Tyson Foods, Inc. (TSN) May 2026 Conference Transcript

We're fortunate to have Tyson kicking off our conference again this year. Under the leadership of CEO Donnie King, Tyson has the opportunity to realize a third consecutive year of operating profit growth as its disciplined focus on controlling the controllables has materially improved performance in its chicken business, enabled prepared foods to outperform peers, and increased earnings contributions in pork and international, all while navigating an increasingly challenged beef operating environment. Donnie is joined by CFO Kurt Calloway, who continues to enhance Tyson's leadership team through his disciplined approach to managing Tyson's balance sheet, including $2 billion of debt reduction over the last 18 months, and creating greater flexibility to return cash to shareholders. Donnie and Kurt, thanks for joining us today. Maybe I'll kick things off on the prepared food side.

Your performance in prepared foods has been a little bit different than maybe what some of the peers or the rest of the category has been experiencing. from a volume growth perspective profit growth perspective so can you talk about what's kind of differentiated your portfolio from what we've seen from the rest of the category sure and good morning everyone thanks for the question Andrew so you know what is it now about three years ago we talked about a multi-year strategy as relates to prepared foods and you know I got to tell you that multi-year strategy is working and we're starting to see the compounding benefits from that we just completed our second consecutive quarter of volume growth and and prepared foods and if you look at peers in the package foods group you would find that that's where one of the only companies if not the only company that's actually growing in the space so we're very happy about that but you know there are several things that differentiate us in this area and it starts with execution we're executing at a very high level today in prepared foods we've done a lot of great things from one end of the supply chain to the other and it truly is an end-to-end approach in terms of eliminating waste up and down you know all the different the different functions within within prepared foods so we're very proud of that and it starts with this simple execution and in this commitment to execution whether that be inside the four walls of the plant we were we had a lot of opportunity from a capacity utilization perspective a lot of processes were not disciplined we had a lot of opportunity there to be better and so we simply began to grow our volume and we've done that very well relative to the peers our peer set you know the operating environment out there in packaged goods in food in general is not it's not an easy place to play presently with inflation and the consumer under pressure and so forth and so just that multi-year approach targeting customers and consumers and I'll go back a little ways and when I became the CEO right at five years ago there were three things that we need to do and remember this is back in COVID and in the middle of COVID there were three things we needed to do and frankly we weren't doing any of the three very well the first one was winning with customers and consumers we weren't winning we weren't servicing them we weren't doing the basics very well at all. And then our team members. Again, right in the middle of COVID, we're trying to staff plans, get people to work, get people back in offices, those kinds of things. But we had to win with our team members. We didn't have a chance to succeed with customers and consumers if we didn't have our team aligned. And I'm happy to say that we do have that today. And then execution is a third component of that. And frankly, we were not very good at all at execution. in the most fundamentals of things. And so the biggest difference between now and then is that we do all those very well. We also did made a decision to just reference customers and consumers, but getting aligned with strategic customers. And that looks a lot like having multi-year deals with customers where we create this win-win relationship and whereby their shared risk in prepared foods or in chicken even you know you shared risk a relative to the inputs it could be grain and then we owned execution and and the customers in this case would own the responsibility of delivering the volume which ultimately gave us you know a stable volume and at the same time helped us absorb overhead or fixed costs and so all that work together you know of course the brands have all done very very well we've really tightened up you know our focus and our execution as it relates to product innovation and how we collect information data and analytics as it relates to the consumer when I just real quick sure Andrew just to dive into Donnie's point on execution and a multi-year journey, right?

We started that journey, as Donnie said, a couple of years ago, but it was really about the starting with the execution inside the plants, the four walls of the plant, right? We knew we had a great opportunity there, but we got very dedicated and disciplined on making sure that we were operating with a level of intensity inside a prepared foods business that we did in the rest of the business. And that really was the start of a catalyst of reshaping our cost structure and allowing us to make some choices and investments that are what we're seeing the benefit of today relative to innovation, relative to R&D activities, and really meeting the consumer's needs. But it started with making sure we had a really well running and a great execution inside the plans.

