Tyson Foods at 20th Annual Global Farm to Market: Strategic Growth Amid Challenges

On Wednesday, 14 May 2025, Tyson Foods (NYSE:TSN) participated in the 20th Annual Global Farm to Market Conference and Chemicals @ Farm to Market. During the event, CEO Donnie King and CFO Kurt Callaway discussed the company’s strategic advancements and challenges. While Tyson Foods reported positive developments in its Chicken and Prepared Foods segments, it also acknowledged difficulties in the beef market due to herd rebuilding.

Key Takeaways

• Tyson Foods is experiencing a successful turnaround in its Chicken business, with strong margins and operational improvements.
• The Prepared Foods segment is on track for sustainable double-digit margins, driven by innovation and operational excellence.
• The Beef segment faces challenges due to herd rebuilding, but Tyson remains optimistic about its long-term potential.
• Tyson is focused on disciplined cash management, achieving short-term leverage targets, and prioritizing shareholder returns.
• The company plans to invest in growth, particularly in Prepared Foods and value-added chicken products.

Financial Results

• Chicken Business:

- Achieved approximately $680 million in adjusted operating income in the first half of the year.

- Full-year guidance remains in the upper half of the $1 billion to $1.3 billion range.

- Volume growth continued for the second consecutive quarter.

• Beef Business:

- Expected to be at the lower end of the negative $200 million to negative $400 million guidance for the year.

• Prepared Foods:

- Recorded roughly $900 million of adjusted operating income in 2024.

- Guidance for 2025 starts at a minimum of $900 million.

- A $36-37 million improvement in plant controllables was noted in Q2.

• Capital Allocation:

- Reached a leverage ratio of 2.3x net debt.

- CapEx guidance is between $1 billion and $1.2 billion.

- Raised the dividend at the start of the year to $2 per share.

• Pork:

- Reduced controllable costs by approximately 18% in Q2.

Operational Updates

• Chicken Business:

- Enhanced live performance with better hatch and livability rates.

- Improved plant efficiency through better labor yield and throughput.

- Shifted product mix towards value-added branded products.

• Prepared Foods:

- Improved operational efficiency and innovation pipeline.

- Focused on regaining volume in foodservice and private label segments.

• Beef Business:

- Concentrated on eliminating waste and developing value-added products.

• International Business:

- Expanding asset capacity in China, Thailand, and Malaysia.

Future Outlook

• Chicken Business:

- Expects strong demand in the latter half of the year and into 2026.

- Plans to increase capacity utilization and grow volume.

• Prepared Foods:

- Aims for significant growth from $900 million and beyond in 2025.

- Anticipates top-line volume growth through efficiencies and innovation.

• Beef Business:

- Herd rebuilding is expected soon, initially compressing margins due to fewer cattle.

• Capital Allocation:

- Continues disciplined cash management and prioritizes shareholder returns.

Q&A Highlights

• Chicken Margins and Guidance: Despite strong chicken margins, guidance remains due to investments and weaker beef performance.
• Prepared Foods Growth: Significant growth potential seen, focusing on operational excellence and innovation.
• Beef Herd Rebuilding: Industry nearing herd rebuilding, though uncertainty remains.
• Capital Allocation: Prioritizes financial strength and shareholder returns through dividends and potential share repurchases.
• Supply Limitations: Industry faces hatch and livability constraints, affecting chicken supply growth.

For more detailed insights, readers are encouraged to refer to the full conference call transcript provided below.

Full transcript - 20th Annual Global Farm to Market Conference and Chemicals @ Farm to Market:

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: All right. Good morning, everyone. I’m Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, and I’m delighted to welcome everyone to our twentieth Annual Farm to Market Conference. Twenty years is an incredible milestone. And this year, we have the pleasure of hosting over 100 companies and nearly 1,000 total attendees over the course of today and tomorrow.

Our goal today remains the same as it’s been over the last two decades, provide a forum to explore key themes and investment opportunities across the food value chain. The conference will highlight fireside chats and presentations from senior executives of leading companies spanning from farm to market, including the fertilizer, chemical, agribusiness, protein, food, beverage, distribution and food retail sectors. I want to take a moment to thank the many people who make the conference the success you see today. The management teams have been incredibly generous with their time and insights upon which the conference has been built. Our fantastic sales force, dedicated editorial staff and tireless conference coordinators are remarkable in their commitment to making this event a success for investors and companies in attendance.

