Tyson Foods(TSN) - 2024 Q3 - Quarterly Report

Filing Information Form 10-Q Details This section provides basic filing information for Tyson Foods, Inc's Form 10-Q for the quarterly period ended June 29, 2024 - Tyson Foods, Inc filed a Form 10-Q for the quarterly period ended June 29, 2024[2] - The registrant is classified as an 'Accelerated Filer'[4] Common Stock Outstanding as of June 29, 2024 | Class | Outstanding Shares | | :---------------------------------- | :------------------- | | Class A Common Stock, $0.10 Par Value | 285,820,693 | | Class B Common Stock, $0.10 Par Value | 70,009,005 | PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated condensed financial statements for the periods ended June 29, 2024, and July 1, 2023 Consolidated Condensed Statements of Income The company reported a significant turnaround from a net loss to positive net income, driven by increased sales and improved operating income Consolidated Condensed Statements of Income (in millions, except per share data) | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Sales | $13,353 | $13,140 | $39,744 | $39,533 | | Gross Profit | $878 | $677 | $2,567 | $2,172 | | Operating Income (Loss) | $341 | $(350) | $884 | $68 | | Net Income (Loss) Attributable to Tyson | $191 | $(417) | $443 | $(198) | | Diluted EPS | $0.54 | $(1.18) | $1.25 | $(0.56) | Consolidated Condensed Statements of Comprehensive Income Comprehensive income shifted positively, reflecting improved net income despite negative impacts from other comprehensive income components Consolidated Condensed Statements of Comprehensive Income (in millions) | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :--------------------------------------------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Net Income (Loss) | $196 | $(435) | $458 | $(206) | | Total Other Comprehensive Income (Loss), Net of Taxes | $(44) | $(35) | $(35) | $68 | | Comprehensive Income (Loss) Attributable to Tyson | $148 | $(452) | $408 | $(130) | Consolidated Condensed Balance Sheets The balance sheet shows an increase in total assets driven by cash and cash equivalents, alongside an increase in total liabilities from long-term debt Consolidated Condensed Balance Sheets (in millions) | Metric | June 29, 2024 | September 30, 2023 | | :---------------------------------- | :------------ | :----------------- | | Cash and cash equivalents | $2,569 | $573 | | Total Current Assets | $10,572 | $8,722 | | Total Assets | $37,732 | $36,251 | | Total Current Liabilities | $5,810 | $6,499 | | Long-Term Debt | $9,701 | $7,611 | | Total Liabilities and Shareholders' Equity | $37,732 | $36,251 | Consolidated Condensed Statements of Shareholders' Equity Shareholders' equity slightly decreased, influenced by retained earnings and accumulated other comprehensive loss despite positive net income Key Shareholders' Equity Changes (in millions) | Metric | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------ | | Net Income (Loss) Attributable to Tyson | $191 | $443 | | Dividends | $(171) | $(516) | | Accumulated Other Comprehensive Income (Loss) | $(295) (end of period) | $(295) (end of period) | | Total Shareholders' Equity Attributable to Tyson | $18,076 (end of period) | $18,076 (end of period) | Consolidated Condensed Statements of Cash Flows Cash from operating activities increased significantly, cash used for investing decreased, and cash from financing activities substantially increased Consolidated Condensed Statements of Cash Flows (in millions) | Metric | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------ | :----------------------------- | | Cash Provided by Operating Activities | $1,973 | $1,429 | | Cash Used for Investing Activities | $(854) | $(1,872) | | Cash Provided by Financing Activities | $883 | $101 | | Increase (Decrease) in Cash and Cash Equivalents | $1,996 | $(332) | | Cash and Cash Equivalents at End of Period | $2,569 | $699 | Notes to Consolidated Condensed Financial Statements These notes provide detailed explanations for the financial statements, covering accounting policies, transactions, and segment performance NOTE 1: ACCOUNTING POLICIES This note outlines the basis of presentation, consolidation principles, goodwill policies, and new regulatory impacts - The financial statements are unaudited and prepared in accordance with GAAP, with certain information condensed or omitted per SEC rules[22] - Goodwill is reviewed for impairment at least annually; no quantitative test was needed for the first three quarters of fiscal 2024, but Chicken, Beef, Pork, and two Prepared Foods brands were at heightened risk of impairment in Q4 fiscal 2023[24] - New USDA rule on Transparency in Poultry Grower Contracting and Tournaments led to recognition of a $72 million right-of-use asset and corresponding lease liability as of June 29, 2024[26] NOTE 2: ACQUISITIONS AND DISPOSITIONS The company completed acquisitions in fiscal 2023 to expand its Prepared Foods segment and international operations - Acquired Williams Sausage Company in Q3 fiscal 2023 for $220 million, adding to Prepared Foods segment[28] - Acquired 60% equity in Supreme Foods Processing Company and 15% in Agricultural Development Company in Q1 fiscal 2023 for $75 million, expanding international presence[28] NOTE 3: INVENTORIES Total inventory decreased from $5,328 million at September 30, 2023, to $5,033 million at June 29, 2024 Major Components of Inventory (in millions) | Component | June 29, 2024 | September 30, 2023 | | :------------------- | :------------ | :----------------- | | Processed products | $2,785 | $2,847 | | Livestock | $1,429 | $1,594 | | Supplies and other | $819 | $887 | | Total inventory | $5,033 | $5,328 | NOTE 4: PROPERTY, PLANT AND EQUIPMENT Net Property, Plant and Equipment decreased slightly due to a reduction in buildings and equipment under construction Property, Plant and Equipment (in millions) | Category | June 29, 2024 | September 30, 2023 | | :--------------------------------- | :------------ | :----------------- | | Buildings and equipment under construction | $894 | $1,782 | | Less accumulated depreciation | $10,344 | $10,066 | | Net Property, Plant and Equipment | $9,368 | $9,634 | NOTE 5: OTHER CURRENT LIABILITIES Total other current liabilities increased, mainly driven by higher accrued salaries, wages, benefits, and legal contingencies Other Current Liabilities (in millions) | Category | June 29, 2024 | September 30, 2023 | | :--------------------------------- | :------------ | :----------------- | | Accrued salaries, wages and benefits | $826 | $672 | | Accrued current legal contingencies | $351 | $289 | | Total other current liabilities | $2,199 | $2,010 | NOTE 6: RESTRUCTURING AND RELATED CHARGES The company incurred significant charges from its 2022 restructuring program and recent plant closures to optimize asset utilization 2022 Program The 2022 restructuring program incurred $31 million in pretax charges for the first nine months of fiscal 2024 - The liability related to the 2022 Program decreased from $65 million at September 30, 2023, to $14 million at June 29, 2024, due to payments[39] 2022 Program Restructuring and Related Charges (Pretax, in millions) | Metric | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | Total Estimated 2022 Program Charges | | :------------------------------------------ | :------------------------------ | :----------------------------- | :----------------------------------- | | Severance costs | $4 | $42 | $125 | | Relocation and related costs | $8 | $33 | $53 | | Contract and lease terminations | $19 | $(1) | $21 | | Total 2022 Program Charges | $31 | $93 | $225 | Plant Closures The company closed several processing facilities in fiscal 2023 and 2024, incurring $155 million in charges for the first nine months of fiscal 2024 - Six Chicken segment processing facilities were closed in fiscal 2023, and two Beef segment plants and one Pork segment facility were closed in fiscal 2024 to optimize asset utilization[40] - A fire at a Netherlands production facility in Q1 fiscal 2024 led to $83 million in charges for the first nine months of fiscal 2024, primarily from impairments and write-offs, due to the decision to sell the facility[42] Plant Closure Charges (in millions) | Period | Charges | | :-------------------------------- | :------ | | Third quarter fiscal 2024 | $41 | | First nine months fiscal 2024 | $155 | | Third quarter fiscal 2023 | $15 | | First nine months fiscal 2023 | $107 | NOTE 7: DEBT Total debt increased primarily due to new senior notes issuances and term loan borrowings, while current debt decreased - Issued $1.5 billion in senior unsecured notes in March 2024 (5.40% 2029 Notes and 5.70% 2034 Notes), with proceeds used to repay a term loan and expected to retire August 2024 notes[47] - Borrowed the full $750 million under the May 2028 term loan facility in Q1 fiscal 2024 to repay commercial paper obligations[48] - The company was in compliance with all debt covenants at June 29, 2024[49] Major Components of Debt (in millions) | Category | June 29, 2024 | September 30, 2023 | | :------------------------------------------ | :------------ | :----------------- | | Commercial paper | $0 | $592 | | 5.40% Notes due March 2029 | $600 | $0 | | 5.70% Notes due March 2034 | $900 | $0 | | Term loan facility due May 2026 | $750 | $1,000 | | Term loan facility due May 2028 | $750 | $0 | | Total debt | $11,021 | $9,506 | | Less current debt | $1,320 | $1,895 | | Total long-term debt | $9,701 | $7,611 | NOTE 8: EQUITY The company repurchased 0.8 million Class A shares for $44 million in the first nine months of fiscal 2024, primarily for equity compensation plans - As of June 29, 2024, 7.3 million shares remained available for repurchase under the company's share repurchase program[50] Class A Stock Repurchases (in millions) | Period | Shares Repurchased | Dollars | | :------------------------------------------ | :----------------- | :------ | | Three Months Ended June 29, 2024 | 0.2 | $13 | | Nine Months Ended June 29, 2024 | 0.8 | $44 | | Nine Months Ended July 1, 2023 (Program) | 4.7 | $300 | | Nine Months Ended July 1, 2023 (Equity Comp) | 0.7 | $43 | NOTE 9: INCOME TAXES The effective tax rate for Q3 fiscal 2024 was 22.9% on pretax income, a significant change from (1.8)% on pretax loss in the prior year - The Q3 fiscal 2024 effective tax rate was higher than the federal statutory rate due to foreign losses and a $9 million benefit from deferred income tax remeasurement[51] - The Q3 fiscal 2023 effective tax rate was impacted by a $448 million non-deductible goodwill impairment[51] Effective Tax Rates | Period | Effective Tax Rate | | :------------------------------------------ | :----------------- | | Three Months Ended June 29, 2024 | 22.9% | | Three Months Ended July 1, 2023 | (1.8)% | | Nine Months Ended June 29, 2024 | 25.9% | | Nine Months Ended July 1, 2023 | (67.9)% | NOTE 10: EARNINGS (LOSS) PER SHARE Diluted EPS for Class A stock significantly improved to $0.54 in Q3 fiscal 2024 from $(1.18) in the prior year, reflecting a return to profitability Net Income (Loss) Per Share Attributable to Tyson | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Class A Basic EPS | $0.55 | $(1.18) | $1.28 | $(0.56) | | Class B Basic EPS | $0.49 | $(1.08) | $1.14 | $(0.51) | | Diluted EPS | $0.54 | $(1.18) | $1.25 | $(0.56) | Dividends Declared Per Share | Class | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------ | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Class A | $0.490 | $0.480 | $1.480 | $1.460 | | Class B | $0.441 | $0.432 | $1.332 | $1.314 | NOTE 11: DERIVATIVE FINANCIAL INSTRUMENTS The company uses derivative financial instruments to manage exposure to commodity, currency, and interest rate risks - Derivative instruments are used to manage commodity price, foreign currency, and interest rate risks, with credit risks minimized by dealing with credit-worthy counterparties[58] - Net pretax losses of $16 million for commodity contracts are expected to be reclassified into earnings within the next twelve months from cash flow hedges[60] Net Aggregated Outstanding Notional Amounts of Derivative Financial Instruments (in millions, except soybean meal tons) | Commodity | Metric | June 29, 2024 | September 30, 2023 | | :---------- | :------- | :------------ | :----------------- | | Corn | Bushels | 60 | 65 | | Soybean Meal | Tons | 510,856 | 956,630 | | Live Cattle | Pounds | 92 | 319 | | Lean Hogs | Pounds | 188 | 454 | | Foreign Currency | United States dollar $ | 274 | $171 | Pretax Impact of Derivative Instruments in Consolidated Condensed Statements of Income (in millions) | Classification | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :--------------- | :------------------------------- | :------------------------------ | | Cost of Sales (Total) | $6 | $(45) | | Interest Expense | $0 | $(1) | | Other, net | $(2) | $(2) | NOTE 12: FAIR VALUE MEASUREMENTS The company measures financial assets and liabilities at fair value, with most derivatives classified as Level 2 - Fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[67][68] - A $28 million fixed asset impairment charge was recorded in Q3 fiscal 2024 due to the decision to sell the Netherlands facility, derived using Level 3 inputs[79] Financial Assets and Liabilities at Fair Value (in millions) - June 29, 2024 | Category | Level 1 | Level 2 | Level 3 | Total | | :------------------------------------------ | :------ | :------ | :------ | :---- | | Derivative financial instruments (Assets) | $0 | $111 | $0 | $41 | | Available-for-sale securities (Assets) | $0 | $80 | $29 | $109 | | Deferred compensation assets (Assets) | $17 | $440 | $0 | $457 | | Total assets | $17 | $631 | $29 | $607 | | Derivative financial instruments (Liabilities) | $0 | $19 | $0 | $0 | | Undesignated (Liabilities) | $0 | $105 | $0 | $15 | | Total liabilities | $0 | $124 | $0 | $15 | Fair Value and Carrying Value for Total Debt (in millions) | Metric | June 29, 2024 Fair Value | June 29, 2024 Carrying Value | September 30, 2023 Fair Value | September 30, 2023 Carrying Value | | :--------- | :----------------------- | :--------------------------- | :---------------------------- | :------------------------------ | | Total debt | $10,416 | $11,021 | $8,693 | $9,506 | NOTE 13: OTHER COMPREHENSIVE INCOME (LOSS) Total other comprehensive income for Q3 fiscal 2024 was a loss of $44 million, driven by unrealized losses on derivatives and currency translation Total Other Comprehensive Income (Loss) (in millions) | Metric | Three Months Ended June 29, 2024 (After Tax) | Nine Months Ended June 29, 2024 (After Tax) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------ | | Derivatives accounted for as cash flow hedges | $(12) | $(12) | | Currency translation | $(32) | $(28) | | Total other comprehensive income (loss) | $(44) | $(35) | NOTE 14: SEGMENT REPORTING Beef and Pork segments reported operating losses in Q3 fiscal 2024, while Chicken and Prepared Foods showed strong operating income - The company operates in four reportable segments: Beef, Pork, Chicken, and Prepared Foods, with International/Other covering foreign operations and corporate overhead[83][115] Segment Sales (in millions) | Segment | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------ | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Beef | $5,241 | $4,956 | $15,218 | $14,296 | | Pork | $1,462 | $1,324 | $4,465 | $4,274 | | Chicken | $4,076 | $4,212 | $12,174 | $12,905 | | Prepared Foods | $2,432 | $2,383 | $7,379 | $7,343 | | International/Other | $582 | $633 | $1,744 | $1,879 | | Total Sales | $13,353 | $13,140 | $39,744 | $39,533 | Segment Operating Income (Loss) (in millions) | Segment | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------ | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Beef | $(69) | $66 | $(310) | $232 | | Pork | $(62) | $(74) | $(24) | $(128) | | Chicken | $244 | $(314) | $579 | $(503) | | Prepared Foods | $203 | $206 | $676 | $705 | | International/Other | $25 | $(234) | $(37) | $(238) | | Total Operating Income (Loss) | $341 | $(350) | $884 | $68 | NOTE 15: COMMITMENTS AND CONTINGENCIES The company faces various legal proceedings, including antitrust and wage rate litigations, with significant settlements reached in some cases - The company guarantees obligations of