Tyson Foods, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended October 2, 2021 (52 weeks). The comparable fiscal 2020 year had 53 weeks. Tyson operates Beef, Pork, Chicken and Prepared Foods segments, alongside International/Other.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Sales | $47.0 billion | $43.2 billion |
| Operating income | $4.396 billion | $3.008 billion |
| Net income attributable to Tyson | $3.047 billion | $2.061 billion |
| Diluted EPS | $8.34 | $5.64 |
| Operating cash flow | $3.840 billion | $3.874 billion |
| Capital expenditures | $1.209 billion | $1.199 billion |
| Cash and cash equivalents | $2.507 billion | $1.420 billion |
| Total debt | $9.348 billion | $11.339 billion |
Sales rose 8.9%: average selling prices increased 13.0%, while volume fell 2.8%. Higher prices reflected favorable mix and pass-through of higher raw-material costs. Gross profit was $6.526 billion, or approximately 13.9% of sales, versus $5.384 billion, or 12.5%, in FY2020. Operating margin was 9.3%, versus approximately 7.0%.
Liquidity was $4.757 billion, including cash and $2.250 billion available on the revolving credit facility; there were no revolver borrowings or commercial paper outstanding at year-end. Current debt was $1.067 billion, and the current ratio was 1.6, down from 1.8. Net debt/EBITDA improved to 1.2x from 2.3x. Tyson reported compliance with debt covenants.
Segments and changes versus prior year
- Beef: Sales of $18.0 billion; operating income increased to $3.240 billion from $1.580 billion, with an 18.0% margin. Strong demand and favorable cattle-to-product economics supported results.
- Pork: Sales of $6.277 billion; operating income fell to $328 million from $565 million, as lower hog supplies, labor constraints and production inefficiencies weighed on performance.
- Chicken: Sales of $13.733 billion; operating loss was $625 million versus income of $122 million. Higher feed costs, supply-chain expenses, lower hatch rates, labor challenges, weather disruptions and legal accruals contributed.
- Prepared Foods: Sales of $8.853 billion; operating income increased to $1.456 billion from $743 million, including the gain on the pet treats business sale. Inflation, labor and supply constraints remained pressures.
FY2021 results also reflect lower volume across segments and an additional week in FY2020, which complicates the year-over-year comparison.
Outlook, risks and unusual items
- Management expects FY2022 capital expenditures of approximately $2 billion and net interest expense of approximately $380 million. It did not provide a consolidated FY2022 sales or earnings forecast in the supplied filing text.
- A new productivity program begins in FY2022, targeting $1 billion of savings by FY2024 relative to the FY2021 cost baseline. Management did not expect program costs to be material, but realization of savings is uncertain.
- Management said it would pursue recovery of higher operating costs through pricing. Key pressures include labor availability and cost, commodity and feed prices, transportation, supply-chain disruption and facility utilization.
- COVID-19 caused production slowdowns and additional costs; direct incremental expenses were approximately $335 million in FY2021, compared with $540 million in FY2020. Future operating and demand effects remain uncertain.
- FY2021 included a $784 million pretax gain on the sale of the pet treats business for $1.2 billion, $626 million of legal contingency charges, $27 million for relocation of a China facility, $17 million of fire costs net of insurance, and a $34 million defined-benefit plan gain. The $626 million of legal accruals reduced reported results; the filing attributes $545 million to broiler antitrust-related claims and identifies additional accruals for other litigation.
- Broiler antitrust and grower settlements remained subject to court approval in part; other antitrust matters, including pork and beef litigation and investigations, remained ongoing. The company reported conditional DOJ leniency for its self-reported broiler matter, subject to continued cooperation.
- Goodwill and indefinite-lived intangibles totaled approximately $17.1 billion. Chicken and certain international reporting units had more limited impairment cushions; management’s impairment conclusions depend on future margin and discount-rate assumptions.
- Walmart represented 18.3% of FY2021 sales. The Tyson family and Tyson Limited Partnership controlled approximately 71% of voting power. These are customer-concentration and governance considerations.
Important facts for investors to verify
- How much of FY2021 earnings growth was repeatable versus the $784 million disposal gain and other unusual items, and how legal charges affect comparability.
- Whether Chicken can restore profitability amid feed-cost, labor, production and litigation pressures, and whether Beef earnings remain strong under changing cattle and market conditions.
- Progress toward the $1 billion productivity-savings target and the extent to which pricing recovers inflation without reducing volumes.
- Cash conversion and working-capital needs, planned FY2022 capital spending, near-term debt maturities and continued covenant compliance.
- Final outcomes and additional exposure, if any, from broiler, grower, wage-rate, beef and pork litigation and related investigations.
- Goodwill impairment sensitivity, particularly in Chicken and international reporting units, and the assumptions supporting their valuations.