And last, but certainly not least, I want to thank the investors joining us from all parts of the world who really make this event special. In addition to the variety of company and sector dynamics we expect to explore over the next two days, we seek to keep the conference relevant each year for the rapidly evolving dynamics across the agriculture and food value chain. We’re fortunate to have as our keynote lunch speaker today, former Chief Economist at the White House Council of Economic Advisors, Ernie Tadeshi, to discuss the evolving global trade and tariff landscape. And tomorrow’s keynote panel featuring Katherine Saunders from Wheel Cornell and Jordan Baram from Mackenzie will focus on the rise in popularity of GLP-one medicines for weight loss and its impact across sectors. We hope you come away from the conference with incremental insights and a better understanding of company strategies and outlooks, opportunities and challenges, key issues and new ideas.

If you have any questions or need any help, please don’t hesitate to ask. Thank you, and enjoy the conference. For the twentieth consecutive year, we’ve been fortunate to have Tyson kick off this conference. Under the leadership of CEO, Donnie King, Tyson has implemented a disciplined focus on controlling the controllables that’s driven the turnaround of its chicken operations, put Prepared Foods on a path to sustainable double digit margins and stepped up earnings in Pork and International while managing through a challenging beef environment. In fact, profit growth has been restored across the portfolio with the exception of beef underscoring the benefits of Tyson’s diversified multi protein model.

Donnie is joined by Kurt Callaway, who has enhanced the leadership team since becoming CFO nearly a year ago. Over that time, Kurt’s continued to manage Tyson’s balance sheet through the lens of financial discipline, opportunistic capital allocation and cash returns to shareholders. Donnie and Kurt, we’re extremely appreciative of you guys being here again this year. Good morning. Maybe I’ll kick it off this way.

We talked about the turnaround in the chicken business. You’ve seen a material improvement. You’ve talked about some of the cost savings you’ve captured through closures and some of the other actions. Is there a way to frame kind of that improvement through operational KPIs? Or how else to think about where your plants are in terms of that improvement?

Donnie King, CEO, Tyson Foods: Well, you, Andrew, and good morning, everyone. In terms of our Chicken business, we’re very proud of where we are presently within the Chicken business. We’re going to have a great year. We had a great first half of the year, recording roughly $680,000,000 in adjusted operating income. The back half of the year appears to be very constructive for us.

There are some uncertainties and some investment spend that we have around our brand which are if you think about it, some of that would be for this year sales, but I think more importantly for 2627 in support of brand and brand health and product innovation. But in terms of the controlling the controllables, it is that is the mantra at Tyson Foods and that’s what we do. The turnaround that you spoke of, you know, and if you think about that, that’s been about two years. You know, it was the fundamentals of the business. It was live performance.

Our live performance today is is it looks more like it has historically. We went through a period in the early two thousand I think it’s 02/2120, and even through ’22 where we had issues with hatch and livability and egg production and just a number of things, and and we’re look have moved beyond that a little bit and and so, you know, if we look at from a hatch and a livability perspective, at least based on what USDA reporting is, we do very well relative to the industry reported numbers. And so that’s pretty exciting for us and gives us a little bit more stability in terms of supply planning from a supply planning perspective. Inside the plants, it’s it’s really well, sexy to me. It’s probably not sexy to everybody, but labor yield and efficiency and throughput, I mean, that’s those are all really exciting things for me and we’re doing those much, much better today and we still have things that we can do and get better at, but our performance through the plant is very good.

If you think about it in terms of the mix that we have through those plants, we talked a couple of years ago about moving our mix more to, let’s call it, value added branded and we’ve done that in a pretty significant way. We’ve lessened our exposure to commodity markets and and, you know, you might look at a breast meat market that’s $2.85 and say, hey, genius, you just you just moved away from a what is a very high breast meat market relative to to prior years. But we did that. That’s not our model, and we take that that breast meat and we put it into value added products that we sell behind the number one brand in chicken in both food service and retail. And we’re doing that really, really well.

