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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
CORPORATE PARTICIPANTS
Donnie King Tyson Foods, Inc. - Group Leader, North American Operations &
Noel White Tyson Foods, Inc. - Group Leader, Poultry
Wes Morris Tyson Foods, Inc. - Group Leader, Prepared Foods Operations
Steve Stouffer Tyson Foods, Inc. - Group Leader, Fresh Meats
Bernie Adcock Tyson Foods, Inc. - Chief Supply Chain Officer
Tom Hayes Tyson Foods, Inc. - Group Leader, Tyson Food Service
Sara Lilygren Tyson Foods, Inc. - EVP, Corporate Affairs
Donnie Smith Tyson Foods, Inc. - President & CEO
Andy Callahan Tyson Foods, Inc. - Group Leader, Retail Consumer Brands
Sally Grimes Tyson Foods, Inc. - Group Leader, Insights, Innovation, R&D, Retail Sales, and Global Brand Strategy
PRESENTATION
Editor
(video playing)
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Well, good afternoon, everyone. I trust that everyone has had ample time to sample the products that Mario and his team have prepared for us
today, that broad portfolio of branded products. Certainly, they smell good. We haven't had an opportunity to try those just yet, but I hope you've
enjoyed that. And I hope by trying that, seeing that, and what you've seen up to this point in the presentation that you are as excited about Tyson
and Tyson 2.0 as we are as a management team.
I reference in the video that Tyson and Hillshire was much like a marriage, and in any good marriage, two become one. It doesn't mean any one
part gives up what they do best, but the two come together in order to become better, and so that's what we've done. If we have best-in-class
operations which results in lower cost, as well as we have best-in-class brand building capability plus innovation, which should give us the high
revenue.
So low cost, high revenue, is the name of the game here. And I know there are a lot of questions today about synergy and we -- obviously, we're
prepared for those things. But by definition, synergy occurs when the whole is greater than the sum of the parts. And as has been expressed here
today, something looking like 1 plus 1 equals 3 or more.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
In our model, that looks like this: Low cost plus high revenue is 3 or more. That's what we see here. So going further down that road, we have
committed to $225 million worth of synergies in 2015, and $500 million plus by 2017. So I know you've been waiting for this, so let's look at the
buckets in which those will occur. And we're going to look at 2015, 4 major broad buckets today.
Prepared foods, in terms of improvements. These are things like our footprint; these are things like those fundamental executional elements of the
manufacturing process. We believe there to be in 2015, $140 million of the $225 million there.
In terms of procurement, we anticipate $40 million plus, and this is simply how we buy packaging, corrugated, those type things.
Manufacturing and logistics, $25 million plus of the $225 million. This is where the plant is located; this is how we do what we do in terms of what
mix is in each plant. And then Dennis referenced earlier today organizational and fiduciary as being $20 million plus in 2015. That's two boards,
those type things, that we talked about. So that is 2015.
Now let's talk about 2017. Just three years, $500 million plus, and I kept them in the same buckets. Prepared foods improvements will move up to
$250 million of the $500 million. Procurement at $175 million plus, manufacturing and logistics at $50 million plus, organizational and fiduciary at
$25 million. And I realize, I realize that that $500 million is a lot of money.
I realize that that is seemingly a very daunting task, but you're talking to a management team here when grains moved up over the last few years,
in any given week you're talking about $3 million to $4 million a week. So we try to get it down into those really narrow buckets. We were at times
in grain offsetting and finding cost-saving and synergies to the tune of $10 million a week. So while this is a big number, it is a number that we're
comfortable with, one, committing to, but also with the help of Hal Carper and his IMO team of really putting good business process and accountability
around going and achieving those.
As was pointed out earlier, what is not in this number -- and if you listen to my portion of the video -- what is not in this number is what we believe
to be the value of the raw materials of pork, beef and chicken into this branded portfolio.
So that being said, I want to introduce you to the team that I have with me, which I will tell you today is the best in food. And one of the things I'd
tell you about this team is that all of them have varied experience, and we've moved this team around so they could experience different things.
To my immediate right or your left is Tom Hayes. Tom comes to us from Hillshire. Tom was responsible for supply chain, prior to that in food service.
He used to run or be responsible for Sara Lee's foodservice business. We're extremely proud to have Tom with us here today. Tom is responsible
for our foodservice business.
Next to him we have Bernie Adcock. Bernie Adcock is responsible for our supply chain. So if you saw the 1 plus 1 equals 3 or more, Bernie and the
supply chain organization is the plus. They are the ones who are looking at or enabling this raw material, this low-cost production, and marrying
that to these iconic brands in this high-revenue play that we talked about. Bernie has done a number of things in our organization running different
parts of our poultry business, running supply chain, as well as the manufacturing operations in our legacy Tyson prepared foods.
To his right is Wes Morris. Wes has worn a number of hats, but Wes' role today is responsible for our prepared foods manufacturing, and these are
the old Tyson prepared locations plus the legacy Hillshire prepared locations. And those coming together and really looking and studying those
mixes and finding out what and where we have redundancies and capabilities. But Wes has spent a great deal of time in the CPG business, retail
facing with marketing and sales in the retail level. Most recently, Wes led our retail chicken -- our retail channel, which included chicken and prepared
foods, and done a great job there. Very instrumental in the turnaround on chicken for us over the last few years.
