Tyson Foods Inc - Class A (TSN) — Q3 2023 Earnings Call Transcript

Good morning, and welcome to Tyson Foods' Fiscal Third Quarter 2023 Earnings Conference Call. On today’s call, Tyson’s President and Chief Executive Officer, Donnie King, and Chief Financial Officer, John R. Tyson, will provide some prepared remarks followed by Q&A. Additionally, joining us today are Brady Stewart, Group President, Fresh Meats; Stewart Glendinning, Group President, Prepared Foods; Wes Morris, Group President, Poultry; and Amy Tu, President, International and Chief Administrative Officer. We have also provided a supplemental presentation, which may be referenced on today’s call and is available on Tyson’s Investor Relations website and via the link in our webcast. During today's call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions, or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking statements are subject to certain risks, uncertainties, and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statements disclaimers on Slide 2, as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note that references to earnings per share, operating income, and operating margin in our remarks are on an adjusted basis unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I'll turn the call over to Donnie.

Thanks, Sean, and thank you to everyone for joining us this morning. Before we review the results, I'd like to start out by discussing my vision for Tyson and the decisive actions that we're taking to successfully navigate the current market environment. We remain fully committed to our vision of delivering sustainable top-line growth and margin improvement over the long run. With our leadership team, we're executing a multi-point plan focused on efficiency and modernization, including taking a much closer look at our cost structure across the business to drive operational excellence. We are already seeing tangible benefits from our efforts. We've been through market cycles before and I'm confident that we have the right strategy, seasoned leadership, and team members in place to emerge stronger from this one. We're making good progress and saw sequential improvements in our results in Q3. We're not yet where we need to be, so we continue to focus on what we can control. Earlier today, we announced our intention to close four more of our chicken facilities, demonstrating our commitment to taking bold actions to improve performance. Beyond these important actions, I remain optimistic about our future. We are a leader in our industry and we continue to innovate and take market share in most of our categories. I remain very confident in our long-term strategy, and we are leaving no stone unturned to maximize value for shareholders. Diving into our results, we continue to compare against strong performance across our segments last year. However, I am encouraged by the sequential improvements we made in Q3. Let me start with Chicken. Market conditions in Chicken are still challenged with commodity prices across most cuts remaining significantly lower compared to last year. However, adjusted operating income improved by more than $100 million without any material benefits as market tailwinds; this sequential increase was primarily due to internal actions we took. For example, in our fiscal Q2, we decided to close two of our plants, convert two others to boneless, and rationalized our SKUs, inventory, and other assets. In Q3, the team made significant improvements in yield, spending, and efficiency, leading to strong improvement in profitability in just one quarter. As we become more productive with automation and team member engagement, we can further optimize our footprint and reallocate resources to more efficient plants, while still having ample capacity to service and grow with our customers. This enabled us to announce today that we plan to close four additional chicken facilities, bringing the total announced closures to six this year. We also recently made the decision to transition away from the 'no antibiotics ever' for Tyson branded chicken to a no antibiotics ever approach for human medicine. Data suggests the use of ionophores can lead to more uniform birds with consistent weight. In turn, we can more accurately forecast supply and demand helping to meet the needs of our customers and consumers. And I want to emphasize that we will continue to evaluate all options, including more actions like these across all of our businesses. In beef, we performed better than expected. Our results