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Tyson Off To A Good Start In Fiscal 2013; EPS Up 14% Over Prior Year

"We are being both methodical and innovative in our approach to managing the challenges that come in this business, and our approach is working. I have every confidence in our team's ability to execute their plans and meet their goals. This is an exciting time at Tyson, and while we're pleased with the progress we've made, we feel like we're just getting started."

Segment Performance Review (in millions)

 
Sales
(for the first quarter ended December 29, 2012, and December 31, 2011)
  First Quarter
  2013 2012 Volume Change Avg. Price Change
Chicken  $ 2,956  $ 2,762  (1.1)%  8.2%
Beef  3,485  3,467  (10.0)%  11.7%
Pork  1,363  1,475  (2.2)%  (5.5)%
Prepared Foods  841  861  1.8%  (4.1)%
Other  20  54 n/a n/a
Intersegment Sales  (263)  (290) n/a n/a
Total  $ 8,402  $ 8,329 (3.3)% 4.7%
         
 
Operating Income (Loss)
(for the first quarter ended December 29, 2012, and December 31, 2011)
  First Quarter
      Operating Margin
  2013 2012 2013 2012
Chicken  $ 107  $ 32 3.6% 1.2%
Beef  46  31 1.3% 0.9%
Pork  125  165 9.2% 11.2%
Prepared Foods  33  51 3.9% 5.9%
Other  (11)  (1) n/a n/a
Total  $ 300  $ 278 3.6% 3.3%
  • Chicken - Despite increased domestic and international production, total sales volumes decreased in the first quarter of fiscal 2013 due to reduced open-market meat purchases, planned inventory build to meet forecasted customer demand and mix of rendered product sales. The increase in average sales price is primarily due to mix changes and price increases associated with increased input costs. Since many of our sales contracts are formula based or shorter-term in nature, we were able to offset rising input costs through improved pricing and mix. Operating income was positively impacted by increases in average sales price, improved live performance and operational improvements. These increases were partially offset by increased feed costs of $170 million.
  • Beef - Fed cattle supplies decreased which drove up average sales price and livestock cost. Sales volumes decreased due to a reduction in live cattle processed as a result of soft domestic demand for beef products and outside tallow purchases. Operating income increased in the first quarter of fiscal 2013 as the result of balancing our supply with customer demand partially offset by increased operating costs from reduced production.
  • Pork - Live hog supplies increased which drove down average sales price and livestock cost. Sales volumes decreased as a result of balancing our supply with customer demand. While reduced compared to prior year, operating income remained strong in the first quarter of fiscal 2013 despite brief periods of imbalance in industry supply and customer demand.
  • Prepared Foods - Operating income decreased in the first quarter of fiscal 2013, despite increased volumes, as the result of lower average sales prices caused by lower raw material costs as well as product mix and additional costs incurred as we invested in our lunchmeat business.

Outlook

Our continued capital investment in our businesses, strong liquidity and reduced interest expense will help us to maintain strong operating results despite challenging market conditions. In fiscal 2013, we expect overall domestic protein production (chicken, beef, pork and turkey) to decrease approximately 1% from fiscal 2012 levels. The recent drought conditions have reduced expected grain supplies, which will result in higher input costs as well as increased costs for cattle and hog producers. The following is a summary of the fiscal 2013 outlook for each of our segments, as well as an outlook on sales, capital expenditures, net interest expense, debt and liquidity and share repurchases:

