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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Presentation
Executive
Stewart Glendinning

quarter EPS of $1.58, which includes a $0.20 tax reform benefit, was up 10% compared to Q4 last year. Revenues in the quarter were down slightly to just under $10 billion, as average price was impacted by trade disputes and increased protein supplies. Sales volumes were up 2.7% driven by acquisitions. Operating income was $831 million, down about 8% versus Q4 last year. And total company return on sales was 8.3% for the quarter.

For the fiscal year, earnings were $6.16, up 16% including $0.78 from tax reform. Sales were $40 billion with volumes up 2.5% and price up 2.1%, while operating income was approximately $3.3 billion with an operating margin of 8.2%. Operating cash flows for the year were just under $3 billion, up approximately 14% over last year.

Capital expenditures were $1.2 billion as we invested in growth and efficiency projects with expected returns greater than our cost of capital. Depreciation and amortization were $943 million in fiscal 2018. We repurchased approximately 5.9 million shares for $427 million in 2018.

Our adjusted effective tax rate for the fourth quarter was 23.5% and 23.6% for the year. Net debt-to-adjusted EBITDA was 2.3 times. Including cash of $270 million, net debt was $9.6 billion and total liquidity was $1.4 billion as of year-end. Net interest expense was $86 million in the fourth quarter and $343 million for the full year. We received around $275 million of incremental cash flow in fiscal 2018 as a result of tax reform.

Now turning to fiscal 2019. Our capital allocation priorities will continue to focus on driving shareholder value and growing the business. We are committed to our investment-grade credit rating and will work to pay down debt as we deploy cash to grow our business organically and through acquisitions.

We'll continue to return cash to shareholders through share buybacks and dividend growth. In fact, the Board of Directors has increased the quarterly dividend payable on December 14 to $0.375 per share on our Class A common stock. We anticipate the annual dividend rate in fiscal 2019 will be $1.50 for Class A shareholders, a 25% increase over 2018.

In fiscal 2019, we expect topline sales of approximately $41 billion, an increase of about $1 billion over 2018. Cash generation should remain very strong. We are planning, approximately $1.5 billion of capital expenditures in fiscal 2019 with spending focused on growing our business. We expect these investments to deliver substantially more than the cost of capital.

Net interest expense should approximate $350 million in fiscal 2019 before any impacts from financing the Keystone acquisition. As Noel mentioned, closing in the Keystone acquisition is likely to be sooner than previously expected. We are confident in our ability to finance the transaction, and we'll be ready to focus on integrating the business.

We expect liquidity to remain above our minimum target of $1 billion in 2019. Our effective tax rate is expected to be around 23.5% in fiscal 2019. Based on our average share price in