certain third parties, primarily grower loans, with a maximum potential commitment of approximately $280 million as of June 29, 2024[97] - Settlements for Broiler Antitrust Civil Litigation class claims totaled $221.5 million, with final court approvals granted in 2021-2022[100] - The company was granted conditional leniency by the DOJ for self-reported matters in the chicken industry antitrust investigation[101] - A legal contingency accrual of $45 million was recorded in Q3 fiscal 2024 for Pork Antitrust Litigation, as a loss is now probable[105] - An agreement in principle was reached to settle Wage Rate Litigation for $115.5 million, resulting in a $56 million increase to the legal contingency accrual in Q3 fiscal 2024[110] - A $72.5 million accrual was recorded in Q1 fiscal 2024 for a proposed settlement in beef/pork processing plant wage rate litigation[111] Legal Contingency Accrual for Broiler Antitrust Civil Litigation Matters (in millions) | Date | Accrual Amount | | :----------------- | :------------- | | June 29, 2024 | $92 | | September 30, 2023 | $184 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, cash flows, and results of operations OBJECTIVE The objective is to analyze the company's financial condition, cash flows, and results of operations, providing insights into future performance - The discussion aims to provide an analysis of financial condition, cash flows, and results of operations, and to highlight events and uncertainties that could affect future financial information[113] RESULTS OF OPERATIONS Increased sales in Q3 and the first nine months of fiscal 2024 led to a significant turnaround in operating income - Sales increased in Q3 and the first nine months of fiscal 2024, driven by Beef, Pork, and Prepared Foods segments, partially offset by decreased Chicken sales[116] - Operating income in Q3 fiscal 2024 was impacted by $101 million in legal contingency accruals and $41 million in plant closure charges[116] - The company's strategy focuses on delivering margins in core protein, growing branded portfolios, and scaling international markets[117] Operating Income (Loss) (in millions) | Period | Operating Income (Loss) | | :------------------------------------------ | :---------------------- | | Three Months Ended June 29, 2024 | $341 | | Three Months Ended July 1, 2023 | $(350) | | Nine Months Ended June 29, 2024 | $884 | | Nine Months Ended July 1, 2023 | $68 | Description of the Company Tyson Foods, Inc is a global leader in protein, offering a broad portfolio of products and brands across multiple segments - Tyson Foods is one of the world's largest food companies and a recognized leader in protein, with brands like Tyson®, Jimmy Dean®, Hillshire Farm®, and Ball Park®[114] - Key business factors include customer demand, market prices for products, cost and availability of live cattle and hogs, raw materials, feed ingredients, and operating efficiencies[114] Overview Sales increased in Q3 and the first nine months of fiscal 2024, leading to a significant improvement in operating income - Sales increased in Q3 and the first nine months of fiscal 2024, driven by Beef, Pork, and Prepared Foods, partially offset by Chicken[116] - Operating income for Q3 fiscal 2024 was $341 million, a significant improvement from a $350 million loss in Q3 fiscal 2023[116] - Higher performance-based compensation costs of $89 million (Q3) and $308 million (9 months) were incurred due to improved consolidated results[116] Market Environment The Beef segment faced limited cattle supply and increased costs, while Chicken benefited from reduced feed ingredient costs - Domestic protein production (beef, pork, chicken, turkey) slightly increased in Q3 fiscal 2024 YoY[117] - Beef segment experienced limited market-ready cattle supply and increased cattle costs; Pork segment saw increased hog costs[117] - Chicken segment benefited from reduced feed ingredient costs; Prepared Foods segment faced increased raw material costs[117] - Geopolitical conflicts (Ukraine/Russia, Middle East) and elevated interest rates present ongoing economic and political uncertainties[117] Margins The total operating margin for Q3 fiscal 2024 was 2.6%, with Chicken and Prepared Foods segments showing positive margins Operating Margins by Segment (Q3 Fiscal 2024) | Segment | Operating Margin | | :-------------- | :--------------- | | Beef | (1.3)% | | Pork | (4.2)% | | Chicken | 6.0% | | Prepared Foods | 8.3% | | Total Operating Margin | 2.6% | Strategy The company's strategy focuses on improving margins, growing its branded portfolio, and expanding in international markets - Strategy aims to deliver margins in core protein by driving efficiencies and valuing-up offerings[117] - Focus on growing branded portfolio through innovation and scaling in international markets with profitable value-added food offerings[117] - The 2022 restructuring program is expected to result in cumulative pretax charges of approximately $225 million, aimed at improving business performance and reducing redundancies[118] Summary of Results This section summarizes the company's financial performance, detailing changes in sales, expenses, and net income Sales Total sales increased by 1.6% in Q3 fiscal 2024 and 0.5% for the first nine months, driven by increased sales volume and higher average sales prices - Q3 fiscal 2024 sales were positively impacted by a $142 million increase in sales volume and a $78 million increase