Tyson Foods, Inc. Price & Performance (TSN)

Forward looking statements include all comments reflecting our expected assumptions or beliefs about future events or performance that do not relate solely to historical period. These forward looking statements are subject to risks, uncertainties [indiscernible] which may cause actual results to differ materially from our current projections. Please refer to our forward looking statement [indiscernible] as well as our SEC filings 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. Please note that references to earnings per share operating income, and operating margin in our remarks are on an adjusted basis unless otherwise noted. For reconciliations of these non GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now, I'll turn the call over to Donnie. Thanks Sean. Fiscal 2025 is off to a solid start.

The strong results in the Q1 increase our confidence in the year ahead. Enabling us to raise our full year guidance Our results this quarter were driven by another robust performance in chicken. Highlighted by the best first quarter adjusted operating income for the segment.

We delivered better than expected results in beef and significant improvement in profitability in international and other. While Prepared Foods continues to generate solid profits, Our first quarter performance sets the tone for what we anticipate will be another year of growth for Tyson. This marks our 3rd consecutive quarter of year over year increases across key metrics including sales, adjusted operating income, and adjusted earnings per share 1st quarter adjusted operating income a remarkable 60% While our adjusted operating income margin expanded by 170 basis points versus last year, Adjusted earnings per share grew by an impressive 65%. We ended the quarter with our net leverage ratio at 2.3 times a notable and delivered accomplishment from 4.1 times at the end of 2023. In total, our Q1 delivered the best quarterly for While we have managed through ongoing challenges posed by the current cattle cycle, Protein remains at the forefront of consumer preferences based on both per capita consumption data and consumer surveys. While the consumer backdrop remains dynamic, one thing is clear to us. Consumers remain focused on prioritizing protein in their diets. Recognizing its nutritional benefits and its role in supporting a healthy lifestyle. A recent study by International Food Information Council revealed that 71% of U. S. Consumers in 2024 thought to increase their protein consumption.

This is up from 59% in 2022. Our diversified multi protein portfolio delivered results with chicken helping to offset the ongoing challenges through disciplined execution, and improved operational performance, we have demonstrated the power of sticking to the fundamentals. Fortifying our foundation, and controlling what we can. Turning to cash flow and financial strength. Our Q1 stood out once again. Our disciplined approach to capital expenditures and working capital management has enabled robust cash flow which we are deploying prudently through investment in the business [indiscernible] When combined with improving profitability, we sequentially lowered our net leverage ratio and took another step towards our long term target of less than 2x. This strategy ensures we are building financial strength and reinforces our commitment to shareholders. Now let's take a closer look at segment performance. Prepared Foods is on track for fiscal 2025. We have built our full year improvement plan almost entirely by controlling what we can. Such as optimizing our operations, expanding distribution and launching winning innovation. Operationally, we made tremendous progress on our initiatives in the Q1 by outperforming our planned throughput and yield improvements. Reducing the impact of distressed inventory and lowering overhead cost.

We grew share quarter over quarter in our core 9 categories snacking, and smoked sausage. Growth from innovation continues to drive momentum as well. While the timing of input cost inflation put pressure on margins in the quarter, our market performance coupled with our improved operational execution gives us confidence going forward. Our outlook for the year is unchanged. In chicken, we achieved the best adjusted operating income of any quarter over the past 8 years, Year over year growth in adjusted operating income was driven in part by ongoing improvements at Live and plant operations along with lower grain costs. One core component of our strong performance has been the evolution of our commercial relationships to build long term win win partnerships allowing us to jointly grow the category and improve order fill rates for the 2nd consecutive year. All of stabilizing our earnings. Our customer and consumer obsession will continue to be a Cornerstone. Of our success as we work to exceed their expectations. We have also returned to volume growth in this segment. Importantly, we grew volumes in foodservice where momentum continues to build. We feel good about our leading position in the marketplace and our ability to meet customer and consumer demand.

With the healthy start to the year, we are raising our full year adjusted operating income [indiscernible] In beef, 1st quarter results were better than expected. We continue to align all aspects of our operations from procurement to distribution with customer and consumer demand while managing spend enhancing yield and shifting our mix to more value added products. Challenges from limited cattle supply remain. Along with typical seasonality are expected to impact the Q2 and the year. Therefore, our expectations for fiscal 2025 are unchanged for this segment. In pork, performance was in line with our expectation Higher hog costs led to compressed spreads, versus last year. However, our operational improvements around yield, mix, and spend continue to deliver results. As we continue through fiscal 2025, our priorities remain clear 1st, we will continue our focus on cash flow and operational execution. This includes driving innovation and strengthening customer partnerships across all segments while enhancing product mix reducing inefficiencies and expanding our market presence. Operational excellence is at the core of our strategy. We are scaling the enterprise driving cost savings and addressing inefficiencies boldly to deliver exceptional performance. And we will continue to deliver on taking more cost out in 2025 as the year progresses, Our iconic brands like Tyson, Jimmy Dean and Hillshire Farm continue to resonate with consumers even amidst high inflation and softer category consumption.

