19 April 2024
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Strong Q4-2017 Propels Tyson Foods to Record Year

Springdale / AR. (tsn) Tyson Foods Inc., one of the world’s largest food companies and a recognized leader in protein with leading brands, reported the following results for the fourth quarter and twelve months ended September 30, 2017.

(in millions, except per share data) Fourth Quarter Twelve Months Ended
2017 2016 2017 2016
Sales USD 10’145 USD 9’156 USD 38’260 USD 36’881
Operating Income 681 586 2’931 2’833
Net Income 395 392 1’778 1’772
Less: Net Income Attributable to Noncontrolling Interests 1 1 4 4
Net Income Attributable to Tyson USD 394 USD 391 USD 1’774 USD 1’768
Net Income Per Share Attributable to Tyson USD 1.07 USD 1.03 USD 4.79 USD 4.53
Adjusted¹ Operating Income USD 902 USD 586 USD 3’263 USD 2’833
Adjusted¹ Net Income Per Share Attributable to Tyson USD 1.43 USD 0.96 USD 5.31 USD 4.39

Adjusted operating income and adjusted net income per share attributable to Tyson, or Adjusted EPS, are non-GAAP financial measures and are explained and reconciled to a comparable GAAP measure at the end of this release. Adjusted net income per share attributable to Tyson guidance is provided on a non-GAAP basis because certain information necessary to calculate such measure on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. A further explanation of providing non-GAAP guidance is included at the end of this release.

Fiscal 2017 Highlights

  • Record GAAP EPS of USD 4.79, up 6 percent from last year; Record Adjusted EPS of USD 5.31, up 21 percent from last year
  • Record GAAP operating income of USD 2’931 million; Record Adjusted operating income of USD 3’263 million
  • Total company GAAP operating margin at 7.7 percent; Record Adjusted operating margin at 8.5 percent
  • Operating cash flow of USD 2.6 billion

Fourth Quarter Highlights

  • GAAP EPS of USD 1.07, up 4 percent from last year; Adjusted EPS of USD 1.43, up 49 percent from last year
  • GAAP operating income of USD 681 million; Adjusted operating income of USD 902 million
  • Total company GAAP operating margin at 6.7 percent; Adjusted operating margin at 8.9 percent
  • Reduced debt over USD 600 million

Guidance

  • EPS guidance of USD 5.70- USD 5.85, representing an approximate 7-10 percent increase from fiscal 2017 Adjusted EPS

«The fourth quarter was a strong finish to another record year», Tom Hayes, Tyson Foods’ president and chief executive officer, said. «We delivered well over our goals of at least 4 percent operating income growth, EPS growth in the high single digits and 3 percent volume growth in value-added products, and expect to meet or exceed these goals again in fiscal 2018.

«Our Beef and Pork segments delivered outstanding returns for the quarter and for the year, again generating significant cash to fuel investments in our Chicken and Prepared Foods segments. For the 2017 fiscal year, our Core 9 product lines and our total retail business continued to outpace total food and beverage growth in both Dollars and volume. At foodservice, our Focus 5 products are growing at six times the rate of the broadline distribution channel.

«Fiscal 2017 was a year of great change and, despite some challenges, our team remained focused on the long term by keeping consumer relevance, customer growth and shareholder value creation at the forefront. Not only did we generate exceptional financial results, we also strengthened the foundation needed to accelerate growth through several initiatives. We refined our strategy and put in place a new management team to implement it. With a renewed focus on protein packed brands, we initiated the divestiture of some non-protein businesses. We acquired and are successfully integrating AdvancePierre Foods to expand our manufacturing capabilities in sandwiches and other prepared foods and to increase our presence in the convenience store channel. We repurchased roughly USD 650 million in shares before the AdvancePierre acquisition and then redirected cash flow and proceeded to pay down more than USD 600 million of debt. We announced a restructuring and cost cutting program to increase our agility as an organization. To cap off a great year, the Board of Directors increased the dividend by USD 0.30 to USD 1.20 per share annually, an increase of 33 percent.

«Fiscal 2018 is off to a great start, and we’re currently expecting adjusted earnings growth of 7-10 percent to USD 5.70-5.85 per share. We’re confident in our ability to realize in excess of USD 200 million in net savings this fiscal year from our Financial Fitness program, including AdvancePierre synergies. We’re planning capital expenditures of USD 1.4 billion in fiscal 2018 while we continue reducing debt to reach our net debt to EBITDA target of around 2x, which we anticipate will happen by the third quarter. When we reach that target, we intend to resume repurchasing our shares.

«Our plan is to grow our business year after year through differentiated capabilities, deliver ongoing financial fitness through continuous improvement and sustain our company as we sustainably feed the world with the fastest growing portfolio of protein packed brands».