Next to him is Steve Stouffer. Steve Stouffer is responsible for our beef business, our pork business, and our case-ready beef and pork business.
Steve is very knowledgeable, many years of experience in that area.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
And to his right, last but not least, is Noel White. Noel is responsible for our chicken business. Noel has been there for about a year. He spent a
number of years managing our beef business, our pork business from South Dakota. A lot of experience, a lot of years. So collectively up here, we
have in excess of 180 years of experience in the food space.
So with that being said, Noel, I'm going to start out because I know there are a lot of questions out here today. And I'm going to start out by asking
Noel a question, and then we'll move down the line here. But the question is, and I know it's on your mind, is what is the outlook for chicken in
2015, 2016? A lot of conversation around oversupply; can we maintain those margins. Give us your view of that, Noel.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Great, thank you, Noel. I know we will have further questions on that later. The next question is going to be for Wes Morris. Wes is responsible for
our prepared manufacturing. Wes, a lot of those synergies and as part of being that low-cost producer, a lot of those synergies lie within your
organization today. Tell us a little bit about what you plan to do in this new organization to deliver those synergies.
Wes Morris - Tyson Foods, Inc. - Group Leader, Prepared Foods Operations
Sure. First, let me say you met the high-revenue folks this morning, and I'm on the low-cost side of the low-cost, high-revenue equation. But my
team is very excited. It's a new calling. It's a mission to eliminate waste, execute lean manufacturing, continuous improvement. And the excitement
on my team is about what we're going to do with the dollars that we free up, reinvesting in this number-one branded portfolio, investing in
innovation. And so my team is very excited to do what Andy called fuel the growth.
So it's not just being great operators; it's being great operators with a mission. So that's a big step change. But a lot of the work around prepared
foods started last spring and summer. We did a deep dive into fundamentals of our business into the supply chain. It was a part of a bigger prepared
food strategy, but I can give you some examples.
Cattle had moved to the Upper Midwest. We were still producing roast beef in Santa Teresa, New Mexico. There is a major inefficiency in getting
the raw materials all the way there and all the way back. Direct to indirect labor ratios, and many, many other fundamentals of our business.
So you saw I'm on the hook for $140 million. Let me describe the three big buckets that that's in, and why I'm so confident in those. First of all, we
invested heavily last year in breakfast handhelds and breakfast sausage. There's no reason to continue that as we bought the number-one brand
in both of those spaces.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
The network optimization and supply chain deep dive led us to closing three facilities, one which is already closed in Cherokee, Iowa; the second
one in Buffalo, New York, which is at the end of this month; and then Santa Teresa, New Mexico at the end of January. And then the corresponding
overhead recovery that comes from moving those pounds to other facilities.
Then last but not least, the third bucket is in absolute fundamentals of our business. So we put together gap plans by location which included
capacity yield, labor, line efficiency and spend, and we're off to a good start.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Good, thanks, Wes. So the next question will go to Bernie. I referenced, Bernie, you're the plus in our model here. So why don't you give us some
examples of things that you and the supply chain organization will do to enable us to convert these low-cost raw materials into a branded portfolio.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Thanks, Bernie. And then for Tom. Tom, food service has been flat over recent years. So why don't you tell me and the group what you're going to
do to help Tyson, the new Tyson Food Service organization, to grow both top line and bottom line at a faster rate than industry.
Tom Hayes - Tyson Foods, Inc. - Group Leader, Tyson Food Service
Great. Yes, I'll start by saying the legacy Tyson Food Service organization as well as legacy Hillshire have grown faster than the industry. Tyson Food
Service is by far the largest manufacturer in the foodservice space by volume. Our intent is to be the most important supplier to our customers. So
the way that we're going to drive a different result going forward is by making sure we are driving demand. That is our job.
Demand is a couple of buckets; satisfying the demand that's already out there. Certainly we talked about that as it relates to poultry, some of the
challenges we've had. Getting back on that track once we had supply available is key.
The second thing is driving new demand, creating demand with innovation. Sally's team does not just focus on retail. You heard her talk about
taking some of the foodservice products into retail. Our innovation and insights will be leveraged against food service in a big way.
So driving food service top line will come on the back of innovation, as well as making sure that we're leveraging the full portfolio we have. We
talk a lot about poultry in food service for sure, and that's important. We have a broad portfolio of products in food service, inclusive of pizza
toppings, pizza crust, tortilla, pies.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
There's a lot of opportunity to grow, particularly in areas that are growing with foodservice operators. So it's our job to make sure we match those
segments and products that we make money on and our customers make money on to drive to a better result. We're all about doing it. I think the
team is off to a great start and thoroughly excited about the synergy that's created by bringing these two organizations together.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Good. So Steve, last but not least, we have a lot of raw material, and we've talked about that and how to convert that. There's questions about how
we're going to do that, and we'll get into some more detail about that as we get questions from the floor, I'm sure.
