Tyson Foods Inc - Class A (TSN) — Q4 2025 Earnings Call Transcript

Good morning, and welcome to Tyson Foods Fourth Quarter Fiscal 2025 Earnings Conference Call. On today's call, Tyson's President and Chief Executive Officer, Donnie King; Chief Financial Officer, Curt Calaway; and Chief Operating Officer, Devin Cole, will provide prepared remarks. Following the prepared remarks, we will have a Q&A session with the participants who will be joined by our Chief Growth Officer, Kristina Lambert. 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 the 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 statement disclaimers on Slide 2 as well as our SEC filings for any 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 for our fiscal periods unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I will turn the call over to Donnie.

Thank you, Jon, and thanks to everyone joining us today. I'm pleased to report that our business delivered solid progress and performance this quarter and throughout the year. Looking ahead, we see even more opportunities for growth across all our business units. This quarter, we achieved increases in sales, adjusted operating income, and adjusted earnings per share, continuing our upward trajectory for the full year. Our annual growth in adjusted operating income was driven by the Chicken, Pork, and Prepared Foods segments, along with notable contributions from our international business. In the fourth quarter, our team executed well across our portfolio with momentum in value-added protein offerings. The Chicken segment stood out, delivering $457 million in adjusted operating income, thanks to higher volumes, better operational execution, and lower feed costs. These gains were partially offset by increased marketing and promotional expenses. We believe there's still untapped potential in areas we can control within this business. Prepared Foods saw growth in both sales and adjusted operating income. Our production facilities made significant performance improvements through disciplined operational efficiencies. Meanwhile, our innovation pipeline is evolving to better match consumer preferences and emerging trends. As a result, our Prepared Foods business is capturing more market share by volume and dollars, driven by innovation and targeted MAT spending that is showing measurable returns. In our Beef and Pork segments, we are increasing yield and revenue by developing more value-added products, such as seasoned marinated and specialty trim cuts using portions that were previously undervalued. These offerings are reaching more consumers through our branded portfolio, and we're also enhancing operational efficiencies in these areas. As anticipated, the Beef segment remains our only soft spot. Cattle supplies are at record lows due to drought, potential herd rebuilding, and the impact of New World screwworm in Mexico. These factors created market headwinds during the quarter. Despite these challenges, we are strengthening our fundamentals by prioritizing efficiency, reducing cost, and introducing innovative products. This positions us to emerge stronger in beef when market conditions improve. Looking forward, we expect cattle supplies to remain tight as we move into 2026. During this period, chicken is likely to benefit most from changing consumer preferences, both at retail and in foodservice. 2026 presents further opportunities for our Chicken business. Chicken is an affordable, high-quality protein and our innovative value-added offerings position us uniquely to serve both retail and foodservice customers amid high beef prices. While we are not satisfied with our current beef results, our diversified business model continues to build resilience and drive profitability across the company. Overall, our financial position is strong with net leverage maintained at 2.1x, a direct result of deliberate actions and disciplined capital allocation to fortify our balance sheet. While consumers remain cautious and selective with their spending, we continue to expand our market share in both volume and dollars. Protein remains a top priority for shoppers. Despite rising prices, beef, pork, and chicken are clear favorites with consumers viewing protein as an essential purchase and continuing to buy meat. According to Nielsen data, food and beverage retail volume declined 1.5% over the 13 weeks ending in September. In contrast, our retail branded products grew by 2.4% in volume, significantly outperforming the broader sector. This growth was broad-based, highlighted by strong performances across several key brands. Hillshire Farm lunch meat increased by 10.3%. Hillshire Snacking grew by 12.5%. Tyson branded frozen value-added chicken rose by 8.7% and Jimmy Dean breakfast sausage advanced by 1.6%. Our ongoing investments in innovation, wider distribution, and effective marketing are driving growth and keeping us competitive, providing substantial opportunities for further progress. As more shoppers turn to the perimeter of the store, we are meeting their demand for fresh, high-quality options with Tyson branded fresh chicken volume growing 7.8% during this period. Our retail branded products now reach nearly 72% of U.S. households, a rate that exceeds both private label and other branded competitors. Although private label sales are rising, their growth comes at the expense of other brands, not Tyson, as we continue to outpace the category in both volume and performance. We are committed to engaging consumers wherever they are, leveraging our brand strength to thoughtfully expand into new markets and opportunities. Our recent launch of Tyson high-protein chicken cuts, each offering at least 30 grams of protein per serving, has achieved nationwide distribution. This success confirms strong consumer demand for convenient protein-packed options. Excitement for these products is evident across social media and at retail, reinforcing our strategy to connect our brands with consumers and deliver innovative ways to enjoy our protein-rich foods. Hillshire Farm, long trusted for lunch meat, has now entered the freezer section with stuffed croissants and ciabatta deli sandwiches. These new additions offer consumers even more convenient, delicious, and protein-rich meal solutions. We're also seeing growing interest from Gen Z shoppers in the frozen aisle. Our latest offerings are designed to meet their demand for convenience, bold flavors, and high quality. Sales from our innovation pipeline have steadily increased over the past 3 years. Our innovation spans all brands and segments, ensuring we address both current and future consumer needs. Tyson Foods is proud to lead the industry by developing products with simpler, recognizable ingredients, just like those found in your own kitchen pantry. We recently introduced our simpler product line, now available in stores nationwide. The preference for healthier options is clear. Last quarter, we announced that by year-end, we will remove high fructose corn syrup, sucralose, BHA, BHT, and titanium dioxide from our branded products produced in the United States. As a world-class food company and a recognized leader in protein, Tyson Foods is well positioned to meet the growing demand for high-quality protein. In the fourth quarter, we welcomed Devin Cole as our new Chief Operating Officer. Devin has over 30 years of experience in food industry leadership across both retail and foodservice. He has a proven track record working with our largest strategic customers worldwide and most recently led our Chicken and international businesses to significant improvement last year. Now I would like to invite Devin to share more about our segment performance.