And we’ve aligned ourselves with strategic customers and we’re growing with them. In fact, if you think about our growth, we had a second consecutive quarter of growth in our chicken business, volume growth. We grew in the quarter and the year top line, bottom line, that feels really good. But we’ve got more opportunity to grow. We’re looking to create greater capacity utilization even through based on what we’ve done and work our assets a little harder and bump the return on invested capital, doing all those things.

And we’re continuing to invest in innovation and, you know, we launched some lightly breaded products, tenderloins and bites and so forth, and we have a pretty robust pipeline for chicken for the balance of the year. So it’s the fundamentals of the business. They will never get old. They will never go out of style. And our plan and our turnaround is no more complex than that.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: It’s been three or four years since you kind of really detailed what that mix looks like. Since then you’ve closed several plants. Is there a way to think about what your mix looks like today compared to what it was several years ago? Are you happy with that? Do you expect it to continue to evolve?

Donnie King, CEO, Tyson Foods: I think it will continue to evolve. It will look more like value added branded convenience. You will see a little more focus on nutrition and health of the products better for you. If you look at what we did today or what we’re doing today or where we’re headed today versus where we were then, at the time, we were over indexed to some of the more commodity exposed businesses. We’ve made some adjustments through all the network changes that we’ve made over the last, you know, three years or so.

So that’s working really well for us, and you’ll see more of that. An area where we will we will do a little more than we’ve done, it would be in some of the premium fresh chicken. We’ve made investments, in fact, made them this past year, and you’ll see some growth in there. So but if you look at where we are at retail, we’re in every part of the store. We are part of every day part.

If you look in food service, we across commercial, non commercial, You know, we have a great presence across again, across all day parts. And in addition to that, we’re able to meet the consumer across a number of price points based on what their needs are.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: I’m sure you’ve gotten this question a fair amount since the print. But as strong as Chicken margins are, you reiterated the Chicken guidance for the year, expect it to be in the top half of the range. And I think people look at that and struggle to marry the two pieces. So can you walk us through what the back half of the year is going to look like, the decision to reiterate the guidance in this kind of Chicken environment that on paper looks so strong and how we should think about it?

Donnie King, CEO, Tyson Foods: Sure. Let me start off and Kurt, he can add colors. This is one he’s really passionate about and so I need to give him some airtime here as well. But in terms in terms of that, you know, our range for check-in this year is a billion to a billion 3. You know what, we had $680,000,000 of adjusted operating income through the first half of the year.

We have a great Q3 going. We have every reason to believe that the back half of the year will be constructive from a pricing, from supply demand balance, and you would we’ve talked about this in terms of middle or to the upper. There are some unknowns at the time we did this with tariffs and uncertainty around what we would be able to shift, you think pause and so forth, and but we feel good about the back half of the year. Nobody in Tyson is running from the top end of that range, but we try to balance that. But there’s another component to that that which isn’t chicken that we tried to factor in.

What we’ve said, if you take it in if you take it in total, is we think chicken will be toward the top end of the range, and we expect our beef business because of where we are in the cycle to be, you know, a little worse than or toward the worst end of that. We said the range in beef just for this point to be negative 200 to negative $400,000,000 in the year. So you got one that’s going to be on the top and one that’s going be on the lower side, and so we took it all together. And so in total, we did not adjust nor did we tighten ranges. But we still feel very, very good about our chicken business and where it is and what it’s going to do for the balance of the year.

Kurt Callaway, CFO, Tyson Foods: I might add just for a moment. I think it’s important to add to the comments that we made. We were just three months away from raising our guidance, right. We had raised our guidance at the end of our first quarter and we reiterated that. And we didn’t change anything from revenue all the way through operating income, all the way down to free cash flow or CapEx, right.

Our guidance was the same from a range standpoint. What we did provide though was color around where we felt like we could be at the upper end of a range or perhaps at the lower end of range, just as Donnie illustrated. I think we had we made comments about we felt a constructive environment was there for chicken. I think we’ve addressed that, right? We produced, as Donnie said, six eighty million of adjusted operating income in the first half.