But in terms of profitability for beef and cattle supply here in the near-term, why don't you give us your views around what profitability looks like
for the year for the beef segment in particular, as well as what cattle supplies look like for you here in 2015.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
If that means that we are going to take our fed cattle material that we produce and displace in our internal production facilities some of the cow
beef that right now, cow harvesting is like 15% down year-over-year, so there's less cow meat available out there. Well guess what, we can supplement
that with the fed beef that we have out there, which in turn actually supports this cutout.
We hear a lot of talk about ground beef and how ground beef people want to eat beef. Ground beef is the place for them to go right now with the
relative high prices that we are looking at.
Well guess what, cow beef is a main component of ground beef. Fed beef is now displacing and that is propping up the cutout and creating margin
opportunity for us as well.
So that's what we see happening. We are going to be very similar year-over-year. We are going to plan and we have been strategizing to stay on
the positive margin side of the ledger and we expect that to happen again this year.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Thank you, Steve. So just before we open up questions to the floor, this group, I hope you will see before this day is over, this is the right team. I
explained a little bit about our model.
We believe we have the right business model. And what you are also going to see is the passion for us to deliver the results that which we have
promised and I hope all of that comes out.
We look for better ways to try to tell our story every day. And so if you have a question, ask your questions starting now.
If we go ahead and start raising hands or get the mics to whoever would want that. And you are probably going to have more than one that's going
to answer every question but we will see what we can do. But don't leave here not knowing something that you came to understand.
Wes Morris - Tyson Foods, Inc. - Group Leader, Prepared Foods Operations
First of all, Tyson just from a muscle balance or a carcass utilization standpoint I think it's important to note that historically Tyson was heavy users
of loins through our case-ready business and very heavy users of bellies through our bacon business. Historically Hillshire was heavy users of hams
and trims, so I don't know the exact tonnage but I know it balances better than ever before.
DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
I think that we would be handcuffing ourselves if we came out and said we are going to target a specific number. I think we do in certain areas
target specific numbers on specific products very specific for SKU, certain SKU categories just to make sure we have a backstop. But we certainly
want to have as much flexibility as possible to take and grab whatever opportunity arises at the time that it is available.
Wes Morris - Tyson Foods, Inc. - Group Leader, Prepared Foods Operations
I think the underlying theme is we have a brand of portfolio now of brands that is not real flashy but it is a lot better carcass utilization than our
old brands.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
If I could add to that also, just to be clear in terms of growing chickens we can grow chickens better than anybody out there. We have proven that
time and time again.
But just growing more chickens is not our plan. Our plan is to sell more further process value added chicken.
So the ability to do that with the addition of the tray pack that we have talked about, with the addition of the further processing lines that we talk
about, we are not planning to grow more chicken. We will probably buy more chicken but we are planning to sell more value added poultry,
particularly in the value added chicken and the tray pack arena.
Wes Morris - Tyson Foods, Inc. - Group Leader, Prepared Foods Operations
So if history repeats itself, think about it this way. We are going to put the chicken back together and sell the whole-bird equivalent and we're going
to buy the off parts. That demand fluctuates and so to answer your question over time it is hard but we are going to maintain good carcass utilization
and whole-body utilization of chickens and buy the parts.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Bernie Adcock - Tyson Foods, Inc. - Chief Supply Chain Officer
I'd like to add a bit more from kind of an end-to-end supply chain because there's lots of questions at our break from everyone about our buy versus
grow, so we went down this path of our buy versus grow strategy in about 2011. The buy versus grow was actually a transaction. This is a strategy
of how we manage our business in the real underlying strategy of that is where are we going to balance our supply and our demand.
So outside of what the outside world is doing we're going to keep ourselves balanced. What that allowed us to do is we buy raw material on the
outside we never had ourselves in a position where we are low on raw material.
So every time we sit down in a pricing negotiation with our customers we are negotiating from a position of strength in that we just didn't have
to buy that raw material and sell it to them at a loss if we didn't want to. So that was an underlying transformation of our business and from 2011
until now it has been a huge shift in our pricing structure versus what the rest of the competition is. So we have gained quite a bit of ground.
We've taken a lot of our business and tried to move it over to a more stable margin business, if you will, the first couple of years through this
transformation. And then last year we have tried to take those stable margins and just grow them.
We have also, when you think about buy versus grow, think about that as predominately breast meat and predominately big bird breast meat. So
as you think about this supply of chicken coming at us that you guys are scared to death of, we've got a large amount of our business that is in
small birds. So nobody is putting out anymore small bird businesses, so we've got a block of our business that is small bird business that is really
now balanced going into 2015 more so than it has ever been in the 10 years I have been dealing with small birds specifically.
So we are in really good shape with that piece of our business. We have got some other businesses where we have locked in some margins going
in and then we've got the ability to flex in and out. The arbitrage of buying chicken for $1 today and selling it for $1.80 next week is a transaction
of that, not the entire strategy, and I want to make sure you guys know that that is huge for us.
Don't get hung up on the transaction. I want you to understand the entire strategy.