You've talked about utilization rates across the business in prepared foods has anything changed with the asset base are you just getting at more out of what you have or have had sure the beauty of execution is this we had to make some decisions in prepared foods we did it in all businesses but in terms of the footprint of the assets we have we had some that didn't make sense anymore some that you know we probably held on to a little too long some were products product mix changed that type thing but we did that but through the the fundamentals of the business and execution you know just eliminating waste eliminating waste means you improve efficiencies throughout the organization so at the time we started this we had excess capacity in our prepared foods business so the goal there was to grow the business fill the capacity and and say yes more often to customers which I mean I realize that sounds a little foolish but we literally had to do that and to fill up the plants and run more efficiently as so as you fill them up as you get more efficient you have more capacity and you got more room to grow and you have better cost structure and it just begins to compound and good stacks on top of good.

What has changed from an innovation perspective in PREPARED? I mean, you talk about the data and analytics and some of those things. Can you talk about how that approach has evolved?

I think the first thing is we're leading with data and analytics. And we've begun, like I'm sure many have, began to collect first-party data so that we can connect directly with a consumer. And we understand what they like, what they dislike more readily. They give us that instant feedback. So whenever you go and you shop online and you see that one through five star rating or some third parties that will describe your product about what, you know, how they think about that, getting all that right is really important. But you start with a more focused approach to innovation. And we, like I'm sure many, at one time, you know, it was, we can do anything. And we tried anything and everything. But what we had to do is get more targeted against those consumers. And part of our strategy was to become more targeted toward younger consumers. We were over-indexing, which is not a bad thing to older consumers, but we were under-indexing to younger consumers. And they have different perspectives in terms of what those product qualities should look like. And so engaging with them and getting more targeted. Part of this process is using tools and analytics to, you know, everybody has a stage gate process. It typically takes 18 months in the packaged goods arena. Well, there's nobody that is willing to entertain an 18-month product innovation cycle. I mean, the customer, frankly, is going to get somebody else to produce the product, provide the product. It takes you 18 months. So you've got to streamline that and do a lot of concurrent activity as opposed to doing everything sequentially. So all those things have worked better. So we've got a sharper focus on the innovation in our business, and that's working very well. We just recently launched a new high-protein line of breakfast under the Jimmy Dean brand, bowls, sandwiches, and even a protein waffle, which was an expansion. All of that was driven based off those data and analytics that I just referenced, and they're all doing very, very well in the marketplace.

I think as well, during the last several years, as Donnie said, we focused on making sure what we're executing, we're executing very well. But two other catalysts that we're in were, you know, we condensed and brought in a number of our business units that previously had been more disaggregated, right? And the benefit of having together collectively with the business units working with one another but also working with R&D and innovation all together in the same place has really showed the benefits. And you couple that with being really aligned with the business unit to make sure what we are working on are the big ticket items that are going to drive a difference and are really resonating with all the data and insights that we've gathered to make sure that each one of those investments produces a higher return.

You started the internal improvement journey in the chicken business earlier than you did in the prepared side. Can you maybe compare the opportunity in prepared to what we've seen you execute against on the chicken side? Is the magnitude of improvement the same? How do you think about looking at chicken as kind of a leading indicator to what you can achieve in prepared?

Sure. I'd first acknowledge that we have had great success in chicken over recent years, and the playbook that we had there is very similar to the playbook that we have in prepared foods. And these are all simple things. They're simple but yet challenging to do is control the controllables. And so people can get, at times, sidetracked by what is the cost of grain, what is the inflation, what is, you know, what's the price of gasoline, what's going to happen in the Strait of Hormuz, all these different things. Well, the fact of the matter is I don't control any of those. But what I do control is what we do inside our business. And so getting everyone focused against that has been really important. In terms of across all of our businesses, the playbook that you referenced in chicken is the same playbook. They're very similar in prepared foods. It's very similar in our beef and pork businesses and our international businesses as well. It's controlling those things that we can control. It's executing with excellence. It's being aligned with customers and consumers and taking care of our people that make all this happen. And so what's the size of that order of magnitude? Remember, our prepared foods business is roughly half the size of our chicken business. But the upside for prepared foods and continue to growing that organically and inorganically, there's tremendous upside to this business. The, you know, just the multiple, the, you know, the opportunity, the branded portfolio that sits inside prepared foods and also the Tyson brand as well is those are all really, really good things. But the playbooks are very similar. Upside is upside would be similar in terms of order of magnitude.