were driven by our disciplined approach to balancing supply with customer demands, while taking advantage of seasonal increases in cutout values. However, the beef industry will likely continue facing headwinds. As you may have seen in the latest USDA cattle inventory report, herd liquidation continues to tighten supply, leading to higher cattle costs, narrowing spreads, and difficult export market conditions. Pork remains under pressure across the industry and we continue to see headwinds there with both our internal live production and our externally sourced hog supply, increased feed costs, and low cutout spread compression through our results. We also had incremental negative impacts in Q3 from a fire at one of our processing facilities. Finally, to Prepared Foods, which is a key growth pillar for the future. The business performed well in Q3. In Retail, our core business lines saw strong volume growth in the quarter and continue to gain pound and dollar share. In Broadline Foodservice, Tyson Focus 6 continues to outpace the industry in volume growth. This led to better than anticipated margins in Prepared Foods. In short, our results this quarter demonstrate that Chicken is gaining momentum and our branded Foods business remains an area of strength. Let me add some further color on the performance of our branded business versus our top peers. As I mentioned earlier, our Tyson core business lines, including the iconic retail brands Tyson, Jimmy Dean, Hillshire Farm, and Ball Park, continue to outpace total food and beverage, and our peers in volume growth up 5% versus a year ago. We believe this points to the strength of our core brands and sets us up well for the future. We continue to show market share leadership in most of the retail categories in which we compete, delivering both dollar and pound share growth in the aggregate and across day parts. Tyson, Jimmy Dean, Hillshire Farm, and Ballpark all hold favorite brand status with consumers over our nearest competitor by a wide margin. Our share performance and brand strength demonstrate the momentum we've gained with consumers, and they will continue to spend on brands they know and trust. Likewise, we will continue to invest in merchandising and advertising to support our brands. While we are pleased with our brand strength and share performance, we're constantly building new innovations to expand the appeal and market opportunities for our products. Over the past few years, our innovations have generated roughly $2 billion in annual sales. Let me highlight a few products we've launched this fiscal year that I'm most excited about. Earlier this year, we announced the Tyson Original Chicken Breast Sandwich for retail channels, which won the People Magazine Food Award for Best Frozen Sandwich. Furthermore, we were excited to see that more than 70% of the buyers were new to the Tyson brand and more than 20% were new to the category. We also launched Tyson Chicken Sandwiches in the Food Service space where our sandwiches received awards from the Food and Beverage Industry, National Agri-Marketing Association, and National Association of Convenience Stores. As you can see, our innovation in chicken is able to be deployed across channels and occasions highlighting the power of our scale. Moving to Jimmy Dean, which is already a clear leader in the breakfast meal occasion, we're expanding with differentiated capability-based innovation by launching handheld breakfast items. For instance, this year, we launched the Jimmy Dean biscuit roll-ups in the Food Service channel and Maple Grill Cakes and Toaster Pop-Ups in retail. We're seeing strong customer adoption of these products and promising early consumer demand. In Hillshire Farm, one area of focus in retail has been the trend towards healthy snacking. For instance, we launched Hillshire Farms Snack Kids with 100% real premium meats, cheeses, and crackers, all ready to eat on the go. If you haven’t already, I encourage you to try our Snack Kids like Oven-Roasted Turkey Breast, Cheddar Cheese, and Wheat Crackers. We launched these products at attractive price points and have already seen strong acceptance with major retail customers. In the food service channel, we are now participating in the fast-growing Cupping Pepperoni category with our very own Hillshire branded Cupping Pepperoni product. We are always on the lookout for how to keep our brands on trend across channels. Now, I'll turn things over to John to review our financial results for the quarter in more detail.

