Tyson Foods CEO Donnie Smith’s Commentary on Q4 2013 Earnings Results [Full Text]

November 18, 2013 1:31 pm | By More

Tyson Foods, Inc. (NYSE:TSN), today announced its fourth quarter of fiscal year 2013 financial results. In this connection, its President and CEO Donnie Smith hosted an earnings conference call earlier this morning. Below is the full text of the commentary made by Tyson Foods’ President and CEO:

“As we closed the books on fiscal 2013, I want to celebrate what Tyson Foods achieved this past year. We produced record earnings of $2.26 a share or 15% growth over the previous year, surpassing our goal of at least 10% EPS growth. We grew sales by 4%, achieving our goal and reaching a new record of $34.4 billion.

Operating income grew 7% or $89 million over the prior year, despite $470 million of incremental feed costs. We grew sales of value-added products by nearly 6% against a very aggressive goal of 6% to 8%. We made significant progress in building our international chicken producing, growing sales by 20% against a goal of 12% to 16%. We returned $650 million to shareholders by paying out $100 million in dividends and buying back 21.1 million shares of stock for $550 million. Our stock was up 78% for the fiscal year and we reached a new all-time high stock price.

ROIC continues to be over 18%. At the end of the fiscal year, net debt was $1.3 billion and net debt-to-cap was at 17%. We made two prepared foods acquisitions, Don Julio and Circle Foods. And we had a greater focus on growth drivers while maintaining a steadfast commitment to operational excellence, which is carrying us into another year of growth in 2014. That’s what we did.

Now, let’s look at the macro environment we were operating in. We continued to see a shift away from foodservice into retail reflecting the overall economy. Now that’s not to say our foodservice business wasn’t successful. In fact, it did very well in a challenging year for the foodservice industry in general.

We were nimble to respond as consumers moved among proteins and channels, depending on their confidence in the economy and the effect gas prices had on disposable income. We are also seeing more bifurcation among consumers between those choosing higher priced value-added products and those moving down the value stream to save money.

According to Nielsen data for the year coinciding with our fiscal year, total fresh meat pounds sold at retail were up 1.4% while pricing was up 2.3%. Ground beef and fresh beef pounds declined 0.3% and 1.4% respectively as price rose over 3%. Pork pounds increased 5% as price declined 4%. Fresh chicken was the winner with pounds up 2%, even with a 7% increase in pricing indicating that chicken was still viewed as a value relative to the other proteins. Tyson captured share as the number one brand of fresh chicken in the United States.

Now, let’s take a moment to talk about where we are going and how we will get there. Earlier today, we issued a press release announcing several new leadership positions. This structure is focused on the key elements of our strategy, allowing us to accelerate our growth, reinforce our operational excellence, and create opportunities for our team by deepening our best-in-class talent. By separating our poultry and prepared foods division, we are sharpening our focus on these two crucial growth areas.

Noel White, a proven leader in our fresh meats business, will now be leading our poultry division. Steve Stouffer, a 30-year veteran of our fresh meats business, will lead our fresh meats team. Donnie King will be leading our prepared foods division and will create an integrated sales and marketing organization to strengthen our customer relationships. Hal Carper will lead in the area of strategy and new ventures. I am excited about these changes, because they will allow us to capitalize on these leaders’ considerable experience and talent as we carry out our long-term growth plans. As we make these transitions, we will minimize distractions and concentrate on customer service, product quality and innovation.

This morning we also announced Jim Lochner’s decision to retire at the end of our 2014 fiscal year. During the upcoming year, Jim will be working with the fresh meats group to ensure smooth transition and he will help us make the move to a new organizational structure. I personally want to thank Jim for being an integral part of developing our performance-based metrics-driven approach to business. Operational excellence is a hallmark of our culture and as Jim makes his transition, he will help us sustain this mindset for long-term success and growth beyond 2014. He will continue in an advisory role for several more years. I am happy that Jim will get to enjoy the rewards of his four decades of hard work and dedication.