Tom Hayes - Tyson Foods, Inc. - Group Leader, Tyson Food Service
Sure. So as it relates to the percentages, we don't break that out on a continuing basis what percent of our business is contracted versus a straight-up
pricelist ordeal price.
What I can tell you is a lot of the conversations that we're having with customers right now is helping them through what the challenging environment
is. Over the last -- since really 2008 they have been stressed.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
So what we are living through now is trying to get them to a place where they are looking at what the menu options are in order to maximize what
consumers want to purchase. Those generally lead to -- yes, there's opportunities for poultry. We are in an excellent position to negotiate obviously
favorable terms for the Company but we don't want to do it in a way that alienates customers for the future so we are very careful about how we
manage our customer relationships.
As it relates to gas prices, that could be an enormous tailwind for sure. We know that even in the last month we have seen traffic start to uptick a
bit based on the fact that fuel prices are coming down.
If you think about -- I think there's a price out there of $2.60 on a national average basis that people are predicting for the full-year calendar 2015.
That's about $100 billion in discretionary spend Americans will have to spend on something.
I think a fair amount of that will come back to food service. That's good.
So I think that could be a real driver of our growth. However, like we said at the outset and Donnie mentioned, our expectations are we will grow
faster than the overall food service business. Hope that answers your question.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Just to add to that, Diane, I saw a number from the National Restaurant Association on the way here yesterday. In October 2013 to 2014 we saw a
1.8% increase in traffic. November to November we don't have the number yet but as Tom said, it looks very favorable so I think we are taking some
of those dollars that were being spent on gasoline and we are turning that into food eating away from home.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
And they have to. They need to, want to, weren't able to in 2014 but the need to be able to promote chicken in 2015. And we are trying to give
them the supply to be able to do that.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Is it your expectation that some rival processors may temporarily idle plants, or what is the current capacity utilization of the beef-packing plants
and how should we expect that to trend? And similarly given that you guys are in better position would be safe to assume you guys are unlikely
to be the Company to potentially either idle or shut down a plan?
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Bernie Adcock - Tyson Foods, Inc. - Chief Supply Chain Officer
So when I look at poulet placements, the monthly average for 2014 versus 2013 is up 2.5%. So I think the biggest number that I've seen is 208
million per egg set.
So if you put 2.5% on that I don't know that there is hatchery capacity right now to do all of that. And that would be kind of an individual week,
not a kind of an ongoing run rate, if you will.
I don't feel that there's going to be a lot more -- the 2.5% I think is all that we have in us. So you think about holding hens and hen age, people have
held hens this year as long as they possibly can.
The question came up last week so if we buy 2.5% more poulets and you expect to get 2.5% more eggs out of those, the only way you do that is
to hold them to this exact same age. So you won't be able to get both, you won't be able to get 2.5% more eggs and better hatch because you sold
them earlier. So the hatch increase if we count on the 2.5% poulets, there won't be any hatch increase.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
2004 when BSE hit the US we lost all of our export business. So as you are going back in history and looking at beef industry earnings you've got
to take that into consideration. We have, since about 2011, we have surpassed our export volume on beef as a country compared to what we were
pre-BSE.
So that an elements and that's part of the reason that we have seen the advantages that we've been able to maintain in these margins is the fact
that those markets are now back available to us. We are able to utilize those alternatives that weren't available to us back there after post-2014
until about 2009 or 2010.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
That would end up in retail, tray pack and the IF business.
The second component would be in the big bird segment, which typically is used for deboning and further processing needs. The third segment
would be in the small bird business, which is a separate business segment. And that would typically go to some type of a rotisserie whole bird or
cut-up type customer particularly on the food service side that might use it for some type of fried chicken application.
The fourth one would be in the retail value added, which you have heard us refer to as red bag, which exists in Andy's world and Michele Bond
who manages that business for us. So when we talk about our poultry business it is actually four separate businesses that we are talking about.
The point being is that when you talk about the chicken cycle, most people look at the cyclicality. It's very profitable right now. And we will not hit
the top of the top because within the profitability segmentation right now the most profitable segments are in fact big bird and secondly tray
pack, we can tell that through agri stats.
Now at the same time when there is more poultry available and the industry may not be as profitable, we would not expect to be anywhere close
to what the bottom in that cycle would be. So to be more specifically Akshay, let's say that the industry would go to a zero margin and we know
that historically it can go to negative but it is typically for a fairly short period of time a matter of months before it goes back to zero. According to
our modeling, in our calculation, our estimates, if the industry is at zero we would expect to be at a 5% return on sales.
So we will not be at the peak. We will not be at the bottom. So we look for that stable earnings range in the middle.
Now the difference of where we are at several years ago versus where we are at today. As Dennis mentioned earlier, we have invested a lot of
money the last three to five years, particularly in our poultry business. We are generating returns, the ROIC that we targeted, which as we've said
in the past is usually we will be more than a 20% ROIC on our capital projects, so those capital projects are in fact paying off.
We will have additional FP capacities that will be coming online, which we need. And as I mentioned we do have a complex we are converting
from one business segment into the tray pack segment, which we need simply from a supply standpoint. The returns are also better in that segment.
