Brady Stewart: Yes Heather, thanks for the question. I would say relative to demand, we’ve seen fantastic demand on both the chicken side and the pork side relative to retail promotional activity as well. While we’ve seen fantastic demand being driven by that retail and promotional activity, beef really has not received much promotional activity at all, and so where in the past, as we move into the summer months you’ve seen that activity, we’ll be watching for that as we move into Q3 to see if we see additional promos or where retail specifically is going to drive the consumer, relative to any of the proteins. Luckily for us, we’re in good shape on the pork side, good shape on the chicken side in terms of meeting that customer in those channels as well.
Donnie King: Just to maybe clean up, for clarity, I think you may have misspoke – it is pork and chicken that we are seeing the feature activity right now.
Brady Stewart: Right, that’s correct.
Heather Jones: And so have you seen any–I know you’ve narrowed your guidance and you took down the high end for beef, and just wondering, has there been any deterioration in margins relative to Q2, given that you haven’t gotten the feature activity you normally would have gotten at this time of year for beef?
Brady Stewart: The beef promotion, that’s been–that’s really been a calendar ’24 story, and again we’ll continue to monitor that as we move through the remainder of the quarter, but we won’t provide any additional guidance on Q3 other than what we’ve provided already.
Heather Jones: Okay, all right. Thank you so much.
Donnie King: Thank you.
Operator: The next question comes from Ben Bienvenu with Stephens. Please go ahead.
Ben Bienvenu: Hey, good morning. You noted in the chicken business fairly equal contribution in the first half of the fiscal year of the improvement to what we saw last year between operational improvements and market improvements. As you look to the balance of the year, 3Q, 4Q, is it similarly equally split, or should we see a diminished operational improvement contribution and more of the improvement is predicated on the market having strengthened?
Donnie King: Well, let me say this in short, Ben, and then Wes can give you the details. As I mentioned in my opening statement, we have made great progress, but I would be–I would also make sure that you understand that we believe there is still a lot of work to do. Good progress, but much work to do, and so you can define that financially if you’d like, but we’re not where we need to be yet in our chicken business. Wes?
Wes Morris: Yes Ben, I’d say we’ve certainly got more tailwinds than headwinds, and it’s really a function of the volatility of the grain market, what ultimately happens in the supply in chicken markets, and then the consumer mindset. Then as I’ve said a couple times, we do have some go-forward investments in our value-added business in the back half of the year.
Ben Bienvenu: Okay, very good. My second question is related to total company, and in particular in years past, you all have gone through the exercise of articulating what you think normalized earnings power is for the business, and you’ve provided some clarity by segment. Not asking today what that earnings power is, but maybe when you think you all might be at a place where you can provide that level of clarity at the total enterprise and across the segments, given all the changes that you’ve made and the operational improvements that you’ve made progress against.
John Tyson: Hey Ben, this is John Randal. Let me try to answer that question. Short version, yes, we’re not making any adjustments to the long term outlook on normalized ranges today. We would plan to do that maybe as we go through the balance of this year and start to look to ’25 and kind of give some color around it potentially. But let me take the opportunity just to talk about the shape of the total–of the rest of the year for the total company and build on some things that have already been said today. I just want to point out that from a total range standpoint, guidance has come up from midpoint to midpoint $350 million. We think that is reflective of the results year to date and some of our optimism for the balance of the year.
There’s also a range of outcomes in there, and I think that we’ve–you know, despite some of the potential signals we see in chicken around supply and demand, I think there’s more tailwinds than headwinds there. I think going to our prepared segment, although we are experiencing some of the consumer behaviors that we’ve heard so many other companies talk about, I think we feel really good about our portfolio. We’ve gotten questions about food away from home, food at home – we’re in a pretty good position to win no matter where consumers are shopping, and I think that–you kind of heard us say, hey, Q3 could be softer than Q4. I think I want to just put a point on that we see the rest of the year as being fairly balanced, but just with all of the various factors at play and some seasonality in pork especially – there could be a tweak there, but don’t want anyone to over-read into that.
We don’t need to get overly precise. There’s a lot of factors at play, and I would just emphasize that we’re confident about the balance of the year and the midpoint to the guidance we’ve given.
Ben Bienvenu: Great, thanks very much.
Operator: The next question comes from Alexia Howard with Bernstein. Please go ahead.
Alexia Howard: Good morning everyone. Can I start with chicken? I seem to remember that the cold snap in January hit production operations somewhat this quarter. Are you able to quantify any of that, how much it hit volumes and profitability for the segment overall?
John Tyson: Hey Alexia, this is John again. I would say that we typically plan for a little bit of that weather in the quarter. When we talked to you in February, we were pretty early on and had experienced some significant events just at that point, kind of one month in. I would say overall, though, the impacts in the quarter were not so significant that it had a disproportionate impact on earnings, so I think nothing to read into there.
Alexia Howard: Okay, and then two quick things. How much longer do you expect the start-up costs in prepared foods to remain a headwind? When does that go away? Then finally, do you have a forecast for where you expect your leverage to end up by fiscal year end?
Melanie Boulden: Hi Alexia, this is Melanie, and in terms of our start-up cost, we may experience a little bit bleeding over into Q3, but we think the majority of them have hit in Q2.