Thank you, Donnie. I'm excited to step into the role of Chief Operating Officer. Over the past 2 months, I have taken a deep dive into our operations across the entire portfolio. My promise to you, our shareholders, is clear; we will streamline our business by reducing complexity and bureaucracy, challenging the status quo every step of the way. Our team is committed to delivering best-in-class performance and holding ourselves accountable to our customers' expectations. Now let's review our fourth quarter segment performance. Prepared Foods delivered a strong quarter with sales up 3% versus last year or up 5.7% excluding the effect of the product recall, primarily driven by higher pricing because of higher raw material cost recovery while continuing to enhance our product mix. Adjusted operating income was also affected by the higher raw material cost and achieved a margin of 7.4% in the quarter. Despite the higher raw material costs, the full year adjusted operating income was up 1%, reflecting continued progress on our multiyear plan to enhance profitability in this business. Our fill rates in Prepared Foods were the highest since 2013. This progress is a testament to the improved S&OP process and unlocked efficiencies in our plants and distribution systems. As Donnie noted, our retail businesses delivered the strongest volume and dollar sales growth of the year in Q4 according to Nielsen syndicated data, outpacing category performance in both measures. This has enabled us to better serve our strategic customers with greater consistency and reliability. This momentum in 2025 lays the groundwork for an exciting 2026. We see significant opportunities ahead to drive growth and improve profits. Our conviction in the multi-year opportunity to expand profitability in Prepared Foods remains strong. In Chicken, we delivered another quarter of solid top line performance with sales up 3.8% year-over-year. Volume contributed nearly all of the increase, including a notable contribution from value-added product sales, which also drove a favorable mix reflected in price. This is our fourth consecutive quarter of year-over-year volume growth, demonstrating continued demand for chicken. Quarterly adjusted operating income for the Chicken segment was $457 million, an increase of 28%, building on a strong base in Q4 of last year. Our improved performance in Chicken is a reflection of executing our strategy of operational excellence, combined with a focus on innovation and customer satisfaction. We recognize that continued improvement is necessary and expected. Over the last year, we grew volume, net sales, and adjusted operating income. We have taken the necessary steps to stabilize the margins of a substantial portion of our portfolio by providing a high level of service during the periods of market challenges for our strategic customers. Chicken is positioned to be the best value protein for consumers as overall food inflation remains high. In our Beef segment, we continue to focus on the controllable aspects of a challenging and dynamic market. Sales in beef increased primarily due to a higher average price per pound, reflecting ongoing healthy demand. We continue to believe we may be seeing the initial stages of heifer retention. Any retention is likely to further restrict cattle supply in the short run before seeing more supply as we work our way further through the cattle cycle a few years out. Adjusted operating income declined versus the year-ago period as higher cattle costs outpaced the higher sales from a strong cutout and resilient demand. Despite continued headwinds, we are focused on the pieces we can control like shifting further processing volumes back into our harvest facilities and tools to increase our ability to adapt to changing market dynamics. In pork, adjusted operating income increased 70 basis points or 63%, fueled by network optimization and operational efficiencies, leading to the strongest fourth quarter results since 2021. Sales were down 1.7%, driven by a lower number of hogs harvested during the year. The lower volume was offset by higher prices. The access of raw material supply for our Prepared Foods division is a key part of our end-to-end pork strategy. We have made substantial progress in utilizing raw materials like pork bellies to support our branded bacon, hams to supply lunch meat, and trimmings to supply sausage. We will continue to push for higher utilization as it will improve access, quality, and landed cost of our raw materials. Overall, I am encouraged by the incremental steps we have taken through the year, but I'm confident that we have room to grow and improve across the operational and controllable aspects of our business in 2026. Despite challenging market conditions, we are driven to focus on our strategic customers and consumers while delivering value to our shareholders. With protein remaining a clear winner in the mind of consumers, the diversity of our portfolio enables us to make investments by partnering with our strategic customers to drive category expansion. With that, I will turn it over to Curt to walk through our financial results and outlook in more detail.