At the upper end of the range, that would imply about $620,000,000 of operating income in the back half of the year. But that includes a disproportionate amount of investment back across the brands and the health of our Chicken business in the back half of the year. And that follows a second half of ’twenty four, where we were about $660,000,000 range. And I think that, from our perspective, provided a very strong backdrop relative to not only finishing ’twenty four, the first half of ’twenty five and what that implies in the back half twenty twenty five at $6.80 and what that implies in the back half of twenty twenty five with that investment, I think, gave a very strong outlook for our Chicken

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: You touched on some of this at the start in terms of the operational improvements, but we’ve gotten this question a decent amount over the last week or so from investors. I just want to give you the opportunity to address it. Is there anything from an operational standpoint that maybe is keeping you from achieving a higher number in this environment that you maybe have taken a step back or anything like that?

Donnie King, CEO, Tyson Foods: I don’t see anything that would prevent us from getting there. If you think about any kind of impediments from a live performance perspective, from a plant performance, from a mix, from customer relationships, the health of our brands, we feel very good about that. But I think it’s also important to know that our business model is not one that features, you know, commodity markets. Our business model is, you know, the correlation between breast meat and market prices is very low correlation. But also in this environment, you I think some in the room would also attest to this, is that we didn’t see the wing season that we thought we’d see.

Therefore, we’re seeing the value of wings continue to go down. So that’s a, you know, that’s a headwind for us. But big picture here is this, breast meat prices are high here in ’25, but we’re not playing here just for ’25. Our model is we contemplate being at this level, this $1,000,000,000 1 point 3 dollars year in, year out. And so that’s the play that we’re running, and we’re trying to create those hedges, if you will, within the business that will protect that margin structure at that level, not only in 2025, but in 2026, ’20 ’20 ’7 and beyond.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: You talked obviously about the chicken breast prices and the strength that you’re seeing there. Can you talk about the supply demand across the different parts of the industry or of your business? And obviously, you’re seeing the strength of breast prices leading indicators that are not indicating that much supply growth. How you’re thinking about that?

Donnie King, CEO, Tyson Foods: Well, we see the same data that everyone else sees, USDA data. That’s the only source from an industry perspective we have. And if you look at April, I think it projects from a chicken production, it was plus 1.9%. In May, it dropped to 1.4. You know, I think that may be the high point at least for ’25.

I don’t know that. But in terms of Tyson, we’re well balanced across all these different areas that we play in and feel good about that. And, you know, in Q2, ’1 of the things you would see, and I’ll just add this, is you saw a slight uptick in working capital. Well, a lot of that was built on some customer building inventory for some customer needs. They started rolling out in early Q3, and so that’s been addressed and moved.

So we don’t have excess inventory in any part of our chicken business, and so we feel really good about that. And demand for chicken is going to be strong from our perspective in the back half of the year and even into perspective in the back half of the year and even into ’26, and it’s gonna be that value protein sitting underneath, you know, the price of beef and which I’m in the beef business, but the beef the consumer of beef, they’re still buying beef, they’re still buying grinds, they’re still buying middle meats and they’re moving all around, but beef consumption is still very good.

Kurt Callaway, CFO, Tyson Foods: I think we so just to add really quick, I think we made the comment last week around, we would expect from a production standpoint, beef to really be kind of flat. Pork is going to be not really making up much ground. And so it serves as a very constructive environment for chicken, which was why the catalyst of what we shared that we still have a positive outlook relative to consumer desiring chicken.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: So demand backdrop, mean, to your point, several years, it should stay very strong. Your operations have improved, but there’s a lot of kind of limitations in the industry in terms of the ability to raise production. So is there a way to frame how much that is limiting things, maybe like the maximum exits that we could get to if some of those issues were to subside?

Donnie King, CEO, Tyson Foods: You know, I’ll speak first to Tyson. You know, we still have some latent capacity. We can extra hours, extra shifts, those type of things that we could push our system, and we’ll flex in and out of that when we need to. But we want to increase the capacity utilization of our chicken business like we do every other business, right? I talked about the volume growth in chicken in our Q2, Q1 and Q2.