from higher average sales prices[121] - Sales for both periods excluded a $45 million (Q3 FY24) and $38 million (Q3 FY23) reduction due to legal contingency accruals[121][122] Sales Growth | Metric | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :-------------------- | :------------------------------- | :------------------------------ | | Sales | $13,353 million | $39,744 million | | Change in sales volume | 1.1% | (0.1)% | | Change in average sales price | 0.6% | 0.7% | | Sales growth | 1.6% | 0.5% | Cost of Sales Cost of sales decreased for the first nine months, primarily due to lower input costs in the Chicken segment - Q3 fiscal 2024 cost of sales increased by $12 million, with higher sales volume increasing costs by $133 million and lower input costs decreasing costs by $121 million[123] - Key drivers for lower input costs included a $305 million decrease in Chicken segment feed ingredient costs (Q3 FY24) and $665 million (9 months FY24)[123][124] - Increased cattle costs ($240 million in Q3 FY24) and hog costs ($110 million in Q3 FY24) partially offset the decreases[123] Cost of Sales and Gross Profit (in millions) | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Cost of sales | $12,475 | $12,463 | $37,177 | $37,361 | | Gross profit | $878 | $677 | $2,567 | $2,172 | | Cost of sales as a percentage of sales | 93.4% | 94.8% | 93.5% | 94.5% | Selling, General and Administrative SG&A expenses decreased in Q3 fiscal 2024 due to reduced marketing and restructuring costs but increased for the nine-month period - Q3 fiscal 2024 decrease in SG&A was driven by a $45 million decrease in marketing expenses and a $31 million decrease in restructuring costs, partially offset by a $51 million increase in team member costs[127] - Nine months fiscal 2024 increase in SG&A was primarily due to a $125 million increase in team member costs, including $168 million in performance-based compensation[128] Selling, General and Administrative Expense (in millions) | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | SG&A Expense | $537 | $579 | $1,683 | $1,656 | | As a percentage of sales | 4.0% | 4.4% | 4.2% | 4.2% | Goodwill Impairment No goodwill impairment charges were recorded in fiscal 2024, compared to a $448 million charge in Q3 fiscal 2023 Goodwill Impairment (in millions) | Period | Goodwill Impairment | | :------------------------------------------ | :------------------ | | Three Months Ended June 29, 2024 | $0 | | Three Months Ended July 1, 2023 | $448 | | Nine Months Ended June 29, 2024 | $0 | | Nine Months Ended July 1, 2023 | $448 | Interest (Income) Expense Interest income increased due to higher cash balances, while interest expense rose due to new debt issuances - Increase in interest income was due to higher cash and cash equivalents and increased interest rates[131] - Increase in interest expense was due to recently issued 5.40% 2029 Notes and 5.70% 2034 Notes, and term loan facilities[131] Interest (Income) Expense (in millions) | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :---------------- | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Interest income | $(36) | $(6) | $(60) | $(22) | | Interest expense | $135 | $89 | $351 | $262 | Other (Income) Expense, net Other (income) expense, net, for Q3 fiscal 2024 was an income of $11 million, including joint venture earnings and foreign exchange losses - Q3 fiscal 2024 included $19 million in joint venture earnings and $9 million in foreign exchange losses[133] - Nine months fiscal 2024 included $22 million in joint venture earnings and $14 million from a postretirement benefit plan amendment[133] Total Other (Income) Expense, net (in millions) | Period | Total Other (Income) Expense, net | | :------------------------------------------ | :-------------------------------- | | Three Months Ended June 29, 2024 | $(11) | | Three Months Ended July 1, 2023 | $(7) | | Nine Months Ended June 29, 2024 | $(24) | | Nine Months Ended July 1, 2023 | $(50) | Effective Tax Rate The effective tax rate for Q3 fiscal 2024 was 22.9% on pretax income, a significant improvement from the prior year - Q3 fiscal 2024 rate was impacted by increased foreign losses and a $9 million benefit from deferred income tax remeasurement due to state tax rate decreases[134] - Q3 fiscal 2023 rate was significantly impacted by a $448 million non-deductible goodwill impairment[134] Effective Tax Rates | Period | Effective Tax Rate | | :------------------------------------------ | :----------------- | | Three Months Ended June 29, 2024 | 22.9% | | Three Months Ended July 1, 2023 | (1.8)% | | Nine Months Ended June 29, 2024 | 25.9% | | Nine Months Ended July 1, 2023 | (67.9)% | Net Income (Loss) Attributable to Tyson Net income attributable to Tyson significantly improved to $191 million in Q3 fiscal 2024 from a $417 million loss in the prior year - Q3 fiscal 2024 net income included $101 million in legal contingency accruals and $41 million in plant closure charges[136] - Q3 fiscal 2023 net loss included $424 million in goodwill impairment charges and $50 million in restructuring charges[137] Net Income (Loss) Attributable to Tyson (in millions, except per share data) | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | | Net income (loss) attributable to Tyson | $191 | $(417) | $443 | $(198) | | Diluted EPS | $0.54 | $(1.18) | $1.25 | $(0.56) | Segment Results Segment performance varied, with Beef and Pork experiencing operating