Tyson Foods, Inc. (NYSE:TSN) Q1 2016 Earnings Conference Call - Final Transcript

Feb 05, 2016 • 09:00 am ET

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Tyson Foods, Inc. (NYSE:TSN) Q1 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Welcome to the Tyson Foods' Quarterly Investor Earnings Call. At this time, all participants will be on a listen-only mode. After the presentation, we will conduct a question-and-answer session. (Operator Instructions) This call is being recorded. And if you have objections, you may disconnect at this time.

I will turn now the call over to the VP of IR, Jon Kathol. Sir, you may begin.

Executive
Jon Kathol

Good morning and thank you for joining us today for Tyson Foods' conference call for the first quarter of the 2016 fiscal year. On today's call are Donnie Smith, President and CEO; and Dennis Leatherby, EVP and CFO.

(Forward-Looking Cautionary Statements)

Because our annual meeting of shareholders takes place this morning, we'll need to end the call at the top of the hour to get to the meeting on time. I ask that you limit yourself to one question and one follow-up during the Q&A portion of our call, so we can get to as many of your questions as possible. If you have additional questions, please get back in the queue, and we'll get to as many of you as we can before we have to go.

I'll now turn the call over to Donnie Smith.

Executive
Donald Smith

Thanks, John. Good morning, everyone, and thanks for joining us. Fiscal 2016 is off to a great start with record EPS of $1.15, up 49% over Q1 of 2015's adjusted results. All of our segments performed very well with prepared foods and chicken producing record operating income for the quarter. Pork had its second-best quarter ever, while beef showed significant improvement over Q4 and Q1 of 2015. In total, we produced record operating income of $776 million, up 38% over Q1 of last year. We had a record operating margin of 8.5% and record operating cash flows of $1.1 billion.

Revenues were down due to the deflationary environment of the raw materials and the divestiture of a few non-core businesses. Excluding the divestitures, sales volume was down just over 1% in Q1 as we sold more higher margin value-added products, upgraded our mix to more profitable sales and processed pure cattle. We're very pleased with the total synergies capturing $121 million in Q1, $61 million was incremental to Q1 last year, and we're on track to achieve more than $500 million this fiscal year. These synergies are a major source of funds for prepared foods' growth.

In our prepared foods segment, operating income was $207 million with a 10.9% return on sales, which was a record. Returns benefited primarily from declining raw materials and energy capture. Volume for the quarter was down 7.7% with pricing lower by 3.6%. The lower volume was a result of optimizing the sales mix by reducing private label products at retail and, to a lesser extent, the impact of avian influenza on our turkey lunchmeat business and a slower-than-planned price reduction reflected on the retail shelves.

For the balance of fiscal 2016, we anticipate continued savings on raw material, as well as synergy capture,