Tyson Foods, Inc. (

TSN

)

F4Q2010 Earnings Call Transcript

November 22, 2010 9:00 am ET

Executives

Ruth Ann Wisener – VP, IR and Assistant Secretary

Donnie Smith – President and CEO

Jim Lochner – COO

Dennis Leatherby – CFO and EVP

Analysts

Ann Gurkin – Davenport & Company

Vincent Andrews – Morgan Stanley

Farha Aslam – Stephens, Inc.

Kenneth Goldman – JP Morgan

Christina McGlone – Deutsche Bank Securities

Christine McCracken – Cleveland Research Company

Heather Jones – BB&T Capital Markets

Diane Geissler – CLSA

Kenneth Zaslow – BMO Capital Markets

Robert Moskow – Credit Suisse

Lindsay Drucker Mann – Goldman Sachs

Ryan Oksenhendler – Banc of America-Merrill Lynch

Timothy Ramey – D.A. Davidson

Akshay Jagdale – KeyBanc

Colin Guheen – Cowen & Company

Presentation

Operator

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Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

And now, I'd like to introduce Ruth Ann Wisener. Thank you. You may begin.

Ruth Ann Wisener

Good morning and thank you for joining us for Tyson Foods conference call for the fourth quarter and 2010 fiscal year.

I need to remind you that some of the things we talk about today will include forward-looking statements. Those statements are based on our view of the world as we know it now, which could change. I encourage you to look at our press release for a discussion of the risks that can affect our business.

On today's call is Donnie Smith, President, and Chief Executive Officer; Jim Lochner, Chief Operating Officer; and Dennis Leatherby, Chief Financial Officer. To ensure we get to as many of your questions as possible, please limit yourself to only one question and then get back in the queue for additional questions.

I'll now turn the call over to Donnie Smith.

Donnie Smith

Thanks, Ruth Ann. Good morning, everyone and thanks for joining us. Well, I hope you've had a chance to review our press release to see that we had a record fourth quarter with GAAP earnings of $0.57 a share or $0.64 a share on an adjusted basis.

We produced net sales of $7.4 billion and operating cash flows of $350 million for the quarter. Our Q4 adjusted operating margin was 5.6%. Our net sales of $28.4 billion for the year, we produced record GAAP earnings of $2.06 or $2.19 a share on an adjusted basis, and all of our operating segments we're in or above their normalized ranges.

These results generated significant cash, which we used to reduce debt and reinvest in our business. These results also demonstrate the strength of our diversified protein model. Beef and pork produced close to $1 million in operating income for the year. The Chicken segment improved significantly and was within its normalized range.

Market conditions were favorable versus '09, but they were far from ideal. The economy has been slow to recover, foodservice demand was off again, consumer confidence was low, cattle and hog costs climbed throughout the year. Cash corn and soymeal prices averaged about $0.40 a bushel and $30 a ton cheaper for the year respectively, but of course we were out in Russian market for most of the year and lower leg quarter prices offset some of the benefit from feed ingredients. Overall, the domestic availability of protein was lower than in '09 which was favorable. But in the end, our diversified protein model and most importantly our improved execution made for a very strong performance in 2010, despite the headwinds.

Before I move on, I'd like to quickly remind you of our four objectives; be our customers go to supplier, be the best-in-class protein manufacturer, build a multi-protein enterprise and upgrade our raw materials and byproducts which is of course a reference to our renewable product business.

Success in serving our customers was demonstrated by several Supplier of the Year awards we received from some of our most valued customers, and we will continue earning their business through innovation service.

As for the second objective, our progress towards becoming a best-in-class protein manufacturer is evident in our results compared to our historical performance and compared to our competition. The progress of the other two objectives might be a little less visible right now but they are still important to our long-term growth and diversification. We made progress on our international operations in 2010; Tyson de Mexico had a great year by improving yield and product mix, keeping the gross margin up while simultaneously driving G&A costs down. India was also a good year, although it's a small piece of our business we continue to be very pleased with the execution of our team in India. We still have work to do on our new operations in China and Brazil. Keep in mind, we have Greenfield operations in those two countries, and we knew they would not contribute to our earnings this past year, but I am confident in our teams in those countries. They are right on track. Although, we did write-down goodwill in Brazil, we believe our international operations still offer good opportunities for long-term growth.

Moving on to renewable products, I am happy to say that Dynamic Fuels plant began producing fuel in early October and has operated at a depth of 2,500 barrels a day as we continue to ramp up production. We're very pleased with the quality of the fuel being produced from non-food grade animal fats and greases. The renewable diesel we're making really is the best in the world from both a performance and an environmental standpoint.

Looking forward into 2011, we obviously have some turbulence to deal with. Inputs, especially corn are going to be a challenge, but we're doing everything we can to offset those inputs through pricing, operational efficiencies and managing our product mix.

We began in late 2009 and we'll continue through 2011 investing capital (inaudible) fresh chicken plants. In our fresh plants, the primary focus of our capital expense is to increase yield, labor and line efficiencies, while concurrently improving our flexibility to produce a more market relevant product mix. We are also investing in our further processing plants, to improve line efficiencies to keep pace with customer demand for our value-added products.

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