losses while Chicken and Prepared Foods delivered strong operating income Segment Sales (in millions) | Segment | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :------------------ | :------------------------------- | :------------------------------ | | Beef | $5,241 | $15,218 | | Pork | $1,462 | $4,465 | | Chicken | $4,076 | $12,174 | | Prepared Foods | $2,432 | $7,379 | | International/Other | $582 | $1,744 | | Total | $13,353 | $39,744 | Segment Operating Income (Loss) (in millions) | Segment | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :------------------ | :------------------------------- | :------------------------------ | | Beef | $(69) | $(310) | | Pork | $(62) | $(24) | | Chicken | $244 | $579 | | Prepared Foods | $203 | $676 | | International/Other | $25 | $(37) | | Total | $341 | $884 | Beef Segment Results Beef segment sales increased, but operating income decreased significantly due to compressed margins and other costs - Operating income decreased due to compressed beef margins, a $45 million legal contingency accrual, and $41 million in plant closure costs in fiscal 2024[143][141] Beef Segment Performance (in millions) | Metric | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :-------------------------- | :------------------------------- | :------------------------------ | | Sales | $5,241 | $15,218 | | Sales volume change | 4.4% | 0.9% | | Average sales price change | 1.4% | 5.5% | | Operating income (loss) | $(69) | $(310) | | Operating margin | (1.3)% | (2.0)% | Pork Segment Results Pork segment sales increased due to improved market conditions, leading to an increase in operating income despite legal accruals - Operating income increased due to higher pork margins and improved live hog operations, partially offset by $45 million (Q3) and $73 million (9 months) in legal contingency accruals and plant closure costs[145][141] Pork Segment Performance (in millions) | Metric | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :-------------------------- | :------------------------------- | :------------------------------ | | Sales | $1,462 | $4,465 | | Sales volume change | 1.2% | 4.0% | | Average sales price change | 12.6% | 1.5% | | Operating income (loss) | $(62) | $(24) | | Operating margin | (4.2)% | (0.5)% | Chicken Segment Results Chicken segment sales decreased, but operating income significantly increased, driven by improved efficiencies and reduced feed costs - Operating income increased due to improved operational efficiencies, a goodwill impairment charge in fiscal 2023, and $305 million (Q3) and $665 million (9 months) lower feed ingredient costs[148] - Q3 fiscal 2024 operating income included a $56 million legal contingency accrual and $2 million in plant closure costs[141] Chicken Segment Performance (in millions) | Metric | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :-------------------------- | :------------------------------- | :------------------------------ | | Sales | $4,076 | $12,174 | | Sales volume change | (0.4)% | (2.7)% | | Average sales price change | (3.7)% | (3.2)% | | Operating income (loss) | $244 | $579 | | Operating margin | 6.0% | 4.8% | Prepared Foods Segment Results Prepared Foods segment sales increased, driven by foodservice channel growth and acquisitions, while operating income slightly decreased - Sales volume increased due to foodservice channel growth and the acquisition of Williams Sausage Company[150] - Operating income decreased slightly in Q3 due to increased raw material costs, largely offset by reduced marketing spend[150] Prepared Foods Segment Performance (in millions) | Metric | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :-------------------------- | :------------------------------- | :------------------------------ | | Sales | $2,432 | $7,379 | | Sales volume change | 2.0% | 1.7% | | Average sales price change | 0.1% | (1.2)% | | Operating income | $203 | $676 | | Operating margin | 8.3% | 9.2% | International/Other Results International/Other sales decreased, but operating income significantly increased due to the absence of a prior year goodwill impairment charge - Operating income increased primarily due to a goodwill impairment charge recorded in Q3 fiscal 2023, partially offset by $3 million (Q3) and $83 million (9 months) in costs related to a Netherlands facility fire and subsequent sale decision[152][141] International/Other Segment Performance (in millions) | Metric | Three Months Ended June 29, 2024 | Nine Months Ended June 29, 2024 | | :-------------------------- | :------------------------------- | :------------------------------ | | Sales | $582 | $1,744 | | Operating income (loss) | $25 | $(37) | LIQUIDITY AND CAPITAL RESOURCES The company's liquidity position is strong, with $4.8 billion available, supported by increased cash from operations and new debt - Cash needs are expected to be met by current cash, operating cash flows, or short-term borrowings[153] - Current ratio improved to 1.8 to 1 at June 29, 2024, from 1.3 to 1 at September 30, 2023, due to increased cash and decreased current debt[158] Key Liquidity Metrics (in millions) | Metric | June 29, 2024 | | :------------------------------------------ | :------------ | | Cash and cash equivalents | $2,569 | | Short-term investments | $13 | | Revolving credit facility (available) | $2,250 | | Total liquidity | $4,832 | Cash Flows from Operating Activities Cash provided by operating activities