We narrowed full year sales growth guidance to 2.5% to 3.5% year-over-year. Total company adjusted operating income range is now forecasted to be $2.1 billion to $2.3 billion, driven by the challenges in our Beef segment relating to cattle availability. We still anticipate interest expense of approximately $365 million and a tax rate of around 25%. The Capital expenditures are now expected to be between $700 million and $900 million, and we have narrowed the range of our free cash flow to $1.3 billion to $1.7 billion. Turning to our segment outlook. In Prepared Foods, we're raising the midpoint of our full year segment operating income outlook with a revised range of $1.3 billion to $1.35 billion. We expect continued growth in top line and bottom line in the fourth quarter and for the full year. In chicken, we are reaffirming our full year segment operating income outlook at a range of $1.9 billion to $2.05 billion. This is broadly comparable with 2025 and supported by our commercial model, operational execution and the impact of our live operations, along with continued volume growth. In beef, Industry conditions are challenged, and we now expect a full year segment operating income loss in the range of $650 million to $500 million as continued USDA margin compression and higher cattle costs more than offset the benefits of our network optimization actions. In pork, we are reaffirming our segment operating income outlook of $250 million to $300 million. In international, we are also reaffirming our outlook of $150 million to $200 million. Our corporate expenses and amortization outlook remain the same at $950 million to $975 million. Overall, I remain confident that 2026 will be another strong year for the company. I will now turn the call back to Donnie for closing remarks.

Thank you, Curt. I'm excited for the opportunities in front of us in 2027 and confident in the long-term prospects for Tyson Foods. Let me quickly recap our forecast and focus areas. In chin, we anticipate continued strength in our differentiated chicken model, underpinned by our end-to-end execution, live performance. branded and value-added mix and strategic customer relationships. In Prepared Foods, we expect continued growth in both volume and profit, supported by the strength of our brands, ongoing innovation and sustained consumer demand for convenient protein-centric options. In beef, we will remain focused on operational discipline and performing competitively within our optimized long-term footprint as we continue to navigate the challenging cattle cycle. In pork, in international, we expect stable results with continued gains in operational execution across both segments. Before we open the call for questions, I want to take a moment to say thank you to our team members. Our customers, our family farmers and ranchers and our shareholders. I'd also like to thank our Chairman, John Tyson and the Tyson family, Barbara, John Randall and Olivia, for their support and leadership throughout my time as CEO. Tysan is a strong company because of the people behind it, and I'm grateful for the work they do every day. We operated with zip line throughout another dynamic quarter, and I feel good about the progress we are making. Our strategy is working. Our portfolio is strong, and this team is well positioned for the opportunities ahead. Most importantly, we have a solid foundation in place. We are building momentum, growing the business and staying focused on delivering stronger performance over time. I am incredibly proud of what this team has built and energized by my lives ahead under Jeff and his leadership team. With a clear focus on accelerating our brands and value-added mix, deepening our connection with consumers, strengthening strategic customer relationships and continuing to raise the bar on operational execution. Tyson is well positioned to build on the momentum and create meaningful long-term value for our shareholders. While I'm stepping out of the CEO role, I will remain on the board and stay closely engaged in the company's performance and long-term direction. This strategy matters deeply to me, and I will continue to support Jeff, and the team as we deliver on the commitments we have made to our shareholders. With that, I will turn the call back to Jon to begin the Q&A session.

Thank you, Donnie. We will now open the line for questions. [Operator Instructions] Donnie, Curt, Jeff and Wes are available for your questions. Operator, please provide the Q&A instructions.

[Operator Instructions] Our first question comes from Andrew Strelzik with BMO.

Great. And first, I wanted to say congratulations, Donnie as you take this next step. My question, you've highlighted strong performance in Chicken and Prepared Foods. I guess as we look forward, what gives you confidence in the sustainability of that performance against a tough commodity chicken a consumer backdrop? And do you expect to hold or grow profits in those segments next year?

