Tyson Foods Inc - Class A (TSN) — Q3 2024 Earnings Call Transcript

Good morning and welcome to Tyson Foods’ fiscal third quarter 2024 earnings conference call. On today’s call, Tyson’s President and Chief Executive Officer, Donnie King, and Interim Chief Financial Officer, Curt Calaway, will provide some prepared remarks, followed by Q&A. Additionally, joining us today are Brady Stewart, Group President - Beef, Pork, and Chief Supply Chain Officer; Melanie Boulden, Group President - Prepared Foods and Chief Growth Officer; Wes Morris, Group President - Poultry; and Devin Cole, President - International and Global McDonald’s. 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 risks, uncertainties, and assumptions which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statements disclaimer 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 a reconciliation 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. Q3 was another solid quarter as momentum continues to build. Compared to the third quarter of last year, adjusted operating income is up more than $300 million, growing nearly 175%, and adjusted EPS increased by more than $0.70, or almost 500%. Q3 not only dramatically improved versus last year, but also marked the highest profitability in the last seven quarters. What's even more impressive is that we delivered these results despite a well-known headwind in the cattle cycle as we benefited from our diverse portfolio. I want to take this opportunity to thank all of our team members across every segment and function for their hard work in contributing to these results in Q3 and for their dedication to driving operational excellence, which has been a priority for us. Let me highlight the performance in chicken. We delivered segment adjusted operating income of more than $300 million, the best third quarter profit result in eight years. We are raising our guidance in chicken for the third consecutive quarter. The midpoint of our outlook is now $350 million better than our initial expectations coming into the fiscal year. I want to emphasize that the operational improvements we've been driving are enabling us to benefit from the market tailwinds, invest in our value-added portfolio, and enhance our results. In fact, all of our businesses are more agile, collaborative, and disciplined than they have been in some time. Beyond the strong results in chicken in Q3, pork also came in better than we anticipated, while beef and prepared foods were in line with our expectations. Our disciplined approach to capital allocation continues to improve cash flow. Year-to-date free cash flow is better by more than $1.2 billion compared to last year, driven by improved profitability and our focus on managing working capital and controlling capital expenditures. While still investing for profitable growth, we are delivering these results in the face of a challenging environment for beef. Better performance has helped us reduce our net leverage ratio for the third consecutive quarter. Before I talk more about the performance in the quarter by segment, let me remind you that we have some of the most iconic retail brands in all of food with top brands in protein. Behind Tyson, Jimmy Dean, Hillshire Farm, and Ball Park, we hold the number one or number two market share in eight of our core business lines and enjoy favorite brand status in key categories. I remain highly confident in our strategy and optimistic about our future and our ability to drive long-term value for shareholders. Let's move to segment performance, starting with Prepared Foods. In Food Service, we continue to broaden our customer base, grow in margin-accretive channels, and expand our presence in broad line distribution categories. This led to overall volume and sales growth in Q3. Adjusted operating income for the quarter was right in line with our expectations. Operational execution including supply chain improvements and more efficient and effective marketing support through digital are delivering results. In addition, we are leaning into our top-performing SKUs to capture opportunities to expand distribution. While our brands