In fact, nearly 75% of U. S. [indiscernible] purchased a Tyson product in the past year. And we see significant opportunities to grow our presence in underpenetrated segments as consumers seek to add more protein to their diets, Digital transformation is another key enabler. We continuously work to improve how consumers and customers discover our products by leveraging the power of generative AI. As an example, in our foodservice channel, we implemented a more intuitive browsing and search experience that delivers highly relevant content. This enhancement goes beyond influencing purchases. It offers Tyson Foods and valuable insights into the evolving needs of our customers. Capital allocation remains disciplined. With a focus on sustaining free cash flow through prudent management of CapEx and working capital. Finally, our team members are our greatest asset. By fostering development and encouraging growth across the organization, we ensure that the right talent and skills are in place now and for the future. Before handing things over to Curt, let me say that we are confident in our fiscal 2025 outlook and our long term strategy powered by the strength of our diversified multi protein portfolio and iconic brands. Our first quarter is another indication of strong execution as we commit to controlling what is within our control as we seek to drive profitable growth over time.

We continue to push ourselves to do more and to leave no stone unturned as we strive to be best in class operator Through innovation, marketing and operational excellence, we are well positioned to generate shareholder value and continue our legacy as a leader in protein and a world class food company. With that, I will turn the call over to Kirk to review our financials in more detail. Thanks, Donnie. 1st quarter total enterprise net sales grew 2% year over year driven by growth in beef, [indiscernible] and chicken. Our adjusted operating income increased 60% year over year and adjusted earnings per share grew 65%. It is important to highlight that both adjusted operating income and adjusted earnings per share reached their highest levels in the past 9 quarters underscoring our team's ability to execute with discipline and deliver results a dynamic environment. Looking at segment performance, in Prepared Foods, volume in our food away from home channels was relatively flat versus last year. We like others in the industry continue to navigate a dynamic consumer environment which primarily impacted our retail volumes. And drove the decline in sales. Adjusted operating income decreased primarily due to higher raw material costs, particularly the sharp rise in belly and salad prices in the quarter.

We anticipate recovering some of these increases through price pass through. As Donnie mentioned, we made progress on operational improvement initiatives and we continue to repurpose inefficient marketing and promotion support cost. While lapping the impact of startup costs last year. Chicken also continues to be a bright spot in our portfolio. With sales increasing due to higher volumes the foodservice channel, where our value added products are gaining traction.

Adjusted operating income almost doubled year over year making this a record first quarter performance and the best quarterly performance in the last 8 years. This was driven by lower input costs, continued strong execution in live operations, and improved plant performance. In beef, revenue increased primarily from higher volume highlighting increased carcass weights and higher head throughput. Adjusted operating income improved due to an increase in our value added mix and an inventory valuation adjustment. Impacting Q1 last year. Meanwhile, in pork, revenue grew driven by a higher cut off though adjusted operating income declined due to compressed spreads partially offset by ongoing operational improvements. International and other delivered record quarterly adjusted operating income Supported by strong results in Asia, along with favorable raw material cost. Turning to our financial position. Our disciplined capital allocation priorities remain unchanged. We are focused on maintaining financial strength investing in business growth, and returning cash to shareholders. In the Q1, we generated $1,000,000,000 in operating cash flows, Capital spending remained disciplined and in line with expectations. At $271,000,000 leading to free cash flow of $760,000,000 We returned $175,000,000 to shareholders through dividends which our Board increased to a quarterly rate of $0.50 per Class A reinforcing our commitment to shareholder returns.

Our net leverage declined to 2.3 times our 5th consecutive quarter of improvement we continued our focus on disciplined cash management. We ended the quarter with $4,500,000,000 in liquidity. Given the cash generation of our business, In January, we paid off the $750,000,000 term loan that was due in 2026. As we prioritize financial strength, our investment grade credit rating and long term shareholder value creation. Now let's take a moment to review our updated outlook for fiscal 'twenty 5. Looking ahead, remain confident in achieving improved financial performance compared to fiscal 'twenty 4. We are raising our sales guidance and now expect to be between flat to up 1%. Driven primarily by volume highlighting healthy demand for protein. Total company adjusted operating income is now raised to be between $1,000,000,000 to $2,300,000,000 building on our strong performance in the Q1. We anticipate interest expense of approximately $375,000,000 and a tax rate of around 25%. While maintaining tight CapEx controls between 1 [indiscernible] As for free cash flow, we expect typical seasonality the Q2, and we have updated our full year free cash flow expectations to be in the range of 1 to $1,600,000,000 Now to provide more color on our segments.

