Tyson Foods, Inc. (NYSE:TSN) Q4 2018 Earnings Conference Call - Final Transcript

Nov 13, 2018 • 09:00 am ET

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Tyson Foods, Inc. (NYSE:TSN) Q4 2018 Earnings Conference Call - Final Transcript

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Executive
Noel White

segments. We faced several hurdles in fiscal 2018, including freight cost, trade disputes, market volatility, pricing pressures and demand shifts. It's worth noting that despite trade disruptions, US beef import volumes were up 12% and 7% respectively versus last year, as global demand for US protein remained strong.

In 2018, Tyson's overall return on sales was 8.2% as we drove results with our strong team, differentiated portfolio and diversified business model. Our Beef and Prepared Foods segments performed very well both on an operating income and return on sales metrics. We integrated AdvancePierre Foods, while acquiring Original Philly, Tecumseh Poultry and Smart Chicken brand; American Proteins, which is a rendering and blending business and pending regulatory approval Keystone Foods. With protein at the center of our strategy, we divested several non-protein businesses, including Sara Lee bakery, Kettle, Van's and TNT Crust.

Safety is one of our key metrics and we reduced OSHA recordable incidents by 20% this year. We see a direct link between safety and our low turnover rates. And given the tight labor markets we're in, it's important to be the employer of choice in our plant communities as we focus on continuous improvement in safety and productivity. We achieved $253 million in Financial Fitness savings in 2018 versus a goal of $200 million. Going forward, Financial Fitness savings will be included in our base earnings and return on sales guidance rather than reported separately. We'll continue to track savings internally, but we've decided to eliminate the expense and considerable staff time required to report audited figures. This decision aligns with our commitment to control costs, while allowing us to focus on delivering growth. 2018 was a challenging, but productive year as we executed our strategy and built on the solid foundation of our diversified model and growth strategy.

And now, I'll give you some details about our execution at the segment level. The Beef segment generated record operating income of $348 million and 8.9% operating margin in the fourth quarter. Compared to Q4 of last year, sales volumes increased 3.4%, while average price decreased less than 1%. For the fiscal year, Beef produced just over $1 billion in operating income, also a record with a 6.7% margin. Volume was up 3.1%, while average price was up 1.2% for the year. Beef results were stronger than expected, driven by good cattle supplies, strong domestic demand and increased global demand. In addition, we have improved our performance relative to USDA benchmarks.

Our goal is to grow value-added Beef through case ready and premium programs to help decommoditize more of our business and reduce some of the volatility. With cattle supplies looking good next year and into 2021, we expect the Beef segment to produce an operating margin above 6% again in fiscal 2019.

In the Pork segment for the fourth quarter, we generated operating income of $76 million with a 6.7% margin. Revenue was down due to a 2.7% decline in volume and a 14.5% lower average sales price.