Wes Morris - Tyson Foods, Inc. - Group Leader, Prepared Foods Operations
I think it's important to remember though how chicken fits into the total protein complex. So take just a basic protein fundamental model, take
beef, pork, chicken and turkey, look at head times weight minus exports plus imports plus or minus freezer stocks and then look at the domestic
and availability of the total protein complex. And so if you do all that and you did it last year for 2014 it is going to come out around 250 pounds
per capita.
You do that same math for 2015 and you're coming out with 254, so only a slight increase in per capita availability of the total protein. What excites
me about chicken is there has been a step change in protein availability thus consumption from beef to chicken and beef cannot correct anytime
soon.
Now if you look at Bob Brown's numbers he is saying that the 3% we believe is needed by the chicken industry is not going to be there. He is saying
that head and weight is going to be up close to 3% but due to some export changes the net availability domestically is only going to be 1.8% and
we are saying we got to have at least 3% to be equal to 2014.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Rachel Nabatian - Credit Suisse - Analyst
Rachel Nabatian, Credit Suisse. So my understanding (technical difficulty) that a decent size chunk of that comes from the Hillshire standalone
restructuring program through 2016. So I wanted to know is that the case, could you quantify it and could you tell us which bucket it falls into?
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
I'm not sure I understood your question. I couldn't hear it.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Okay, I think I understand what you are talking about in terms of the synergies that are already baked into the legacy Hillshire financials are included
and rolled up in total Tyson financials. Does that answer your question?
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Well, they are but ultimately you roll up into the financials but embedded in that $225 million I don't know that I can tell you right at this minute
which one of those buckets that would be in but it is in the $225 million.
Wes Morris - Tyson Foods, Inc. - Group Leader, Prepared Foods Operations
The operational improvements embedded in Hillshire is not in my $140 million number. It's in their pro forma that came over.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
But we appreciate your time today. We appreciate your questions. We will be around for a while longer today.
I would also like to announce that it is time for a break and we have dessert outside and go out and try that and give us your feedback around the
desserts. Thank you for your time and your attention.
+++presentation
(video playing)
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
And I think this challenge for corporate America makes defending the reputation even more interesting. I guess the good news is, the challenge
of all this immediacy of news, technology, pictures and videos, those tools we can use ourselves to tell our story better and at Tyson that's we are
trying to do. Meet the public expectation for transparency by telling the good news about how we do things.
One of the ways that we reduce risk to the corporate reputation is through measurement. And I think Sally said earlier you cannot change behaviors
if you don't measure them. So we measure the reputation of Tyson Foods, Inc. to determine where we need to put our emphasis.
In 2012, now this is of course before our merger with Hillshire brands, we measured our reputation among our customers, our suppliers, our team
members and consumers. And the headline from that in 2012 was the people who know us best, the team members, the customers and the farmers
that supply as with the livestock love us the most. Our reputation vis-a-vis the competition was much higher.
But the consumer while they rated us highly, there was a gap between those who know us and consumers in terms of the Tyson reputation. So
our takeaway from that is our whitespace for reputation enhancement is with the consumer and one of the wonderful things about this merger
with Hillshire brands is all the consumer focus and consumer insights that comes to Tyson from a very consumer-focused business.
Another thing we do is 24/7 monitoring and we talk about the way the world communicates today and the rapid spread of information, truthful
and not and how difficult that is to manage when you are looking at your reputation. And we have a team of social and digital media experts who
are pretty much 24/7 on-call, like doctors, and they are engaging all the time with the public, correcting misinformation, responding when appropriate
and it is not always appropriate to respond and this is an interesting area of opportunity with our customers. Just because there's a lot of noise out
there about a particular issue doesn't mean that the general public cares a lot.
And one of the things we found with our survey research is the general public doesn't care about some of the issues that some of our customers
thought were really important. We use very sophisticated diagnostics to be able to sort the wheat from the chaff. So is it a bunch of noise in social
media that is an echo chamber of like-minded fringe interest group folks, or is it something that is really seeping into the consciousness of the
average consumer and we really need to address it.
Third area that we pay a lot of attention to is listening to our customers and consumers and staying very close to them. Some of you may remember
in March 2011 an issue that started very small among some bloggers and became overnight a nine-night news story on ABC Evening News, caught
a lot of folks by surprise. This was the Pink Slime episode and it costs a lot of money.
Now this is a totally healthy, legal, nutritious beef product that somebody gave a clever and unflattering name to and overnight it became a concern.
As a result of that Tyson did a very intensive listening tour with our customers, what practices, ingredients, packaging, whatever do we think we
need to be up to speed on so there are no surprises and so we Tyson or you customer are prepared to defend or explain.
And we came up with a very long list, 50-plus of controversial issues. We got a lot of stuff out on the table that was really healthy to do.
We also took a hard look at Tyson of our practices and we made some modifications where they were appropriate. But the bottom line is when
you listen you know what the concerns are, you can prepare for them and no one has any surprises.
One of the concrete outcomes of that listening tour was our 2012 announcement of our Farm Check program. We were the first in the industry to
announce we would send third-party auditors to the farms that grow the animals that supply our business.