remain strong, we are continually focused on new innovations to expand the appeal and market opportunities for our products. For instance, the Jimmy Dean Griddle Cakes platform is an innovation we are very proud of. We've launched two flavors, maple and blueberry, and we're seeing an exceptionally strong repeat rate and customer adoption, making it one of the most successful Prepared Foods innovations over the past five years. Our focus on execution and innovation is keeping us on track to deliver another solid performance for the year. As I mentioned, chicken had one of its best quarters in some time, but we are clearly benefiting from better market conditions including lower grain costs. Our actions and focus on the fundamentals across all aspects of the value chain are also contributing to these strong results. Our live operations continue to improve with hatch rate and livability up year-over-year. We generate efficiencies and improve utilization in our plants by optimizing our network. Our demand planning and customer service have also taken significant steps forward as we improve order fill rates and continue to build long-term partnerships with customers, all the while reducing inventory. We've reinvested some of the proceeds from these improvements into the long-term growth of our value-added chicken business. For instance, we've accelerated the ramp-up of our Danville Fully Cooked facility and launched new products like honey bites and restaurant-quality wings. In summary, our focus on the basics has built a fundamentally stronger chicken business with an eye on the future. Moving to beef, as expected, elevated cattle costs continue to compress spreads in fiscal Q3. While pasture conditions have improved this year, clear signs of meaningful herd rebuilding have not emerged. We continue to be laser-focused on the things we can control, such as labor utilization, yield, and mixed management, to meet consumer demand and customer needs as we manage through the challenges of the cattle cycle. Turning to pork, the overall health of the herd and the productivity of styles remain strong, driving an ample supply of lean hogs, combined with solid demand and the benefits of our improved operational execution. Adjusted operating income increased noticeably versus last year. Now let me take a moment to reflect on who we are. Our purpose is to feed the world like family, where protein remains clearly at the center of the plate. In fact, protein is the largest category in the retail food and beverage sector, accounting for about one-third of sales in the U.S. We believe protein plays a central role in any healthy diet. This is why we see consumption growth up 1.3% across beef, chicken, and pork in fiscal Q3 per Nielsen. And it is also why we have protein as a foundational core. Our strategy encompasses our differentiated capabilities and scale as well as our diverse portfolio across channels, categories, and eating occasions. Our strategic pillars are supported by key enablers of operational excellence, customer and consumer obsession, along with data and digital. One key goal is building on our iconic brands to create value for our core proteins. Today, Tyson, Jimmy Dean, and Hillshire Farm are three of the top 10 protein brands with room to expand household penetration. Brands are our best opportunity to drive faster growth, higher margins, and stronger returns, and they are the most effective way to generate long-term shareholder value. As I've emphasized all year, our priorities are centered on controlling the controllables, including cash management. Our cash flow performance this year demonstrates the success we've had on this front. We're also focused on operational excellence by continuously improving chicken, strengthening Prepared Foods, navigating beef through a difficult cattle cycle, and driving efficiencies in pork. We came into fiscal 2024 with plans to deliver against these priorities. Our focus on being intentional and deliberate in executing those plans is delivering tangible results. With that, I'll turn the call over to Curt to review our financial performance in more detail.