We are maintaining Prepared Foods adjusted operating guidance at $900,000,000 to $1,100,000,000 driven by efficiency gains. Unlike typical seasonality, we expect a more balanced first and second half with the Q1 being the lowest quarter of the year due to timing related factors and the ramp up of operational improvements. As a reminder, our forecast assumes double digit growth at the midpoint enabled by internal initiatives without factoring in assuming significant changes in consumer behavior, In chicken, given the strong first quarter performance, we are raising adjusted operating income guidance to 1, $1,000,000,000 As we sustain operational improvements, while reinvesting in our value added portfolio, and margin team, Our base guidance remains unchanged. With an expected loss of $400,000,000 to $200,000,000 balancing operational improvements against tighter spreads throughout the remainder of the year. Our port guidance also remains unchanged at $100,000,000 to $200,000,000 with ongoing operational improvements offset by tighter spreads. Finally, our international business continues to show momentum and profitability. Following approximately $50,000,000,000 of adjusted operating income last year, We expect international and other to be between $50,000,000 $100,000,000,000 this year. Now, I'll turn the call back over to Donnie.

Thanks, Kurt. I'd like to thank our 138,000 team members across the globe for their hard work and dedication which drives our success I'd also like to thank our customers and suppliers for their partnership. By operating as one team, [indiscernible] we're off to a great start in fiscal 2025 and have optimism for the year. Highlighted [indiscernible] With increasing consumer focus on protein, combined with our market leadership, strong brand portfolio and operational discipline we are positioned well for the future. As always, we remain committed to financial strength. Shareholder returns and operational excellence as we execute our strategy. With that, I'll turn things over to Sean as we move to your questions.

Thanks, Donnie. We will now move to your questions.

Please recall that our cautions on forward looking statements and non GAAP measures apply both to our prepared remarks and the following Q and A. Operator, please provide the Q and A instructions. Ladies and gentlemen, we will now begin the question and answer [indiscernible] Our first question today comes from Heather Jones from Heather Jones Research. Go ahead with your question. Good morning. Congratulations on the quarter.

Thank you, Heather.

You're welcome. First thing I was wondering, it was a strong quarter and I was just wondering if you could just outline the things that you're wanting investors to most take away from the call today? And then I have a follow-up.

Sure. And thank you for the question. We're pleased with our Q1 results. We continue to see the benefits of our multi protein, multi channel portfolio. Q1 was the best quarterly performance in more than 2 years. And the 3rd consecutive quarter of year over year increases in sales, adjusted operating income and adjusted earnings per share. Our strategy of fortifying the foundation and growing our branded and value added business is clearly working. In terms of the enterprise priorities for the balance of the year, we will continue to shift our mix to branded and value added. And increased household penetration Protein is part of every healthy diet and consumers are in In fact, 71% of consumers are seeking to increase their protein consumption. We will continue to improve return on invested capital creating shareholder value. And we will continue to execute with excellence everything that we do. In terms of the individual segments, Chicken had the best Q1 adjusted operating income performance and the strongest quarter in 8 years. We are winning with customers and consumers, we've returned volume growth particularly in foodservice. In the Beef segment, we had better than expected results. Our view on the year remains unchanged.

We are focused on operating efficiently from procurement distribution while shifting our mix to more value added. In Pork, was in line with expectations enhancing plant efficiency and fortifying the foundation. While shifting their mix to more value added. In Prepared Foods, we're on track for the year despite Q1 timing related commodity impacts we expect counter seasonal performance due to planned phasing. In international, had the best ever adjusted operating income supported by strong results in Asia, So, five key takeaways. For you in terms of 2025. Number 1, we are growing profitably. Both chicken and prepared foods in FY25 adjusted operating income at double digit rates At midpoint, Number 2, we have reduced gross and net debt by driving net leverage from 4.1 times to 2.3 times over the last 5 quarters. Number 3, we built $4,500,000,000 of liquidity. Enabling another $750,000,000 debt reduction in January. And we're doing all this managing [indiscernible] And 5, finally, we're focused on controlling the controls and we're also adapting with agility to manage the impacts of tariffs, immigration market dynamics. We considered these impacts as we raised our guidance by $100,000,000 to a range of $1,900,000,000 to $2,300,000,000 And for your follow-up, Heather, Thank you for that.

And I actually did want to ask on tariffs So Duffy has come out no specifics to come out of Mexico yet, but there's been reports that they're going to the tariffs on U. S. Pork and then obviously the imports tariffs that the U. S. Put in place affects the cost of hogs and cattle. But we I mean, we send roughly 10% of every hog The Mexico. So just if you could just go through your operations and how you're thinking about how this net impact is going to play out for you guys? And I think you did say that your guidance gives effect to this. But if you could just flesh that out of how you're thinking about the net impact on Tyson?