Because our customers wanted increased accountability in the supply chain to make sure they could tell their consumers that the livestock that
went into their meat products was raised responsibly. So we started Farm Check in 2012 as a result of listening hard to our customers.
A fourth area that we work hard on is preparation. Preparation is everything and especially when you are such a large, complex company as Tyson
Foods. Speed and I am talking about the 10 minutes you have to react today versus the four hours you had to react 10 years ago.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
If you have to react in 10 minutes it's really difficult to get this big of an enterprise to move that fast. But you can do it if you have rehearsed, if you
have prepared, if everyone knows which lane they are supposed to be swimming in when the stuff hits the fan and you can make decisions quickly.
And so we do a lot of crisis management training, drills, as I said earlier preparing how to talk about sometimes very complex issues in 140 character
tweets. But preparation is everything in order to be able to move quickly. When you move quickly and you are prepared any bad stuff that happens
in a crisis is easier to manage.
We also work very hard on early warning systems. If you go back and do a postmortem on almost every crisis, you can find the early warning signs
that somebody didn't pay attention to. So nobody is ever perfect but if you work really hard on recognizing the early warning signs, you can avert
some or all of most crises.
And we always do it after the crisis what do we do right, what did we do wrong and how could we do better. So it's very important part of reputation
management at Tyson Foods.
I've talked about some of the stuff we do that deals with I will call it ick, the stuff that is tough to talk about and the tough to explain. We try to do
all of that and help our Company do all of that more easily whether it's for a consumer audience, customer audience, policymakers at the state or
national level.
But the most fun part of what my team does is sharing the good news early and often. And fortunately at Tyson we have lots of good news to share.
It's really part of the Tyson DNA going back decades and decades to do the right thing because it's the right thing to do, to take care of each other
both within the Company and within our communities and to help people who need a hand up in life, so we have lots of good things to talk about.
Bad news does happen. And my experience is for one part bad news, two parts good news can sometimes neutralize it. So we literally map out the
good news, the good stories.
We strategize to create the good news and then we sort of program it along the way so we've got it on the calendar when we know bad news is
likely to hit. One of the things we worked hard on is finding solutions to a dwindling water supply, sustainable solutions, sustainable solutions to
hunger in America, sustainable solutions to subpar agriculture in the developing world.
You probably know that hunger is Tyson's number one charity. You might not know that since 2001 we have donated nearly 100 million pounds
of food to food banks around the country. Most of that is protein, which is a little bit more difficult for them to find than other products so it's
especially appreciated.
We have also created a Tyson Foods Fellows program. We literally have people who know how to produce food from our Company travel in this
case to Tanzanian to teach smallholder farmers best practices.
And what we are learning is just small incremental changes can make the biggest difference in their lives. And I will tell you the experience of going
to work with these smallholder farmers in Sub-Saharan Africa totally changes the lives of the people from Tyson who have the opportunity to see
how much difference they could make in a developing country.
We are also big on disaster assistance. You may have heard that we have a program called Meals That Matter where we send basically a command
center that sets up shop in the middle of a disaster site, tornado, hurricane, Superstorm Sandy we were out here a few years back in New Jersey
and New York and we feed first responders and victims.
We literally cook the food and serve it to them with our own hands to help them get through the early aftermath of the storm and we have partnered
with another veterans organization called Team Rubicon. These are veterans who volunteer their time to do the cleanup of debris and etc.
post-disaster. So we've given them a truck and we set up shop next to each other to help with the aftermath of disasters.
It's an unsung job sometimes. We try to let people know about it where we can but it really makes a difference.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
We also talk to our critics. Not every big company feels comfortable talking to the critics but some of those critics actually have the same objectives
we do, they just have a different idea about how to get there.
For example, I was in Washington last week talking to the Pew Charitable Trust and some other groups about antibiotics in animal food production.
You may have noticed that we have changed our policy on antibiotics. It's on our website but we didn't hold a big news conference.
But we have stopped using antibiotics in our hatcheries and we are working very hard to drive down the use of antibiotics in our chicken production
houses. This is a great story to tell and some of our critics are surprised to hear what we're doing and our end goal objectives. And it's a wonderful
way to not only build bridges but to neutralize criticism and neutralizing criticism is a way you can protect your Company's reputation.
So whether it is antibiotics, animal welfare with farm check, other programs, we really work hard to develop the programs and relationships to
help enhance and defend and protect the reputation of Tyson Foods. So our Company is always at least neutral, at best a motivation for a sale, and
never an obstacle to doing business with the brands and all the other businesses we intend to grow going forward.
To summarize, I think you should know that we have a best-in-class corporate affairs team to support a built-for-growth organization. We have a
very smart, competent, diverse and passionate team of people working every day, 24/7 to defend the Company's reputation. We have an unflinching
commitment to listening to our customers and consumers so we don't make up this stuff.
We do the stuff to respond to needs out there whether it's in the policy community, the communities in which we live and work, our customers,
consumers, etc. We are trying to tell the story about Tyson Foods in a personable, compelling, conversational and memorable way. And I will tell
you that is a challenge in the information overload era that we live in and we are working hard to do that.