It's obviously been a very inflationary environment. here so far this year um and so i guess i'm curious like to what extent have the improvements been masked by that so far this year and when i think about your assumptions on the inputted cost environment going forward um what have you assumed in the in your outlook are we going to see that abate and maybe some of the benefits start to increasingly come through from a profit growth perspective sure great question the you know in looking at inflation um you know we think let's say for prepared foods the raw material um beef pork turkey uh some chicken uh the

inflationary effect of that we think will persist i don't know for how long i don't know you know there's a point where you reach the point where the consumer will back away based on pricing but but inflation is real it is persistent we have modeled in to our 26 and as we even think about 27 based on what we know now we don't see that going down in any kind of meaningful way so we have to manage those things very well you say well why do you think that seven out of the last eight quarters we've seen inflation in raw materials so we think that's probably a pretty good trend we don't like that the consumer doesn't like that and what we spend our time doing is trying to offset and defray those costs and try to make sure that through pricing promotion all those levers that we have that we make that product relevant and that we make it affordable for the customer and the consumer and while maintaining volume and so but I don't see I don't see any sign of that going you've got gasoline prices now in our Q3 you're seeing gasoline prices go up you've seen them go up well over a dollar and that'll start having impact in terms of the

consumer and where they buy where they shop which channel they they do that in i think you know just to build on what danny said seven out of the last last eight quarters in prepared foods we've seen commodity inflation but you look at our performance relative last three years it's incredibly stable but actually growing at the bottom line and as donnie mentioned earlier growing at volume right so we've we've certainly to an earlier question you asked you know demonstrated a very different performance, but our execution, what we said at the beginning around being very efficient inside the plant, gives us the capacity to make choices between investments that we're making and having the benefit of driving not only volume growth that we're talking about, but our products in retail are performing incredibly well.

And that allows us an opportunity to have a conversation about multiple ways to deal with increasing inflation, one of which is increased volume right and so it gives us multiple options based on the moves that we made in our cost structure improvements and discipline we've had for several years now is given some of the challenges that the rest of the the category is is experiencing are you seeing changes in competitive behavior especially with a consumer that you know may be more stretched and and if so or if that were to happen what are the levers that you have to still achieve your your goals sure you know I would say first and foremost we're not

comfortable in the environment that we're in we would never be comfortable with a competitor and saying you know what we're good we're as good as we can be we believe we earn the right to serve that customer every day that means we got to provide the right kind of quality right kind of service the right kind of innovation. But what levers, you know, if there's a competitive response, there's certainly some of that that goes on today. But we just have to perform better than them. And we have vehicles to do that and process in place to do that with our customers. We talk a lot about strategic customers. Some would call it key customers. There's a number of different names but it's those customers you intend to win with in many cases it's those customers that are growing and winning in the market themselves and so what is really important to me is that you keep volume growing I think that is a critical indicator of your success and the strength and health of your business and so we watch that very closely across all businesses and so so in prepared foods specifically um you know we adjust those lever we make we make sure that you know the products that that whether it's pricing promotion those type things keep the product on the shelf keep it moving making sure that the quality is there making sure that we are best in class in servicing those customers and then making sure that we continue to bring new innovation for those new consumers that we want to intersect with and namely as I referenced earlier is younger consumers.

Can you talk a little bit more about those strategic customer relationships? Is that more of a volume benefit for the company, a visibility benefit, a margin benefit? How does that impact your business?

Well, if I look foundationally or fundamentally, those strategic customer relationships um they're critical they're critical to our strategy they're critical to you know our success and and um you know when i talked about becoming the ceo you know there was a period where i thought we i believe that that we were mad at the customer and kind of irritated the customer would want us to sell them product and we had to produce it so we had to change that right and so getting aligned with those strategic customers opens up a lot of opportunities it is truly a win-win relationship and so what does that do it provides stable volume it provides fixed cost absorption and it also allows us to have conversations with those customers let's say let's say inflation enters in in the raw material what that allows us to do then is have a conversation with the customer instead of increasing the pricing or passing on pricing can we offset that with incremental volume to fill up that line to to offset that so that we keep our price points you know relevant as it relates to the consumer so that we keep that volume moving and not only for us but also for the customer and uh so it's working there the critical the the strategic customers are critical to the model that we have in place and uh we handle it uh you know with kid gloves and and uh you know it's working very well sure and we've we get more and more customers that we bring online where we have shared risk and uh so the best part about all that is one you're growing but secondly you change all the conversations from price to how do we grow together and we you know when when when our customer business grows we tend