Sure, Heather. Let me start off and there may be someone else in the room would want to add something. But I did mention, we considered these These risks when we did our R and O's in our and raising the guidance of 100 $100,000,000 [indiscernible] how we're approaching this, our teams continuously engage in contingency planning. To minimize business disruption from trade or supply chain changes As we've done in the past, we'll leverage our global expertise to identify the best markets our products, amid evolving conditions. And we've been doing this for 90 years and been navigating various administration, We remain confident in our ability to adapt and succeed We look forward to working with the new administration in Congress to and we'll continue to monitor and respond to new policies accordingly.

Okay.

Thank you, Helen.

Our next question comes from Ben Tore from Barclays. Please go ahead with your question.

Good morning and thanks for taking my question. Congrats, first of all, on this very strong Q1.

Thank you.

So actually my main question would have been the one on tariffs. So pretty appreciative. I think a lot of people had that online. So thanks for those commentary. So as we put those aside and you've obviously flagged as well the challenges in the current capital cycle being on unprecedented. And we have obviously an initial update from USDA just a few days ago And it doesn't feel like there's much hope maybe in those numbers, but just wanted to understand what are your first take what is your first take as to the report and what how you think the conditions are for HEPA retention? Potentially happening and how that would impact your beef results lower versus higher end of that $200,000,000 to $400,000,000 loss for the year?

Sure. Thanks for that question around beef. I think I will flip this over to Brady and let him give you a great detail as it relates to our beef business.

Thanks for the question. And I think it's it's really important to understand that the beef business has cyclicality in it. And at the top side of these cycles, we see a curve and at the bottom end of these cycles, we see a curve as well. And it really feels like we are at the absolute bottom of of the cycle here relative to curve, relative to that curve and there's a few leading indicators that I think are really important to continue to evaluate and it's what we we add into our model. And 1st and foremost, pasture conditions are in an improved state versus the last several years. Definitely provides an opportunity for us to increase the herd as we move forward. 2nd, relative to the fact that we have record high live cattle prices, record high live feeder prices, there's profitability to be had by cow calf operators. So that certainly provides a tailwind as well. The third indicator is, what are we actually seeing from a cow harvest per [indiscernible] CalHarvest numbers down nearly 19% year over year. Which provides some some solid base in terms of the beef cow herd we move forward as well.

And then the last thing I think that's really important to acknowledge is The pastures that beef cows graze their best use has been and will continue to be used as pasture for beef cattle production. And when you couple all those things, I think it's just really important to understand that we're at a point in time relative to these inventories but we have several indicators that are providing us some support that we will see rebuild here in the future.

Okay. Thanks for that, Brady. And then just a quick follow-up more like as you think about the cadence and I think you mentioned the usual seasonality and to 2Q. You also said maybe first half, second half a little bit more balanced. Could you give a little bit more detail as to the seasonality on the 4 major segments? And balance between the 4 major segments as you think about it for the I'm having trouble hearing your question.

Shall try it again? It's better now. [indiscernible] Okay. Sorry, Mike moved a little bit. No, the question is you said you expect the typical seasonality into the 2nd fiscal quarter. But more or less a a more breakeven kind of first half, second half. So could you help us maybe understand on a per segment basis the 4 major segments as we think about it, what goes into then 2Q and how to think about the second half, if there's any particularity you would like to highlight so we're aware of that? Into 2Q as we update our our assumptions.

Thanks, Ben. This is Kurt. I'll answer that. So I think the most specific one we provided some guidance on was really prepared foods where we said that would be a little counter to normal seasonality where we typically would see stronger performance in the front half versus the back half. But this year we expect to be more balanced across the year really as some of our plans implement we implement some of the plans relative to to efficiencies. We'll really tilt that a little unusual more to a back half year I think if you look at the guidance that we provided and particularly the midpoint of each of the ranges, you can come to your own conclusion relative to specifically how Q2 versus second half with would lay out. But broadly speaking, generally chicken is strongest in Q1 and Q3.

Across our chicken and beef segments and pork, we would expect the more normally kind of a little bit of a seasonal challenge in Q2 just as we manage through Okay, perfect. Thanks for that Curt.

Thank you. Our next question comes from Andrew Strelzik from BMO. Please go ahead with your question. Hey, good morning. Thanks for taking the questions.

I had 2. And the first one is digging in a little more on what you were saying on the prepared kind of layout for the rest of the year. And I think input costs will continue to be a headwind or maybe even more of a headwind as you go forward. And so kind of curious if you could dig in a little bit more on the pieces or the levers to deliver the guidance that you talked about in terms of pricing and the elasticity that you've been seeing or would anticipate to see and any color that you can give on the flow of productivity through the year to offset some of those headwinds?