Thank you, Donnie. Let me start with a quick summary of our total company results and then review our individual segments. Our sales were down 2.6% year-over-year, driven by pork and chicken where we saw a reduction in price per pound. More than 90% of the decline in adjusted operating profit was driven by lower profitability in our Beef and Chicken segments. Higher input costs per pound were primarily due to the increase in cattle costs along with unfavorable derivative impacts and higher labor costs. But these were partially offset by lower hog costs, reduced outside purchase of meat in our Chicken segment, and lower raw material costs in Prepared Foods. While profit was down substantially versus last year, it's important to note that it improved meaningfully versus last quarter and adjusted EPS increased $0.19 on a sequential basis. Challenges remain, but we continue to improve efficiencies by controlling what we can and believe we're heading in the right direction. Now, on to the individual segments results, starting with Beef. In Beef, revenue was essentially flat year-over-year with lower head throughput offset by higher pricing. Operating profit was down primarily reflecting higher cattle costs, which increased $610 million on a per pound basis. Operating margin of 1.6% was down from the historically strong margins of more than 10% in Q3 last year. On a sequential basis, disciplined yield and procurement benefits along with seasonal cutout improvement help drive better than expected operating profits. Beef is likely to continue to face headwinds, and we don't expect the ongoing tightening of cattle supply and spread compression to abate until herd rebuilding is well underway. Now moving to Pork, revenue was down 18% driven primarily by lower pricing due to softer demand. The operating loss at the quarter was $70 million as spread compression continued to pressure our margins. This was exacerbated by market pressures in our live operations, lower exports, and the operational impact of a fire at our Madison facility. Moving on to Chicken now. Sales declined 3.5% year-on-year, driven by lower pricing, partially offset by volume growth. The decrease in pricing reflects the challenging commodity market. While volume grew modestly versus last year, it decreased more than 4% on a sequential basis. This sequential decline is more than historical seasonality reflecting steps we took to align internal production to consumer demand while also reducing finished goods inventory by $70 million. Year-over-year profitability was negatively impacted by market conditions and higher feed costs and a $65 million net derivative loss in the current quarter, compared to a $23 million loss in the prior year period. On a sequential basis, it's worth noting the adjusted operating income improved by more than $100 million. In Prepared Foods, sales declined 2.6% driven by both volume and price. The volume decline was driven by Food Service as the trajectory of this channel’s recovery remains a little uneven. As Donnie mentioned, our Focus 6 categories are outpacing broad line industry and maintaining their share. Our lower foodservice volumes were partially offset by continued growth in retail, highlighting the strength of our brands. Lower pricing was primarily driven by lower bacon prices, reflecting the underlying cutout values for bellies. Compared to the prior year period, operating profit was up $34 million due to lower raw material cost and productivity gains, which was partially offset by lower sales, higher packaging cost, and increased mass investments. Despite increased spending and brand building efforts, we were pleased with our operating margin of 9.2%, particularly so given the challenging retail food environment. Our Prepared Foods segment remains key to our strategy, providing a high margin, stable business with many growth opportunities ahead, helping to offset the pressures and volatility in commodity prices. Before moving on to balance sheet items, I want to provide some context on the goodwill impairment charge that impacted our reported numbers on a GAAP basis, the details of which will be provided in our 10-Q when we file it later this week. The interim impairment testing we did this quarter resulted in non-cash charges in the reporting units that we have been disclosing as at risk in our filings going back to last fiscal year. The impacts of the charges are not shown in our presentation this morning as they are not reflected in our adjusted results, but all reconciliations to reported results can be found at the appendix. Now, to our financial position and capital priorities, we’re building financial strength; investing in our business and returning cash to shareholders remain the priorities of our capital allocation strategy. Q3 operating cash flow is $660 million, in line with expectations with prudent working capital management, partially offsetting lower profitability. Inventory reduction was the primary driver of improved core working capital. We still see some opportunity to improve inventory days and drive better cash flow. Year-to-date CapEx is roughly $1.6 billion and we continue to moderate our pace of spending. Based on this pace, we don't expect CapEx to exceed $2.1 billion below our prior guidance of $2.3 billion. We ended the quarter with $3.7 billion of liquidity and net leverage of 3.2x. Our balance sheet management approach remains unchanged, as we are committed to building financial strength, maintaining our investment grade credit rating, and targeting net leverage of at or below 2x net debt to EBITDA for the long term. During Q3, we returned $167 million to shareholders via dividends and $11 million in share repurchases. We remain committed to maintaining a disciplined yet opportunistic capital allocation strategy ensuring that we deploy resources to maximize long-term shareholder value. Now, let's review our updated outlook for fiscal 2023. We're maintaining our total company sales guidance range of $53 billion to $54 billion and we expect to be at the lower end with roughly flat sales growth for the year. Turning to adjusted operating income, in beef, based on our year-to-date results, offset by anticipated live cattle cutout spread compression, we expect full year margins to be at the higher end of our range of between a loss of 1% and a gain of 1%. For Pork, due to ongoing market dynamics impacting our Pork segment, we now expect full year margins to be between a loss of 4% and a loss of 2%, but at the higher end of that range. In Chicken, we're gaining momentum, but with our results year-to-date, including net derivative losses, we expect full year margins to be at the lower end of our range, but between a loss of 1% and a gain of 1%. Prepared Foods generated strong margins throughout the year with continued investment to support our brands; we expect margins to be at the higher end of the 8% to 10% range for fiscal 2023. And as I mentioned earlier, we're reducing our expectations for CapEx of approximately $2.1 billion. Our expectations for net interest expense and tax rate remained unchanged at around $340 million and 22% respectively. So, in summary, while the current operating environment is difficult in several of our businesses, we are making improvements across our operations and we are optimistic about our long-term growth opportunities. We have great teams across our segments. We've got growing demand for our products and the right portfolio mix to win in the marketplace.