Thanks, Devin. For the fourth quarter, total company sales grew 4.8% to $13.9 billion compared to the prior year, led by beef with solid contributions from pork, chicken, and prepared foods, reflecting the healthy demand environment for protein. For comparative purposes, the sales increase was calculated excluding the effect of a $355 million legal contingency reserve that was recognized in the quarter. Full year 2025 sales were $54.4 billion, an increase of 3.3% compared to the prior year, excluding the effect of legal contingency reserves recognized during the year. Q4 adjusted operating income was $608 million, up 19% compared to the prior year, driven by growth in chicken, international, and pork, which more than offset the decline in Beef and Prepared Foods. For the full year, adjusted operating income was $2.3 billion, an increase of 26%. Once again, the increase was driven by the record performance in chicken. Adjusted earnings per share for the quarter were $1.15, up 25% versus last year, and full year adjusted EPS was $4.12, up 33% from the prior year. Our multi-protein, multi-channel portfolio, combined with our team's focus on operational execution in a dynamic macro environment continues to deliver results. Turning to our financial position. Our approach to capital allocation remains disciplined, deliberate, and forward-looking. We are focused on maintaining financial strength, investing in the business, and returning cash to shareholders. Free cash flow is critical to us, and I'm pleased with how cash has trended. Full year operating cash flow was $2.2 billion and capital expenditures were $978 million, resulting in free cash flow of $1.2 billion, well ahead of dividends, which were $697 million. We ended the year with $3.7 billion in liquidity and net leverage at 2.1x, an improvement of 0.5 turn compared to last year. If you step back and look at our balance sheet and leverage over the last few years, we've made immense progress in strengthening our foundation. With leverage continuing to decline and cash flow remaining strong, we continued share repurchases of $154 million during the quarter, and we returned $327 million to shareholders through a combination of dividends and repurchases. For the year, we returned a total of $893 million. While dividends remain our primary way of returning cash to shareholders, at current Tyson stock valuations, we believe share repurchases represent an attractive opportunity. Our balance sheet remains healthy as we prioritize financial strength, our investment-grade credit rating, and cash management to drive long-term shareholder value. Let's take a moment to review our outlook for 2026. As our accounting cycle results in a 53-week year in fiscal 2026 as compared to a 52-week year in 2025, the 2026 outlook is based on a comparative 52-week year. We anticipate full year sales to be up 2% to 4% year-over-year. We expect the range for total company adjusted operating income to be between $2.1 billion to $2.3 billion. We anticipate interest expense of approximately $390 million and a tax rate of around 25%. We remain disciplined in managing cash with CapEx expected to be $700 million to $1 billion and free cash flow in the range of $800 million to $1.3 billion. Now to provide more color on our segment outlook. In Prepared Foods, we expect adjusted operating income between $950 million and $1.05 billion. We expect an improved level of performance next year as a result of improved operational discipline and strategic investment in our categories. We anticipate our adjusted operating income for chicken to be between $1.25 billion and $1.5 billion. We believe chicken will be the primary beneficiary of higher beef costs in the upcoming year. We also expect our operational execution to continue to perform at a high level. Based on the continuation of current variables of tight cattle supply conditions and the potential for heifer retention, we expect adjusted operating income in beef to be a loss between $600 million and $400 million. We anticipate adjusted operating income for pork to be $150 million to $250 million based on our ample supply of hogs and with continued emphasis on the operational metrics of our business. Our international business has performed well in 2025 by managing controllable costs, maximizing efficiencies, and lowering conversion costs. We expect adjusted operating income in international/other to be $100 million to $150 million. Overall, I'm confident that 2026 will be another strong year for our company. That covers our segment performance, financial highlights, and outlook for 2026. Now I will turn the call over to Donnie.

Thanks, Curt. In 2025, our team delivered strong results despite navigating a dynamic and challenging market landscape. These achievements are a direct result of our collective dedication, and we look forward to building on this momentum as we move into 2026. Our diverse portfolio, commitment to innovation, operational excellence, and robust balance sheet empower us to allocate capital strategically and reinforce our leadership in the industry. We remain focused on meeting growing global demand for protein while delivering value to our customers, consumers, and shareholders. I would especially like to thank our team members for all you do. Your unwavering dedication and hard work are the driving force behind our progress, propelling us toward even greater success and solidifying our reputation as a world-class food company and a leader in protein. With that, I'll turn things back over to Jon as we begin the Q&A session.

Thanks, Donnie. We will now move forward 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 instructions.

