Tyson Foods, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended April 2, 2022; comparisons are to the periods ended April 3, 2021. Amounts are in U.S. dollars. Financial statements are unaudited.
Business context and results
Tyson operates Beef, Pork, Chicken and Prepared Foods segments, alongside International/Other. In Q2, sales rose 16.1%, principally from higher prices as the company sought to recover inflationary input costs; sales volume declined 1.5%. Management cited strong demand, labor constraints and supply-chain challenges.
Key financial metrics
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Sales | $13.117 billion | $11.300 billion | $26.050 billion | $21.760 billion |
| Gross profit | $1.735 billion | $1.253 billion | $3.750 billion | $2.430 billion |
| Operating income | $1.156 billion | $720 million | $2.611 billion | $1.425 billion |
| Net income attributable to Tyson | $829 million | $476 million | $1.950 billion | $943 million |
| Diluted EPS | $2.28 | $1.30 | $5.35 | $2.58 |
- Q2 gross margin was approximately 13.2%, versus 11.1% a year earlier; operating margin was 8.8%. Cost of sales was 86.8% of sales, down from 88.9%.
- For the six months, operating cash flow was $1.224 billion, down from $1.349 billion. Working-capital changes used $1.455 billion, largely offsetting higher earnings.
- Six-month capital expenditures were $847 million. Cash used in investing activities was $885 million and cash used in financing activities was $1.767 billion.
- At April 2, cash was $1.151 billion; total debt was $8.349 billion, including $79 million current debt. The company reported $3.401 billion of total liquidity, including $2.250 billion available under its revolving facility. Net debt/EBITDA was 1.0x; debt covenants were met.
- Six-month dividends were $328 million and share repurchases were $511 million. The company redeemed $1 billion of notes due June 2022 using cash on hand.
Segment performance and changes
| Segment | Q2 operating income | Q2 prior year | Six-month operating income | Six-month prior year |
|---|---|---|---|---|
| Beef | $638 million | $445 million | $1.594 billion | $973 million |
| Pork | $59 million | $67 million | $223 million | $183 million |
| Chicken | $198 million | $6 million | $338 million | $(210) million |
| Prepared Foods | $263 million | $217 million | $449 million | $483 million |
Higher average selling prices supported revenue and earnings, while labor, livestock, feed, freight and other input-cost inflation pressured results. Beef and Chicken improved substantially in Q2; Pork income declined. Prepared Foods improved in Q2 but declined for the six-month period. Prior-year comparisons include a $320 million Chicken legal-contingency charge that reduced sales and operating results. Prepared Foods volume also reflected the prior-year sale of the pet treats business.
Outlook, risks and unusual items
- Management expected fiscal 2022 capital spending of approximately $2 billion and net interest expense of approximately $360 million. It forecast more than $400 million of productivity savings in FY2022 and $1 billion by the end of FY2024, relative to a FY2021 cost baseline; it said it was on track for the FY2022 target.
- Management expected retail demand to remain above pre-pandemic levels and foodservice demand to continue returning toward historical levels. It expected inflation, labor availability and supply-chain challenges to continue through the rest of FY2022, with higher feed costs than FY2021.
- Q2 included $5 million of net costs related to a production-facility fire. Six-month results included $18 million of Chicken fire-insurance proceeds net of costs, a $36 million tax benefit from deferred-tax remeasurement, and $37 million of gains on equity investments from observable price changes.
- COVID-19-related absenteeism and supply-chain disruption remained concerns. The company also identified commodity-price, livestock disease, foreign-market, food-safety, cyber, interest-rate and broader economic risks. It said the Russia-Ukraine conflict had not had a material direct financial impact as of the reporting date, but further escalation or sanctions could affect operations and results.
- Legal matters include broiler, pork and beef antitrust litigation and investigations, wage-rate litigation, and other claims. Broiler class settlements had received final court approval by April 18, 2022; opt-out claims and government investigations remained. Tyson reported no liability for several other matters because it did not consider losses probable or reasonably estimable. A Mexican tax assessment related to a 2015 sale was approximately $380 million; Tyson disputed it and had recorded no liability.
Important facts for investors to verify
- Whether higher prices continue to offset input-cost inflation without further volume or margin deterioration, especially in Pork and Prepared Foods.
- Progress against the FY2022 and FY2024 productivity-savings targets and the approximately $2 billion capital-spending plan.
- Working-capital trends, cash generation and the funding of capital expenditures, dividends and repurchases.
- Developments in antitrust and wage litigation, government investigations, and the Mexican tax assessment, including potential financial exposure.
- Changes in labor availability, supply-chain conditions, feed and livestock costs, and any direct or indirect impact from geopolitical developments.