Great question, Andrew, and thank you, and thanks for this particular question, it's a good one. So let me start out with this and see if I can do this. Curt, if I leave something out, you or someone else feels sure it will step in. So let me start with what we've done. I mean, we're really pleased with our Q3 performance. We've improved volume, gain market share and increase profitability. That's our 12th consecutive quarter of doing what we said we'd do. Prepared Foods raised its guidance at midpoint to $1.3 billion to $1.35 billion on a third straight quarter of volume and share growth. Chicken, chicken delivered its seventh straight quarter of volume and net sales growth with $488 million of segment operating income and 11.2% margin, a $40 million improvement year-over-year. This is an execution story, end-to-end execution. So Andrew, back to your question directly to FY '27. I need to make this really clear. I don't think about Tyson as a commodity chicken company. About 3/4 of our Chicken segment's operating income now runs on the same model as prepared foods, a pull business, built against committed strategic customer demand, our investment in the #1 brand in chicken and direct digital engagement with our consumers. This is not a push business exposed to the open cut out market. Industry-wide chicken oversupply is a commodity market dynamic. The pressures processors selling into that spot market. This is not us because most of our chicken volume is already spoken for before we place the baby chicken. Chicken is running the same playbook that has made prepared foods so resilient, growing through mix, brand investment, customer partnership and consumer-centric discipline, not by chasing commodity prices. And our portfolio grew segment operating income $172 million or 6.5% over the first 9 months, led by chicken, prepared foods and pork. And by the way, pork's role in the portfolio is largely a raw material supply to prepared foods. Beef. Beef hasn't performed the way we expected, and we're not pretending otherwise. But we're controlling what we can control there, and we're not waiting passively for the cycle to turn. Beef is our only true commodity business. All of this taken together, Andrew, it's hard to find another consumer staple food company growing both volume and profitability the way we are, a customer-built business, not a commodity one, and that's why I'm confident this will continue in FY '27 and beyond.

And maybe just a follow-up. If I heard you correctly, I think you made a comment in the prepared remarks about '27 looking a lot like fiscal '26. And I just wanted to clarify if you were talking about earnings or operating profit? Or was that a broader comment about kind of the strategic priorities, the operational discipline, those types of things.

Great follow-up. As I think about 2027, we did say it would look a lot like '26. We think the momentum continues across all of our businesses. I think that would be underscored with growth in the business. That would be growth in volume, growth in profitability. We'll continue to execute with our strategic customers. And so I think it's across all businesses, even beef where I just said that we're not pleased with the performance of that. Our execution in beef is still very good. And the execution across all businesses is still very good. And our model, as I just tried to point out, we're not a commodity company, except for example, beef. And so that's what gives me confidence in that. And I feel good about that. And so in terms of -- from a pricing standpoint, even if you use Q3 as a proof point, it's not a price. This wasn't a price story for us. If you look at underlying cutout values, composite cutout the cutout for commodity checking on the commodity market was down 45%. And we saw net price realization, and that's driven by our mix, a more value-added mix, that we've talked about often. Our pricing models, even for those products and areas that where they would they're not quite branded, and they're not quite value added. But we have these customer pricing models that smooth and trim peaks and protect pallets. And so we feel good about that. In our strategic customer partnerships, we continue to add to that. And all of these are built on service, quality and innovation, not discounting. Proof point, for example, is 11.2% margin in chicken in our Q3. And we're not chasing share price trading share through price, we're growing via mix and execution. And so all of that together gives me great confidence in our ability to not only do what we did in '26, but even beyond and even better.

Our next question comes from Ben Theurer with Barclays. .

So Tony, I can just follow Andrew's comments here. Congrats on a great tenure here with Tyson. So let me -- let me pick up a little bit on the chicken business and just the commentary you just had, but I would like to understand a little bit better as we look at your chicken year-to-date and then obviously, if we just take the fourth fiscal quarter of last year, we're kind of like shaking out at the low end of the guidance for fiscal '26. So what I would like to understand based on what you've done and what you've implemented over the last couple of quarters, what would take you to the higher end of the guidance versus what would be basically a year-over-year fourth quarter flat. So just a little bit more detail maybe on the fourth quarter, particularly in chicken just to understand the higher is low for the full year guidance. That would be my first question.

I would tell you in terms of fourth quarter last year, it was an all-time record. And quite frankly, the market was exceptional. And so we took advantage of that by producing some product and actually selling that on the market. So we took advantage of that. This year, in Q4, it's not going to look that way. So we want -- we obviously won't do the same thing again. But our bread and butter is going to be our branded and value-added portfolio in those strategic customers. So we think Q4 will be a really good quarter. It will be a really good year for us as a company. But you're not going to see the peaks in Q4 that we saw in Q4 of last year because of what I just the actions we took last year to take advantage of the market.

Ben, this is Curt. I might just add. Obviously, as you looked at the guidance, we obviously maintained chickens range that we had last quarter. That would imply somewhere between $430 million and $580 million midpoint, just a little bit over $500 million. I'd just point out, right, our average through the 9 months is running right at about $490 just inside of the 500 mark. So it's a pretty balanced year in total, I think, the high low would be either a 52-48 split, front half, back half or at the high end, 48-52. And so as Donnie mentioned, a really strong quarter in Q4 of a year ago, so the reason we illustrated. But I think we're more like a 47-53 front half, back half split last year. So I think it's pretty balanced in total across the range we provided.