Thanks, Donnie. Total company net sales of $13.35 billion in Q3 were up 1.6% year-over-year. The increase was led by beef with contributions from pork and Prepared Foods, partially offset by declines in chicken and international. Adjusted operating income improved $312 million to nearly $500 million, driven primarily by another quarter of substantial increases in chicken profitability. Operational improvements and substantially higher adjusted operating income led to a $0.72 increase in adjusted EPS, which came in at $0.87 in Q3. As Donnie mentioned earlier, this is our best adjusted operating income, margin, and adjusted EPS in the past seven quarters. Now let's review our segment results, starting with Prepared Foods. In Prepared Foods, Q3 revenue grew 2.1% versus last year, driven by volume growth in Food Service. As we expected, adjusted operating income in Q3 was down modestly; higher raw material costs were partially offset by lower marketing spend versus an elevated level last year, as well as the benefits of operational efficiencies and top-line growth. Moving to chicken, sales in Q3 declined 3.2%, primarily due to the pass-through of lower input costs and pricing. While volume is roughly flat year-over-year, as we continue to better align supply with customer demand, it was up approximately 2% from Q3 of fiscal 2022. Adjusted operating income increased $370 million versus last year to $307 million. Lower input costs, net-of-pass-through pricing, along with the benefits of the strategic actions we have taken and the efficiencies the business has driven across our operations, drove the growth in adjusted operating income. We also experienced favorable year-over-year derivative impacts of $63 million, primarily related to a $65 million net derivative loss in Q3 last year. In beef, revenue was up 5.8% year-over-year in the quarter, primarily due to the volume impact of higher average carcass weights, with pricing increasing 1.4%. While revenue increased, adjusted operating income decreased, primarily reflecting compressed spreads as expected, which more than offset our continued progress on operational efficiencies. Moving to pork, Q3 revenue increased a net 10.4%, driven by higher price per pound reflecting healthy global demand. Adjusted operating income also increased $92 million year-over-year, benefiting from improved spreads and better operational execution. Shifting to our financial position and capital allocation, our commitment to disciplined capital allocation remains unchanged. Our priorities are to maintain financial strength, invest in the business, and return cash to shareholders all while maintaining our investment-grade credit rating. Cash flow from operations remains strong, with year-to-date totals approaching $2 billion, highlighting improved profitability and working capital management. Operating cash flows were more than double our capital expenditures, which came in at $884 million year-to-date. Capital expenditures in Q3 of $263 million declined sequentially for the sixth consecutive quarter, reflecting our focus on controlling capital deployment while continuing to invest for profitable growth. Year-to-date free cash flow of $1.1 billion is more than two and a half times better than the previous two fiscal years combined over the same period. We ended Q3 with $4.8 billion of liquidity. Improving profits and strong cash management are also benefiting our net leverage, which declined sequentially again, coming in at three times in Q3, more than a full turn lower than where we exited fiscal 2023. We continue focusing on returning net leverage to our long-term target of at or below two times net debt to adjusted EBITDA. We entered fiscal 2024 with a plan to apply our controlling the controllables approach to enhance free cash flow generation. We've over-delivered on that plan and remain committed to deploying resources to maximize long-term shareholder value. Now let's look at our updated outlook for fiscal 2024. We are reiterating our overall sales guidance at roughly flat year-over-year. Based primarily on our improved outlook for chicken, we are raising our adjusted operating income guidance and tightening the range. For the total company, we now expect between $1.6 billion and $1.8 billion. Moving to the segments, in chicken, given the strong performance, we're raising our adjusted operating income guidance range to be between $850 million and $950 million. For Prepared Foods, we are reiterating our adjusted operating income outlook of $850 million to $950 million as we continue to perform in line with expectations. In beef, we are tightening our adjusted operating income guidance range to a loss between $400 million and $300 million, reflecting well-known challenges in the cattle cycle. In pork, we are raising our adjusted operating income outlook to be between $100 million and $200 million, highlighting improved year-to-date results versus expectations. To round out the key P&L items, we continue to anticipate interest expenses to be roughly $395 million, and our tax rate to be between 23% and 24%. Turning to capital expenditures, we are maintaining our tight controls on spending in line with profitability and cash flows, and are narrowing our capital expenditures range to be between $1.2 billion and $1.3 billion this year. Before I turn the call back over to Donnie, I want to emphasize that our multi-protein, multi-channel strategy is enabling us to raise the midpoint of our full-year adjusted operating income guidance by $100 million. Now, I'll hand it over to Donnie to wrap up before we move to Q&A.