Thanks, John. We will now move on to your questions. Please recall, our cautions on forward-looking statements and non-GAAP measures apply both to our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

Good morning, everyone.

Good morning.

Good morning.

Okay. So, there are obviously a lot of moving pieces here in the quarter. Could we maybe take a step back and get your overall take on the quarter and where we are at in the recovery of your commodity mix segments? Just trying to put things into context here and then I have a follow-up.

Okay. Well, good morning, Alexia. This is Donnie King. Let me start out by thanking you for the question and there is no surprise markets continue to be challenging. And they're challenging for everyone. I will tell you that we continue to execute our strategy, and I would tell you we've had the best execution in our Q3 we've had since pre-pandemic times. In Q3, we saw a sequential improvement across all businesses, led by Chicken, as we focused on our cost structure. We have aligned our supply to our demand as we pursue profitable growth. We are controlling the controllables across all businesses. I would tell you that we're not surprised by beef and pork results. We expected it. We are happy to report that we're winning with customers and consumers and gaining volume and dollar share. We are taking decisive actions, as we talked about this morning, right-sizing and modernizing our footprint; we continue to invest in automation and digitalization. We continue to invest in our team members and their work experience. We are pursuing growth in value-added and branded categories. In Chicken, behind the number one brand in Chicken, Tyson; in Prepared Foods behind Jimmy Dean, Hillshire Farm, and Ball Park. We are number one in eight of nine categories we compete in retail. We hold number one or number two positions in most food service categories. As I said this morning, we will continue to evaluate everything we do. Tyson has been around since 1935, and I've been around since the early 80s, and we've seen many cycles before. We always come out better, stronger, and faster and we will this time as well. That said, we have more to do and we're excited about our future. Our leadership team and all 140,000 team members are aligned to maximizing shareholder value. That's a little bit of color. Let me flip it over to Brady as he can speak to a little bit around the Pork and Beef business.

Sure. Thanks, Donnie. First of all, on the Pork – in our Pork business, I think it's important to break the Pork business into two different segments. First, as John and Donnie indicated in the opening remarks, we faced some challenges relative to the economics in the Pork business, specific to live operations. It's well documented that the pork industry is in the midst of a liquidation cycle right now. We believe that the markets will in fact, take care of themselves. But over half of our losses in the quarter were attributable to live operations and price discovery relative to live ops with some of our suppliers. Fresh pork, on the other hand, the other half of that segment was impacted by the fire we had in Madison. Outside of that, we saw strong improvement in terms of operational execution in our Pork business. We're excited about the team that we've assembled here in Springdale, and believe we have a bright future in front of us as we continue to execute on those operations. On the beef side, we will continue to focus on what we can control relative to moving through this beef cycle. We're going to continue to align our supply with demand and drive value-added including Kids Ready to make sure that we continue to be closer to our customer and try to decommoditize that business. Thanks for the question.

