Tyson Foods, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended January 1, 2022, compared with the three months ended January 2, 2021. Amounts below are in millions except per-share data. Tyson operates Beef, Pork, Chicken and Prepared Foods segments.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Sales | $12,933 | $10,460 |
| Gross profit | $2,015 | $1,177 |
| Operating income | $1,455 | $705 |
| Net income attributable to Tyson | $1,121 | $467 |
| Diluted earnings per share | $3.07 | $1.28 |
| Cash provided by operating activities | $1,432 | $1,385 |
- Sales rose 23.6%; volume contributed 0.3% and average selling prices rose 19.6%. Management attributed pricing gains primarily to inflation and recovery of higher input costs.
- Gross margin increased to approximately 15.6% from 11.3%; operating margin was 11.3%. Cost of sales rose $1,635, including $1,604 from higher input cost per pound.
- Operating cash flow increased modestly despite lower cash contribution from changes in operating assets and liabilities ($82 use of cash versus $580 source in the prior-year quarter). Capital expenditures were $408, up from $289.
- At January 1, 2022, cash and cash equivalents were $2,956; total debt was $9,364, including $1,090 current debt. Net debt was $6,408, and reported net debt to EBITDA was 1.0x. The current ratio was 1.7. The $2,250 revolving facility was undrawn; reported total liquidity was $5,206.
- Cash used in financing was $484, including $348 of Class A share purchases and $164 of dividends. The quarterly dividend per Class A share was $0.475.
Material changes and segment results
- Beef: Sales were $5,002 and operating income $956, versus $3,987 and $528. Strong demand and pricing outweighed higher cattle costs and labor-related inefficiencies; volume fell 6.2%.
- Pork: Sales were $1,626 and operating income $164, versus $1,439 and $116. Pricing and demand supported results amid increased live hog costs and labor challenges.
- Chicken: Sales were $3,890 and operating income $140, versus a $216 operating loss. The prior-year quarter included a $320 legal contingency accrual; current-quarter results also included $23 of net fire insurance proceeds. Higher feed, supply-chain and labor costs remained pressures.
- Prepared Foods: Sales rose to $2,333 from $2,113, but operating income fell to $186 from $266. Inflationary input and supply-chain costs outweighed favorable pricing; volume was affected by labor and supply constraints and the prior-year pet treats divestiture.
- Comparability is affected by the prior-year $320 Chicken legal accrual and $55 Beef gain from recovery of cattle inventory. Current-quarter unusual benefits included $45 of net fire-related insurance proceeds and a $36 after-tax benefit from remeasurement of deferred taxes. Other income also included a $30 gain on an equity investment.
Outlook, risks and contingencies
- Management expected elevated retail demand versus pre-pandemic levels and foodservice demand to continue recovering. It expected labor constraints, inflation in operating costs and higher feed costs to continue through the remainder of fiscal 2022; the company seeks to recover higher costs through pricing.
- Fiscal 2022 capital spending was expected to approximate $2 billion; net interest expense was expected to approximate $360. A new productivity program targets $300–$400 of savings in FY2022 and $1 billion by FY2024, against a FY2021 cost baseline. Management said it was on track for FY2022 savings.
- COVID-19-related absenteeism, shipping-container availability and port congestion affected operations and costs. Management noted uncertainty around the pandemic and its future effects.
- Tyson reported a roughly $380 Mexican tax assessment related to a 2015 sale. It disputes the assessment and recorded no liability. The filing also describes broiler, pork, beef, turkey and wage-related litigation. Broiler class settlements totaling $221.5 were agreed, with one class settlement still awaiting final approval; the company had conditional DOJ leniency for its self-reported broiler matters, contingent on continued cooperation. Various claims remain unresolved, and outcomes could differ from recorded estimates.
- At January 1, accrued current legal contingencies were $390. The company reported compliance with debt covenants and stated it believed available liquidity and capital resources were sufficient for operations.
- Key risks include commodity and livestock prices, labor availability, inflation and supply-chain disruption, food safety, disease outbreaks, customer demand, market access, litigation, leverage and COVID-19 developments.
Important facts for investors to verify
- Whether selling prices continue to offset higher livestock, feed, labor, freight and other input costs, particularly in Chicken and Prepared Foods.
- Progress on labor availability, production throughput and the $300–$400 FY2022 productivity-savings target, as well as the planned approximately $2 billion in capital spending.
- Developments in the Mexican tax dispute and antitrust, wage and other litigation, including settlement approvals and any changes to legal accruals.
- Debt maturities, liquidity and cash deployment, including share repurchases, dividends and the company’s ability to maintain covenant compliance.
- Actual effects of COVID-19 and supply-chain conditions on operations, demand and costs; the filing cautions that interim results are not necessarily indicative of full-year results.