Sure. I'd just remind you in Prepared Foods, we continue to grow distribution in our prepared business. We had the largest innovation pipeline we've ever had Tyson in Prepared Foods and and continue to optimize our operations So with that, Q1 was was we saw a rapid increase in inputs and certainly had impact and I talked about that a little earlier, but let me pass it over to Kyle Meron and he can give you a little greater detail as it to the balance of the year. Thanks, Donnie, and thanks Andrew for the question. As Donnie mentioned, we built our full year improvement plan on controlling the controllables.

Surrounding growing distribution, launching winning innovation and optimizing our operations And I would tell you that in Q1, we made tremendous progress in all of those areas. We grew distribution or share 40 basis points quarter over quarter in our key categories. We continue to be pleased with the performance of our Jimmy Dean Bacon and Hillshire items as both remain 2 of the fastest growing brands in their categories. And we had another great season with consumers on our Jimmy Dean Roll Sausage where we continue to realize share growth as the category leader. Our second initiative was launching winning innovation And I would tell you we're doing just that Jimmy Dean Griddle Cakes has surpassed $100,000,000 in the last 52 weeks. Which is the first of any launch we've had in the last 6 years. And actually has higher trial and repeat purchase rates than Griddle Cakes did 6 months through its launch. We're also excited about the pipeline of additional items that we'll be launching in the back half of the year. And then the 3rd initiative around optimizing our operations I would tell you we're off to a great start with those initiatives. We remain focused on operating with discipline and establishing standardized processes that allow us to be world class operators.

So although we had simply some timing of input cost inflation in the Q1 that put pressure on margins.

Demand for protein remains strong and we are controlling the controllables.

What we're doing is working and I'm confident in our ability to deliver within the guidance range the balance of the year. Okay, great. Thank you for that. And my other question was on the chicken business and the chicken outlook and it was great to see raising the top end of the guidance range there on the back of the strong quarter.

That you put up. But I was a little surprised that you didn't that you left the bottom end of the range. Unchanged. And so I guess can you just kind of walk through some of the factors that kept you from lifting the lower end of the range or maybe some of the risks that you see that would drive you or scenarios that would drive you to the lower end of the chicken guidance range?

Sure, Andrew. As I mentioned earlier, very proud of what we've been able to do in our chicken business. I'll also pointed out that when we did build our plan, we considered all the the R and O's that you do as it relates to tariffs market dynamics, and as well as immigration. We've built that in to our model But we did raise guidance in our chicken business on the top side and so let me flip that over to Wes and I know he's been here He's ready to respond to something. So Wes? Yes. Good morning, Andrew. Thanks the question. Let me start by saying I feel really good about the midpoint of the range. Q1 was on plan. We see solid demand going forward.

We're well balanced supply and demand and the industry looks more well balanced than it did earlier in the year. So strong fundamentals, strong customer service, and a strong consumer reach program for the balance of the year It would take a major extraneous event for us to be on the low end. Whether it be major weather or bird health issues.

Got it. Okay. Thank you very much.

Our next question comes from Peter Galbo from Bank of America Hi, good morning. Thanks for the question. Just wanted to follow-up on Andrew's questions around [indiscernible] Kyle, just having been in the seat now for several months, kind of as you take a look at the division with fresh eyes and obviously some of the optimization plans. I mean, are you satisfied with kind of the state of the current portfolio, whether that's legacy brands or legacy categories that you may be in that maybe need reevaluation Just trying to understand really what the optimization kind of what might look like over the next 12 months and whether there's some reshape activity that needs to happen happen in there? Again, just as we kind of consider the margin profile in the business, while it's on the right trajectory, it's still trailing the peers pretty meaningfully. So would appreciate kind of more detail there.

Yes. Thanks for the question, Peter. Let me just start by saying I'm I'm very pleased with our iconic brands and product portfolio. Having 3 of the top 10 brands in protein and having category leadership in 8 of the 10 categories we play in is what I would call a world class portfolio. The reason I would remain confident for the balance of the year is because of some of the new distribution gains we have in retail that will begin to materialize in the back half of the year.

Our performance in Foodservice continues to outpace the industry and we continue to see growth in broadline distribution and commercial chains. And as I mentioned previously, we continue to see the benefit of our robust innovation pipeline and we expect to continue to build on the remarkable success of our Jimmy Dean Griddle Cake and Chicken Biscuit. So Yes. As mentioned before, we did see some some margin pressure in Q1 due to input costs. But as stated, we're controlling the controllables. We're executing the plan that we've laid out as part of our multiyear strategy. We'll continue to focus on growing quality share with consumers and customers we'll continue to launch world class innovation and we'll be world class operators in our assets.