Great. And then, if I go back to a year, I mean, this time last year, you were looking for strong and speedy recovery in the chicken margin based on improved hatch rates and capacity utilization. Obviously, there was the hiccup of the holidays with the forecasting error. But it seems as though the environment has changed materially. What has changed in the environment? And how quickly do you think you can get back on track on the Chicken side of the business? Thank you. And I'll pass it on.

Thank you, Alexia. We are encouraged by the sequential improvement in Q3 and especially in June. As we have much work left to do, but we're on the right path. And I think that's important to call out. We are controlling the controllables better than before and I mentioned earlier that the best I've seen in terms of execution since pre-pandemic. But let me flip that over to Wes and let him add a little bit more color on Chicken.

Yeah, sure. I am too encouraged by the sequential improvement, the team is focused on what they do day in and day out. And we've seen a big step change in improving yields, labor efficiency, line efficiency, and spending. And at the same time, we've seen great improvement in order fill and on-time delivery.

Hey, good morning. Thanks for taking my questions.

Good morning, Ben.

So, I want to start on the Chicken business. Donnie, you noted the sequential improvement in the business. You also called out the actions you took to close four facilities. I recognize, not all of those are a lot kill harvest facilities, but I do think there's some sizable facilities in that footprint. So, could you talk a little bit about what the net impact to production might look like as you layer some of that production into the rest of your facilities? And then, think about what the going forward looks like.

Sure, Ben, I'll add a few comments and I'll flip it to Wes to add a little more color. In terms of the plant closings, closing plants is never easy for anyone involved. In fact, it can be gut-wrenching. But I would tell you, with a great deal of gratitude and thanks to our team members, our family farmers, and the communities impacted, we made those decisions. Earlier today, we announced the closure of the four plants bringing the total to six this year. The facilities that we're closing, just to give a little color about them, they're typically smaller in scale and in need of major capital to make them viable. So, that's an important detail and I’ll flip it over to Wes to give you a little color on the capacity.

Yeah, Ben. I would answer it simply this way. We're moving our existing sales to more efficient assets, so no material change in volume in any way, shape, or form, and excess of 90% once implemented.

Hey Ben, this is John. If I can just add in a little bit because I think you're trying to ask what the impact of these moves is. So, you heard Donnie talk about adjusting the need for capital investments in some of the older facilities. We see that as a benefit with these moves. I think, number two, we're talking about taking out around 10% of harvest capacities, which puts our asset utilization when all things are said and done of closer to that 90%, out of the low 80s. And not just talking about the asset closures, but when you think about the asset closures, NAE to NAI, HM moves, and some other operational changes that we're making, we talked a lot about mix, etc. We would expect somewhere around a $200 million run-rate uplift from those moves. And so, exact to when all that comes to fruition in the end of ‘23 and ‘24, we can't pay it all in one day, but that's kind of the order of magnitude of what we're talking about here.

Okay, that's very helpful. Thanks. Maybe thinking about the Pork business. You noted the facility fire impact in the quarter, we have been seeing the cutout rally pretty materially. So kind of a two-part question: One, I know despite the guide down for the balance of the year in Pork, how would you expect Pork packer margins to migrate as we move through the rest of this year? And then, two, as you've seen some of the cutout cost prices rally pretty materially, what impact does that have to cost of goods sold on the Prepared Foods business, as well?

So, Ben, if I could make a couple comments, and I'll let Brady add color to you. Q3 was challenging and we expected it to be. As Brady mentioned earlier, we are absolutely laser-focused on those things, which we can control. I'll let Brady if you would speak to this from the hog side as well as from a Pork perspective.

Okay, thanks, Donnie. I think there's a number of things at play here that we will continue to evaluate as we learn more about these markets. Obviously, one of the biggest impacts relative to the supply-demand equation that we've seen in the last several months is the Supreme Court's ruling on proposition 12. I think as an industry, we're still learning what total impact that has from a supply-demand perspective. I think it's somewhat difficult right now to totally forecast with great accuracy how that all plays out. Coupled with the fact that, as I referenced earlier, we're in the midst of a liquidation cycle as well in the industry. We're going to continue to monitor these macroeconomic factors that impact our business. But let me be clear, we have the opportunity to continue to control the controllables, continue to use our footprint with our case ready and value-added assets to get closer to the consumer. I feel good with the team that we have here in Springdale who stood up to manage the Pork business and are seeing significant operational improvements in that business.