We want to see more of that. So we intend to grow and support those needs that we have. But from an industry perspective, I assume you’re referencing the record egg sets and so forth in Q2. You know, I think it’s at an all time high, but I think you have to factor in hatch and livability, which is something that’s going on in the industry today. And with two dollar and eighty eighty five cent breast meat, I would suspect if somebody wanted to produce more, they’d be doing it right now.

Or if they could produce more or had capacity to produce more, which is going to require would require greater hatchability or excuse me, greater hatchery capacity and even additional housing.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: Are we at a point where chicken margins have been pretty strong now for a bit where we might see more of that expansion? I mean, there’s been one of your peers that announced a new plan. I don’t know if others are exploring that. But just generally speaking, are there limitations in the ability to do that?

Donnie King, CEO, Tyson Foods: I think there are some limitations relative to hatch and livability. There are some issues, you know, from a genetic perspective that is limiting that. I think the thing that you have to know about that though, at some point that’s going to be corrected. I would assume that’s going to be corrected. As I mentioned earlier, we we lived through that, you know, three or four years ago and it takes a minute to correct that and we’re not all the way to bright yet, but we’re in a much, much better place than we were before and as a as a reference to, you know, versus USDA reported data, we have a substantial advantage to what is reported in hatch and livability there.

So we feel pretty good about that, but I think there will be a bit of a lid on this and I think industry will probably try to fill these gaps and and, know, I I think chicken will be in short supply for a bit. Yeah.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: Shifting gears a little bit to the prepared foods business, starting to see some real improvement there. But can you maybe walk through over the last couple of years, what have been some of the impediments from a profit standpoint there and the areas that you’re addressing now that have led to some of the recovery there?

Donnie King, CEO, Tyson Foods: Sure. We’re very proud of our Prepared Foods business. It is one of the crown jewels within our portfolio. It is I think if you well, if you go back to 2024, we recorded roughly $900,000,000 of adjusted operating income in prepared foods. If you look for the six, seven, eight years prior to that, it was somewhere around 800,000,000.

So a bit of a step change. But let me back up and walk you through some of the building blocks of that. So everyone here experienced the impact of COVID. Right? We went through COVID, and then there’s post COVID when you’re trying to staff a plant and trying to get lines to run efficiently.

So from ’21 to ’22, we all live that. Into ’23, ’20 ’4, we began to across all businesses, began to get staffed and run more efficiently, and ’24 was across all businesses was a pretty significant step change. And then you move into ’25, and this thing is continuing to accelerate. Well, Prepared Foods is participating in all that, but if you look at that 900,000,000, that’s not what we believe to be the top end of that. My personal belief is that there is no business within Tyson that has more headroom available than our prepared foods business, and I think the number which we think about and talk about internally is probably far larger than what anybody here would think about.

You think, well, double digits, 10%, right? That’s not what we’re looking for. That’s where we are today, but we’re looking to be a lot bigger than that. If you think about, well, how do you get that? You’ve got these iconic brands of Jimmy Dean, Hillshire, Ballpark, and so on.

But in addition to that, through the leadership in our prepared foods business, we’re putting all these things together, and it looks just like if you talk about chicken or if you talk about beef or you talk about pork, we’re running the same play about five times. It’s operational excellence. It’s how you procure the inputs in prepared foods, and and then it’s how you run it through the plant. I think we improved controllables within plants somewhere around 36, 30 7 million dollars in q two alone. So that’s looking better.

That team is running a better operational footprint than we have in some time. If you move into the mix, you know, we have the largest innovation pipeline in our prepared foods business that we’ve ever had. It’s exciting stuff. We’ve got some really, really nice tools around how we look at that, how we start from insights to the innovation and try to meet the consumer where they are and what their needs are. And then, by the way, we support it in the marketplace financially, and those are doing really well.

If you go back a little bit of time, you will find that we had a really, really we kind of pivoted toward more of a just a retail prepared foods business. Well, if you go back into 2014 when we bought Hillshire, we had about a $5,000,000,000 private label, predominantly food service business. Hillshire was a $5,000,000,000 predominantly retail business, and we put those together, and over time, through COVID, through a bunch of different scenarios, we gave up volume in food service, we gave up volume in private label, and we focused on just the brands. And so therefore, from a return perspective, which Kurt will speak to, is that the volume bottom or top line wasn’t growing. Pricing was up, but we’re looking for growth in the top line and the bottom line in prepared foods.