increased by $544 million to $2.0 billion, driven by higher earnings and changes in operating assets and liabilities - Increase of $544 million in cash from operating activities was due to $377 million higher earnings (net of non-cash items) and $167 million increase from net changes in operating assets and liabilities[155] - Key impacts included a $469 million increase from other operating assets and liabilities (performance-based compensation) and a $111 million increase from inventory decreases[155] Cash Provided by Operating Activities (in millions) | Metric | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------ | :----------------------------- | | Net cash provided by operating activities | $1,973 | $1,429 | Cash Flows from Investing Activities Net cash used for investing activities decreased primarily due to reduced additions to property, plant and equipment - Capital expenditures are expected to be between $1.2 billion and $1.3 billion for fiscal 2024, including investments in profit improvement and capacity expansion[156] Net Cash Used for Investing Activities (in millions) | Metric | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------ | :----------------------------- | | Additions to property, plant and equipment | $(884) | $(1,564) | | Acquisition, net of cash acquired | $0 | $(262) | | Net cash used for investing activities | $(854) | $(1,872) | Cash Flows from Financing Activities Cash provided by financing activities significantly increased, driven by higher proceeds from debt issuance - Proceeds from debt issuance included $750 million from a term loan and $1.5 billion from new senior notes[157] - Dividends paid reflected a 2% increase to the fiscal 2023 quarterly dividend rate[157] Cash Provided by Financing Activities (in millions) | Metric | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :------------------------------------------ | :------------------------------ | :----------------------------- | | Proceeds from issuance of debt | $2,391 | $1,117 | | Payments on debt | $(347) | $(175) | | Purchases of Tyson Class A common stock | $(44) | $(343) | | Dividends | $(513) | $(503) | | Cash Provided by Financing Activities | $883 | $101 | Liquidity The company maintains strong liquidity of $4.832 billion, comprising cash, short-term investments, and available revolving credit - Current debt of $1,320 million is intended to be repaid with existing cash and operating activities[158] - Approximately $683 million of cash was held in foreign subsidiaries, generally not relied upon for domestic liquidity[159] Total Liquidity (in millions) | Component | Amount at June 29, 2024 | | :------------------------------------------ | :---------------------- | | Cash and cash equivalents | $2,569 | | Short-term investments | $13 | | Revolving credit facility (available) | $2,250 | | Total liquidity | $4,832 | Capital Resources The company's capital resources include cash flows from operations, a $2.25 billion revolving credit facility, and a $1.5 billion commercial paper program - Primary sources of liquidity for funding debt service, capital expenditures, dividends, and share repurchases are operating cash flows and cash on hand[160] - A $2.25 billion revolving credit facility provides additional liquidity and backstops the commercial paper program[160] - The commercial paper program has a maximum borrowing capacity of $1.5 billion, with no outstanding commercial paper as of June 29, 2024[161] - Credit ratings are 'BBB' from S&P and 'Baa2' from Moody's, impacting commitment fees and borrowing spreads[162][164] - The company was in compliance with all debt covenants at June 29, 2024[167] RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS This section refers to Note 1 for details on recently issued and adopted accounting pronouncements, which the company is currently evaluating - The company is evaluating the impact of new SEC rules on climate-related information (effective fiscal 2026) and FASB guidance on income tax disclosures (effective fiscal 2026) and segment reporting (effective fiscal 2025)[27] CRITICAL ACCOUNTING ESTIMATES Critical accounting estimates include contingent liabilities, revenue recognition, and impairment of long-lived assets and goodwill - Critical accounting estimates include contingent liabilities, revenue recognition, accrued self-insurance, defined benefit pension plans, and impairment of long-lived assets and goodwill[169] - Chicken, Beef, Pork reporting units, and two Prepared Foods brands (totaling $3.8 billion in goodwill and $0.5 billion in brand carrying value) were at heightened risk of impairment in Q4 fiscal 2023, with less than 10% excess fair value over carrying value[169] - These assets remain highly sensitive to future discount rate increases, macroeconomic conditions, and achievement of projected long-term operating margins[169] CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This section provides cautionary statements regarding forward-looking information, highlighting various factors and uncertainties - Forward-looking statements are subject to factors and uncertainties that could cause actual results to differ materially from expectations[170] - Key risk factors include global pandemics, effectiveness of restructuring programs, access to foreign markets, cyber attacks, fluctuations in input costs, market conditions for finished products, disease outbreaks, changes in consumer preference, labor costs, food