Tyson Foods, Inc. (NYSE:TSN) Q2 2018 Earnings Conference Call - Final Transcript
May 07, 2018 • 09:00 am ET
Thank you, Mr. Glendinning. We will now begin the question-and-answer session. (Operator Instructions) And your first question will be from Ken Goldman of JPMorgan. Please go ahead.
Hi. Good morning, everybody.
Hey. Good morning, Ken.
Tom, I'm not going to congratulate you on the Celtics till the series is over. So, we'll have to wait on that. I just wanted to make sure I understood you right. I think, last quarter, you expected $200 million in higher freight costs and you said the majority of which is going to be recovered through pricing. I don't think you mentioned a specific gap. Now, you're talking about $250 million and higher costs. You call that $155 million gap. I'm just trying to get a sense of what the gap was you were expecting last quarter and maybe where you're making this up in your P&L, because it sounds like pricing, just doing this quick math here, is not going to be quite the offset you expected, but it sounds like your EPS guidance is being -- well it is -- your EPS guidance is being maintained. So, I guess I'm trying to figure out where the other offsets are or maybe I'm just not reading this right.
No, I think you're right, Ken. We said last quarter that it was going to be about $200 million and as I said in my prepared remarks, it's up to $250 million. And so, there's -- what was a difficult situation, as it relates to transportation as we saw it emerging, actually played out and then it got a bit worse. We knew it was going to be a drag in this quarter. I don't know how much more clear I could have been on that at CAGNY, even in the Q1 call. And we say that for this quarter, about $0.14 in EPS, nobody likes taking the cost increases and we go to answer your question about how we get it back, it's through pricing.
And our brand strength matters. Also how we partner with our customers is important and really is something that we are focused on getting predominantly through pricing, but then also we have to continue to take costs out. As I mentioned, again, in my prepared remarks, truck weights and lead times and smoothing out the supply chain, there are other continuous improvement projects we're pursuing. So, we're simultaneously pulling the lever of pricing as well as all the cost reduction levers.
There's quite a bit of focus on this, as you can well imagine, inside the company. Yes, we are maintaining our guidance. I do believe that we'll be sort of on that low end of the range given what we've seen. The costs coming in on freight, that is all baked into the forecast, but it is causing us to stay closer to the lower end of the range. The other thing that I'd like to just make sure that everybody takes away is that Q4 will