Tyson Foods, Inc. (NYSE:TSN) Q1 2019 Earnings Conference Call - Final Transcript

Feb 07, 2019 • 09:00 am ET

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Tyson Foods, Inc. (NYSE:TSN) Q1 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Noel White

nearly $600 million per year. This is an example of what a competitive trade agreement can do for both parties. This concludes my commentary on the business segments, now Stewart, if you'll take us through the financials.

Executive
Stewart Glendinning

Thanks, Noel, and good morning everyone. First quarter EPS of $1.58 was down 13% compared to the record Q1 in 2018. Revenues were roughly flat at just over $10 billion. Volume was up 3.3% and average price was down 3.7% as acquisitions and divestitures affected sales volume and changes in product mix affected pricing.

Operating income was $841 million, down 11%. Total company return on sales was 8.3% in the first quarter. So overall, it was a good quarter, but we were up against last year's strong comparisons. The Keystone acquisition performed as expected for the one month we owned it in Q1 and it was right at breakeven on a cash accretion basis. Operating cash flows were $868 million and our ability to generate large amounts of cash gives us the flexibility to make opportunistic choices. In the first quarter, we repurchased approximately 1.4 million shares for $83 million. We also directed $318 million toward capital expenditures, as we continue to invest in growth and efficiency projects with expected returns greater than the cost of capital.

Our adjusted effective tax rate for the first quarter was 22.7%, net debt to adjusted EBITDA was 2.8 times, including cash of $400 million, net debt was $11.6 billion and total liquidity was $1.4 billion at the end of Q1. Net interest expense was $97 million. Weighted average shares outstanding in Q1 were approximately $366 million. Looking at the remainder of the fiscal year, we will maintain our capital allocation priorities to drive shareholder value and to grow the business. We'll be paying down debt from the Keystone acquisition and deploying cash to grow organically.

Now that we've announced the agreement to purchase BRF Thai and European operations, we're ready to go to the bond market to secure permanent funding for both the BRF and the Keystone deals. Interest rates have been more favorable since year-end. We feel confident in the quality of these assets and we're happy with the purchase price of a little less than 10 tons. And finally, I'll give an update to our outlook for 2019, which includes Keystone, but doesn't yet include the BRF operations.

In fiscal 2019, we expect sales to grow approximately $43 billion with the addition of Keystone. Keystone is expected to be accretive on a cash basis and breakeven on a pretax basis for the year. The additional amortization for Keystone will be about $26 million for the 10 months of fiscal 2019 and approximately $35 million per year in fiscal 2020 and beyond. CapEx should be about $1.5 billion in fiscal 2019. However, our planned spending for 2020 is expected to decline to the $1.1 billion to $1.3 billion range.

Although we're are scaling back on CapEx, it will remain higher than depreciation. Net interest expense