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| TSN > SEC Filings for TSN > Form 10-Q on 3-Aug-2009 | All Recent SEC Filings |
3-Aug-2009
Quarterly Report
RESULTS OF OPERATIONS
Description of the Company
We are the world's largest meat protein company and the second-largest food production company in the Fortune 500 with one of the most recognized brand names in the food industry. We produce, distribute and market chicken, beef, pork, prepared foods and related allied products. Our operations are conducted in four segments: Chicken, Beef, Pork and Prepared Foods. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost of live cattle and hogs, raw materials and grain; and operating efficiencies of our facilities.
Overview of Third Quarter
? Chicken Segment - Third quarter fiscal 2009 operating income was $143
million, up $173 million as compared to the same quarter last year. The
improvement was largely due to price improvements and operational
efficiencies, which included: yield, mix and live production performance
improvements; adding processing flexibility; and reducing interplant
product movement.
? Beef Segment - Operating income was $66 million, or a 2.4% operating
margin, despite overall weaker demand. We have continued our focus on
production efficiency, customer service and product quality, which has
resulted in higher relative price realization.
? Pork Segment - Along with the drop in live hog costs, total revenues
declined sharply during the quarter due to weak demand. However, we were
able to manage the spread in a difficult market to attain an operating
margin of 3.3%, or $28 million. Our pork plants continued to operate at
high efficiency levels.
? Prepared Foods Segment - Operating income was $40 million, or a 5.9%
operating margin, up $31 million from the same quarter last year. The
improvement was largely due to lower raw material costs.
? Liquidity - We reduced our total debt to $3.5 billion, down $234 million
as compared to the end of the second quarter fiscal 2009. Our total
liquidity at June 27, 2009, was approximately $1.5 billion.
in millions, Three Months Ended
except per share
data Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Net income $ 134 $ 9
(loss) $ (82) $ 38
Net income 0.35 0.03
(loss) - per
diluted share (0.22) 0.11
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Nine months of fiscal 2009 - Net income (loss) includes the following items:
? $15 million charge related to the closing of our Ponca City, Oklahoma,
processed meats plant.
Third quarter and nine months of fiscal 2008 - Net income (loss) included the
following items:
? $7 million charge related to flood damage at our Jefferson, Wisconsin,
plant; and
? $6 million charge related to impairment of unimproved real property in
Memphis, Tennessee.
Nine months of fiscal 2008 - Net income (loss) included the following items:
? $17 million charge related to the restructuring of our Emporia, Kansas,
beef operation;
? $13 million charge related to the closing of our Wilkesboro, North
Carolina, cooked products poultry plant;
? $12 million charge related to the impairment of packaging equipment;
? $6 million of severance charges related to the FAST initiative;
? $5 million in charges related to software impairments; and
? $18 million non-operating gain related to the sale of an investment.
? Chicken - We expect our fourth quarter operating margins to be below our
third quarter primarily due to leg quarter and breast meat oversupply
which is expected to put pressure on pricing. Additionally, we have
recently benefited from the decreasing grain costs, but most of this
benefit will not flow through to our costs until the first quarter of
fiscal 2010.
? Beef - Relative to the lower demand, we expect to see adequate supplies of
fed cattle, which should allow us to remain operating our plants at least
five days a week.
? Pork - Although, we project a decrease in hog supplies in our fourth
quarter of fiscal 2009 as compared to our fourth quarter of fiscal 2008,
we expect sufficient supplies to run our business efficiently.
? Prepared Foods - We anticipate the increased demand for our products will
persist and we will continue to drive operating efficiencies.
Summary of Results - Continuing Operations
Sales
in millions Three Months Ended Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Sales $ 6,662 $ 6,849 $ 19,490 $ 19,661
Change in average sales price (5.6 )% (2.6 )%
Change in sales volume 3.1 % 1.7 %
Sales decline (2.7 )% (0.9 )%
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Third quarter - Fiscal 2009 vs Fiscal 2008
? The decline in sales included lower average sales prices, which accounted
for a decrease of approximately $387 million. This decrease was driven by
a reduction in average sales prices in the Beef and Pork segments.
? Sales were positively impacted by higher sales volume, which accounted
for an increase of approximately $200 million. This included an increase
in Chicken segment sales volume, which was driven by inventory reductions
and sales volumes related to recent acquisitions, and an increase in Beef
segment volumes.
