Tyson Foods Conference Call Highlights

Tyson Foods, Inc. TSN reported its fourth quarter earnings on Monday. Shares of the company are up 5 percent.

Below are some key highlights from its conference call.

• Q4 was a record third quarter with adjusted earnings of $0.87 a share, which is a 24% year-over-year improvement. 2014 was an outstanding year.
• We had recorded adjusted EPS of $2.94, a 30% improvement over last year.
• Sales were a record $37.6 billion.
• Adjusted operating income was also a record at $1.65 billion, a 20% increase over last year.
• Our overall adjusted operating margin was 4.4%.
• We completed the acquisition of Hillshire Brands.
• We structurally improved the earnings power and reduced the volatility of the business.
• But I don't want to spend a lot of time looking back because we have so much more to be excited about in 2015 and 2016 and for years to come.

Segments:

• In Q4 the Chicken segment reported, on an adjusted basis, a 7.4% return on sales with volume up 2.3% and average pricing down 4%.
• Demand for tray-pack is growing as retail consumers see fresh healthy options.
• It's important to understand that we're not increasing supply, but rather shifting capacity to a more value added product mix.
• Also to support growth in fresh chicken, we very efficiently used a small amount of MAP spending to generate over $800 million consumers impressions and it's helped widen the gap over our competitors as the number one brand in the country.
• We're also experiencing double-digit growth in our NatureRaised Farms brand of no-antibiotics-ever chicken.
• Although it's only a small piece of our branded chicken business, we're pleased with the demand for these products and the premium consumers are willing to pay for them.
• We have raised the normalized operating margin range for the Chicken segment to 7% to 9%, but we expect to exceed that in fiscal 2015 with more than 10% return on sales.
• With consumption shifting away from high priced beef, we expect chicken demand to increase by at least 3% in 2015, which should support our pricing expectations given that chicken supplies are projected to be up about 3% for the year.
• Additionally, our domestic feed costs should be down by about $350 million and an important point to remember about our chicken business is that we have a diversified value-added portfolio and we don't require record chicken prices and cheap corn to do well.
• We use our buy versus grow strategy to take advantage of pricing when there's more chicken on the market and we do expect more supply in 2016, but we'll need it to meet demand.
• Our strategy is steady growth not a commodity rollercoaster ride.
• I'll move onto the Beef segment which had a 3.5% return on sales for the quarter.
• Volume was down only 2.6% and I say only because pricing was up 21.5%.
• Our team did a great job of managing the spread in times of record high cattle costs.
• Supplies are expected to be flat to down - to be flat to down about 1% in 2016 and as a positive for Tyson
• We continue to find ways to become the high revenue, low cost player in the regions we compete.
• Although it's going to take three years to fully realize all of the synergies, we expect the segment to earn a 10% to 12% return on sales on a normalized basis.
• The share count of the tangible equity units will drop as the stock price goes up.
• We should also be in a position to buy back stock in 2016. We have leading brands and market share that will allow us to grow faster than our peers, and we're not finished growing.
• There's more to come. So, yeah, we feel really good about 2015 and 2016. It's Tyson 2.0 and we're a different company.

Financial Metrics:

• Fiscal 2014 revenues were $37.6 billion, representing over 9% growth compared to prior year as we continue to execute on our gross strategy as evidenced by increased sales in Chicken, Pork, and Prepared Foods.
• Total company return on sales for 2014 was 4.4% and adjusted operating income was more than $1.6 billion representing a 20% increase over fiscal 2013.
• Our adjusted earnings of $2.94 per share represents a 30% increase over our previous record of $2.26 last year.
• We achieved an adjusted pre-tax return on invested capital of just over 21% compared to 18.5% for the prior-year.
• Operating cash flow for 2014 was $1.2 billion which is consistent with our five year average.
• Our new EPS range calls for at least 12% growth in 2015 amidst the game changing acquisition of Hillshire Brands.
• When achieved, this means our three-year compounded annual growth rate since the 2012 call would be almost 19% reflecting the efforts of a great team.