We do all of that and post-merger and we have acquired some great talent from the Hillshire Brands communications team. We've also found some
delightful synergies in the way of duplicative association dues, consultants and some other fees. So it has been a wonderful journey to get to this
place.
We look forward to continuing to protect the Company's reputation as we grow to great heights. And I would be happy to take any questions
about the corporate affairs function or any of the issues that you might find interesting. Thank you.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Second thing is, by working together with the leaders in the critic group -- here's something you need to understand, too, not everyone who is a
critic and makes a lot of noise has a lot of impact. So there is competition amongst those organizations for who can make the most noise and raise
the most dollars but not necessarily effect the most change.
So one of the challenges that sort of wheat from chaff thing is figure out who is making noise who really makes a difference. And those are the
people that you want to talk to and figure out if you can find a common understanding.
And we are working with some on some specific projects, some of them relate to labeling claims and so forth, that I think are very progressive,
reasonable and will fix part of the problem. What they won't fix is the people on the fringe that still want to make noise that have a solution that
is just way out of the realm of the possible. Does that answer your question?
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Obviously we've got improvements that we can make in the Tyson consumer brands. Growing category captaincies is a meaningful step forward
that we are better together at that will help us continue to grow in the future.
Wes talked about Lean manufacturing and Lean improvements in our processes, particularly in the plants but not limited just to the plants. We
invoke Lean across all processes in the business.
We talked a lot about our buy versus growth strategy and Bernie talked about the buy versus growth transaction inside this strategy and I hope
that was helpful. We talked about the increased value added chicken production that will be coming on stream some now, some in the spring, a
new tray pack plant that will be converted from a current production facility into tray pack. That will come online late in the spring.
Another step we are taking would be the elevated -- not a step we are taking but another factor would be that the elevated beef prices are providing
a halo in which the pork, the prepared foods and the chicken prices would stay well supported in. Dennis talked about our debt reduction, talked
about high return CapEx projects and there's still plenty of those available inside the business. Interesting I thought the point that Dennis made
about increase in share price reduces the share count based on the TEUs and that will help and then by 2016 that we would be in a position to be
able to buy back stock or be in a position to grow that kind of thing.
A couple of other things Dennis shared I thought were of note, $1 billion in free cash flow plus $500 million from the sale of the Latin American
assets to rapidly delever. And that we would be about 2 times leverage by the end of our fiscal year. And he talked about raising the normalized
ranges in chicken up to 7% to 9% and then prepared foods over time by the time the synergies are all baked in into that 10% to 12% range.
Sally talked about innovation and how that will accelerate across the entire organization. She talked about the fact that the Jimmy Dean launch is
off to a great start this year and I think gave some really good insights into some of the science inside of the innovation engine and the demand
map and a lot of the capabilities that Hillshire is bringing to Tyson Foods to help continue to fuel this branded growth. She talked about identifying
good-better-best value tiers in multiple different categories and she also said that there will be growth synergies coming over time and as we get
further into the integration and get past the reorg, which incidentally we are just now this month moving into the new organization.
Think that has gone very very fast. So feel good that we will be to turn all of our attention now into these growth prospects.
Andy talked about several things, talked about growing faster than the categories that we are in. He talked about that our brands provide leading
share across several different core categories and that we have great opportunities to grow, that Tyson is growing our total points of distribution
at 5 times faster than our competition is. He talked about Jimmy Dean being more than breakfast and that our brands offer more value and less
risk over time.
Donnie King and the team shared I thought -- they did a great job talking about buy versus grow, that strategy, laying out the synergies and what
buckets they fall into. They did mention, too, that the raw material utilization benefit is not yet baked into any projections so that is an upside deal
for the latter part of 2015 and 2016 and beyond.
Bernie talked about the fact that the chicken supply increases were in line with what demand should increase so that feels really good. Noel said
that 2015 in chicken would be at least 10% return on sales and that 2016 is set up very well.
We've got a great strategy headed into that. He also said that even in the worst of outcomes for a short period of time that we would have a 5%
improvement over what industry margins would be during that call it trough cycle, short trough cycle that you might see inside of any given year.
Steve talked about the fact that in fresh meats we are the high revenue law costs player in the regions in which we compete and that there is going
to be adequate supplies, obviously a decrease in supply, but an adequate supply around our plants. Mentioned that pork expansion would be
coming and that's a good thing for us. And Sara just finished talking about the efforts that we are making in this fast-paced world to make sure
that we protect the Company's reputation, protect our brands.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
So more than anything I think you heard a commitment on this team to finish what we started. If you go back into its call it legacy Tyson for a little
bit, Tyson Foods has made a huge change in the way we operate our business between 2010 and today.
You have seen it in the mix. You have seen it in the reduced variability in chicken margins and it has made a meaningful change.
Obviously with the acquisition of Hillshire, when Hillshire came on board they had a lot of unfinished business yet, too. And so by putting these
two teams together and bringing together these best-in-breed capabilities, if you will, I think you see that the potential is there and certainly the
commitment is there to continue to grow our business consistently and as importantly grow our earnings consistently with less volatility over time.