Hey guys. Good morning. Thanks for taking the question.

Good morning, Peter.

Donnie, maybe we can actually start on Beef. I think you said it came in better than you expected in the quarter. But again your outlook here in Q4 may be a bit weaker. I just wanted to give you a chance to talk about kind of how you see that business play out over the next 18 months, not asking for formal guidance, but I think the last time we were in this part of the Beef cycle in ‘14 and ‘15 you went through an extended period where packer margins were actually negative. Is that in your considerations? Is that in your outlook? Just would be helpful to hear from you.

Let me start off with, and we did, in fact, have a better quarter than expected. We were not surprised necessarily by these results. As Brady has mentioned, and John did in the opening remarks, we continue to see herd liquidation. But we are focused on what we can control. Let me flip it over to John and let him add some commentary around this.

Hey, Peter, just regarding your question on the outlook, I think there are a couple of things. So, you did know right just on what the implications are with our guidance ranges on the balance of our ‘23. And, we base that on dynamic market conditions. We're obviously being as intentional and aggressive as possible in trying to balance that supply and demand to manage the spread. But knowing what we know today, that's where things sit. As we think about ‘24, we expect to give you guidance in November as has been customary for us in past kind of annual cycles. But as it relates to making any projections looks like, as we move into the fall, we will start to see some data around where pasture conditions were, what are the herd numbers looking like, what is the cow harvest? I think from there, at that point in time, we might be able to make better projections about what ‘24 and ‘25 look like. So I think that's probably as much as we can tell you on that today.

No. That's helpful, John. Thank you for that just because as we think about watch-outs. And then maybe just back on chicken dies, just two questions or a two-part question. First is, with the four facilities you have today, are there any further anticipated impairments that you may have to take or kind of was that all contemplated today? And then secondly, maybe more broadly Donnie, this mark-to-market hedging program in Chicken seems to kind of be an unexpected headwind over a lot of quarters. Just curious as you're re-evaluating all parts of the business, I mean, is there a thought process on just unwinding the hedging program and kind of going to a more hand-to-mouth approach? Thanks very much.

Sure. Thanks. Let me - in terms of the plant closures, as I said earlier, we're continuing to evaluate everything as we automate and modernize these assets. And so, we'll continue to look. I will tell you from an execution standpoint again, performance was much better in Q3 and a lot of momentum moving into Q4 in our chicken business. We're still growing with customers and we still have capacity to be able to do that going forward. But in terms of mark-to-market, I see it as well, we've talked about in great detail what the other options are for that in the business. Let me send it over to John and let him add a little color about that.

Yeah, I think there were two questions in there. One around the impairments and one around the mark-to-market program. I think on the hedging program, look, we try to manage for margin with ourselves and as part of our relationships with our customers. We're always evaluating how we can do things different and better and recognize that they can create a little bit of noise in the numbers. But at this point in time, we don't have any plans to change our approach on how we do that. So that's number one. And then on the impairment, I think it's just worth pointing out there were goodwill impairments in our Chicken business in our Q3. But as it relates to these asset closures, the details of those charges would come through in our Q4 and we will give a little more clarity on that as relates to the asset impairments, and the one-time cash cost, which all continue to get worked through as we work through the details with the quarter.

Great. Thanks very much, John.

Yes. Thank you. Good morning, everyone.

Good morning, Adam.

Morning. So maybe just continuing in chicken and John you have some helpful color in quantifying how it benefits from some of the plant closures and production shifts on the business. And you quoted a $200 million kind of profit run rate that would equate to give or take 110, or 120 basis points to margin at your current revenue levels. So, as we think about where you're exiting fiscal ‘23 with the business in a loss position, the cumulative effect of those actions would get you to functionally marginal levels of profitability. So help us think about beyond that. So these are things you can control and they get you slightly profitable. Is it really a market-dependent question on Chicken demand has to improve chicken – commodity chicken pricing has to improve is what would actually get you to those historical 5% plus margins that the company had been previously still aiming for a longer term?