Nine months - Fiscal 2009 vs Fiscal 2008
? The decline in sales included lower average sales prices, which accounted
for a decrease of approximately $382 million. This decrease was driven by
a reduction in average sales prices in the Beef segment. In addition,
inventory reductions and recent acquisitions in the Chicken segment led
to an overall decrease in average sales prices, as most of the inventory
reduction related to commodity products shipped internationally and sales
volume from recent acquisitions are on average lower priced products.
These decreases were partially offset by increases in average sales
prices in our Pork and Prepared Foods segments.
? Sales were positively impacted by higher sales volume, which accounted
for an increase of approximately $211 million. This included an increase
in Chicken segment sales volume, which was driven by inventory reductions
and sales volumes related to recent acquisitions, as well as increased
Prepared Foods sales volume. This was partially offset by reductions in
Beef and Pork segment volumes, due primarily to lower export sales
volumes.
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Cost of Sales
in millions Three Months Ended Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Cost of sales $ 6,192 $ 6,590 $ 18,749 $ 18,772
Gross margin $ 470 $ 259 $ 741 $ 889
Cost of sales as a 92.9 % 96.2
percentage of sales % 96.2 % 95.5 %
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Third quarter - Fiscal 2009 vs Fiscal 2008
? Cost of sales decreased $398 million. Lower cost per pound reduced cost of
sales $592 million, offset partially by higher sales volume which
increased cost of sales $194 million.
? Increase due to net gains of $3 million in the third quarter of fiscal
2009, as compared to net gains of $71 million in the third quarter of
fiscal 2008, from our commodity risk management activities related to
grain and energy purchases, which exclude the impact from related
physical purchase transactions which impact current and future period
operating results.
? Decrease due to net losses of $3 million in the third quarter of
fiscal 2009, as compared to net losses of $87 million in the third
quarter of fiscal 2008, from our commodity risk management activities
related to forward futures contracts for live cattle as compared to
the same periods of fiscal 2008. These amounts exclude the impact from
related physical purchase transactions, which impact current and
future period operating results.
? Decrease in grain costs in the Chicken segment of approximately $91
million.
? Decrease in average domestic live cattle and hog costs of
approximately $283 million.
Nine months - Fiscal 2009 vs Fiscal 2008
? Cost of sales decreased $23 million. Lower cost per pound reduced cost of
sales $204 million, offset partially by higher sales volume which
increased cost of sales $181 million.
? Decrease in average domestic live cattle and hog costs of
approximately $482 million.
? Increase due to net losses of $248 million in the nine months of
fiscal 2009, as compared to net gains of $141 million in the nine
months of fiscal 2008, from our commodity risk management activities
related to grain and energy purchases, which exclude the impact from
related physical purchase transactions which impact current and future
period operating results.
? Increase in grain costs in the Chicken segment of approximately $81
million.
? Increase in Prepared Foods raw material costs of approximately $44
million.
Selling, General and Administrative
in millions Three Months Ended Nine Months Ended
June 27, June 28, June 27, June 28,
2009 2008 2009 2008
Selling, general and $ 192 $ 214 $ 617 $ 660
administrative expenses
As a percentage of sales 2.9 % 3.1 % 3.2 % 3.4 %
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Third quarter - Fiscal 2009 vs Fiscal 2008 ? Decrease of $14 million related to advertising and sales promotions. Nine months - Fiscal 2009 vs Fiscal 2008 ? Decrease of $39 million related to advertising and sales promotions.
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Other Charges
in millions Three Months Ended Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Other charges $ 2 $ - $ 17 $ 36
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Nine months of fiscal 2009
? Includes $15 million charge related to the closing of our Ponca City,
Oklahoma, processed meats plant.
Nine months of fiscal 2008
? Includes $17 million charge related to the restructuring of our Emporia,
Kansas, beef operation.
? Includes $13 million charge related to the closing of our Wilkesboro, North
Carolina, cooked products poultry plant.
? Includes $6 million of severance charges related to the FAST initiative.
Interest Expense
in millions Three Months Ended Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Cash interest $ 76 $ 52
expense $ 196 $ 159
Noncash interest 12 (1)
expense 29 -
Total Interest $ 88 $ 51 $ 225 $ 159
Expense
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Fiscal 2009 vs Fiscal 2008
? Cash interest expense includes interest expense related to the coupon
rates for senior notes, commitment/letter of credit fees incurred on our
revolving credit facilities, as well as other miscellaneous recurring cash
payments. The increase is due primarily to higher average weekly
indebtedness of approximately 13% and 12%, respectively, for the three and
nine months ending June 27, 2009, as compared to the same periods last
year. We also had an increase in the overall average borrowing rates.
