 |
“About 45 percent of sales are foodservice, 35 percent or so are in consumer products, so there’s a good balance,” he said. “That has changed 3 or 4 percentage points, probably over the last couple of years. As you look at the protein, about 41 percent of our sales are in beef, 35 percent chicken and the rest is in pork and prepared foods. [We achieved] $28 billion in sales in FY10, looking at it somewhere around $32 billion in for the fiscal year that will end at the end of this month.”
Tyson is well positioned among the three big proteins: number one in chicken tied for number one in beef and number two in pork, Smith said.
“Number one, our business is customer-centric,” he added. “We want to be our customers' go-to supplier. We [offer] consumer-driven insights to help them with the food solutions that they need to help grow their business. We also want to be the best in class protein manufacturer.
“It's our job to totally drive inefficiencies out of our business and be world class, leading in each of the protein segments,” Smith said.
Tyson Foods wants to build as a multinational company. “We have operations today in Mexico, Brazil, India and China,” Smith said. “We have startup operations primarily in Brazil and China, and we’re looking to grow those businesses.”
The company also wants to upgrade its raw materials with ventures like Dynamic Fuels, which converts animal fat and into high-grade diesel fuel, renewable diesel or jet fuel, Smith said.
“If you look at Tyson and ask what separates Tyson from other protein manufacturers, one of the main things is the breadth of our product portfolio,” Smith continued. “We're also the nation's second-largest tortilla and chip manufacturer; one of the nation's leading pizza topping manufacturer; and we have a good presence in soups and sauces -- there's a lot of opportunity in those businesses as we move forward.”
Regarding Tyson’s financial benchmarks, Smith explained, “We use a little phrase around home, ‘Live in the range and live out our culture’. When we talk about ‘live in the range,’ we're talking about we want all of our segments to be in their normalized operating ranges. Beef and pork have been all year, pork is exceeding its range -- it just increased range of 6.0 percent to 8.0 percent. Beef is inside its range.
“Chicken is running about 3.0 percent through third quarter,” he added. “That's a little bit below this range [high feed costs have greatly impacted this and other segments].
Tyson has done a very good job of investing in its business this year and plans to continue to do that in 2012. “We have a large number of projects that will get about a 20 percent-plus marginal internal rate of return as we invest in our business,” Smith said. “In the last trailing months, we're about 20 percent-22 percent ROIC.”
In discussing Tyson’s balance sheet improvements, Smith said, “This year, our depreciation and amortization will be about $500 million. Our capital expenditures will be about $650 million. I don't think you'll find any other protein business is spending that kind of money on their business. We think we're a great investment and we're investing in our future productive capabilities.”
Tyson continues to reduce its debt, Smith said. “At the end of this quarter there's just shy of $300 million of notes, 2011 maturity,” Smith added. “We'll pay those off with cash on hand. We don't really have a substantial maturity until 2013.”
During the last quarter, Tyson reinstituted a share repurchase program for 22 million shares. “During the quarter, we spent about $80 million and bought back about 4.4 million shares and we've said that plan will continue buying back dilution from compensation plans,” Smith said. “We're three or four years behind in buying in that dilution. And then we are sustaining and it's important that we do sustain the ratios that our credit rating agencies require for investment grade -- and those ratios have been in place for the last couple quarters.”
Looking forward, Smith said he wants to look closely at Tyson’s capital structure. “We've retired almost $1.0 billion worth of debt in 2010, which gives us great liquidity,” he said. “We like how our balance sheet feels now. It gives us options for the future, 22 percent ROIC.
“As we look forward, when we think about protein availability, we calculate production and then we look at our exports,” he added. “So, it’s production minus exports. If you look at exports in all of the major proteins, we think chicken exports will be down slightly this year, looking for a rebound next year in '12.
“We've had a very strong year in pork exports this year,” he continued. “We think we'll have another strong year in pork exports. And in 2011, for the first time in beef, the US became a net exporter of beef. That's not happened before and we feel like with the dollar where it is and the global demand for protein continuing to grow, we look for exports to continue to be strong.”
It's important to note the operational efficiency improvement in Tyson’s chicken business, Smith said. “Between 2008 and 2010, we've taken $600 million of cost out of the business,” he added. Now, that would [involve] better yields, better labor efficiencies, product mix changes that have been enabled by the capital expenditures that we've made in our plant, freight optimization, doing a better job in our live production and having lower live costs. We're on track to add an incremental $200 million to that during this fiscal year.
“So, in three years, we've taken $800 million worth of cost out of our chicken business,” he continued. “That gives us a very, very, very competitive cost structure and here's an interesting side note. In our Q3 just ended, we had a 1.0 percent return on sale in our chicken business.”
Tyson was profitable, Smith said. “In my opinion, that's a good story, considering we absorbed about $250 million of grain impact, grain and feed cost impact during that quarter,” he added.
“We've made significant improvements in our business,” he added. “It's just currently they're being matched by these incredibly high grain prices. And the answer to that is you need to go the marketplace and get price increases and get revenue to cover this cost structure that's going to be living with us for a while. And frankly, this new level of production is creating an environment where we should be able to do that.”
Smith said he didn’t want participants to think Tyson is a victim to the corn market and to the industry production “because there's a lot we can do to change our own destiny and part of that has to do with the promotional activity that we're creating in the marketplace around our value-added meats category.”
This year, Tyson has launched new promotional campaigns for its value-added frozen, value-added meats product line. “We are tagging that not only with digital marketing, but customer marketing efforts,” Smith said. “In-store, we're doing cross-promotional activities.”