Yeah, and I think I would point out to a couple of things there. So, first off, we're talking about the sequential improvements in operational execution. And more or less, you haven't seen market conditions materially change quarter-to-quarter. So, I guess, we just do emphasize that as a proof point that we're talking about execution, but holding the external data mostly static we're starting to see that come through. And you did pick up correctly on the 200 as kind of a run rate number. Again, when we talk about making the same amount of food in a smaller footprint, we do have some confidence in just what that cost elimination means from an overall profitability perspective. But we obviously are subject to where commodity markets move on both the input and the market side. So, recovery there helps us as it does everyone in the industry. So, we kind of focus on what's in our control and I think beyond what I've just said is probably too early to issue any numbers for ’24. We’ll give a look at that when we get to the November call. So, hopefully that's somewhat more helpful than what you're looking for.

No. It is. And I guess though, if I think philosophically historically, the company would always talk about profitability in Chicken and less volatility than the industry as a whole and not seeing the lows but others in the industry not seeing the same highs. And I guess, I am not saying that others in the industry haven't seen real lows in the last 6 to 12 months. It’s been a real challenge for the whole industry. I guess, the historical model would have – maybe think that Tyson’s Chicken business would be more resilient. So how does the experience of the last year kind of inform how you would think about the Tyson's relative performance versus the industry and the margin potential of the business is currently constructed?

I let Donnie comment on that one.

As I said earlier, Adam, we believe in Chicken, we're on the right path. I would tell you it’s the right path we've been on for about two years now, and we've had a number of fits and starts from the breeder side to a demand – with the demand picture. We're on our way to healing it from a genetics perspective on the live side. In terms of our operations, they're performing better than they have. But then the third one, and it really impacted us in Q1 last year is the demand picture that we struggle with getting a really accurate view of that. I would tell you the good news is, in Q2, we were able to get that done. We actually started seeing benefits of that in Q3. And so, we feel like we have a better picture of what the demand truly and consumption truly looks like and that informs us again in terms of supply. We feel more balanced today than we have over the past two quarters and the executional elements that we've talked about. We're obviously doing those a lot better than before. And then, if you look at the bridge that you're trying to create, it bases your question. Yes, there are some asset impairments. Yes, there are some plant closures. There's the typical labor yield and all those types of things that we're managing. But we are doing every one of those things. And so, I feel really good about where we are in Chicken and the path that we're on. And the future looks really, really good to me.

And I also want to add and emphasize on what we already talked about. But I don't remember exactly how you asked your question. But something to the fact of hey, what's different right now, we are looking backwards. And it's worth pointing out, I think we've taken pretty meaningful steps to get the cost structure back in balance; that includes the two closures back in the March timeframe, the NAE move that we've talked about, as well as these additional ones. So I think just pointing that out as evidence, when you look at quarter-over-quarter market conditions are the same. We're delivering on the operational execution. There are multiple proof points in the last, call it nine to 12 months, that I think we are and we believe are indicative of the trajectory of this business.

Okay. That’s helpful color. I'll pass it on. Thanks.

Alright, thank you and thanks everyone for being with us today. As you've heard today, we're executing in the pace of macro headwinds and we're seeing early success demonstrated by the sequential improvement in Q3. I remain optimistic about our long-term outlook; our customers and consumers are behind us. We're winning with both, while we remain focused on operational excellence and we will continue to combat the current environment by focusing on what we can control, all in an effort to maximize value for shareholders. I'm very thankful for the hard work that our team members do every day to support these efforts. As we continue to build a world-class organization positioned to take advantage of the opportunities in front of us, we remain confident that our strategy will deliver long-term growth and shareholder value. Thanks for your interest in Tyson Foods and we look forward to speaking soon.