Donnie, Devin, and Curt, congrats on a good finish for '25. Picking up on the guidance on my first question, really on chicken. '25, you had a probably better year than even expected at the beginning. And now looking at the outlook looks very strong, the $1.25 billion to $1.5 billion. Can you give us maybe your assumptions for that piece of the guidance as to the high end, the low end, that would be great.

Thank you for the question, Ben. In 2025, we had a strong year in our chicken segment. What we achieved this past year can be attributed to the groundwork we laid over the last three years in our Chicken business. As you may recall, we've faced challenges related to genetics, hatching, and capacity issues during that time. However, we are beginning to see the results of our efforts now. Looking ahead to 2026, we anticipate that the operating conditions will be similar to those we experienced in fiscal year 2025. Overall, we expect a favorable environment. The USDA forecasts chicken production to rise by about 1% in fiscal year 2026, and we do not anticipate an oversupply of chicken. It’s important to be cautious with September’s figures and the associated commodity price implications when you're doing your modeling. The 6% increase we saw was attributed to ideal growing conditions, which have since normalized. Therefore, we see a positive environment moving forward. Regarding grains, we expect stability, which aligns with forward futures markets. Our confidence in the Chicken business relies heavily on execution, which is critical across all our operations. When we examine the execution elements within our supply chain, we believe they are sustainable. For instance, we are witnessing improved yields and impressive numbers in capacity utilization. Additionally, our labor utilization is strong, with sufficient and productive staff. Our live operations have been impressive all year, particularly in the fourth quarter, where we observed live performance metrics not seen in many years. We have made significant operational improvements from live operations through to the processing plants, with opportunities remaining for further enhancements. While we have seen a decline in commodity chicken prices due to bird weight adjustments made in September, our business remains somewhat insulated, though not entirely immune to commodity market fluctuations. We continue to strengthen our commercial relationships with strategic customers, focusing on mutually beneficial partnerships that help grow our categories and stabilize earnings for both us and our clients. In Q4, our branded fresh chicken business in retail grew by 7.8%, and our frozen value-added chicken increased by 8.7%, both in terms of volume. We experienced higher volumes along with a better product mix. We concluded 2025 with positive momentum in chicken, which has continued into the start of 2026. We anticipate that 2026 will also be a strong year for our chicken segment.

Okay. Perfect. Very clear. And then second, real quick on Prepared Foods. It looks like the finish was a little bit softer than expected. So first, what drove that with input costs, maybe poor beef pricing? And how should we really think as we move into '26 on the midpoint, give or take, $1 billion outlook and the expected growth here?

Yes. Thanks, Ben. Let me first say that the fundamentals of our Prepared Foods business are very good. We did have a much better overall performance in FY '25, and that was really driven by growing distribution, optimizing our operations, and winning innovation with strategic customers. In fact, we are winning with consumers, and we did grow both net sales and operating income by about 1% in FY '25. The volume gap to last year has continued to narrow each quarter. So we're seeing good momentum there. And as mentioned, our volume and dollar share did grow at retail for the first time in 2.5 years. The miss that you referenced, it was, in fact, driven by a rapid rise in commodity costs and our pricing lags just didn't fully have time for those to flow through in the quarter. For the Q4, we had $135 million in commodity cost pressure, and we had $344 million, I would point out for the whole year. So not insignificant. The operational excellence that I mentioned, it is occurring inside of all of our plants, and it did really drive substantial value this year. And some of that was partially covered up by those higher raw material costs. We continue to have very good fill rates, the best since 2013. And so a lot of good things to talk about in this business as we go into FY '26. As we see those raw materials stabilize, we do expect to see volume growth, market share growth, and that's really driven by our world-class innovation pipeline, continuing work with the operational excellence that I mentioned and our customer partnerships. We will drive top and bottom line growth with our strategic customers. And I would point out that's not just in retail with much of the brand work that we've talked about. We're also seeing strength and increased distribution with foodservice. So what we're doing is working. We're pleased with the resilience of this business this past year, but we also acknowledge that there's more work to be done. I am confident that we have the right products, the right team, the right customer relationships to achieve the metrics that we've laid out.

Thanks for all the detail today, and great job on the quarter. I just wanted to switch over to beef. It came in a bit better than we were expecting in the quarter, but you're still guiding for a pretty challenging environment in '26, which makes a ton of sense, right, with herd rebuilding likely underway. I just looking at the guide for next year, maybe you could provide more detail on how you're thinking about the underlying cattle supply and costs as we move throughout the year to frame that view. And then I know you've made a lot of improvements on yields and the like, but what other opportunities do you have to mitigate the cost pressures in this business?