to grow with them and so it's working very well just add you know the the framework behind that as well Andrew right as Donnie mentioned is absolutely on ensuring that we're providing a quality product right it tastes good right those elements are always there um but also around the innovation and donnie touched on a few elements of what innovation we have brought but the continual evolution and new things introduced that are resonating with with the customers and consumers as i mentioned earlier but it's service right and and that those elements of assure assuring our customers right that we're going to be there right with a quality product consistently

delivered service on time and we're bringing innovation creates a point of difference for us to offer up in that partnership great shifting gears to the chicken business I think one of the most surprising things that we heard from you guys in the most recent quarter was the the discussion around the genetics business and the profitability improvement there can you talk about what exactly changed and how should we think about that evolving from here does that build does it change if you could could talk about that sure sure it And it was brought into the conversation in the most recent earnings.

And so let me start with explaining how our genetics business works inside Tyson. In our genetics business, which we've been in for a long time, it's always been a part of our chicken business. But it has always been a service to our domestic chicken business. But at the same time, we sell that product, have sold that product to customers around the world, competitors included. And so that's the way it works. It all rolls up into the chicken segment. And so it is, we have seen a structural change in that business. And I'll give you a short history lesson. And if you go back to about 2015, we primarily had one genetics, a line of genetics that serviced essentially chickens, live chickens that would be like seven, seven and a half pounds and down. We had a very good package for that. If you recall back in 2015 and moving on, chicken bird weights began to get higher. we had we made a couple of attempts to to have a line of genetics and quite frankly it didn't perform uh it didn't perform for us it didn't perform for customers and so we were sitting without a line of genetics so back to 2015 from 2015 all the way into 23 23 24 we began to see the performance of the genetics business continue to decline with all those influenced by all those things I just referenced. We launched a new breed, a new line of genetics that had all the characteristics of the breed that we had, but it also addressed yield and egg production for a bigger bird, that 7 1⁄2 pounds and larger. That's been in development now for some time. We've done tremendous field trials and so forth with that. We're actually harvesting, you know, we're early innings, but we're harvesting in our Q2. Some of those birds are, let's call it, you know, We're about a fourth of the way there in terms of the birds that we intend to use out of this big bird population. But we're seeing the benefit of that from the Cobb or the genetics company. We're seeing the benefit on their P&L because we're selling that product. It's largely being sold to Tyson, our broiler division, our domestic chicken business. And so that has done well. you saw you saw the benefit of that and we called it out in our q2 what you haven't seen yet is those genetics flowing through the domestic chicken business and we're again fairly early innings in that and in terms of the population we will put on those new genetics you know let's call it mid 27 you should see you know you should see the impact of that across our business where that is and that has a sizable uplift in it in itself and think breast meat to live yield which is probably one of the bigger measurements as relates to chicken and particularly in the big bird deboning arena and so you know that looks really good so we got our genetics working we got a genetic for a smaller bird a larger bird and it's performing very very well but that overnight success took a decade. And so it's a pretty protracted event.

Speaking of 27, probably the most frequent question I've been getting recently is about your ability to grow chicken profits again in 2027. You've obviously had tremendous progress on the operational efficiencies or operational improvements. You have this genetic step up. I think people are pretty worried about the kind of underlying chicken margin environment.