Thanks, Curt. Before we get to your questions, I want to express my deep gratitude to our incredible team members. Your dedication and hard work are the driving forces behind our mission to feed the world like family and bring high-quality food to every table in the world. Together, we have achieved a remarkable turnaround, and our momentum continues. Finally, I am grateful to our customers and consumers for their trust, loyalty, and partnership. I couldn't be more excited for the opportunities ahead of us and remain confident that our strategy will enable us to deliver long-term shareholder value. Now, I'll turn the call back over to Sean for Q&A instructions.

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

Hi, good morning, and thank you. I wanted to ask, I appreciate a lot of the information you gave about each segment, thank you for that. Donnie, as you think about taking a step back, looking at kind of the underlying fundamentals, especially in your two biggest segments, chicken and beef, but across the company, kind of what were the more important puts and takes in the quarter versus your expectations, just in terms of how fundamentals came in against what you were initially anticipating?

Good morning, Ken, and thank you for the question. Let me start by saying we are pleased with our Q3 results, which is the best quarter in the last seven. We are seeing the benefits of our multi-protein portfolio, where chicken, prepared, and pork are offsetting the headwinds in beef. In Q3, momentum continues to strengthen, and all of our businesses are executing better than they have in quite some time. We're executing against the priorities we laid out for fiscal year 2024. In short, we are controlling the controllables, optimizing our network, and remain focused on operational excellence. We have taken decisive action to drive performance and to build financial strength. Our performance has given us confidence to raise our guidance again. Now let me step into the segments, and I'll start with chicken. Our focus on the fundamentals behind the number one brand is delivering results. Chicken had a strong Q3. We had the best adjusted operating income since fiscal year 2016, which was eight years ago. Best capacity utilization since Q4 of 2018, six years ago, along with the best livability since fiscal year 2020. Supply chain and S&OP processes are allowing us to improve order fill rates while simultaneously lowering our inventory and working capital. In beef, we're managing through volatility and spread tightening. We continue to focus on operational excellence. In pork, better spreads and ongoing operational execution led to better profitability. In Prepared Foods, our results were in line with our expectations, our brands are strong, and our share remains healthy.

Thank you for that, Donnie. I have a quick follow-up. As a company, you have insight into how restaurants, especially quick-service ones, are performing. I've heard from some quick-service restaurants that they aren't seeing significant improvements in traffic yet, although there are some signs of progress as they start to see initial benefits and increase promotions aimed at lower-income consumers. I'm interested in your perspective on the restaurant industry in general, how it impacts you, and whether there have been any changes to your outlook for quick-service restaurants specifically. Thank you.

So, thanks Ken. Just as a reminder, in the protein space, there typically are lower levels of elasticity. Protein is a consumer staple. And I'd also remind you, Ken, and then I'll pass this over to Melanie to add a little more color on Food Service. But in retail, we hold leadership positions in eight of ten categories, and three of the top ten brands in protein. So with that, Melanie, why don't you speak a little bit to...

Thank you, Donnie. Happy to do so. And Ken, I'm going to talk to you with my enterprise CGO hat on. So first of all, the Food Service industry, as you know, is large. And demand for protein is strong as consumers see protein as an essential staple in their diets and meal routines. At Tyson Foods, we are advantaged because Tyson's diverse food service portfolio spans major proteins: chicken, beef, and pork. This year, we've also seen a particular interest in our poultry offerings as quick-serve restaurants have been emphasizing value menu offerings. These factors, combined with our large and flexible manufacturing infrastructure, have been instrumental in driving our performance. For example, our ability to quickly partner with customers on LTOs or limited-time offerings to meet their business objectives is best-in-class. At the same time, that flexibility is also helping us better partner with our customers to quickly develop innovation. Now our commercial scale is also a strategic advantage. On any given day, you'll find our products in school lunch programs, quick-serve restaurants, fine dining establishments, and hospitals. You'll also find us in travel and entertainment venues such as airports, cruise ships, movie theaters, amusement parks, and concert venues. This allows us to meet consumers where they are. Look, we remain focused on what we can control in Food Service, including improving our product pipeline with innovation to drive operator value and new customer acquisition. We're also focused on leveraging the diversity and flexibility of our broad manufacturing base to better serve our partners. And finally, we're focused on shifting the mix to advantaged channels. So because of these actions, we're building momentum going into fiscal year 2025 and are positioned well for continued growth.

Yes, thank you. Good morning, everyone. I was hoping to dig into the results in chicken a bit more and really parse some of the drivers of operating margin improvement between the lower grain costs, which I believe at least on a gross basis in the quarter were quantified at $305 million versus some of the underlying cost and mix actions that you've been undertaking and how should we think about that progressing? There's obviously implications in the guidance for Q4, but help us think about what's embedded in the fourth quarter guidance from a net grain cost tailwind would be helpful? Thank you.

So Adam, thank you for the question. Let me start by saying, I'm going to take this opportunity to pass this question over to our Chief Architect in Poultry, Wes Morris. He and his team are responsible for the chicken turnaround that we have seen. So Wes?