? Noncash interest expense primarily includes interest related to the
amortization of debt issuance costs and discounts/premiums on note
issuances. The increase is primarily due to debt issuance costs incurred
on the new credit facility in fiscal 2009, the 2014 Notes issued in fiscal
2009 and amendment fees paid in December 2008 on our then existing credit
agreements. In addition, we had a slight increase due to the accretion of
the debt discount on the 2014 Notes. Noncash interest expense for the nine
months ending June 27, 2009, includes a $3 million unrealized loss on our
interest rate swap. Noncash interest expense also includes the gain/loss
on bond buybacks, which increased interest expense by $5 million and $4
million, respectively, for the third quarter and nine months ending June
27, 2009, as compared to the same periods last year.
Other (Income) Expense, net
in millions Three Months Ended Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Other (income) expense, net $ (3) $ (1) $ 18 $ (24)
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Nine months of fiscal 2009
? Includes $19 million in foreign currency exchange loss.
Nine months of fiscal 2008
? Includes $18 million non-operating gain related to the sale of an investment.
--------------------------------------------------------------------------------
Effective Tax Rate
Three Months Ended Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Effective tax rate 35.8% (32.6)% 31.1% 37.1%
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Third quarter of fiscal 2009 - The effective tax rate was impacted by:
? state income taxes;
? general business credits;
? amounts related to company-owned life insurance; and
? foreign valuation allowances.
Nine months of fiscal 2009 - The effective tax rate was impacted by:
? tax planning in foreign jurisdictions;
? general business credits;
? amounts related to company-owned life insurance; and
? state and foreign valuation allowances.
Third quarter and nine months of fiscal 2008 - The effective tax rate was impacted
by:
? the Domestic Production Deduction;
? general business credits;
? amounts related to company-owned life insurance and certain other
nondeductible expense items; and
? composition of income and loss between domestic and foreign operations.
Segment Results
We operate in four segments: Chicken, Beef, Pork and Prepared Foods. The
following table is a summary of sales and segment profit (loss), which we
measure at the operating income (loss) level.
in millions Sales
Three Months Ended Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Chicken $ 2,417 $ 2,257 $ 7,011 $ 6,517
Beef 2,733 2,982 7,815 8,563
Pork 839 927 2,561 2,587
Prepared Foods 673 683 2,103 1,994
Total $ 6,662 $ 6,849 $ 19,490 $ 19,661
in millions Operating Income (Loss)
Three Months Ended Nine Months Ended
June 27, 2009 June 28, 2008 June 27, 2009 June 28, 2008
Chicken $ 143 $ (30 ) $ (189 ) $ (27 )
Beef 66 9 94 (53 )
Pork 28 57 112 205
Prepared Foods 40 9 94 68
Other (1 ) - (4 ) -
Total $ 276 $ 45 $ 107 $ 193
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Chicken Segment Results
in millions
Three Months Ended Nine Months Ended
June 27, June 28, June 27, June 28,
2009 2008 Change 2009 2008 Change
Sales $ 2,417 $ 2,257 $ 160 $ 7,011 $ 6,517 $ 494
Sales Volume
Change 5.0 % 8.2 %
Avg. Sales Price
Change 2.0 % (0.5 )%
Operating Income
(Loss) $ 143 $ (30) $ 173 $ (189) $ (27) $ (162)
Operating Margin 5.9 % (1.3) % (2.7) % (0.4) %
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Third quarter and nine months of fiscal 2008
? Includes $6 million charge related to impairment of unimproved real
property in Memphis, Tennessee.
Nine months of fiscal 2008
? Includes $13 million charge related to the closing of our Wilkesboro,
North Carolina, cooked products plant.
? Includes $5 million in charges related to software impairments.
