Tyson Foods (NYSE: TSN) reported Q1 EPS of $1.66, $0.01 better than the analyst estimate of $1.65. Revenue for the quarter came in at $10.82 billion versus the consensus estimate of $11.04 billion.

First Quarter Highlights

• GAAP EPS of $1.52, up 1% from prior year; Adjusted EPS of $1.66, up 5% from prior year
• GAAP operating income of $826 million, up 2% from prior year
• Adjusted operating income of $894 million, up 6% from prior year
• Total Company GAAP operating margin of 7.6%; Adjusted operating margin of 8.3%
• Record Beef GAAP operating margin of 10.7% and record Adjusted operating margin of 11.2%
• Sales growth of 6%

“Our overall results in the first quarter of fiscal 2020 were in line with expectations,” said Noel White, Tyson Foods’ CEO. “Our Beef and Pork segments performed well as the effects of African swine fever are beginning to materialize. Our Chicken segment performed better operationally, although in a soft pricing environment. Our Prepared Foods segment produced its sixth consecutive quarter of retail consumption growth, demonstrating the strength of our brands and innovation as we grew or held market share in all core categories.

“With improved access to global markets resulting from recent trade developments, there are reasons to be optimistic about fiscal 2020 and beyond and we are well-positioned to capitalize on opportunities in the global marketplace. Although we anticipate the challenges and volatility typical in our second fiscal quarter, our long-term outlook remains positive.”

Outlook

For fiscal 2020, USDA indicates domestic protein production (beef, pork, chicken and turkey) should increase approximately 3-4% from fiscal 2019 levels, but we expect export markets to absorb the increased production. The following is a summary of the outlook for each of our segments, as well as an outlook for capital expenditures, net interest expense, liquidity and tax rate for fiscal 2020. While our accounting cycle results in a 53-week year in fiscal 2020 as compared to a 52-week year in fiscal 2019, the fiscal 2020 outlook is based on a comparable 52-week year.

Adjusted operating margin guidance is provided below on a non-GAAP basis2.

• Beef – We expect industry fed cattle supplies to increase approximately 1% in fiscal 2020 as compared to fiscal 2019. We expect ample supplies in regions where we operate our plants. For fiscal 2020, we believe our Beef segment's adjusted operating margin will be toward the upper end of 6.5% to 7.5%, absent additional impacts from ASF.
• Pork – We expect industry hog supplies to increase approximately 4% in fiscal 2020 as compared to fiscal 2019. We expect increased livestock costs in fiscal 2020 as compared to fiscal 2019. For fiscal 2020, we believe our Pork segment's adjusted operating margin will be 6% to 8%, absent additional impacts from ASF.
• Chicken – USDA projects a 4% increase in chicken production in fiscal 2020 as compared to fiscal 2019. For fiscal 2020, we believe our Chicken segment's adjusted operating margin will be 4% to 6%, absent additional impacts from ASF.
• Prepared Foods – We expect raw material costs to increase throughout fiscal 2020 as compared to fiscal 2019, but we expect to recover these costs through pricing over time. Given the timing lag on passing these prices through, we may not fully recover these costs within the fiscal year. For fiscal 2020, we believe our Prepared Foods segment's adjusted operating margin will be 10% to 12%.
• International/Other – International/Other primarily includes our foreign operations in Asia-Pacific, China-Korea and Europe, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC. We expect improved results in fiscal 2020 from improvement in our foreign operations as well as the impact of a full year of our recently acquired operations.
• Capital Expenditures – For fiscal 2020, we expect capital expenditures to be approximately $1.3 billion. Capital expenditures will include spending for production growth, safety, animal well-being, infrastructure replacements and upgrades, and operational improvements that are expected to result in production and labor efficiencies, yield improvements and sales channel flexibility.
• Net Interest Expense – We expect net interest expense to approximate $450 million for fiscal 2020.
• Liquidity – We expect total liquidity, which was approximately $1.4 billion at December 28, 2019, to remain above our minimum liquidity target of $1.0 billion.
• Tax Rate – We expect our adjusted effective tax rate to be around 23.5% in fiscal 2020.

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