Got it. Thanks for that. And Donnie, I think probably the market this morning is looking for a bit more detail as it relates to tariffs. I know Heather asked the question, but anything more you can provide just how you see the movie [indiscernible] even if it's at a high level and it's encouraging hear you're going to work with the administration, but just how you see the trade dynamics kind of unfolding even if it's in the very near term? Thanks.

Sure. I will take another shot at that and in terms of Mexico, the product that we have going in there, the concern and what we've been contingency planning on is pork. We also have chicken, really a couple parts of chicken We have mechanically separated chicken. We have chicken leg quarters going into Mexico. Mexico is a is a large trading partner for us. So essentially what we would do whether it be pork or whether it would be chicken, is we would find other markets. We would leverage our global knowledge and expertise to try to move those products if necessary. But We saw the information over the weekend. There's still some details to be worked out in that from what I have seen. But But I would tell you as it relates to Mexico and you could say the same about Canada, In Canada, you have some we have some chicken products, but it's very small going into Canada. It's predominantly heavy pile going into Canada. We have We have some feeder cattle and some hogs coming in to the U. S. Out of Canada. So depending on what happens there, we would adjust accordingly. But we've been We've been preparing for this, making adjustments We now have to execute some of those things and but we think we have risk adjusted in our guidance the implications of all of those.

But I think I would leave it there and Brady anything you would add to it from or Wes [indiscernible] pork perspective.

Thanks, Donnie. I think you really covered the situation well. So very early in this process, we've seen tariff instances in the past and they can be very dynamic the 2 trade entities continue to to work together. I think the real call out relative to pork and that's that's one of the big question marks that sits out in front of us is the fact that We really operate as a supply chain And when we have pork producers, pork packers and then our trade partners that are in Mexico as well It really operates as a true global supply chain and where that value gets pushed back and forth within the supply chain is certainly something that we will will keep an eye on.

It. Yes, Peter, this is Wes. On poultry, I would say, look, we we shipped over £3,000,000,000 in our Q1 and less than £80,000,000 of that went to Mexico. And then as Donnie said, Canada is predominantly heavy hens. But if you think about a global level supply and demand dynamic, what you're really talking about is a disruption of who's selling and who's buying and when. Hey, thanks for the questions guys. Wanted to first ask in the 10 Q, there's reference to a network optimization plan that began during the fiscal Q1 Just any detail on the changes that might come accompany this plan and which segments will be impacted? And then is there a targeted cost savings figure associated with this program? Hey, thanks, Tom. This is Kurt. So yes, we did disclose in the quarter the new network optimization plan. And we provided some more details in the Q as you did point out.

And the charges we took for Q1, were really just actions that we have already discussed or talked about that occurred earlier this quarter. But really more importantly, right, we as Donnie has said multiple times, [indiscernible] our network with an absolute desire to continually improve on that network optimization across all segments. And that's what she you should expect in that network optimization plan. There's not a specific target that we have. But really just as we continue to evaluate the network and moves necessary be as optimal as we can around the entire product, moving our products around production and where they get distributed to.

Okay.

Thanks for that. Then on the beef segment, look, industry data might have suggested something a bit weaker. Than what you ultimately reported. You noted the higher weights, but also the increased value add [indiscernible] Could you maybe give some added detail on the value add piece What products comprise value add and is there a specific channel to highlight where you're really seeing strength? [indiscernible] Thank you for the question. And first and foremost, I want to thank our team for brilliant execution in the Q1. So we laid a plan out to ensure we had continuous improvement and control what we could control within this this beef cycle the team did a great job of delivering that in the quarter. You mentioned volume and certainly we're seeing heavier catalysts relative to the fact that we have less expenses input costs, and really high live cattle values as well. So it's really promoting that feeder to continue to put weights on But when we actually talk about what weight control, our team did a fantastic job of taking the type and kind and mix and grade of cattle that we are procuring and making sure we translate that into greater value in the quarter and you can really see it come relative to our numbers and how we delivered From a demand perspective, demand has been strong.

And where we've seen abnormally strong demand is been on the end cuts and in the grinds. And continuing to provide value added solutions for our customers and the consumers that tailored to that demand driven impact is extremely important to us. Specifically in the Grind Complex as well. And so we've seen really good demand on lean beef grinds, We've seen really good demand on patties and other value added products that come out of our grind stream as well. Thank you.

Thank you.

Our next question comes from Michael Labrie from Piper Sandler. Please go ahead with your question. Thank you. Good morning. [indiscernible] Just wanted to Unpack chicken margins a little bit more, they're the strongest in about 8 years or so.

And you touched on the feed costs being favorable, but you also mentioned plant performance and Can you just maybe elaborate a little bit on some of what that is? And how sustainable we should expect that to be as well? Yes.

