TYSON FOODS, INC. annual report, FY2022

Full document

Tyson Foods, Inc. — FY2022 Form 10-K

Reporting period: Fiscal year ended October 1, 2022 (52 weeks). This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter financial summary. Tyson is a diversified protein and prepared-foods producer with Beef, Pork, Chicken and Prepared Foods reportable segments.

Financial performance and position

  • Sales: $53.282 billion, up 13.2% from $47.049 billion. Higher average prices drove growth; sales volume declined 0.3%.
  • Profitability: Gross profit was $6.668 billion (12.5% gross margin); operating income was $4.410 billion (8.3% operating margin), versus $4.396 billion and 9.3% margin in FY2021. Net income attributable to Tyson was $3.238 billion, or $8.92 per diluted share, compared with $3.047 billion, or $8.34 per diluted share.
  • Segment operating income: Beef $2.502 billion (down from $3.240 billion); Pork $193 million (down from $328 million); Chicken $955 million (versus a $625 million loss); Prepared Foods $746 million (down from $1.456 billion). FY2021 Prepared Foods benefited from a $784 million pet-treats sale gain, while Chicken included $626 million of legal contingency charges.
  • Cash flow and investment: Operating cash flow was $2.687 billion, down from $3.840 billion, including a $2.104 billion cash use from changes in operating assets and liabilities. Capital expenditures were $1.887 billion; investing cash outflow was $1.935 billion. The company expects FY2023 capital spending of approximately $2.5 billion.
  • Margins and costs: Cost of sales rose to 87.5% of sales from 86.1%. Management cited inflation in livestock, feed, labor, freight and other inputs. FY2022 feed-ingredient costs in Chicken increased by $595 million; Tyson reported more than $700 million in productivity savings.
  • Debt and liquidity: Gross debt was $8.321 billion, down from $9.348 billion; cash was $1.031 billion, down from $2.507 billion. Net debt was $7.289 billion and net debt/EBITDA was 1.3x, versus 1.2x. Liquidity was $3.282 billion, including $2.25 billion available under the revolver; current ratio was 1.8x. The company reported covenant compliance.
  • Other measures: Effective tax rate was 21.7%, versus 24.3%. Return on invested capital was 13.4%, versus 13.3%. The board raised the FY2023 annual dividend rate to $1.92 per Class A share, a 4% increase from FY2022.

Material changes versus FY2021

  • Sales rose on 12.3% higher average sales prices, but volume was slightly lower. Operating income increased only $14 million, while operating margin contracted.
  • Beef and Pork income declined as margins compressed and costs increased. Chicken returned to profitability, reflecting higher pricing and volume, partly offset by inflation and feed costs. Prepared Foods income fell substantially, in part because FY2021 included the pet-treats sale gain.
  • Operating cash flow decreased, with inventory growth and higher income-tax, legal-accrual and deferred-payroll-tax payments among the factors. Inventory increased to $5.514 billion from $4.382 billion.
  • Tyson spent $702 million on Class A share purchases in FY2022, including $587 million under its repurchase program, compared with $67 million total in FY2021.

Outlook, management commentary, risks and unusual items

  • Tyson expects inflationary labor, freight, transportation and feed costs to continue into FY2023. It expects a net cash outflow from operating-asset and liability changes as the business grows and costs remain elevated. The filing gives no clear FY2023 sales, earnings or margin guidance.
  • The company expects to exceed its $1 billion productivity-savings target in FY2023, originally set for the end of FY2024. Execution and realization of savings are uncertain.
  • A restructuring program approved in FY2022 includes relocating corporate employees from Chicago-area and Dakota Dunes locations to Springdale, Arkansas. FY2022 charges were $66 million; anticipated cumulative pretax charges are approximately $293 million, with completion expected by FY2025.
  • FY2022 results included $114 million of fire-related insurance proceeds, net of costs, and $66 million of restructuring charges. FY2021 included the $784 million pet-treats sale gain and $626 million of legal contingency charges. The pet-treats sale closed in July 2021 for $1.2 billion, subject to adjustments.
  • Key operating risks include volatile livestock and feed costs, labor availability and facility utilization, supply-chain disruption, animal disease, food safety, competition and customer concentration. Walmart represented 17.7% of FY2022 sales.
  • Legal matters include continuing broiler, pork, beef and wage-rate litigation and investigations. The broiler antitrust accrual was $122 million at year-end; Tyson had received conditional DOJ leniency for matters it self-reported, conditioned on continued cooperation. Tyson also disclosed a $411 million Mexican tax assessment relating to a 2015 transaction; it disputes the assessment and recorded no liability. Outcomes remain uncertain.
  • Goodwill and indefinite-lived intangible assets totaled approximately $16.8 billion. Management reported that one Chicken and two International reporting units had tighter impairment headroom; the filing describes sensitivity to higher discount rates and weaker operating assumptions.
  • Management reported effective internal control over financial reporting, and the independent auditor issued an unqualified opinion on the financial statements and internal controls. The auditor identified the Chicken-segment goodwill impairment assessment as a critical audit matter.

Important facts for investors to verify

  • Whether pricing continues to offset inflation without further weakening volumes or segment margins, particularly in Beef, Pork and Prepared Foods.
  • Whether productivity savings exceed the target and whether the $2.5 billion FY2023 capital plan and restructuring costs translate into expected operating improvements.
  • Cash conversion and working-capital needs, including inventory levels, alongside debt maturities, interest costs and liquidity.
  • Developments and potential financial exposure from antitrust, labor, environmental and other litigation, and the Mexican tax assessment.
  • Impairment headroom for the identified Chicken and International reporting units under changing operating forecasts and discount rates.