  • Chicken – Current USDA data shows U.S. chicken production to be relatively flat in fiscal 2013 compared to fiscal 2012. Based on current futures prices, we expect higher feed costs in fiscal 2013 compared to fiscal 2012 of approximately $600 million. The capital investment and significant operational improvements we have made in our Chicken segment have better positioned us to adjust to rising feed costs and remain profitable. Additionally, many of our sales contracts are formula based or shorter-term in nature, which allows us to offset rising input costs through pricing. However, there may be a lag time for price increases to take effect. We anticipate our Chicken segment will return to normalized ranges in the second-half of fiscal 2013.
  • Beef – We expect to see a reduction of industry fed cattle supplies of 2-3% in fiscal 2013 as compared to fiscal 2012, with the reduction predominately in the second half of fiscal 2013. Although we generally expect adequate supplies in regions we operate our plants, there may be periods of imbalance of fed cattle supply and demand. We anticipate beef exports will remain strong in fiscal 2013. For fiscal 2013, we believe our Beef segment will remain profitable, but could be below our normalized range of 2.5%-4.5%.
  • Pork – We expect industry hog supplies to be flat compared to fiscal 2012 and pork exports to remain strong in fiscal 2013 but less than fiscal 2012. For fiscal 2013, we believe our Pork segment should remain at or above our normalized range of 6.0%-8.0%.
  • Prepared Foods – We expect operational improvements and increased pricing to offset increased raw material costs. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through increased pricing. For fiscal 2013, we believe our Prepared Foods segment should be in its normalized range of 4.0%-6.0%.
  • Sales – We expect fiscal 2013 sales to approximate $35 billion mostly resulting from price increases related to expected decreases in domestic availability of protein and increased raw material costs.
  • Capital Expenditures – We expect fiscal 2013 capital expenditures will approximate $550 million.
  • Net Interest Expense – We expect fiscal 2013 net interest expense will approximate $140 million.
  • Debt and Liquidity – We do not have any significant scheduled maturities of debt due until October 2013 and may use our available cash to repurchase notes when available at attractive rates. Total liquidity at December 29, 2012, was $1.9 billion, well above our goal to maintain liquidity in excess of $1.2 billion.
  • Share Repurchases – We expect to continue repurchasing shares under our share repurchase program. As of December 29, 2012, 30.1 million shares remain authorized for repurchases. The timing and extent to which we repurchase shares will depend upon, among other things, our working capital needs, market conditions, liquidity targets, our debt obligations and regulatory requirements.
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
     
     
  Three Months Ended
  December 29, 2012 December 31, 2011
     
Sales  $ 8,402  $ 8,329
Cost of Sales  7,865  7,836
Gross Profit  537  493
     
Selling, General and Administrative  237  215
Operating Income  300  278
Other (Income) Expense:    
Interest income  (1)  (2)
Interest expense  37  49
Other, net  —   (12)
Total Other (Income) Expense  36  35
Income before Income Taxes  264  243
Income Tax Expense  96  87
Net Income  168  156
Less: Net Loss Attributable to Noncontrolling Interest  (5)  — 
Net Income Attributable to Tyson  $ 173  $ 156
     
Weighted Average Shares Outstanding:    
Class A Basic  285  297
Class B Basic  70  70
Diluted  362  376
Net Income Per Share Attributable to Tyson:    
Class A Basic  $ 0.50  $ 0.43
Class B Basic  $ 0.45  $ 0.39
Diluted  $ 0.48  $ 0.42
Dividends Declared Per Share:    
Class A  $ 0.160  $ 0.040
Class B  $ 0.144  $ 0.036
     
Sales Growth 0.9%  
Margins: (Percent of Sales)    
Gross Profit 6.4% 5.9%
Operating Income 3.6% 3.3%
Net Income 2.0% 1.9%
Effective Tax Rate 36.3% 35.8%
 
 
TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
(Unaudited)
     
     
  December 29, 2012 September 29, 2012
Assets    
Current Assets:    
Cash and cash equivalents  $ 951  $ 1,071
Accounts receivable, net 1,365 1,378
Inventories 2,932 2,809
Other current assets 139 145
Total Current Assets 5,387 5,403
Net Property, Plant and Equipment 4,043 4,022
Goodwill 1,891 1,891
Intangible Assets 126 129
Other Assets 427 451
Total Assets  $ 11,874  $ 11,896
     