Sure. Thanks for the question. So let me get into that. In terms of heifer retention, this is obviously something we've talked about for a while, but there are potential signs that there is heifer retention. What is a little bit different as we have a better picture is we see regional disparity. For example, out West, we're not seeing anything meaningful. In the South, nothing there. But in the North, Upper Midwest, we're seeing some retention. So if I look at what data or what we see, it's a lower percentage of heifers either being harvested in feed yards and then fewer feeder calves. Heifer numbers at harvest will need to remain lower for us to be able to say that heifer retention is sustainable. And remember, more heifer retention implies less beef in the near term. But to the second part of your question, what are we doing about that? With herd rebuilding, which we're all looking for, means supply of market-ready cattle will fall before it increases in future years. We continue at Tyson to focus on the controllables and optimizing our business. The macro question on the table is this, the continuing challenge of inadequate cattle availability that has been further impacted by cattle inflows from Mexico associated with border closure related to New World screwworm. Our volume was down 8.4% for the quarter and 1.9% for the full year. So certainly having an impact. Even heavier animals have helped, but they've only partially offset the lack of cattle availability. In our guidance, the negative $600 million to negative $400 million is what we see relative to the market presently.

That's very helpful. For my follow-up, I wanted to ask about the CapEx guidance. The range for next year seems somewhat wide and is notably lower than the typical level you guys do. So just maybe you could talk about the main buckets of what projects you're planning for next year? What are the variables driving that range? Is it anything timing related? Or has anything changed in how you're thinking about capital allocation overall?

Thanks, Leah. Maybe to start with just a reminder on our capital allocation approach. Our approach remains very disciplined, deliberate, but also forward-looking. We're focused on maintaining our financial strength. Certainly investing in the business, as you asked on the question, but also returning cash to shareholders. I acknowledge that the range we provided this morning for CapEx for '26 is $700 million to $1 billion. And also remind everyone that across the last 5 years, we've spent just over $7 billion in CapEx. We've invested heavily across our network, and that included a lot of capacity expansion during that time period. Where we sit today, we have the capacity to grow inside our existing network. Our range shared today acknowledges it's wide is really not that different than what we've shared over the last few years relative to a range as we start the year. But that range reflects the pacing of the spend on our current projects, as well as the timing of new projects that we'll launch in 2026. But the range includes both our maintenance spend and profit improvement projects that we'll execute across the year.

Wanted to just follow up on the chicken commentary. You noted that you were insulated but not immune from lower prices, and we did see the lower prices in September at an industry level, especially jumbo cuts. I guess I'm trying to think through to what extent this flowed through in 4Q and you still put up those results versus maybe there's some timing considerations and maybe more of a call out to start out the year.

Thanks for the question. I will tell you that we obviously considered commodity markets in giving our guidance, but the $1.25 billion to $1.5 billion, I think, is a good starting point for us right now. We've said that we think '26 will be very similar to 2025. I think that's still true. I think that what you're seeing in terms of pricing that has created a concern, I referenced earlier the 6% increase in supply in September. I think it's skewing a lot of information. Some of the pricing you're seeing is very simply spot market or excess that was taking place at that point. I would remind you that demand is still strong, and I believe that will continue in '26. This is a data point for you. Breast meat pricing is the third highest in the last decade, and we have stable grains. So it's a pretty good environment to be in. 2026 is looking to be another good year for us. If you look at where we're growing in the value-added and the retail and foodservice, that value-added mix gives us the opportunity to put our #1 brand of chicken on the product. It provides some insulation. The fact that it's value-added provides some insulation from commodity markets. So we believe our mix in our portfolio positions us well to be very successful in 2026.

In Prepared Foods last year, at the start of the year, you noted maybe a little bit less seasonal than you might see in a typical year in terms of first half versus second half. Maybe an update just on how you're thinking about 2026.

Yes. Thank you. Yes, you're right. FY '25, I would tell you, was a bit out of balance from historical norms, and that really was due to the raw material pressure and somewhat unseasonality that we saw there. As we think about what we can determine from FY '26 currently and what the forecast looks like, we do see FY '26 being more balanced in that regard.

And so we might expect a pretty big bounce back here just to start out the year to clarify versus what we saw in 4Q?

We don't provide quarterly guidance. However, we have mentioned in the past that performance in the first half may be slightly better. Last year, we indicated that it would be more balanced due to operational improvements accumulated throughout the year. Referring back to Devin's comments, I think the performance will return to a more normal pace, but we must acknowledge the increase in raw material costs that affected Q4. Additionally, some of those costs were still present in inventory as we concluded the year.

Can I start with just a broader question on the key uncertainties for fiscal '26? We know the consumer is struggling a bit in the U.S. commodities are all over the place, tariffs, I think, are less of an issue for you. But if you had to sort of prioritize the top 2 or 3 things that could go positively or negatively versus your forecast, what would those be?