I’ve just said a lot about growth and strategy in the future, but I’d like to give you some specific examples that illustrate how we are executing on these broad concepts. We study consumers’ needs and behaviors and we’ve identified opportunities to grow retail value-added sales beyond center-of-the-plate chicken.

Breakfast emerged as a high potential category. Wright Brand breakfast sausage is a natural follower to Wright Bacon and a category that makes perfect sense for us as the leading pork processor. We recently rolled out Wright sausage, starting in the Southeast where Wright Bacon has the strongest following and we’re supporting this premium product line with highly targeted medium. Another breakfast category frozen handheld is also a good fit for us. At nearly a $1 billion in annual sales, it’s a large category that grew more than 20% over the last year.

Consumers told us they think the good breakfast should include protein. And Tyson is the brand they trust to deliver high quality protein. 48% of consumers who buy frozen breakfast items also buy Tyson Frozen value-added chicken. So, we have a base of familiarity and positive perceptions as we enter this new era.

We are launching seven products under the Tyson Day Starts brand that will include biscuit sandwiches, flat breads and wrapped omelettes. After consumer taste testing, 93% of consumers who already buy in this category said that they would buy Tyson Day Starts and 89% said our products were better than anything currently on the market. Sale is underway now and we’ve received a great response from our customers.

We’ll begin shipping in January and we’ll support our entry into this category with significant MAP spending. Day starts is a great example of our push for innovation as we set a goal to have 20% of our domestic poultry and prepared food sales coming from new product innovation. We define that as something that we’ve developed within the past three years and in 2013 we exceeded our goal with 21.5% of our sales resulting from innovation.

Turning to another growth area – international. This time last year, projections for improvement in our international performance would be around $80 million but due to Avian influence in China and a weak fourth quarter in Mexico, we improved only 45 million. I will quickly add that I am still confident in our business plans in China, Brazil, Mexico and India and believe that we are headed in the right direction for long-term success.

I would like to give you an indication of what to expect from Tyson in 2014. First on the list is paying off the $458 million in convertible notes, which we did in early October in cash. It should be another very good year of growth and we are off to a strong start, especially in the chicken segment.

On our last call, we said, overall 2014 would look a lot like to back half of 2013 times two. We still see it that way, meaning we should over-deliver on our EPS growth goal of at least 10% a year and like 2013, we think earnings will be more weighted to the third and fourth quarters.

As a reminder, our other annual goals of 3% to 4% top-line sales growth, 6% to 8% value-added sales growth and 12% to 16% international sales growth. We expect an ROIC that continues to grow and drive shareholder value. With AI and China hopefully behind us, our plan is to reach breakeven profitability in processing almost a 100% company-controlled birds by the end of the fiscal year.

As I just explained, we will roll out several major product launches, including Tyson Day Starts and Wright Brand breakfast sausage. We’ll stay focused on our strategy, investing in growth and setting ourselves up for a great 2015 and beyond”.

 

About Tyson Foods, Inc.

Tyson Foods, Inc., with headquarters in Springdale, Arkansas, is one of the world’s largest processors and marketers of chicken, beef and pork, the second-largest food production company in the Fortune 500 and a member of the S&P 500. The Company was founded in 1935 by John W. Tyson, whose family has continued to be involved with son Don Tyson leading the company for many years and grandson John H. Tyson serving as the current Chairman of the Board of Directors. Tyson Foods produces a wide variety of protein-based and prepared food products and is the recognized market leader in the retail and foodservice markets it serves. The Company provides products and services to customers throughout the United States and approximately 130 countries. It has approximately 115,000 Team Members employed at more than 400 facilities and offices in the United States and around the world. Through its Core Values, Code of Conduct and Team Member Bill of Rights, Tyson Foods strives to operate with integrity and trust and is committed to creating value for its shareholders, customers and Team Members. The Company also strives to be faith-friendly, provide a safe work environment and serve as stewards of the animals, land and environment entrusted to it.

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