Liabilities and Shareholders' Equity    
Current Liabilities:    
Current debt  $ 519  $ 515
Accounts payable 1,435 1,372
Other current liabilities 892 943
Total Current Liabilities 2,846 2,830
Long-Term Debt 1,907 1,917
Deferred Income Taxes 536 558
Other Liabilities 527 549
     
Total Tyson Shareholders' Equity 6,034 6,012
Noncontrolling Interest 24 30
Total Shareholders' Equity 6,058 6,042
     
Total Liabilities and Shareholders' Equity  $ 11,874  $ 11,896
 
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
     
     
  Three Months Ended
  December 29, 2012 December 31, 2011
Cash Flows From Operating Activities:    
Net income  $ 168  $ 156
Depreciation and amortization  130  122
Deferred income taxes  (9)  24
Other, net  23  27
Net change in other current assets and liabilities  (122)  9
Cash Provided by Operating Activities  190  338
     
Cash Flows From Investing Activities:    
Additions to property, plant and equipment  (157)  (182)
Purchases of marketable securities  (7)  (8)
Proceeds from sale of marketable securities  8  11
Other, net  4  3
Cash Used for Investing Activities  (152)  (176)
     
Cash Flows From Financing Activities:    
Payments on debt  (35)  (25)
Net proceeds from borrowings  24  45
Purchases of Tyson Class A common stock  (115)  (50)
Dividends  (53)  (15)
Other, net  21  22
Cash Used for Financing Activities  (158)  (23)
     
Effect of Exchange Rate Change on Cash  —   2
     
Increase (Decrease) in Cash and Cash Equivalents  (120)  141
Cash and Cash Equivalents at Beginning of Year  1,071  716
Cash and Cash Equivalents at End of Period  $ 951  $ 857
 
 
TYSON FOODS, INC.
EBITDA Reconciliations
(In millions)
(Unaudited)
         
         
  Three Months Ended Fiscal Year Ended Twelve Months Ended
  December 29, 2012 December 31, 2011 September 29, 2012 December 29, 2012
         
Net income  $ 168  $ 156  $ 576  $ 588
Less: Interest income  (1)  (2)  (12)  (11)
Add: Interest expense  37  49  356  344
Add: Income tax expense  96  87  351  360
Add: Depreciation  119  108  443  454
Add: Amortization (a)  4  4  17  17
EBITDA  $ 423  $ 402  $ 1,731  $ 1,752
         
         
Total gross debt      $ 2,432  $ 2,426
Less: Cash and cash equivalents      (1,071)  (951)
Total net debt      $ 1,361  $ 1,475
         
Ratio Calculations:        
Gross debt/EBITDA     1.4x 1.4x
Net debt/EBITDA     0.8x 0.8x
         
(a)  Excludes the amortization of debt discount expense of $7 million and $10 million for the three months ended December 29, 2012, and December 31, 2011, respectively, and $39 million for the fiscal year ended September 29, 2012, as it is included in Interest expense.

EBITDA represents net income, net of interest, income tax and depreciation and amortization. EBITDA is presented as a supplemental financial measurement in the evaluation of our business. We believe the presentation of this financial measure helps investors to assess our operating performance from period to period and enhances understanding of our financial performance and highlights operational trends. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies. However, the measurement of EBITDA may not be comparable to those of other companies in our industry, which limits its usefulness as a comparative measure. EBITDA is not a measure required by or calculated in accordance with GAAP and should not be considered as a substitute for net income or any other measure of financial performance reported in accordance with GAAP or as a measure of operating cash flow or liquidity. EBITDA is a useful tool for assessing, but is not a reliable indicator of, our ability to generate cash to service our debt obligations because certain of the items added to net income to determine EBITDA involve outlays of cash. As a result, actual cash available to service our debt obligations will be different from EBITDA. Investors should rely primarily on our GAAP results, and use non-GAAP financial measures only supplementally, in making investment decisions.

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