We have a significant amount of invested capital in our prepared foods business. We have to leverage and get returns on that, means you have to grow more volume. Well, you don’t just go say, go grow volume. Well, you have to be more targeted than that. Know what customers you’re going to, what that product mix is gonna look like.

You gotta have innovation, and we are the category leader with these brands in many of these these categories. And I would point this out, private label is growing. The consumer is more price sensitive today than maybe forevermore, but they still enjoy those brands, and those brands that we have provide a pretty significant halo around for us in that category. What we are doing is adding back foodservice volume. We’re adding back some private label business for our customers.

And so we’ll have two or three different tiers of product offerings across a different category. So I could go on and on in that, but I would tell you that the upside and the opportunity within prepared is it will be a game changer for Tyson Foods. Let

Kurt Callaway, CFO, Tyson Foods: me just add just a moment. To go back to what Donnie started with on, you know, our average really from post ’fourteen through up to ’twenty four, we’re averaging about $900,000,000, right? And the team had, you know, really started to make a little bit of an evolution as we worked our way through ’twenty four. I’m very proud of an accomplishment of hitting the $900,000,000 mark, as Donnie started with. But the guidance range we set for ’twenty five had a bottom end of $900,000,000 and better, right?

In the last earnings call, we talked about we’re expecting to grow prepared foods, right, from volume all the way to the bottom line. And how that’s being done exactly as Donnie said, is it starts with within the walls of the plant and the operational efficiencies that we have available to us to attack. I always talk about, right, there’s a level of intensity from a prepared foods plant operation level that has room for improvement. In a commodity business, you know you have to operate with that intensity in a commodity world. In our prepared foods business, when you’re managing brands and innovation and plant operations, it’s not as critical as it is in the commodity businesses, and we’ve started that process of transforming within the network of the plants to generate the profitability, but most importantly, the cash to fund back through the innovation pipeline.

Donnie shared, right, the enthusiasm we have for the innovation pipeline. I’ve been around nineteen years. I can tell you by far and away, it’s the best innovation pipeline we’ve had in my nineteen years here. And then the commitment back behind that to support it in the marketplace is what gives us the confidence that we see a step change from 800 to 900, a step change from 900 to better in 2025, and where we’re looking to go in ’twenty six and beyond, growing both as a top line volume all the way through the P and L.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: I have to ask this as a follow-up. You talked about the longer term kind of headroom and how exciting that opportunity is. Is there a way, a, to frame kind of the productivity this year that’s included in the guidance, but maybe productivity is not the right word, but component and then how you view kind of the longer term earnings potential of that business?

Donnie King, CEO, Tyson Foods: Yes. I would say, again, I would reiterate there is significant uptime. I would ask you not to think about it in terms of a productivity initiative. That sounds like an event. I’m not looking for an event.

I’m looking for a way of life. And that continuous improvement process across prepared foods is doing those fundamentals, whether it be with brands or with labor and yield or how you buy the raw material or those relationships with customers. Doing those with excellence is what we’re looking for day in, day out, not only for 25, but for beyond.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: And in an environment in which in large part because of beef production is going to be down, demand is going to stay strong, we should have high protein prices, so your input costs will be a bit of a headwind. So just philosophically, given the desire to grow volume, how do you balance those two pieces within kind of your revenue management?

Kurt Callaway, CFO, Tyson Foods: So we’ll start with back what I mentioned at the beginning, which is we have to make sure we’re absolutely cost competitive, right? That gives us the flexibility to invest where we need to, to bring innovation back, which will create a point of difference, and then really drive home the value of an incredible portfolio of brands, right, that resonates with consumers, has a lot of equity. But it starts with the cash generation of the business, what we’ve already done and what we’re building on to really drive home points of differentiation and value behind the brand. Okay.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: Shifting gears to the beef side, the commentary that you provided on the earnings call around herd rebuilding, potential herd rebuilding was a bit more optimistic than we’ve heard in quite some time. Kind of what’s informing that view? Where do you see the industry in the cycle today?