Summary of Segment Results

  • Beef: Sales volume increased due to improved availability of cattle supply, stronger domestic demand for our beef products and increased exports. Average sales price increased as demand for our beef products and strong exports outpaced the increase in live cattle supplies. Operating income increased due to more favorable market conditions as we maximized our revenues relative to the decline in live fed cattle costs, partially offset by higher operating costs.
  • Pork: Sales volume increased for fiscal 2017 due to strong demand for our pork products and increased exports. Sales volume decreased in the fourth quarter of fiscal 2017 as a result of balancing our supply with customer demand. Average sales price increased as demand for our pork products and strong exports outpaced the increase in live hog supplies. Operating income increased as we maximized our revenues relative to the live hog markets, partially attributable to stronger export markets and operational and mix performance, which were partially offset by higher operating costs.
  • Chicken: Sales volume was up due to better demand for our chicken products along with the incremental volume from the AdvancePierre acquisition. Average sales price increased due to sales mix changes. Operating income for fiscal 2017 was below prior year record results due to higher operating costs, which included increased compensation and benefit integration expense of USD 41 million, USD 17 million of incremental net costs attributable to two plant fires, in addition to restructuring and related charges of USD 56 million in the fourth quarter of fiscal 2017. Operating income increased in the fourth quarter of fiscal 2017, despite the USD 56 million of restructuring and related charges, due to improved operational execution and lower feed ingredient costs. Feed costs decreased USD 65 million and USD 80 million for the fourth quarter and fiscal 2017, respectively.
  • Prepared Foods: Sales volume increased for fiscal 2017 due to improved demand for our retail products and incremental volumes from the AdvancePierre acquisition, partially offset by declines in foodservice. Sales volume increased in the fourth quarter of fiscal 2017 primarily as the result of incremental volumes from the AdvancePierre acquisition, partially offset by declines in foodservice. Average sales price increased due to better product mix which was positively impacted by the acquisition of AdvancePierre as well as higher input costs of USD 50 million for fiscal 2017 and USD 105 million in the fourth quarter of fiscal 2017.  Operating income for fiscal 2017 decreased due to impairments of USD 52 million related to our San Diego operation and of USD 45 million related to the expected sale of a non-protein business, USD 30 million of compensation and benefit integration expense, USD 34 million related to AdvancePierre purchase accounting and acquisition related costs, USD 82 million of restructuring and related charges, in addition to higher operating costs at some of our facilities. Operating income for the fourth quarter of fiscal 2017 decreased due to an impairment of USD 45 million related to the expected sale of a non-protein business, USD 82 million of restructuring and related charges, USD 14 million related to AdvancePierre purchase accounting and acquisition related costs and higher operating costs at some of our facilities. Additionally, Prepared Foods operating income was positively impacted by USD 137 million in synergies, of which USD 18 million was incremental synergies in the fourth quarter of fiscal 2017. For the 12 months of fiscal 2017, Prepared Foods operating income was positively impacted by USD 538 million in synergies, of which USD 97 million was incremental synergies in fiscal 2017 above the USD 156 million of synergies realized in fiscal 2016 and USD 285 million realized in fiscal 2015. The positive impact of these synergies to operating income was partially offset with investments in innovation, new product launches and supporting the growth of our brands.

Outlook

In fiscal 2018, USDA indicates domestic protein production (beef, pork, chicken and turkey) should increase approximately 3-4 percent from fiscal 2017 levels, but stronger export markets should partially absorb the increase. As previously announced, in the fourth quarter of fiscal 2017, our Board of Directors approved a multi-year restructuring program (the «Financial Fitness Program»), that is expected to contribute to the Company’s overall strategy of financial fitness through increased operational effectiveness and overhead reduction. Through a combination of synergies from the integration of AdvancePierre and additional elimination of non-value added costs, the program is estimated to result in net savings of USD 200 million in fiscal 2018, USD 400 million in fiscal 2019 including new savings of USD 200 million, and USD 600 million in fiscal 2020 including additional savings of USD 200 million. The majority of these savings, which are focused on supply chain, procurement, and overhead improvements, are expected to be realized in the Prepared Foods and Chicken segments. The following is a summary of the outlook for each of our segments, as well as an outlook for sales, capital expenditures, net interest expense, liquidity, share repurchases and dividends for fiscal 2018. Adjusted operating margin guidance is provided below on a non-GAAP basis. The Company is not able to reconcile its full-year fiscal 2018 adjusted operating margin guidance to its full-year fiscal 2018 projected GAAP operating margin guidance because certain information necessary to calculate such measure on a GAAP basis is unavailable or dependent on the timing of future events outside of our control. Therefore, because of the uncertainty and variability of the nature of the amount of future adjustments, which could be significant, the Company is unable to provide a reconciliation of this measure without unreasonable effort. Adjusted operating margin should not be considered a substitute for operating margin or any other measure of financial performance reported in accordance with GAAP. Investors should rely primarily on the Company’s GAAP results and use non-GAAP financial measures only supplementally in making investment decisions.

