Tyson Foods, Inc F3Q10 (Qtr End 07/03/10) Earnings Call Transcript

Tyson Foods, Inc F3Q10 (Qtr End 07/03/10) Earnings Call Transcript
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Tyson Foods, Inc (TSN)

F3Q10 (Qtr End 07/03/10) Earnings Call Transcript

August 9, 2010 9:00 am ET

Executives

Ruth Ann Wisener – VP, IR and Assistant Secretary

Donnie Smith – President and CEO

James Lochner – COO

Dennis Leatherby – EVP and CFO

Analysts

Tim Ramey – D.A. Davidson & Co.

Adam Josephson – KeyBanc Capital Markets

Diane Geissler – CLSA

Farha Aslam – Stephens Inc.

Christine McCracken – Cleveland Research

Vincent Andrews – Morgan Stanley

Ken Goldman – JP Morgan

Christina McGlone – Deutsche Bank

Stephen Share – Wisco Research

Robert Moskow – Credit Suisse

Brett Hundley – BB&T Capital Markets

Lindsay Drucker Mann – Goldman Sachs

Ryan Oksenhendler – Banc of America

Ken Zaslow – BMO Capital Markets

Presentation

Operator

Welcome and thank you for standing by. (Operator instructions) And now I'll turn today's call over to Ruth Ann Wisener. Thank you. You may begin.

Ruth Ann Wisener

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Good morning, and thank you for joining us for Tyson Foods conference call for the third quarter of our 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’m sure by now you have had a chance to briefly review our press release, and you see that we have produced earnings of $0.65 a share, and operating margin of 6.8% on sales of $7.4 billion. These are the best results Tyson has posted since we put the two companies together, which illustrates the steady improvement we have made, and more importantly what we are capable of as a company. I am still proud of our team and what they have accomplished.

And by team, I don’t mean only the employees or as we choose to call them team members of Tyson, we wouldn’t be enjoying the success we have now if it weren’t for the people at every point the supply chain. So I would like to acknowledge our poultry growers, our cattle and hog producers, our supply partners, our distribution partners, and thank you for your commitment to quality, service and our mutual success. I also like to thank our customers. We exist to serve you and add value to your business. We are grateful for the opportunity to provide great Tyson products to consumers all around the world.

In a second, I will turn the call over to Jim and Dennis to discuss our business operations, but before I do that let me add a couple of comments. In our international operations, we’re making solid progress and we are closing the gap on our start-ups. We are obviously pleased that Russia announced that it will open to chicken imports. We are waiting for the details to be worked out, but the announcement alone has already added a positive impact on dark meat prices, both internationally and domestically.

We are very excited that the Dynamic Fuels is now mechanically complete. We expect to begin production this fall, and are very proud of our efforts to produce high-quality renewable fuel with non-food sources.

That is a look at the big picture. Now I will turn it over to Jim for specifics on our segments.

James Lochner

Thanks, Donnie. It was really such a great quarter and I am very pleased with how we navigated the markets and demonstrated continuous improvement in managing revenue and costs.

Let us begin with the Chicken segment, which posted $148 million in operating income, and generated a 9.5% return on sales excluding the insurance proceeds. This compares to $114 million and 4.6% in the previous quarter, and $143 million and 5.9% in Q3 of last year. Volume was up 8%, with half the increase coming from our international operations, and the other half from domestic demand. Sales prices were down 3.2% compared to Q3 of ’09.

The key factor in our chicken business is our operational improvements. The fact that year-over-year return on sales was flat in an environment that provide a little benefit from lag [ph] quarters is evidence of our progress. There is still plenty of opportunity for additional cost savings and efficiencies. We continue to invest in our plant operations to improve cost, mix, and yield optimization. Our goal is to be the most competitive producer in the chicken distribution channel.

As expected, most external analysts are predicting a growth in chicken production year-over-year into 2011. These increases seem reasonable, but there are varying opinions regarding head [ph] and weight increases. Keep in mind broiler domestic availability differences year-over-year will be very dependent on export volume changes. This segment had a very strong quarter with 5.6% operating margin on $176 million in operating income, compared to 4.5% and $126 million in the previous quarter, and 2.4% and $66 million in Q3 of ’09. Even though we recently raised the normalized range from 2.5% to 4.5%, the beef team outperformed it by a significant amount. It is important to note that we produced these results on a 5.1% decline in sales volume.

The price of cattle increased, and we are able to maximize revenue in both (inaudible) improvement. Our plans are running well, and we are doing a good job of managing our mix. Cattle supplies in fiscal 2011 will continue the gradual decline of 1% to 2% as the cow herd continues to shrink. As you know, regional feed [ph] cattle suppliers are an important factor. We do not expect any major changes in the regional supplies where our beef plants are located.

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