Donnie King, CEO, Tyson Foods: Well, let me start with, we have a great beef business. In fact, the team leading that beef business is as good as I’ve worked with in my all my years with Tyson Foods. Don’t allow the adjusted operating income number communicate to you that we are not performing or executing. We are actually executing with excellence like I’ve never seen in our beef business. So what is informing us relative to the herd rebuild?

USDA data. If you look at the number of cows that have been harvested, that number is down about 18 according to USDA. If you look at cattle on feed and if you look at heifers as a percent of harvest, we see the heifer harvest down about 4% according to USDA. And those are all encouraging signs. We believe that we are at, near the herd rebuilding.

We see all kinds of signs of that, but I think the reality is this, everybody’s hesitant, including me, to call that that we are now in rebuild. I think what actually happens here is is you will be in a rebuild mode, and we we if we’re not, we’re very close and I think that you’ll actually be in it before you really know it and can call it, but you need a couple more data points from here to be able to confirm that. But I think that’s think that’s where we are, and in fact, you know, this is a good news, bad news story. So good news is we think we are now getting herd rebuilt. The bad news is we now have fewer cattle to harvest, so that creates, you know, spread compression.

So what we’ve challenged the team to do is to, again, control the controllables, to extract or to eliminate the waste within the business, and find new and creative ways from procurement all the way through connecting with customers and consumers with, let’s call it, value added products. We have a line if you look at our case ready beef and pork, very much value added. We’ve added a line of seasoned marinated meats, which when you get the opportunity, you should try those. The convenience factor and the quality of those products are second to none. So we’re working on it from that side too.

But call the date of heifer or excuse me, of herd rebuild. You got thirty months or so that you’re going to see this thing take. So we we still got some headwinds ahead of us, and so that’s certainly factored into our guidance that we gave, and but that’s how we see the beef business. We got a good beef business. It can be a little painful right now.

I spent a lot of time walking up and down a hall talking to our team in beef, trying to encourage them to just keep doing what you’re doing. Keep controlling what you can control. Keep your head up. Keep moving forward.

Kurt Callaway, CFO, Tyson Foods: I think Andrew, just to add to that really quick, yes, certainly, back to my earlier comment, beef availability will be challenged during that time period, right, which is another strength relative to our intentional multi protein, multi channel strategy, right? When we’ve got an environment that is challenging in beef and you’ve got an environment where there’s probably less availability of beef, it’s helpful and certainly in the total complex to be able to manage that multi protein, channel portfolio.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: I guess I find in my conversations at least that in the market, there’s not a great understanding of how to think about margins or profitability in beef as you get this herd rebuilding. So what’s the right way to think about it? Obviously, cal availability will go down first before it goes up. So do you expect to be able to kind of manage along sideways? Or I guess just directionally, how should we think about that?

Donnie King, CEO, Tyson Foods: Maybe let me start with kind of a longer term picture. Let’s call it thirty months out, thirty six months out. Think about it this way. If our range for 2025 in beef is to lose 200 to $400,000,000, right? Let’s say it’s we lose $400,000,000.

If you think about beef back to, let’s call it mid cycle or some realistic level of operating income, you could easily see a differential of about a billion dollar swing from the 400 to what is kind of mid cycle average conservative kind of viewpoint of of what beef can do. And if you take that billion dollars and you add it to what we just said about prepared foods and chicken and and what we’re doing in pork and international, it becomes a very attractive business. But it’s gonna take a minute to get there.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: I wanted to touch briefly on Pork and International, which was very nice to see some of the improvement in performance in both of those businesses relative to what we would have expected. And I know you’ve been doing some things operationally there as well. Can you just give a little more insight into how sustainable that is? Was there anything in the quarter that maybe propped that up that we should expect to not continue? Or how have you improved that performance?

Donnie King, CEO, Tyson Foods: I would say we’re running a really good business in our pork. If you look at, again, controlling the controllables, again, said this is sexy to me. It may not be to you, but labor yield and efficiencies and throughput and those type of things, we reduced our controllable cost by roughly 18% in q two alone in our pork business. That’s sustainable. The the market, the supply demand fundamentals are are good.

