MIAMI – During the Bank of America Merrill Lynch Global Agriculture Conference, several executives from Tyson Foods Inc. addressed the company’s plans for future acquisitions and investment plans to continue growing in international markets. After an overview of Tyson’s business and some general statements about the current market challenges and potential opportunities, Jim Lochner, COO, and Dennis Leatherby, executive vice president and CFO, were asked by analysts about capital expenditures in the coming year.
Leatherby acknowledged that the company’s capital expenditures last year were slightly over $600 million. “Not very much of that was international,” he added. In its recently issued guidance, Tyson announced capital expenditures to be between $800 million and $850 million in 2012. Leatherby said the increase reflects a similar level of capital expenditures domestically as the previous year and “the rest is dedicated toward the international opportunities that we have,” including operations in China, Brazil, Mexico and India.
In addition to plans for capital spending, the Tyson officials were asked about the generation of “free cash flow.” Leatherby said the company fortunately has a lot of options, thanks to its capital structure, and that its first priority is to look at acquisitions. “We’re going to be opportunistic,” he said, with the caveat being that the targets would likely meet return on investment expectations in a timely manner. Over time, he said the company targets a 20 percent return rate on invested capital.
“We are open to making acquisitions,” said Leatherby, but in the absence of those opportunities, a goal is to return cash to Tyson shareholders. “And so we have been buying back stock over the last three quarters,” totaling approximately $200 million thus far with plans to continue while maintaining liquidity.
Addressing the types of acquisition opportunities Tyson would target, Lochner said growing the production side of the business is not the focus, but its prepared foods and prepared meats business is. “We basically see what's going on across the value-added prepared foods and prepared meats segment, and we look at our own operations and say ‘are we underutilized or could we grow faster through acquisitions?’.
So the push will be into prepared foods across a number of segments. I'm not going to talk about specific targets even within [a] category. We're having very good success promoting Wright Brand bacon. We're having very good success promoting other traditional food products because we do have a very competitive structure and good brand recognition with Tyson.”
Globally, Lochner said Tyson always has its corporate feelers out for opportunities. Meanwhile, the company is often approached by international companies interested in being purchased.
“Our core expertise is in chicken production, live and further processing,” he said. “That we believe we do better than anybody else. And there's a need worldwide for that expertise, so we'll either grow it organically or through acquisition as the timing and the return on invested capital warrant.”
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