And then as you look into the prepared foods business, I want to maybe understand a little bit as you're dosing that out over the remainder of the year, but then also building on the momentum into next year. Clearly, it's been different than a lot of other food companies and you've been able to establish a better margin profile. So maybe help us understand what allowed you to reach that level? And how confident are you as it looks into next year to maintain that margin level in Prepared Foods in particular? Are you seeing any cost pressure? Anything we should be aware that might be risk as we move into fiscal '27? .

Sure. Thanks. Let's start with really 2 things that are fundamental to every business. We're in the protein, the value-added protein business. where we sell real food. And so that's a big point of difference for us. But in terms of how that looks, Looking at the most recent quarter, and we see this going up continuing. A lot of similarities to all the things I just said about chicken and the overall portfolio. But we had 3 consecutive quarters of volume and net sales growth, certainly outpacing the industry. This quarter, again, we gained share in volume, dollars and units. In our Q3, 13 of the 13 weeks, we saw continuous share gain in retail. We achieved the highest ever volume share this quarter. Of course, you look at all of our competitors and you'll see real quickly that they didn't do that, and you pointed that out. But our brand wins were all broad-based. Hillshire Snacking was up 18.4%. Lunch meat was up 7%. Dallas was up 5.8%, smoke sausage at 3.7% and JMD Breakfast was up 2.7%. Prepared Foods is the jewel of our portfolio and delivering its promise. And we're trying to illustrate for everyone that our chicken business is very similar in nature to that. But it's -- all this is driven by those strategic customer partnerships that we have, innovation where we continue to gain distribution and increasing household penetration. And so the alignment with the customer and the consumer and with us, it's -- our success that we're seeing is a result of creating a win-win across all those 3 constituents.

Let me just add to that as well, similar to the commentary I had for chicken, I know you had a question there. And as we finish the fourth quarter, our range in a tightened prepared foods range implies Q4 somewhere around roughly $290 million to $340 million. that's with an average in the first 9 months of just inside of $340 million. So I'd say it's pretty balanced again in Q4, as you know, and we've talked before, typically, our second half in Prepared Foods is a little underweight for the first half, the historical kind of 55-45 split. But as we've really reshaped the portfolio and during all the elements, as Donnie highlighted, in delivering for the customers and consumers. We expect that to be a bit more balanced, and this would be a year that's implying a continuation of that more balanced view, somewhere around 52-48, would be about the midpoint. So we will lap a Q4 of a year ago that was a little under for the reasons that we talked about last year. But very positive outlook in in Q4 and also carrying through into 2017, as Donnie said earlier, expecting growth both in volume and profitability in Prepared Foods for next year.

Our next question comes from Michael Lavery with Piper Sandler.

And Donnie. Congrats and Jeff welcome. Just wanted to come back to chicken. And I know genetics got some a little bit unexpected airtime last quarter. Just curious if you could give us an update there partly with an eye, I know you've already touched on some of the key kind of moving parts for how to think about next year. But I think it sounds like some of the benefit from genetics and even that business' own momentum could pick up. There's a little bit -- I know you made it clear it's modest, but some potential help from Mexico capital imports. And I know you called out how some of the easing costs in prepared foods would hit next quarter and start flowing through. So I guess maybe Am I right to think we should consider those things as well? How big a role could the genetics piece play? And if you put it all together, I know you said similar to fiscal '26, but it sounds like maybe even a step-up and better. Is that a fair characterization?

Yes. Okay. So let me -- a lot of questions in there, Michael. Let me start with the genetics question, and I may ask you to be maybe a little more specific on the follow-ons. But let me clear up a few things as it relates to our genetics business. First, I would remind you that the generics business is part of our chicken segment. It's an important part of our chicken story, but our entire end-to-end chicken business is performing well. So let me see if I can explain this. So you start with the Chicken segment, within the Chicken segment, you have domestic chicken and you also have our genetics company there. Both have P&Ls. Within that genetics company, we have 2 breeds predominantly. We have 1 that is a small bird genetics, and we have 1 for big bird. Now I'll get a little more color on the big bird piece of that, which is really the story we're talking about here. We sell those genetics domestically, internally, to our domestic chicken business, but we also sell to outside customers and competitors. That's predominantly today a small portion of what we do. If I look at comp -- or excuse me, our genetics business, our comp, P&L. If you go back to 2014, our genetics -- our big bird genetics began to decline. They never were as competitive as we needed and they trough at about 2024. And so what that looks like is that -- not only did the genetics company suffer from a P&L perspective, but also domestic chicken suffered from that as a result because we were disadvantaged in areas like eggs per hen house, livability and of course, the amount of breast meat you get per live animals. And so -- what we talked about last time was we have now -- we now have a competitive big bird genetics that is rolling through our supply chain. The status of that is this. By the end of the fiscal year -- end of the calendar year, I should say, we will be harvesting about in those locations that use big bird genetics, about 75% of will be this new line of genetics that we have. The balance of that 75% will occur in physical 27% -- or 25%. Again, that's only for those chickens that require big bird genetics. And so you should see a P&L impact from -- to the genetics company and likewise, and even more importantly, a bigger impact on the domestic chicken business. That's where the real root form. So let me pause there and let you redirect me.