safety issues, climate change, regulatory changes, litigation, and leverage risks[172] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk primarily stems from changes in commodity prices, interest rates, and foreign exchange rates - Market risk arises from changes in commodity prices, interest rates, foreign exchange rates, and credit risk concentrations[173] - Derivative financial instruments are used to reduce exposure to these risks, with hedge accounting applied where criteria are met[173] Commodities Risk The company manages commodity price risk for grains and livestock using derivative financial instruments - Commodity risk is managed using derivative financial instruments (forwards and options) for grains and livestock[174] Effect of 10% Change in Fair Value on Open Commodity Positions (in millions) | Commodity | June 29, 2024 | | :----------- | :------------ | | Live Cattle | $11 | | Lean Hogs | $12 | | Corn | $20 | | Soybean Meal | $11 | | Total | $54 | Interest Rate Risk A hypothetical 10% increase in interest rates would raise annualized interest expense by approximately $10 million - Variable rate debt totaled $1,527 million at June 29, 2024, with a weighted average interest rate of 6.8%[176] - A hypothetical 10% increase in interest rates would increase annualized interest expense by approximately $10 million[176] - Fixed-rate debt of $9,494 million (weighted average 4.7%) would see a $244 million change in fair value from a hypothetical 10% decrease in interest rates[176] Foreign Currency Risk A hypothetical 10% change in foreign exchange rates would impact pretax income by $27 million at June 29, 2024 - Foreign exchange exposure primarily involves the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, European euro, Malaysian ringgit, Mexican peso, and Thai baht[177] - A hypothetical 10% change in foreign exchange rates would have a $27 million impact on pretax income at June 29, 2024[177] Concentration of Credit Risk This section refers to the company's Annual Report on Form 10-K for detailed disclosures on concentration of credit risks - Detailed disclosures on concentration of credit risks are available in the Annual Report on Form 10-K for the fiscal year ended September 30, 2023[178] Item 4. Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 29, 2024 - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 29, 2024[179] - No material changes in internal control over financial reporting occurred during the quarter ended June 29, 2024[180] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section provides updates on ongoing legal proceedings, including an Oklahoma environmental lawsuit - The U.S. District Court ruled in favor of the State of Oklahoma in an environmental lawsuit regarding pollution of the Illinois River Watershed, with parties ordered to confer on remedies[182] - Updates on Broiler Antitrust Civil Litigation, Broiler Chicken Grower Investigation, Pork Antitrust Litigation, Beef Antitrust Litigation, and Wage Rate Litigation are incorporated by reference from Note 15[181] Item 1A. Risk Factors The company's business is subject to various risks and uncertainties, which have not materially changed since the last Annual Report - Risk factors are described in the Annual Report on Form 10-K for fiscal year ended September 30, 2023, and have not materially changed[183] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company purchased 215,119 Class A shares for $12.8 million during the quarter, primarily to fund equity compensation plans - These purchases were primarily to fund obligations under equity compensation plans, not part of the share repurchase program[185] - 7,301,400 shares remained available for repurchase under the program[186] Class A Stock Purchases (Three Months Ended June 29, 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------------------------ | :------------------------------- | :--------------------------- | | March 31, 2024 to April 27, 2024 | 107,484 | $59.08 | | April 28, 2024 to June 1, 2024 | 103,213 | $60.19 | | June 2, 2024 to June 29, 2024 | 4,422 | $56.08 | | Total | 215,119 | $59.55 | Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[186] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[187] Item 5. Other Information The company amended CEO Donnie King's employment agreement and announced the resignation of a Board member - CEO Donnie King's employment agreement was amended, extending his term to December 31, 2027, and including $10 million in additional equity awards (restricted and performance stock units)[188] - Enhanced termination benefits for CEO King include continued base salary and target annual incentive plan payments until December 31, 2027, if terminated without cause or for good reason[188] - Mikel Durham resigned from the Board of Directors, effective August 9, 2024[188] Item 6. Exhibits This section lists the exhibits filed or furnished with the Form 10-Q - Exhibits include the Amendment to the Employment Agreement for Donnie King (Exhibit 10.1), CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2), and Mikel A. Durham's letter of resignation (Exhibit 99.1)[189] SIGNATURES SIGNATURES The report was signed by the interim Chief Financial Officer and the Chief Accounting Officer on August 5, 2024 - The report was signed by Curt T. Calaway, interim Chief Financial Officer, and Lori J. Bondar, Senior Vice President and Chief Accounting Officer, on August 5, 2024[190][191]