Good morning, Michael. This is Wes. Let me start by saying thank you to the team and that I'm pleased with our Q1 performance. We're focused on the right work Foundationally, we're a good chicken company and we continue to look for ways to get better. But I think the genesis of your question is really in this next part and it's around winning with customers and consumers. And so we had the best order fill that we've had and in 8 years at over 98%. Both protein and convenience continues to win with consumers and where the market share leaders there.

Our value added growth rate is 2 times our total We have the number one share in retail and foodservice and both are growing. And one of the biggest unlocks is shifting our mix to align with consumer demand. And so over the last year, through a lot of different moves, We've accomplished that And then aligning with strategic customers to create win win solutions And then the one I'm really excited about creating tailwinds is our Q1 relaunch of our retail fully cooked is progressing well. So I would say it this way, we've fortified our foundation We're winning with customers and we're meeting consumer demand at a different level than we have in a long, long time.

And just to follow-up on the order fill rates. Is there a process that's changed or something kind of structural and could that translate to any other segments in terms of improving fill rates more broadly?

Yes, Michael, that's a really good question. Last year I referenced is one of in one of our 3 strategic pillars Really doing a good job at our supply and operations planning. And so our demand planning has gotten much better Our forecast accuracy has improved.

Our scheduling and execution at the plants have reduced its waste reduced waste and put product in the right place at the right time. And so that's really driving a lot of value.

Okay. Thanks. I'll pass it on. Our next question comes from Alexia Howard from Bernstein. Please go ahead with your question. Good morning, everyone. Good morning.

So I think most of the specific meat questions have been answered. Can I ask 2 things? First of all, on labor, are you seeing any impact of the broader deeper worker attendance or worker availability your ability to recruit if that labor market is tightening up?

Any impact that you're anticipating on that front? And then I have a follow-up.

Thank you for the question, Alexia. Let me take that one And start out by saying that everyone that works at Tyson Foods is legally authorized to do so. We're confident that we'll be able to continue to successfully run our business Maybe Maybe to remind everyone that there are different statuses for immigrants example, you have DACA, refugees, parolees and temporary protected status and we're in complete compliance on every one of those. There have been no immigration or ICE visits to any of our facilities. We led the way as a company with E Verify and the mutual agreement between government employees employers the image program We provide a competitive compensation benefit package to attract and retain frontline Tyson. We've also done scenario planning depending on different potential changes coming from the new administration. And even today, we're tracking absenteeism across all plants. And to date have not seen any changes in attendance. And so I think I'll leave it at that.

Great. Thank you. And then as a follow-up, could I just dig into the free cash flow coming down a little bit from last year? What was the driver of that?

Because on the CapEx side, we're seeing an uptick. And I guess on the CapEx side specifically, I know you pulled that back quite a bit over the last couple of years because leverage was trying to be brought down. Are there projects on the capital side that need to come back? Should we expect an increase in CapEx over time?

Thanks. This is Kurt. Let me start on the free cash flow question. Really, on the change versus prior year, you are correct, right? We were about $946,000,000 Q1 last year, 7 $60,000,000 this year. But I will hurry on to comment that we did update our guidance on on overall free cash flow for the year to be a range of between 1 to $1,600,000,000 Really the delta almost exclusively for this quarter versus a year ago was a change in working capital. We had some timing effects that were more favorable to us.

Last year, less so in this particular quarter for this year. But hurry on to make reference to still a very supportive free cash flow overall with a guidance range of $1,000,000,000 to $1,600,000,000 With respect to your CapEx, certainly, it's been a very focused effort for us So it's the land of CapEx range that's for us and certainly the last the couple of years in 2022 and 2023 right, we were fairly high at about 1,900,000,000 in each of those 2 years. But the longer term average for us is really more in that 1 to 1 to 2 range. And remember that those years high in 2022 and 2023 were really driven by double digit number of new facilities that we put on during that time that definitely inflated it.

But I would applaud the team. We have taken a very [indiscernible] in capital not only for the projects you're seeing roll through now, but as we're planning over the next 3 years. To ensure that we're getting the return that we expect with that capital level deployment that we have. And even at that, even at the rate that we pulled it back, we are still trending in excess of a normal depreciation level.

Great. Thank you very much. I'll pass it on.

Our next question comes from Puran Sharma from Stephens. Go ahead with your question.

Great. Thanks for the question and congratulations on the exceptional quarter.

Thank you.

Just wanted to start out I know everybody here has kind of asked about chicken already, but wanted to dive into it a little bit further. You've done a lot of work. You said there's more left on the table. I think on the last call, you mentioned there was about $500,000,000 to $700,000,000 of self help opportunity. And on this call, you mentioned there's cost to take out for just fiscal 2025.