Yeah, thanks, Donnie. Overall, I'd say I'm very pleased with the improvement in our cost fundamentals, and we're well poised for growth. Nothing's really changed. The big three areas that we've talked about the last few quarters are around our live operations, plants, and S&OP. Our live results continue to improve. Our hatch was up 360 basis points versus a year ago, just short of 83%. Our livability improved 50 points to 93.71 in a pretty tough grow-out environment. And then our costs are down significantly due to a very deliberate focus on our live fundamentals. The network changes are paying off. Capacity utilization, as Donnie said, continues to improve sequentially, and we still have room to grow. Our S&OP process continues to add value. Service was up 100 basis points on an order fill rate while reducing our working capital by around $260 million. We have a really highly functioning demand planning and supply planning team, and our total poultry group is engaged in that area. Now we invested some of that operational improvement back into the business. As you know, we have the number one share in retail and Food Service, and we're focused on investing there. So our Danville fully-cooked plant is well started up; that location is about a year ahead of schedule from what we originally anticipated. We've got a strong innovation pipeline. We have invested in quality and consumer promotions. And so I think our range is good. We've raised our guidance to $850 million to $950 million. Historically, Q1 and Q3 are our best quarters with Q2 and Q4 being a little softer. With the ongoing investments, I feel we are well-balanced at the midpoint.

Okay, that's helpful. And then if I could just ask a follow-up on beef. Donnie, you alluded to in the prepared remarks, no obvious signs of herd rebuilding. Just as we think about the implication of that over the next couple of years with just fewer cattle still not coming to market. How do we think about your own capacity utilization and industry capacity utilization in the sector and kind of if you reach a breaking point there that we might have to see some capacity rationalization?

Well, thanks, Adam, for the question. And I'll just start by saying this: it's going to be very challenging to continue to really forecast the outcomes relative to this beef cycle. Every beef cycle has some differences embedded within it. One of the key indicators relative to the cycle is droughts and monitoring drought in specific areas. So as you alluded to, we haven't seen any notable retention to date. We've seen some differences relative to specific regions, and I would say that correlates well to what those specific regions have from a climate and drought perspective. So when you evaluate this as we move forward, what we do know is we're not expecting any incremental supply here in the short term, which is consistent with these beef cycles. However, we're really focused on what we can control. The highlights for our beef team have been decreased costs year-over-year relative to our manufacturing and our efficiencies have improved in our assets. We continue to see improvements in our yields in our plants. We're doing a better job of balancing our supply and demand of cattle to beef and ensuring we meet consumer and customer demands. So, all these things together will allow us to continue to manage what we can control while focusing on indications for the future on this rebuild.

So if I could add one thing to that. Thank you, Brady. Our asset base is we're well-invested, and we are capable of running with the very best in the industry. I'll remind you, Adam, and others that the benefits of our multi-protein portfolio, which is driving our momentum with strength in chicken and prepared foods and pork, offset challenges in beef. We see this continuing for the balance of the year.

Hey, good morning. Thanks for taking my questions. So my first question is on the chicken business; you're certainly seeing very strong improvements. But my question is about opportunities for further improvement from here. And where I'm coming from is the margins were at the lower end of what typically is your normal range despite those internal improvements, the seasonality benefits in the quarter, and the strong external environment. So can you reflect on where the business is versus where it needs to be longer term and the path to more sustainably getting into that kind of normal chicken margin range?

Yeah, this is Wes. I would say that we continue to focus on the fundamentals. We have a different business mix and business volatility than some of the commodity players as we don't sell a lot of outside raw materials where prices are immediate. We've got several pricing models; some are grain-based, and as grain prices have come off, we pass that on to the customers, and that's fair. We have a high percentage of packaged goods, so we're going to stay focused on stabilization of earnings over time, strong relationships with key customers, and sustainable value creation. Regardless of what markets are doing, I expect us to deliver best-in-class results over time and stay focused on the controllables.

Okay, that's helpful. And then on beef, I guess the guidance implies for the fourth quarter bigger losses. And so I guess, directionally, and I appreciate your comments on the difficulties with forecasting this part of the beef cycle here. Is there any way that you want us to think about directionally 2025 versus 2024, or what the implications are for the fourth quarter into next year, and then when you talk about controlling the controllables in beef, what are some of those key controllables that you're most focused on or the levers that you can pull from here? Thank you.

