Tyson Foods Q2 2010 Earnings Call Transcript

Tyson Foods Q2 2010 Earnings Call Transcript
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Tyson Foods (TSN)

Q2 2010 Earnings Call

May 10, 2010 9:00 am ET

Executives

James Lochner - Chief Operating Officer

Dennis Leatherby - Chief Financial Officer and Executive Vice President

Ruth Wisener - Vice President of Investor Relations and Assistant Secretary

Donnie Smith - Chief Executive Officer and President

Analysts

Vincent Andrews - Morgan Stanley

Ryan Oksenhendler - BofA Merrill Lynch

Christina McGlone - Deutsche Bank AG

Christine McCracken - Cleveland Research

Diane Geissler - Calyon Securities (USA)

Stephen Share - Wisco Research LLC

Heather Jones - BB&T Capital Markets

Ann Gurkin - Davenport & Company, LLC

Akshay Jagdale - KeyBanc Capital Markets Inc.

Farha Aslam - Stephens Inc.

Kenneth Goldman - JP Morgan Chase & Co

Kenneth Zaslow - BMO Capital Markets U.S.

Timothy Ramey - D.A. Davidson & Co.

Presentation

Operator

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Previous Statements by TSN
» Tyson Foods Inc. F1Q10 (Qtr End 12/31/09) Earnings Call Transcript
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» Tyson Foods F3Q09 (Qtr End 6/27/09) Earnings Call Transcript

Welcome and thank you for standing by. [Operator Instructions] And now I'll turn today's conference over to Ruth Ann Wisener. Thank you. You may begin.

Ruth Wisener

Good morning, and thank you for joining us for Tyson Foods conference call for the second 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. Morning, everyone, and thanks for joining us. In our last call I mentioned to you that Q2 was typically our weakest quarter, and as it turned out, it was on par with the first quarter and even better when you take into account the $0.04 for note repurchases. I don't think this is just a matter of peaking early because we still expect Q3 and Q4 to be strong. We're just getting started with the summer grilling season so the expected seasonal bump up in demand is coming.

The economy seems to be improving slightly, according to the NPD Group. Consumers are beginning to loosen their purse strings when it comes to food purchases, which is a positive for protein demand in both Food Service and retail.

But frankly, our outlook for the rest of the year doesn't take into account any boost from the economy. So the only negative I can point to now is a little bit of disappointment in our international operations. Although there was improvement from Q1 to Q2, it's still a little bit of a drain on the Chicken segment. And some of it can be attributed to start-up costs, but there are also country fundamentals and execution issues that we're focusing on.

We have a lot of work to do in some locations, but there are improvements being made and we're committed to our international growth strategy.

And with that, I'm just going to go ahead and turn it over to Jim for segment reports.

James Lochner

Thanks, Donnie. Good morning, everyone. On our first call, I talked about the declining domestic availability of protein and the effect it should have on our markets. But I'm happy to report it happened much faster and much stronger than I anticipated.

Now to the segments. Our Chicken segment posted an operating income of $114 million and 4.6% return on sales compared to a negative $46 million and a minus 1.9% in the second quarter of last year. It also compares favorably to Q1 2010 margin of 3.2%. Although return on sales fell just below our normalized range, we do expect to be in the range for the fiscal year in its entirety.

Sales prices this quarter were higher than Q2 '09 due to mix changes. Sales volume was down versus a year ago due to lower freezer inventory sales in our Q2 of 10. Improvement in the Chicken segment was primarily driven by better execution and operational efficiencies. I expect continued improvement in these areas because we've got one way [ph] left what's in our control. We know what the challenges are and what we need to work on.

We hope the Russian import situation will be resolved soon. But I believe we can continue to manage our mix without building significant inventories. Tyson is selling much more dark meat domestically than at any time in company history, and we have diversified our export customer base. We're running a much better business than what we were in recent years and are better positioned to handle an extended Russian ban.

As for China, we don't have much information about the additional tariff. We hope the Chinese government will reconsider and we will continue to work through the U.S. government and our trade associations in an effort to resolve this matter.

It was an outstanding quarter for our Beef segment. Operating income was $126 million with a 4.6% operating margin. This compares to $28 million and 1.2% in Q2 of '09 and $119 million and 4.4% in our previous quarter. The Pork segment also performed very well with $69 million in operating income and 7.4% return on sales compared to $29 million and 3.4% in Q2 of '09 and $62 million and 7.6% in the first quarter.

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