No, that's really one. I had a jumbo size question. The other piece was just kind of rolling it all into the overview on just the look ahead because it seems like that genetics flowing through should be a tailwind next year, and same with some of the prepared foods cost pressure easing and even maybe a lift from cattle imports. So that plus some of the commentary you'd already added on how to think about the moving parts next year. . It sounds like there's room for some nice improvement. And maybe I was just trying to make sure I understood how to potentially nitpick your wording when you say similar to fiscal '26. It sounds like there's lots of reasons to believe fiscal '27 could certainly be better or possibly nicely better. Is that fair?

Michael, it's Curt. Let me pick up on a couple of things there. I think, look, I appreciate where we are in the cycle. It's -- we're not giving guidance yet for '27. Certainly, we need to finish '26 before we get there. So give me a little bit of liberty there, if you wouldn't mind. But I think what the message we were intending to deliver qualitatively is, first and foremost, we expect to continue on the trend that we've been on in Prepared Foods to grow volume and ultimately, profitability. We've demonstrated that differentiated than most anyone else, and we expect to continue to deliver that. I think Donnie's message is in the first question were really around the differentiation that we believe we have in our chicken business and not being a commodity company -- not being a chicken commodity company. And so we expect another constructive year in chicken, not ready to give guidance yet for the reasons I illustrated earlier, but we expect it to be another constructive year. I think we've done well last couple of years, and we believe a lot of those things are within our control, and we'll continue to manage those. And in total, right, certainly, there is a lot of market pressures in the beef business. But what you can expect from us is to run our beef's business as efficiently as we can and control the controllables, which is the message that we've been sending over the last year plus, certainly as it's been a challenging big business. So a little early. We'll certainly give more commentary as we get there in our next call. But I wanted to leave you with some qualitative thoughts in '27 by each of the segments. Hopefully, that helps with some context there.

Our next question comes from Heather Jones with Heather Jones Research.

Donnie, I want to say it's been wonderful to work with you all these years, and you define will be truly missed. And Jeff, wanted to extend a welcome and looking forward to working with you. I guess want to start out with the balance sheet capital allocation question. Your balance sheet is the strongest in a while. And so I just wondering if you could give us updated thinking about how you're thinking about capital in you mentioned some share repurchases you did recently. So just updated thinking on that? Is there potentially any large-scale M&A that could be on the table given how strong the balance sheet is now?

Yes. Thanks, Heather, and thanks for noting certainly, we worked very hard through the business all the way through the capital allocation and the choices that we've been making over the last couple of years. So I appreciate the notice. And as always, I start out a capital allocation question around our priorities, and reemphasizing maintaining that financial strength is first on the list. But we also invest in the business, both organically and inorganically, to your question and as well as returning cash to shareholders, I'll comment on the share repurchases in just a second. But I think we've demonstrated consistently that we intend to build that financial strength. And as you noted, we have an incredibly healthy balance sheet. We're right at about $4 billion of liquidity, about 2.1x on a net leverage basis. We've taken gross debt down about $800 million this year, over $900 million of free cash flow, and with that, we've invested about $550 million in CapEx, and we've shared a range a little tighter, but we share range this morning, $700 million to $900 million of CapEx. And so far, on a year-to-date basis, returned about $650 million to shareholders through dividends and repos. But to your comment, we did make an earlier comment in the prepared remarks, around we've already done some share repos already in the early part of Q4, about $45 million or so. I think that represents certainly an attractive valuation for us to allocate capital to and it's been a good return for us, we believe. But we still continue to see great opportunities to invest in the business, and we'll take a balanced view as we have, and we'll certainly share guidance in the upcoming call next quarter relative to our thoughts of CapEx. But we continue to see really great opportunities to invest organically in our business.

Okay. And then my whole is, I've just been trying to reconcile a couple of things on the chicken business. So Donnie, to your comments about the genetics, improved yield, improved hen production, the egg production, just basically improvement across the board on the productivity. During [indiscernible] Q3, the industry grew volumes like 4.7%. And but all volumes were only up 1%. I'm just trying to reconcile disparity there. Is that just lower external purchases? Or just how should I think about that so that I can think about it correctly going forward. .