Alexia, thank you for the question. As we think about the consumer, we definitely are seeing a continued divergence in incomes with higher incomes continuing to drive growth and others reallocating some of their nonfood dollars to food categories. So we do anticipate demand for protein to continue, and we are really excited about the opportunity for consumers with our chicken being a preferred choice for value and for convenience. If we look at our extensive product portfolio, we have products that do cater to everyone, whether they're shopping in retail or our foodservice channels, ensuring that we can meet those consumer needs wherever they may be. And as we remain positive, one of those reasons would be over the past year, 72% of households have purchased a Tyson Foods branded product, which helps demonstrate our strong market presence and our consumer trust. Additionally, we've increased our household penetration with younger consumers under the age of 35, which is a testament really to our ability to resonate with those new demographics. As Donnie talked about, we grew market share in our Tyson retail value-added poultry and our fresh businesses. We also grew our market share with our prepared on a volume basis with Hillshire lunch meats really being a standout with a 10% volume growth. So I'm confident that Tyson Foods is excellently positioned for growth today and into the future.

And as a follow-up, it sounds as though you're fairly confident that the first quarter results in Prepared Foods will come through reasonably well. Are you seeing any impact from the delay and disruption in the SNAP benefit payouts as a result of the government shutdown? Or is it too early to tell on that front?

Thank you, Alexia. I appreciate your question. The situation regarding funding for the supplemental nutrition assistance program is changing, and we are closely monitoring it. We are observing a shift in consumer spending from nonfood items to food categories, but we are confident and well-prepared to handle these challenges for three main reasons. First, we have a diverse product portfolio that offers a variety of products at different price points, allowing us to cater to consumers who are either price-sensitive or seeking premium options. We believe our chicken and prepared products will provide affordable and nutritious choices for families. Second, we have strong brand trust and loyalty, as evidenced by having three of the top ten brands in packaged protein: Tyson, Jimmy Dean, and Hillshire Farm. Finally, our ability to adapt to market changes is another strength. We are dedicated to driving volume growth by closely observing consumer purchasing behaviors and adjusting our marketing and promotional strategies accordingly. Overall, I remain optimistic about our strategic approach, diverse product offerings, and strong brand loyalty, which will support our continued growth.

Congratulations on the quarter. I want to start with beef, and I understand the usual seasonality of that business. However, given the significant volatility we've seen in cattle futures recently, I was wondering if we should consider the seasonality of Q1 differently this year. I believe it was Q1 of '24 that felt some impact due to the volatility in the market. I'm just curious if you could provide your thoughts on this.

Sure, and thank you for the question. We are experiencing strong retail demand in the first quarter of 2026. From an operational standpoint, we are continuing to perform well. If you examine metrics such as yield and our efforts to diversify into more value-added products, our current supply situation in cattle is favorable. We believe that 2026 is aligning with our projected guidance. However, we do anticipate some level of volatility in the beef market. We have taken current future cattle costs and estimated pricing into account while planning for this uncertainty. There are potential risks, such as the situation with Mexico and border closures, as well as the New World screw-worm issue, which could significantly affect one of our plants in the region. We are providing the best guidance we can given the current dynamics we are facing.

Okay. And then I wanted to had a clarifying question on chicken. So Donnie, it sounds like based on your comments that your guidance assumes more than normal seasonal improvement in pricing. You found September to be an aberration. So as we're thinking about '26, you're expecting price appreciation from current levels higher than just normal seasonal. Am I understanding your commentary correctly?

There are really about three or four key points to consider, and your assumptions are mostly accurate. First, chicken remains the preferred protein choice because it's the most affordable option available, and consumers are leaning towards it. The situation we discussed in September seems to be a temporary anomaly. There are physical limitations within the industry regarding the increase of supply. While I have seen reports about excessive supply, I do not share that view. My primary concern is the demand for the chicken we currently have; it may lead to tighter supplies and potentially improve market conditions. However, what reassures me is our execution throughout the entire chicken supply chain. I have been in this business for many years, and I have rarely seen us operate at this level as a unified team across our chicken operations. Many people deserve credit for that. My confidence stems from our business execution, which is consistently strong.

Congratulations on achieving strong results. Donnie, I wanted to begin by asking about a point you made during the call regarding your efforts to stabilize margins across a significant portion of the portfolio. In the past, you've indicated that for chicken alone, there has been a self-improvement of around $500 million to $700 million. Could you provide us with an updated perspective on chicken? Additionally, if possible, could you share insights regarding the rest of the businesses, especially considering the work you've done in Prepared Foods and pork?