Sure. Andrew, let me just say this: in terms of the 2025 outlook, it's a little bit early for us. We'll be happy to discuss at length in Q4. So look forward to that. Just a reminder, there is no data that supports a herd rebuild at this point. However, on a positive note, pasture conditions and feed costs are supportive of a herd rebuild. Interest rates, for example, might be a headwind, but there's no clear sign of herd retention. Brady, why don't you go deeper into that?

Sure. And thanks for the question, Andrew. Specifically on our beef performance, we are completely focused on making sure that we have cost-effective operations. We are ensuring everything from our harvest efficiencies to our assets to our yields and making sure that we are aligned with our customers and consumers while balancing that to the type of cattle that we're procuring. Our substantial year-over-year reductions in manufacturing costs and our assets allow us to run a much better operation today than we were a year ago. We're proud of that, and we thank the team for their continued improvements in these areas.

Good morning. Congratulations on the quarter. I want to start with chicken and specifically the strong improvements you all made there. Wes, I think you said hatch was up 360 basis points year-on-year, it's nearly 83%, which is far better than the industry is doing. So just wondering if you could help us understand how much of that is sustainable improvements in the breed or husbandry versus, I assume there's been some early liquidation of some flocks related to plant closures, and so I'm just trying to figure out how to model that going forward?

Yes, sure, Heather. Thank you for the question. We see the USDA data, and no question the industry exits and wages are well up, but the birds simply aren't making it to the plant. Our genetics and strategic focus are just the opposite. I did say our hatch is up 360 basis points; I do believe it is sustainable. I think we've got the right programs in place. We're seeing intense focus on the execution. Our grower partners are buying into the performance and our livability is up 50 points even in a tough growing environment. We're outperforming in live, and yes, I believe that to be not only sustainable when we hit the fall cooler weather, I expect it to improve.

Thank you for that. My follow-up is about beef, and although I don't want to dwell on this too much, there are significant differences compared to the last cycle. The rebuild has been progressing very slowly and seems likely to take even longer. This time, there are new plants being added, and your imports are much larger than they were previously. I am curious if you have any insights on how long you expect this downturn to last and whether Tyson might need to consider permanently reducing the number of days of slaughter at certain plants or how you plan to address this situation.

Thanks for that question, Heather. Again, I just go back to that drought monitor, the USDA and NOAA published and produced. Through the last cycle, we obviously saw a drought in 2012, 2013, and then a relatively good rebound in 2014, 2015, and 2016. And then really, from a drought perspective in beef cow country, we have seen very low persistence of drought in the last three to five years. We will continue to evaluate and focus on that, which is really a prerequisite for this rebuild. Donnie outlined some of the other factors that are in play relative to the rebuild as well. But just to reiterate what Donnie said, we've made good investments in our beef operations, and we like our asset base, our team, and the supply partnerships we have on both the cattle supply and the partnerships we have with our customers as well. We have laid out a range of outcomes that help us understand where the cycle may go and when, most importantly, and we'll continue evaluating that as we move forward.

And if I may just add one thing to that, Devin; thank you. As many of you will recall, Amy, too, was the leader of our International business. Since we were together last, Amy has decided to retire. I just want to say that we miss her and thank her for her many contributions to the company. We wish Amy and her husband Christian well. But we have Devin in the seat now and look forward to many exceptional things as it relates to International.

Thank you, good morning. I wanted to revisit Prepared Foods. You mentioned that the volume growth was primarily from Food Service, but overall pricing remained relatively stable. I'm interested in understanding the promotional environment better. Could you provide a breakdown of how Food Service and retail are performing and share your pricing expectations moving forward? We are hearing from many companies that consumers are hesitant regarding certain prices; are you finding the need to increase promotions? Can you give us an overview of the current consumer sentiment?