Third quarter and nine months - Fiscal 2009 vs Fiscal 2008 ? Sales and operating results were impacted positively by increased sales volume, as well as higher average sales prices. The increase in sales volume for both the third quarter and nine months of fiscal 2009 was due to inventory reductions and sales volume related to recent acquisitions. The inventory reductions and recent acquisitions diluted the average sales price changes, as most of the inventory reduction related to commodity products shipped internationally and sales volume from recent acquisitions are on average lower priced products. Operating results were also positively impacted by operational improvements, which included: yield, mix and live production performance improvements; adding processing flexibility; and reducing interplant product movement. Operating results were adversely impacted in the third quarter and nine months of fiscal 2009, as compared to the same periods of fiscal 2008, by a decline of $68 million and $389 million, respectively, from our commodity risk management activities related to grain and energy purchases. These amounts exclude the impact from related physical purchase transactions, which impact current and future period operating results. As compared to the same periods of fiscal 2008, operating results were positively impacted in the third quarter of fiscal 2009 by a decrease in grain costs of $91 million, while results were adversely impacted in the nine months of fiscal 2009 by an increase in grain costs of $81 million.
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Beef Segment Results
in millions
Three Months Ended Nine Months Ended
June 27, June 28, June 27, June 28,
2009 2008 Change 2009 2008 Change
Sales $ 2,733 $ 2,982 $ (249) $ 7,815 $ 8,563 $ (748)
Sales Volume Change 2.6 % (3.9) %
Avg. Sales Price Change (10.7) % (5.0) %
Operating Income (Loss) $ 66 $ 9 $ 57 $ 94 $ (53) $ 147
Operating Margin 2.4 % 0.3 % 1.2 % (0.6) %
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Nine months of fiscal 2008
? Includes $17 million charge related to the restructuring of our Emporia,
Kansas, operation.
? Includes $8 million charge related to the impairment of packaging
equipment.
Third quarter and nine months - Fiscal 2009 vs Fiscal 2008 ? Operating results as compared to the same periods in 2008 were impacted positively by lower average live prices, partially offset by lower average sales prices. Operating results were positively impacted in the third quarter and nine months of fiscal 2009 by $82 million and $117 million, respectively, from our commodity risk management activities related to forward futures contracts for live cattle as compared to the same periods of fiscal 2008. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.
Pork Segment Results
in millions
Three Months Ended Nine Months Ended
June 27, June 28, June 27, June 28,
2009 2008 Change 2009 2008 Change
Sales $ 839 $ 927 $ (88) $ 2,561 $ 2,587 $ (26)
Sales Volume Change 0.7 % (1.8) %
Avg. Sales Price Change (10.1) % 0.9 %
Operating Income $ 28 $ 57 $ (29) $ 112 $ 205 $ (93)
Operating Margin 3.3 % 6.1 % 4.4 % 7.9 %
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Nine months of fiscal 2008
? Includes $4 million charge related to the impairment of packaging equipment.
Third quarter and nine months - Fiscal 2009 vs Fiscal 2008 ? Operating results as compared to the same periods in fiscal 2008 were impacted positively by lower average live prices, offset in the third quarter by lower average sales prices. Operating results were impacted in the third quarter and nine months of fiscal 2009 by an improvement of $2 million and a decline of $35 million, respectively, from our commodity risk management activities related to forward futures contracts for live hogs as compared to the same periods of fiscal 2008. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.
Prepared Foods Segment Results
in millions
Three Months Ended Nine Months Ended
June 27, June 28, June 27, June 28,
2009 2008 Change 2009 2008 Change
Sales $ 673 $ 683 $ (10 ) $ 2,103 $ 1,994 $ 109
Sales Volume Change 0.4 % 3.1 %
Avg. Sales Price Change (1.9 )% 2.3 %
Operating Income $ 40 $ 9 $ 31 $ 94 $ 68 $ 26
Operating Margin 5.9 % 1.3 % 4.5 % 3.4 %
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Nine months of fiscal 2009
? Includes $15 million charge related to the closing of our Ponca City,
Oklahoma, processed meats plant.
Third quarter and nine months of fiscal 2008
? Includes $7 million charge related to flood damage at our Jefferson,
Wisconsin, plant.
Third quarter and nine months - Fiscal 2009 vs Fiscal 2008 ? In the third quarter, operating results were impacted positively by lower raw material costs, partially offset by lower average sales prices as compared to the same period last year. In the nine months, operating results were impacted positively by higher average sales prices and improved sales volume, partially offset by higher raw material costs as compared to the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs for working capital, capital expenditures and growth opportunities are expected to be met with current cash on hand, cash flows provided by operating activities, or short-term borrowings. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance through capital markets transactions. The amount, nature and timing of any capital markets transactions will depend on our operating performance and other circumstances, our then-current commitments and obligations, the amount, nature and timing of our capital requirements, any limitations imposed by our current credit arrangements and overall market conditions.
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