Certainly. Let me start by highlighting a few key points. A year ago, we made several commitments regarding 2025, and I want to emphasize that we have successfully followed through on those plans. We said we would shift our focus from core protein to more branded and value-added products, and we achieved that. We also aimed to increase our household penetration in these categories and engage younger consumers, which we have done. We indicated that consumers would see protein as essential, and that has been confirmed. Additionally, we improved our returns on invested capital, creating value for our shareholders. We committed to executing with excellence in everything we do, and we continue to uphold that promise, with even more initiatives on the way as we progress through 2026. In the first quarter, we have had a strong start across all businesses, aligning well with our expectations and outlook, and we feel optimistic about this trajectory. Regarding our program across chicken, beef, pork, Prepared Foods, and international markets, our expectation is to excel in every aspect of the supply chain. This approach helps us manage costs effectively, ensuring that our allocations are competitive within the industry. We are placing significant emphasis on examining our expenditures to determine whether each activity adds value or contributes to waste. If any activity is deemed wasteful or something that our shareholders, customers, or consumers are not willing to fund, we will discontinue it. While I don't have a specific number to share, I believe there is considerable potential for improvement across the board, particularly in areas like chicken, which can be applied to the other proteins as well.

Yes. Maybe I'll just make a couple of comments relative to your part of your question with Prepared Foods and pork. I would just add on to what Donnie said. What he's talking about is really a multi-year cultural shift that we've been on a journey of. It's not just in the facilities. It's in everything that we do, whether that be in our investments regarding our marketing spend, whether that be our sales support or even things that we do here at the corporate office. It's about finding efficiency in everything. But to the point of prepared, we talked a good bit about that. Those plants operate on a system of standards and not only does it help offset the inflationary factors, but it also provides us additional capacity without having to spend CapEx. We did see achievements in that area that exceeded our goals in FY '25 and certainly see a pathway to have that progress continue in FY '26. And maybe just touching on pork because we don't talk a lot about that. There has been exceptional improvement in that business in this year and see that continuing. They did improve their margins by 70 basis points, and they did that through improved efficiencies and yield. They are capturing more revenue per animal. A lot of that has to do with the work they're doing around special trimming, marinating, just typically adding value for our customers. A data point here is their cost per head in FY '25 was basically the same as FY '24 on fewer heads. So I'm very proud of the work that has been accomplished in the pork group and do continue to see that momentum in FY '26.

Great. Appreciate the color there, Devin and Donnie. Just for my follow-up, I wanted to maybe understand heifer retention a little bit better. You gave us some great commentary on the call. Donnie, I think you mentioned retention happening in the North and the Midwest versus kind of in the West and the South, are not quite seeing it there. I was wondering if you could maybe share some of the reasons as to here and why? Is it like drought conditions better in those regions? Or are the economics better in those regions? Any color there would be appreciated.

Thank you for the question. The current situation we are facing was largely influenced by drought conditions, which have affected different areas to varying degrees. When I refer to heifer retention, it seems you are aware of the various factors involved in rebuilding the herd and their implications. We continuously monitor the lower percentage of heifers being harvested, feed yard conditions, and the reduction in feeder calves. One of the challenges we encounter is the data we receive compared to the actual situation, as some ranchers may hold a heifer for a short time to take advantage of lower feed costs before ultimately deciding to sell. There is some flexibility in this process. Cattle ranchers, understandably, are trying to optimize their profits during these market conditions, and we recognize and appreciate their business decisions. Our focus is on responding to the trends we are observing.

Donnie, Curt, Devin, and Jon, it feels like Eagles reunion tour out here. So excited to have you guys all back together. Wanted to ask on chicken, and I know there's been a lot of discussion. But Curt, maybe you could just help us a little bit with the phasing of profitability over the course of the year. I know you don't want to give specific quarterly guidance. I am asking for it, but I'll leave it to your discretion in terms of how you want to kind of help us adjust the profit expectations for the year.

Yes. Thanks, Pete. Certainly, as I said earlier, don't provide quarterly guidance. I think certainly, as Donnie had illustrated earlier, there'll be a little bit of volatility as we work our way through beef. But otherwise, I think kind of normal seasonality would play its way through each of the individual segments.

I wanted to ask about Prepared Foods, specifically regarding lunch meat. There have been various signals from market participants, with some increasing prices and others being more competitive with promotions. It seems there are a lot of different strategies at play, which appears to be affecting profitability. I would like to understand what you're observing in the market. While your results speak for themselves, do you believe the competitive activity in the deli sector has been rational, or are there other strategies influencing the dynamics in this category?

Yes, thank you for that. This is Devin. I want to emphasize that we experienced strong lunch meat growth this quarter, with an increase of 10.3%. Additionally, we observed positive trends across several categories, indicating that we currently have a successful combination of competitive pricing and targeted marketing investments with our strategic customers. We now have better visibility from the data and software investments we've made, allowing us to assess what is effective in real time and adjust as necessary based on shifts in consumer behavior. Our focus is on increasing distribution while ensuring we provide both value to consumers and quality products. This is crucial for our innovation pipeline. Holding a 10% market share is significant in this competitive sector. A considerable part of our business involves pass-through pricing, which can lag behind our price list portfolio. When faced with sustained input cost pressures, we will adjust pricing as necessary to maintain our ability to invest in our business.