Herd health is good as it relates to pork. You know, our pork business is not the largest, but we certainly think it can be, you know, the best and based on the size and scale. And but we got a great team leading that business today, and the agility that you see in that business is is is something that I take great joy in watching, and then let me shift over to international. International is a smaller business for us as well, but what we’ve been doing in international is essentially what I’ve just described that we did in chicken and prepared and beef and pork is controlling what we can. It’s the fundamentals, but essentially, it’s capacity utilization.

When we purchased the assets from Keystone in 2018, if you go back, we added, I think it was 12 plants to that in our international footprint. And then we had some JVs and some co manufacturers and so forth. What we are essentially doing is filling up our assets in China and in Thailand and in Malaysia. And so the volume going through that, the capacity utilization, the return on the invested capital you get from that grows both top line and bottom line. So the play is very similar to what we’re doing in every other business.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: You’ve been managing cash pretty tightly for the last couple of years. CapEx has come down, and now we are on an improving, it seems like, earnings trajectory. How are you thinking about your capital allocation on a go forward basis? Is there an earnings framework as things get better that you that we can think about to guide that?

Kurt Callaway, CFO, Tyson Foods: Yes. Great question. Thanks. I think certainly worth pointing out and recognizing the discipline and the cash management that we’ve had in the last eighteen months. While we knew at coming out of ’twenty two, ’twenty three that there would be a pullback from beef profitability.

We have been we ran about eight quarters below our long term leverage target of 2x because we knew there would eventually be a pullback in beef earnings. As that hit, the chicken profitability fell a little bit in ’twenty three and our leverage moved up to 4.1x. And so we were very intentional in our capital allocation priorities, which start with maintaining financial strength, but also include investing in the business and returning cash to shareholders. So as we worked our way through ’twenty four and the first half of ’twenty five, it was about getting leverage and building that and maintaining that financial strength. Very happy that we got back to 2.3 times.

We’re not quite to our long term target of two times net leverage quite yet, but we can see the pathway. So as always, right, we are back to where we should be investing. We also shared CapEx guidance between 1,000,000,000 and $1,200,000,000 which we think is a very healthy reinvestment rate for us. Certainly, doesn’t is a pullback from where we were at nearly $1,900,000,000 a year back in the ’twenty two, ’twenty three time period. But that was really about adding a lot of capacity into the network, as Donnie talked about, number of international facilities.

We also built four domestic facilities, much larger in the domestic arena, much smaller facilities in international. And the same mantra of filling those assets up and valuing up, we’ve been going through. And so it’s really about that discipline around capital. And we did raise our dividend at the start of this year for the thirteenth consecutive year and a milestone for us on hitting $2 per share on a dividend return.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: Is there if you were to expand kind of the growth CapEx portion, I mean, what’s the priority list? What’s attractive at a high level?

Kurt Callaway, CFO, Tyson Foods: Yes. As Donnie talked about before, our value generation is in our branded portfolio mix. We have a lot of innovation pipeline. We’ve got a lot of capacity that we can fill. But as we reach and look for that next evolution, it absolutely is centered around prepared foods, value added branded items and certainly continuation of increase our value added portfolio in our Chicken business.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: And then lastly, before we’re out of time here, share repurchases haven’t been a huge piece of the capital allocation story recently. How should we think about that? Is there something you’re looking for before we should think that, that maybe gets to be a bigger piece of the opportunity pie?

Kurt Callaway, CFO, Tyson Foods: Yes, absolutely. Return cash to shareholders through dividends or share repos is still absolutely in the capital priorities. We generally look at ensuring that we’re covering any dilution that occurs and then make a strategic choice relative to alignment of other alternatives from cash deployment, and we’ll make that decision at the right time.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: Great.

Donnie King, CEO, Tyson Foods: It’s pretty good value right now.

Andrew Strelzik, BMO’s Agribusiness, Beverages and Restaurants Analyst, BMO: Yes. There you go. That’s a good way to end it. We’re out of time anyway. So thank you very much guys for being here.

Kurt Callaway, CFO, Tyson Foods: Thank you.

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