So how would you address that what's your level of confidence in your ability to grow chicken again profits again in 27 sure i think a couple things i would point out with that if i look at the results that we delivered i think it's important to note that we saw a pretty significant drop in the market price for chicken breast meat chicken wings chicken tenderloins the whole deal in rq2 i think industry i know industry saw that as well so that's the first thing to point out but i think the other thing that is most important here is is our results were execution led they weren't market driven and that's really satisfying to me in that we control our destiny with that controlling the controllables and so if i think about um you know the balance of 26 27 and i'm certainly not guiding into 27 at this point. You know, I think what we're doing in our chicken business and the compounding benefit of that will continue to move into 27 and beyond. I think we will continuously get better as we get better at every one of these, in every part of this business. You know, there's a, you know, Hall of Fame coach, Nick Saban, used to, would say that to be successful as a team, that every person needs to win their spot. So when I talk about execution, executional excellence, it's every person up and down the supply chain winning their spot. And so my confidence in going forward is based on this execution that we do and everybody winning their spot. not based on what the market might give or take. I won't say I'm agnostic to that, and I won't say I'm not impacted by that, but our model, we have a little insulation to that, particularly based on that customer relationship, strategic customer relationship, where we can adjust pricing, and we change the narrative from pricing to volume growth and that type thing.

I think our second quarter was a good proof point, right? As Donnie had said, right? Commodity chicken pricing was down. And given our mix in our portfolio, right, our average price held through, right? And we grew volume, right? And that was a clear point of differential that the model that Donnie talked about between strategic partnership, execution within the plants. And we've made a lot of hard choices over the years to set us up for much better success. And we've rededicated the capital to the right mix of projects to ensure that we have that sustainability and then connect it with the genetics business. And remember, we're as end-to-end as can be between genetics all the way to rendering and everything in between sets us up with a point of difference as well.

Maybe if I could add one more point to that. So in our chicken business, we've had six consecutive quarters volume growth in the most recent quarter we had about in our chicken business about 2% volume growth and across these six quarters I referenced our branded value-added business has grown three times that so that gives you some indication of where our focus is in growing our business it's in the branded value-added we are a huge player in that we have the number one brand of chicken. And so that's where we're growing in there. It's less about commodity. It's more about branded value added on both fresh and frozen product.

And that was super helpful. On the beef side, where things have been a bit more challenged, you have made some changes, closing a plant recently adjusting some shifts originally when you when you made that move you talked about we'll get some you know some productivity but there's also some incremental costs how has that played out how is that impacting your network and your profitability having made that decision yeah um so as a reminder right the changes that we made we we announced in november but they didn't really go into effect until our q2 the quarter that just ended and so it's early through that right but the expectation was processing within our new footprint right which

was designed for where we felt the cattle would be available in the future not yesterday or not today but but the right size for where it needed to be closing one facility and taking one from two shifts to one was the move for us to make now that enables us to run the available cattle in the industry in an environment where we can be absolutely competitive as anybody else right We're not going to control cattle costs. We're not going to control the ultimate cutout. But what we can do is operate with great efficiency inside our network, and it's early, right? But we're starting to see the benefits of that as we've moved into that footprint. Now, naturally, when you're in a transition period, while, yes, there's a date in which that happens, there's still cost associated with it as moving things around or inefficiencies as you're running that activity. And so our third quarter will be the first point in which we're operating completely in that new footprint, and the expectation of being absolutely competitive in the industry is there.

Does that balance between cost and efficiency? I mean, is that the point that you're making, I guess, that now we're going to see that, you know, lean a little more heavily towards the efficiency side than the cost side?

Yes. And we're seeing that today, and a lot of those costs were short-term in nature. as I mean you you know the closing of a plant and then going to one shift in another we're all a lot of those costs associated with that were short term in nature and essentially we were we've worked through that and those plants that we have in the footprint we have we're operating at a very high level of efficiency our utilization I should say which is making us more efficient more were cost-competitive, which was the intent of the moves that we made.

The guidance implied in the back half of the year is another proof point in the expectation that while we're still in a loss situation, narrowing those losses in the back half of the year were apparent in our guidance for the back half.

You guys were one of the first, I think, to call out that you were starting to see some heifer retention about a year ago. How has that evolved? Are the conditions there for an acceleration in heifer retention? Are we seeing it yet, or is there any hope?