Yes. So thanks, Michael. Let me give you first an overview of our Q3 performance, and then I'll dive a little bit deeper into the promotional environment that we're seeing. Overall, our Prepared Foods third quarter performance, as you know, was in line with our expectations, and we're pleased with the results as we delivered both volume and sales growth. But as you know, we made a number of investments in our plans to add new capacity and capabilities. That's important to remember, as our profit was roughly flat to the year ago when you adjust for the incremental expenses associated with the ramp-up of those additions. Also, it's important to note that our results were accomplished despite lapping a period of higher merchandising levels and lower input costs. Three key factors drove our performance in the quarter: First, our operational excellence has improved dramatically. We've had tremendous commercial success. And as you noted, our Food Service volume growth was strong. Now as I think about our promotional environment, please know that our teams closely monitor in-market pricing dynamics, elasticities, and promotional performance at a granular level. We have a disciplined approach to pricing and promotions, and we make changes to our strategy as the consumer landscape evolves. This doesn't mean that we're just reactive. The strength of our brands, our customer relationships, our data-driven consumer insights, and our leadership position across multiple categories afford us the opportunity to act fast when the marketplace changes. Pricing and promotion are a couple of the key levers, but we're also focused on ensuring that our items are in the right package and in the right channel to meet consumer needs. It's also important to remember the protein, which consumers see as an essential staple, enjoys lower elasticities than other food categories. Therefore, we believe consumers will continue to prioritize protein. I'd point to all these factors as the reason that Tyson's retail volume grew in the quarter.

Yeah, good morning. Donnie and Curt, thanks for taking the questions. I just wanted to dig a little bit into the cadence from 3Q into 4Q because if I remember right, roughly three months ago, you've talked about potential downside risk in the third fiscal quarter, atypical seasonality, it seems like that did turn out. So maybe can you help us understand what was different in the quarter versus what you initially expected to come out to that close to $500 million in operating income, and how that then relates into, call it, maybe the higher end versus lower end of that remaining guidance for 4Q, that would be my first question? Thank you.

Yeah, thanks. This is Curt. I'll kick it over to Wes in just a minute. But principally speaking, we talked about the back half of the year and a little bit of seasonality challenges that we might face. But to be specific on your question before I turn it over to Wes, it was really some stronger chicken performance than we anticipated when we talked three months ago. But overall, the construct we thought about the back half of the year was relatively in line. But certainly, as we said earlier, we've increased the overall midpoint of our guidance by $100 million, driven by the strength of Q3, and I'll turn it over to Wes to talk about chicken's performance.

Yes. I'll take a big part of that change, and it's pretty simple. Our poultry team is improving faster than I expected or that we modeled in a lot of different areas. Like live, for instance, we just talked about; or our supply demand planning group. And so we haven't called a different play; we've just executed it faster than I expected.

Tom, this is Curt. I'll add a couple of things and then let Melanie add to it. We are hopefully very clear last quarter where we talked about midpoint of the guidance of $900 million and implying obviously $400 million in the back half, and it would be split relatively even. I'll add to that; while we've tightened the guidance range throughout the year, our midpoint has been consistent across the whole year. Additionally, our thoughts around Q4 and the profit outlook also were very unchanged and consistent as we've thought about it.

Yeah, so thanks for the question. As I think about the future seasonality and Q4, we expect to have a strong Q4 compared to prior years. First, the cost associated with the new capacity and capabilities I touched on earlier will be significantly reduced as those assets ramp up. This is true both sequentially and versus the year ago. Second, the operational excellence initiatives we're driving are accretive, and the total dollar impact will grow each quarter as we reduce costs and drive out inefficiencies. We also expect to continue strong commercial performance behind our Food Service business. Finally, I'd also point to our growth in bacon, which is enabled by the successful startup of our Bowling Green Facility. Due to the new capabilities we've brought online, we're growing and gaining share in bacon. So as I think about Q4, as well as the momentum going into 2025, we're confident in our path forward. A lot of this is obviously driven by our team that has been working really, really hard and is focused on delivering our goals.

Just a couple of comments from me. I think we've had a fairly disciplined approach over this last year relative to our SG&A management. It will feel a little lumpy in a couple of quarters because we've got some higher performance-based compensation impacting each of the quarters. But overall, a very disciplined focus on our cost control spending this year.

Thank you for your continued interest in Tyson Foods, and we look forward to speaking with you again soon.