So higher earnings, less volatility while growing the business and we've got the capabilities to do that. So that's what I heard. Any questions from
you as we wrap up the day?
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Donnie, would you add anything to that? Or Andy?
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Well in terms of annual fixed priced to where we have been able to block in margins that have been attractive to us as well as our customers, we've
done some of that maybe a little bit more of that this year than we did in prior years. But we are looking at maintaining our margin levels in that
as well. There has been less supply of chicken and so that's enabled us to do that a little better than what we have been able to do in the past.
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
Donnie, just one other thing if I could add to that. If you look at large QSR customers, they really tried to get contracting done November, December,
January of every year because as an industry as you well know that was when there would be little access, commodity prices were typically at their
lowest and they tried to lock in a deal. The industry led by Tyson has obviously looked at doing that a little differently and that is one of the things
that we position ourselves with buy versus grow.
Andy Callahan - Tyson Foods, Inc. - Group Leader, Retail Consumer Brands
I have a short answer and a long answer. The short answer is no. I won't rank them.
They all have cash what's most important, though, is that we stay and Sally's team stays up to speed on the consumer trends. Because what is really
going to drive growth better than anybody else is having a portfolio that is positioned better than anybody else and insights to be able to leverage
it ahead of anybody else. And that's what we do.
We manage -- we have a portfolio as a starting point that is positioned to grow better than anybody else and insights and capabilities to take
advantage of that. So whether it comes in 10 years from now is speculation on consumer trends from where it goes. What I do know is regardless
of where it goes we are positioned to grow better than anybody else.
Sally Grimes - Tyson Foods, Inc. - Group Leader, Insights, Innovation, R&D, Retail Sales, and Global Brand Strategy
Yes, and it starts with the consumer actually. Because there are multiple consumer segments with different beliefs, preferences, attitudes, behaviors
and each of our brands is linked up with a particular consumer segment in order to maximize the entire portfolio opportunity. So it's hard to pick
a favorite child here because there is such a tremendous opportunity to cross the multiple consumer segment needs.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Andy Callahan - Tyson Foods, Inc. - Group Leader, Retail Consumer Brands
Yes, the other piece of that just to build is we don't necessarily always compete where we have an idea. We compete where we can have the
opportunity to win and win and profitably win.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Obviously people process product but you have come out here, you have promised what seems like a lot and maybe it's not a lot for you internally
but certainly it seems like a lot sitting on the outside. So can you just talk through the risks and maybe talk about people risk in particular because
that tends to be the biggest one.
Andy Callahan - Tyson Foods, Inc. - Group Leader, Retail Consumer Brands
Well, it feels terrific. You asked that question earlier. You said you just presented, what has changed and I said the idea wasn't to change it was how
do you help fuel it and move it forward.
And that has been the approach and it has created a lot less focus on changing business model and more and focus how you can do more. And I
agree there is a table of leaders back that you had the opportunity to meet earlier that deserve a lot of credit and it's a testament in general of the
quality of the people we have within the new Tyson organization to be able to keep a team engaged through a significant transition and continue
to focus. And I think your terminology around unfinished business was really well.
They are motivated, they see a great opportunity, they see the value of the opportunity that is out there and they are focused on delivering it. So
it's really a testament to the people going through the team through the amount of change.
Sally Grimes - Tyson Foods, Inc. - Group Leader, Insights, Innovation, R&D, Retail Sales, and Global Brand Strategy
Yes, I think for me it has been one of the biggest surprises, how quickly we came together. The openness, the mutual respect and being able to
bring together the best of both teams, quite a surprise. It has been an amazing 100 days.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
Farha Aslam - Stephens Inc. - Analyst
Donnie, you have a lot of changes you are implementing at Tyson and you are taking P&Ls and moving them around. How have you changed the
compensation structure at Tyson to make the team open and what are the key targets that the team is being measured against so that we can
watch them as well?
Donnie King - Tyson Foods, Inc. - Group Leader, North American Operations &
So I think it's important to know that wherever you have said in Tyson today the incentives are designed so that we have a Tyson-first approach.
So with some of the things moving around, everybody is very much in alignment with that as long as you move that cheese, if you will, that at the
end of the day if you are doing the right thing for Tyson you are putting more money in the Tyson bank account and making better decisions
commit everyone is subordinate to that. So doing Tyson first makes it a lot easier.
Andy Callahan - Tyson Foods, Inc. - Group Leader, Retail Consumer Brands
I think I would add to that, a great aspect of bringing the Hillshire team on these that they quickly adapted and realized that we have raw materials
from animals that we have to deal with all parts. And so they recognize the value in selling all the parts in the best possible way and so they've
adapted to it very quickly. It wasn't a challenge for them and they joined the Tyson-first philosophy that Donnie just talked about and that's really
exciting to me because it keeps shareholder value first and foremost on our minds.
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DECEMBER 10, 2014 / 6:00PM, TSN - Tyson Foods Investor Day - Afternoon Session
I hope you got your questions asked. Obviously if you haven't, phones work, let's stay in constant communication because we want you to follow
along in the story and we look forward to great days ahead. Thank you all.
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