It's still, I would say, spotty and regional, right? The pace at which perhaps some had forecasted before, you know, hasn't picked up. Look, it's still going to be a tight cattle supply situation as we move through 26 and into 27. But as I said earlier, what we're controlling, and back to Donnie's mission for us to make sure we're controlling controllables, that's what we did with the footprint and that's what we're executing and we'll manage through in 26 and into 27 and we'll still manage in a tight cattle supply with all the improvements in the business we've seen the earnings trajectory really uh pick up as that continues to happen as the cash flow improves you know how are you thinking about incremental capital deployment what are the priorities around that from here yeah um so happy to say in addition to you know improving guidance for the year between $2.2 and $2.4 billion. We also raised free cash flow guidance for 2026, the $1.2 to $1.8 billion. Our capex has been in the range, as we've said, the entire year between $700 million and $1 billion. Our historical average is a little above that, more like call it $1.2. But I'll hurry on to remind everybody that we spent a lot of capital over the last couple of years. We put a lot of capacity expansion in the network, built four domestic plants in the United States, built seven internationally, and we added a lot. And we've been working on certainly filling that up and operating with excellence, as Donnie mentioned earlier. But ultimately, our long-term expectation of leverage is out or below two times. And at the end of our Q1, we hit 2.0 times. Naturally for us, Q1, we generate a little excess cash. Q2, we use a little cash, just the normal cycle. So leverage was at 2.2 as we finished Q2. But it's very much a sweet spot for us. We have ultimate optionality and flexibility. And as you pointed out earlier in the opening comments, we've been very diligent paying down gross debt. $300 million this quarter, $1 billion in the last year, nearly $2 billion in the last six quarters. We've demonstrated commitment to that. and we have a lot of optionality and flexibility. I'll just end with our return cash to shareholders as well. We've returned in the first half of the year just under $450 million through dividends and share repos. I think it's a very impressive stat.

You talked about some of the investments and capacity expansions that you've made. Are there other internal projects that as you look forward are exciting or interesting that would be kind of top of mind as you weigh that against maybe further cash returns to shareholders?

Yeah, I'll start. Donnie, can you add anything as well? Look, we have a lot of opportunity ahead of us. As I said, we had a little bit lower capex this year. That was planned as we were fully digesting all the investments we put in the last few years. But we have a lot of runway ahead of us, and the businesses have a lot of views relative to what can continue. and making those investments in the business that we see really great returns on. And we're excited about that. But, you know, the optionality and flexibility that capital structure provides us gives us a lot of opportunity.

If I could add this, you know, I talked about these strategic customers. One of the responsibilities that go with that is to make sure that we've got capacity in front of us. So I also talked about utilization and how important that was. but our responsibility to our customers to continue to grow with them as they grow is to make sure whether it be harvest capacity you know fully cooked capacity whatever the capacity is to keep that in front of us and we we go to great lengths to plan that capital deployment so it'll be ready before the actual demand materializes and so that's where the capital will be spent there may inorganic opportunities there's certainly it's certainly a great time to be thinking about if you wanted to buy something but but you know Curt is pretty disciplined as it relates to capital and and and so we we're very disciplined in that whole approach in terms of deployment of capital I think I'd have to follow up on on that point is there is that a a geographic kind of the diversification kind of comment is it in any specific area that would be most interesting I guess well if I were to if I were to yeah it's going to be poultry and prepared foods yeah I mean that's that's where we're growing the most that's where we see the opportunity that's where our strategy will lead us consumers today are looking for food that first and foremost tastes good but But they're looking for food that is nutritious, affordable, and convenient. And when you can intersect with a consumer in that way, where all three of those things are important, you have a real high likelihood of success.

And maybe I'll just close with this question.

When you think about all the improvements to the business over the last several years, now kind of transitioning to prepared more recently. how far along in the business improvement journey do you feel like overall for the total company you are where are we what inning however you want to frame it are we in this in this opportunity you know I can look across all businesses and I will tell you we're executing as well as I've seen us execute and I've been doing I've been at Tyson since 1982 and so I'm seeing great execution across every one of our businesses but i'd also have to look you in the eye and tell you that there's still plenty of runway ahead in terms of that so i don't think you will ever hear me tell you that you know what we have arrived there's nothing left to go get because every rock we turn over we find something that leads us down another path and another way to eliminate waste and improve profitability so the journey will never be over it's unfinished business but our mindset is to wake up every day and be better today than we were yesterday be better tomorrow than we are today and so forth it is a continuous improvement mindset right time we'll leave it there thank you both very much for for being here thank you