Tyson Foods, Inc. (NYSE:TSN) Q4 2017 Earnings Conference Call Transcript

Nov 13, 2017 • 09:00 am ET

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Tyson Foods, Inc. (NYSE:TSN) Q4 2017 Earnings Conference Call Transcript

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Q & A
Operator
Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) Adam Samuelson, Goldman Sachs.

Analyst
Adam Samuelson

So, maybe first digging a little bit more into Prepared Foods in the quarter and you called out in the prepared remarks a contract buyout that impacted the quarter. Any way to quantify that? And then just thinking about next year, can you provide some of the details in going from the 8.5% to the 11% to 12% just bridging it between AdvancePierre, lapping some of the inefficiencies you've had on the pepperoni side, maybe changes in brand spend, and then in product innovation, et cetera?

Executive
Tom Hayes

Adam, it's Tom. So as it relates to the charge, I'm not going to get into a lot of detail, was the right thing to do for us. We have contracts with suppliers that prohibit us from maximizing the internal consumption of materials that we produce ourselves through the Fresh Meats group. So, it was a pill that we wanted to swallow this past quarter to make sure that we're prepared for 2018 and it was the right thing to do. So, let me try to give you some more information so I can bridge the 2017 to 2018. Think about we printed $675 million for the year in Prepared Foods. The base sort of APF earnings less what we're going to be divesting is about $100 million net. Incremental D&A, $55-ish million, $56 million. The Financial Fitness that is going to hit the segment will be about $100 million. We are making improvements in the legacy business so what you talked about in terms of pepperoni and other things. So price, I would say, and cost improvements, that should total about $150 million for the full year. So if you roll those up, it's about $970 million OI, which puts us in that 11% to 12% range with sales being about $8.3 billion for the year.

Analyst
Adam Samuelson

And then maybe on similar lines in Chicken, as you think about the improving margin outlook for 2018, you obviously called out volume growth expectations. But on the cost side, I mean you had some pretty significant investments on the ground and freight expenses on the cost side. Just any of the bigger variances on the Chicken outlook for 2018?

Executive
Tom Hayes

So, Chicken will improve the cost structure by about $150 million. There's the Tyson Production System that we talked about in the past where it's taking Lean to the next step across the entire system. That will contribute about $150 million. The APF chicken business, we don't talk about it a lot, but it is a decent-sized business, about $50 million in EBIT. And Financial Fitness, as we talked about, about $90 million of this total cost takeout in Financial Fitness will hit the Chicken segment. And there's some volume-mix impact, but the total gets us to about $1.4 billion for the Chicken segment.

Operator
Operator

Ken Goldman, JP Morgan.

Analyst
Ken Goldman

And Dennis, congrats on your pending retirement. If any CFO started his tenure with