Just wondering if you have an update to this number or just kind of help us think about how how much opportunity is left within chicken?

Yes. Good morning. This is Wes. Yes, we continue to deliver lower controllable cost and continuous improvement is part of what we do every day. I'd ask you to think about the fortified foundation and the operational and improvements It's really how you invest in insights, innovation and message Tyson consumers. So it's the being the low cost producer and drive revenue at the same time. And so I'd say it this way, we're well positioned to offset the increased consumers spend in 2025 through operational efficiencies. The full year outlook Looks neutral on markets. And so you can calculate the differential as operational improvement.

Great. I appreciate that insight. I guess my follow-up, I wanted to ask about [indiscernible] USDA is projecting higher hog supplies, particularly in the back half of the year. And And given the results that you kind of just posted [indiscernible] with the cadence of higher hog supplies in the back half, of the year, do you think you could see Materially improvement in pork margins particularly in the back half of the year when you do see higher hog supplies.

Thanks for the question. And I think it's really important, 1st and foremost, before we get into the macro economic environment we're operating in on the pork side is to commend the team on really, really solid performance relative to our operational improvements We have significant efficiency gains year over year that the team has realized extremely proud of the world class team that we have here in Springdale operating our pork business as well. And we've seen improvements really across the board from a plant operations perspective in terms of cost to operate, from a margin improvement in terms of converting and converting margins really, really solid performance as well. So we feel really comfortable with our team. We feel comfortable with our plan as we move forward as well.

A macro standpoint, I think it's important to point out a few things. Number 1 is versus the last several years, we have lower input cost and that's really providing an opportunity following the liquidation cycle that we saw in 2023 and part of 2024 from a sale perspective, to provide stability to the producers to have appropriate margins as we move forward as well. So I think that really provides the tailwind or the foundation for potential expansion or at least stability within the numbers we have as well. In terms of actual margins, we'll continue to monitor that. But as we all know, we've got a good supply situation in front of us, really good disease impacts so Lowe's [indiscernible] in the industry that certainly helps provide that incremental supply that you mentioned. Great.

I appreciate the color and congrats again on Our next question comes from Manav Gupta go ahead with your question.

Thank you for squeezing me in. Your leverage continues to drop with was 2.6 last quarter. It's now 2.3. By all estimates, it should be below the target by the end of the first half. So just trying to understand where we go from here. Sometimes companies then revise the leverage target lower, sometimes they continue to operate a lower number. And in some cases, companies come back and say going ahead as we exit our leverage target, excess cash goes to shareholders. So I'm just trying to understand how the management is thinking about that?

Yes, thanks. Certainly appreciate taking note of the improvement we made in leverage from 4.1 times down to 2.3 across the last 5 quarters.

And I'll reiterate from the earlier comments, right, that was really driven by operational excellence, either commercial execution, focus on working capital, focus on our CapEx, tight controls and getting returns, as I said to an earlier question, But our financial capital priorities really do remain unchanged. Around maintaining financial strength investing back across our business and returning cash to shareholders. And as Donnie pointed out earlier, this this morning in January, so that was a subsequent event to this quarter. We did pay off $750,000,000 term loan It was a term loan that was due in May of 26. That will further reduce our gross debt and reduce cash, but obviously that would be net debt or net leverage neutral.

You did make comment to our long range target of at or below 2 times. So while we're very pleased with the journey, from 4.1 to 2.3 times across the last 5 quarters, We do still have a little bit ways to go.

But we it is not unusual for us to also maintain leverage below that target.

But our financial capital priorities will remain the same around maintaining that strength taking opportunities to invest in our business as we see them either for growth or profit improvement. And then lastly, returning cash to shareholders. I would just add as I finish we did announce on the November call and paid recently our dividend increase, so that makes 13 consecutive years of a dividend increase.

Thank you.

And ladies and gentlemen, at this time, we'll conclude today's question and answer session. I'd like to turn the floor back over to Donnie King for any closing remarks.

Thank you, and so I have an announcement to make this morning. And you remember, a little over 2 years ago, I asked Wes Morris to come out of retirement and get our poultry business back on track and develop a strong succession plan. At the time I asked West for 3 years, and we're now in the final year of the 3 year commitment. So over the balance of the year, West will be transitioning out of the company and back to his ranch with his wife, Carrie. They're a happy place.

I think Wes has clearly gotten our business back on track. And developed a great team. And I am forever and thank him for his leadership and his friendship In the coming weeks, I'll announce the new President of Poultry, and we will have a seamless transition over the balance of the year. So thank you, Wes, for your time. Thank you for your talents and thank Carrie for allowing her to let us have you for the 3 years. So with that, thank you for your time today and interest in Tyson Foods. We look forward to updating you on progress in the next quarter.

Ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.