John Tyson: And to your second question, Alexia, on leverage, not placing a specific number where we expect to exit the year, but safe to say we’re definitely trending toward lower leverage. Two times or below is the long term target. That’s as much as we can give right now.
Alexia Howard: Okay, thank you very much. I’ll pass it on.
Operator: The next question comes from Andrew Strelzik with BMO. Please go ahead.
Andrew Strelzik: Hey, good morning. Thanks for taking the questions. I wanted to go back to the beef segment outlook. You’ve mentioned some uncertainty and ranges of outcomes. I guess I’m just curious, what is the environment that would get you to the top end of the beef profit range versus the bottom end? Is it primarily around whether or not we get heifer retention and herd rebuilding efforts in the fall, and that’s kind of the biggest piece of it, or on the demand side? I guess, what are the range of outcomes that would get you to the top or bottom end of the range?
Brady Stewart: Thanks for the question, Andrew. Specifically, we talk a lot about beef demand, we talk a lot about beef cutout pricing as well, but also we need to factor in the fact that drop is a significant amount of value that falls within beef supply chain, and also our largest cost is relative to live cattle costs as well. When you really balance the two revenue streams, the cutout pricing and the drop pricing, and you take that into account with live cattle and where potentially we could see some live cattle pricing going, that really creates the range of outcomes. It’s trying to balance those three, the two revenue and the one supply cost perspective when we look at particular guidance and the range of outcomes. But again, we still have plenty to control within Tyson, and we really focus on making sure that we balance the grade of cattle with the demands of the consumer as we move through the cycle as well.
We’re continuing to see improvements relative to the efficiencies and yields, and really we’ll just continue to look at value streams that we can continue to generate to help offset some of these headwinds we have from a margin perspective.
Andrew Strelzik: Okay, that’s helpful. Then my second question is on the capex outlook, and I know last quarter when it was reduced, you were kind of matching capex and the operating profit outlook, so I guess I’m curious just how we should think about capex on a go-forward basis as the profit environment is better, since that hasn’t really kept up. Maybe there’s timing dynamics, and you’ve already mentioned controlling that tightly, but just as the profit dynamics get better, how should we think about the rate at which you might add back to capex, where are the priorities where you might want to add back? Just any color around that on a go-forward would be great. Thank you.
John Tyson: This is John. Let me take that question. You are right in that we had talked in past about being responsive to the operating environment and managing cash flows. I would tell that you that, first off, we feel good about our free cash flow projections for the year in terms of being in excess of covering our dividend, so just pointing that out. But I would also tell you that the tighter range on our capex today, 1.2 to 1.4, that’s really reflective of us determining what are the needs for the business and where are there opportunities for good investment. What I want you to take away from that is we’re not turning on and off the spigot kind of based on our outlook on profitability, but rather trying to return to a normalized level of spend.
You asked where would be the best opportunities for investment. I think the short answer is that our prepared portfolio and components of our chicken portfolio are where we see the best opportunity for growing our value-added business, is where we want to continue to invest, and then of course we have our ongoing maintenance and repair that’s needed, so I think that will probably paint the picture for you on how we think about capital allocation.
Andrew Strelzik: Great, thank you very much.
Operator: The next question comes from Michael Lavery with Piper Sandler. Please go ahead.
Michael Lavery: Thank you, good morning. You had mentioned that you still have some work to do in chicken, and I think you’ve touched on that in a few ways; but can you just be clear how that does or doesn’t apply to your footprint there? Is the supply-demand balance pretty well set, or is that another piece of the equation that could evolve as well?
Wes Morris: Yes, thanks for this question. Let me answer it in two ways. I think first off on the network moves that we’ve made up until this point, we anticipate that we have either recovered all, or should recover nearly all of that–all of volume in chicken and nearly all of the volume related to our pork moves and the other moves. I think I just want to be clear that when we talk about that rationalization, we’re talking about being more efficient, taking cost out and losing none of the business. I think that that is a point worth emphasizing. The other part of your question was about chicken specifically, and I think that we even talked last year or a couple of quarters ago about the overall capacity utilization. Safe to say we’ve still got some headroom in our current footprint and would expect to grow with demand in the more profitable parts of our business, and so I think have a positive outlook based on all of the network moves.
Donnie King: If I might add one more thing relative to chicken, the back half of the year for chicken, if you look, grains have moderated, the demand for chicken is very strong, and we’ve built a fundamentally stronger chicken business, so we’re excited about that. We’re executing better and demand is certainly working in our favor.
Michael Lavery: Okay, that’s helpful. Just on international, you’ve touched on it a couple times earlier in the prepared remarks, just how should we think about its margin runway, and what does it take for that to get a ramp-up in profitability?
Donnie King: Well, thanks for the question on international. I think it’s important to remind, this came up a little bit in the capex question, but I think we should remember over the last two-plus years, we’ve built 12 processing plants around the world. That was part of the driver as it relates to the capital spend, and we’re beyond that and we’re moving into filling up those capacities. But we’re also lapping–if you look at the international, we’re lapping ramp-up costs with the seven facilities outside the United States, and our execution should continue to improve. Our focus short term is operational excellence and capacity utilization as it relates to our international business. Amy, would you like to speak to anything?
