Tyson Foods, Inc. (NYSE:TSN) Q2 2019 Earnings Conference Call - Final Transcript

May 06, 2019 • 09:00 am ET

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Tyson Foods, Inc. (NYSE:TSN) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Noel White

million with an 8.5% margin. Average price was down 8.3% while volume was up 1% due to the improved availability of live hogs. News of African Swine Fever in China along with the increased slaughter capacity United States had a near-term impact of driving up hog costs that initially outpaced the value of pork. We're achieving reasonable returns despite the headwinds while improving our spread to USDA industry benchmarks versus a year ago. Our ability to execute well is due in large part to record-high retention of our front line team members, which has improved both safety and performance.

We currently project the Pork segment's operating margin for the fiscal year to exceed 6%. It is difficult to predict when ASF might positively impact our pork business. However, we believe any financial benefit will likely occur in late 2019 or later, where we are well positioned to be agile and meet customer and consumer needs internationally and domestically.

In the Chicken segment, operating income was $150 million with a 14.4% margin. Volume was up 26.2% and average price was down 11%, primarily attributable to the acquisition of the American proteins rendering business last year that added considerable volume at relatively low prices.

In the second quarter, pricing began to improve as AFS (ph) news drove incremental demand for chicken. We are in a solid position to improve pricing as we talk to customers about contracts in 2019 and into 2020. The big and small bird businesses performed well, offsetting some of the trade pact under performance in earlier market weaknesses.

In addition to the benefit of moderating grain prices, we have identified opportunities and several initiatives are underway to significantly strengthen the Chicken segment's results. Led by the iconic Tyson brand, our chicken business has a great foundation, great products and a robust pipeline of innovation. The Chicken segment is improving and we're expecting an operating margin of around 6% for the year and continued improvement into 2020.

That concludes my commentary on the business segments. Now Stewart will take us through the financial.

Executive
Stewart F. Glendinning

Thanks, Noel. Good morning everyone. Second quarter EPS of a $1.20 was down 6% compared to Q2 2018. Revenues were up $670 million to $10.44 billion. Volume was up 11.6%, and average price was down 4.8% as acquisitions and divestitures affected sales volume, and changes in product mix affected pricing in what is typically our most challenging quarter. Operating income was $654 million, down 5.4% compared to the second quarter last year. Total Company return on sales was 6.3% for the quarter, driven by continued headwinds in parts of our Chicken Segment, partially offset by growth in Beef, Pork Prepared Foods and Other.

The Keystone acquisition has performed as expected in the short time we've owned it. It is right at break even on a cash accretion and income basis. As a reminder, we successfully secured our permanent funding for the acquisition during the second quarter through issuance of senior notes with an average maturity of