This is Kristina. I'll speak up just a little bit on the distribution growth, as Devin was talking about. In Q4, almost every one of our categories, we saw distribution increases. We also had increases in our MAT spending from the first half to second half and really getting to those targeted promotional spends, reaching the consumer where they're at, whether they're shopping online or if they're shopping within the store. We feel pretty confident about our continued success, and we've been able to leverage platforms to get those insights real-time and adjust and pivot. Our commitment to growing is demonstrated by that continued investment.

I just want some color on the working capital if you could just share a bit of the details on the free cash guidance for the next year. It seems that you guys have some cash burn expected. If you could just give some color in terms of what are the lines that are impacting the most? And how are you thinking about 2026 when it comes to working capital?

Thanks. So our free cash flow for the year '25, very proud of finishing at $1.2 billion. I think part of your question there was around the free cash flow expectations and working capital and a couple of other elements. We did guide this morning to a free cash flow range of $800 million to $1.3 billion for '26. That's recognizing certainly the range of operating income that we shared this morning in addition to the range of CapEx. Obviously, we don't share a specific working capital expectation throughout the year, but we did provide expectations relative to sales growth. So there likely is some inflationary move on working capital as we work our way through the year, but would certainly indicate a free cash flow that exceeds our dividend up to nearly 2x our dividend rate for '26.

Great. And just one follow-up here on the chicken business. If you could just remember us in terms of the exposure to the commodity market or if you could provide any color in terms of small chicken versus big everything that you could give us in terms of color to the exposure to that spot of market would be appreciated.

If I understand your question right, it's our market exposure to small bird versus big bird, right? I would start with we obviously participate in both the small bird and big bird program. We have value-added products in both big and small bird. In both cases, what we tried to do is to create to align with strategic customers and create these win-win relationships that grow our business and grow our customers' business. We spend time doing that as opposed to arguing about what the price is or what the volume is going to be. Both of us collectively spend our time on growing the collective business for both. In terms of big bird, small bird, I don't think I would want to tell you what percentage of our share of that is presently. I would point out that our value-added business, and when I say value-added, I'm not just talking about chicken that is breaded or that could be fully cooked; it could be value-added fresh chicken. We participate in all of that. But in this year, we grew our value-added business 2x what we did commodity or the average of the commodity or the average of the segment, I should say. We feel very good about that. We told you we were going to do that in '24 and that we were going to do it in '25. I'm telling you in '26, we'll continue to do that.

I wanted to go back to specifically to the fourth-quarter chicken performance. And you talked about the growth on a strong quarter last year. If I look at relative performance to the industry, even adjusted for your price lags, it seems like that took a step up as well. I was trying to decipher exactly or more precisely what drove that. You talked about live ops, but you've been talking about that all year. You talked about lower feed costs as well in some of the value-add components. So I guess, how do you think about what was the biggest driver there? Did you see a step function in your operational performance internally in the quarter? Any color around that would be great.

Sure. Andrew, there's a lot of things that I could talk to you about relative to that. I mentioned earlier that for about 3 years now, we've been working on our chicken business and really doing what is necessary to improve the performance. We have one goal here. It's very simple in our chicken business is to be the best chicken company in America, period. Anything that doesn't deliver that or doesn't work toward that end, we obviously look at and see whether we need to be doing that. It's better yield, it's better live performance. In that live performance, you'll remember we had our share of issues with genetics as well. Even our old genetics, we have new genetics, but we have older genetics that are actually performing at what I would call historical top-end performance. We have an answer for big bird genetics that is flowing through the pipeline today, and we feel good about that as well. Capacity utilization continues to improve for us as a company, and we made some really, really difficult decisions 2 years ago, 18 months ago around that. From a cost improvement perspective, we're attacking every element of this from a cost, from a spend, from a non-value-added activity perspective. We're leaving no stone unturned with a clear objective, Andrew, of being the best chicken company in America.

Okay. That's helpful. And if I could just squeeze one more in on beef. You talked about a lot of the moving pieces for '26, screwworm and heifer retention and demand and all the other things. The one thing I didn't hear you talk about was imports, and that's been obviously topical in the news. How have you factored potential beef imports into the U.S. into your outlook? How would you think about that impacting your business?

We've obviously had imports into our beef business, and that looks more like box of lean. But those numbers, as you think about that, exports are down about 10% for us, Andrew. Imports are up about 20%. Australia is a big market for that, and we're talking boneless beef, and most of which ends up in our grinds. In this environment, the consumer, yes, they're trading around in proteins a little bit. Even within beef, you're seeing some trade from muscle cuts into grinds, and the grind demand is very strong.

Thank you for your time and continued interest in Tyson Foods. We look forward to sharing our progress with you next quarter.