  • Sale of Non-Protein Businesses: On April 24, 2017, we announced our intent to sell three non-protein businesses, Sara Lee® Frozen Bakery, Kettle and Van’s®, which are all a part of our Prepared Foods segment, as part of our strategic focus on protein-packed brands. The revenues from these businesses totaled approximately USD 650 million for fiscal 2017 and the businesses had a net carrying value of USD 803 million at September 30, 2017. We anticipate we will close the transactions by the end of calendar 2017, or early calendar 2018, and expect to record a net pretax gain as a result of the sale of these businesses. We have excluded these businesses’ expected results from our fiscal 2018 outlook.
  • Beef: We expect industry fed cattle supplies to increase approximately 1-2 percent in fiscal 2018 as compared to fiscal 2017. We expect ample supplies in regions where we operate our plants. We believe our Beef segment’s adjusted operating margin in fiscal 2018 should be above 5 percent.
  • Pork: We expect industry hog supplies to increase approximately 3 percent in fiscal 2018 as compared to fiscal 2017. For fiscal 2018, our Pork segment’s adjusted operating margin should be above 9 percent.
  • Chicken: AdvancePierre contributed approximately USD 100 million of revenue in fiscal 2017, and we expect incremental revenue of approximately USD 250 million in fiscal 2018 for a total of approximately USD 350 million in the first full fiscal year as part of our operation. We expect to capture Financial Fitness Program net savings in excess of USD 90 million in fiscal 2018, which is a combination of AdvancePierre net synergies and reduction of non-value added costs. USDA projects an increase in chicken production of approximately 2 percent in fiscal 2018 as compared to fiscal 2017. Based on current futures prices, we expect similar feed costs in fiscal 2018 compared to fiscal 2017. For fiscal 2018, we believe our Chicken segment sales will grow with around 3 percent volume growth, and adjusted operating margins should improve to around 11 percent.
  • Prepared Foods: AdvancePierre contributed approximately USD 425 million of revenue in fiscal 2017, and we expect incremental revenue of approximately USD 950 million in fiscal 2018 for a total of approximately USD 1.4 billion in the first full fiscal year as part of our operation. We expect to capture Financial Fitness Program net savings in excess of USD 100 million in fiscal 2018, which is a combination of AdvancePierre net synergies and reduction of non-value added costs. We currently expect input costs to be flat for fiscal 2018 as compared to fiscal 2017. For fiscal 2018, we expect our Prepared Foods segment sales to grow and adjusted operating margin should be between 11-12 percent. We will continue to evaluate the range as we close the sale of the three non-protein businesses and further integrate AdvancePierre.
  • Other: Other includes our foreign operations related to raising and processing live chickens in China and India, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC. We expect Other operating loss should be approximately USD 40 million in fiscal 2018, excluding the impact of merger and integration expense from the acquisition of AdvancePierre and restructuring and related costs.
  • Sales: We expect fiscal 2018 sales to grow approximately 7 percent to approximately USD 41 billion which excludes the revenue of the three non-protein businesses held for sale referenced above. The expected increase in fiscal 2018 sales is attributed to incremental AdvancePierre sales of USD 1.2 billion, an increase in sales volume in our legacy businesses excluding the impact of sales from the three non-protein businesses, and an increase in pricing predominantly in our Chicken segment.
  • Capital Expenditures: We expect capital expenditures to approximate USD 1.4 billion for fiscal 2018. Capital expenditures will include spending for production growth, safety, animal well-being, infrastructure replacements and upgrades, and operational improvements that will result in production and labor efficiencies, yield improvements and sales channel flexibility.
  • Net Interest Expense: We expect net interest expense to approximate USD 325 million for fiscal 2018, which includes estimates regarding the timing and net proceeds from the divestiture of our Sara Lee® Frozen Bakery, Kettle and Van’s® businesses as we intend to use the net sales proceeds to pay down debt.
  • Liquidity: We expect total liquidity, which was approximately USD 1.0 billion at September 30, 2017, to remain in line with our minimum liquidity target of USD 1.0 billion.
  • Share Repurchases: We currently do not plan to repurchase shares, other than to fund obligations under equity compensation programs, until we reach our net debt to EBITDA target of around 2x. We anticipate reaching this goal by the third quarter of fiscal 2018.
  • Dividends: On November 10, 2017, the Board of Directors increased the quarterly dividend previously declared on August 10, 2017, to USD 0.30 per share on our Class A common stock and USD 0.27 per share on our Class B common stock. The increased quarterly dividend is payable on December 15, 2017, to shareholders of record at the close of business on December 1, 2017. The Board also declared a quarterly dividend of USD 0.30 per share on our Class A common stock and USD 0.27 per share on our Class B common stock, payable on March 15, 2018, to shareholders of record at the close of business on March 1, 2018. We anticipate the remaining quarterly dividends in fiscal 2018 will be USD 0.30 and USD 0.27 per share of our Class A and Class B stock, respectively. This results in an annual dividend rate in fiscal 2018 of USD 1.20 for Class A shares and USD 1.08 for Class B shares, or a 33 percent increase compared to the fiscal 2017 annual dividend rate.

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