investor presentation tyson foods, inc. -...

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Investor Presentation Tyson Foods, Inc.

August 22-23, 2012

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Table of Contents

About Tyson Foods Page Protein Industry Environment Page

Core Values/Cultural Tenets 4 Long-Term Fundamentals 30

Company Overview 5 U.S. Per Capita Consumption 31

U.S. Locations 6 Protein Production and Exports 32

International Locations 7 Domestic Protein Availability & Pricing 33

Customer Relationships 8 Chicken Demand Planes 34

Product Capabilities 9 Beef Demand Planes 35

Discovery Center 10 Pork Demand Planes 36

Well Positioned to Withstand Volatility 11 Global Protein Consumption 37

Financial Information Global Protein Production 38

Accomplishments 12 U.S. Corn Usage 39

Debt Reduction 13 Corn Futures/Chicken Live Cost 40

Capital Structure 14 Chicken Supply Chain Diagram 41

Valuation 15 Beef Supply Chain Diagram 42

Benchmarks 16 Pork Supply Chain Diagram 43

Strong Financial Position Drives Business Plans 17 Protein Supply Chain Timelines 44

Strategy Feed Conversion by Protein 45

Overview Diagram 18 Beef Industry Spread 46

Strategic Plan 19-21 Pork Industry Spread 47

Chicken Improvements 22 Eggs Set 48

Grow Value-Added Chicken & Prepared Foods 23 Chicken Market Pricing 49

Grow International Chicken 24-25 Disclosures

China 26 EBITDA 50

Brazil 27

Mexico 28

India 29

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Certain information contained in this presentation may constitute forward-looking statements, such as statements relating to expected performance. These forward-looking statements are subject to a number of factors and uncertainties which could cause our actual results and experiences to differ materially from the anticipated results and expectations expressed in such forward-looking statements. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Among the factors that may cause actual results and experiences to differ from anticipated results and expectations expressed in such forward-looking statements are the following: (i) the effect of, or changes in, general economic conditions; (ii) fluctuations in the cost and availability of inputs and raw materials, such as live cattle, live swine, feed grains (including corn and soybean meal) and energy; (iii) market conditions for finished products, including competition from other global and domestic food processors, supply and pricing of competing products and alternative proteins and demand for alternative proteins; (iv) successful rationalization of existing facilities and operating efficiencies of the facilities; (v) risks associated with our commodity purchasing activities; (vi) access to foreign markets together with foreign economic conditions, including currency fluctuations, import/export restrictions and foreign politics; (vii) outbreak of a livestock disease (such as avian influenza (AI) or bovine spongiform encephalopathy (BSE)), which could have an adverse effect on livestock we own, the availability of livestock we purchase, consumer perception of certain protein products or our ability to access certain domestic and foreign markets; (viii) changes in availability and relative costs of labor and contract growers and our ability to maintain good relationships with employees, labor unions, contract growers and independent producers providing us livestock; (ix) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation; (x) changes in consumer preference and diets and our ability to identify and react to consumer trends; (xi) significant marketing plan changes by large customers or loss of one or more large customers; (xii) adverse results from litigation; (xiii) risks associated with leverage, including cost increases due to rising interest rates or changes in debt ratings or outlook; (xiv) compliance with and changes to regulations and laws (both domestic and foreign), including changes in accounting standards, tax laws, environmental laws, agricultural laws and occupational, health and safety laws; (xv) our ability to make effective acquisitions or joint ventures and successfully integrate newly acquired businesses into existing operations; (xvi) effectiveness of advertising and marketing programs; and (xvii) those factors listed under Item 1A. “Risk Factors” included in our October 1, 2011, Annual Report filed on Form 10-K.

Forward Looking Statements

Purpose

“What We Do”

Recipe For Success Be our customers’ go-to supplier. Grow our business. Run commodity plants full. Engage the fruit. Always value up. Totally drive out inefficiencies.

Strategy Accelerate Innovate Cultivate

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Tyson is one of the world’s largest protein companies Second largest food production company in the Fortune 500 We produce about 1 out of every 5 pounds of chicken, beef and pork in the United States Tyson is one of America’s most recognized brands 61 Chicken Plants 12 Beef Plants (incl. case-ready beef) 9 Pork Plants (incl. case-ready pork) 23 Prepared Foods Plants 115,000 Team Members

Company Overview

Total $5.5 billion *Includes U.S. exports and in-country production

Total $32.3 billion Total $32.3 billion

Mexico 19%

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U.S. Operations

7

International Operations

8

Customer Relationships

Food Service Retail

http://www.ruthschris.com/

http://www.sysco.com/home.html

http://usfoods.com/Home.aspx

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Protein & Prepared Foods Capabilities

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© Sam Fentress / Courtesy HOK

Innovative Food Solutions

19 Kitchens with a total of 20,000

square feet of kitchen space

40,000 square foot USDA inspected pilot production plant

40,000 square foot office space including sensory area, consumer focus group room and meeting space

NEED: Foodservice operators need products that are perceived as a good value for their customers, but without compromising quality or increasing food costs. SOLUTION: Tyson Foodservice launches a value line of chicken and beef items that help operators appeal to the taste buds and pocketbooks of their customers.

NEED: Consumers want upscale flavors and restaurant quality, but time and money are in tighter supply. SOLUTION: Tyson Consumer Products uses consumer insights and culinary expertise to enhance the line of Tyson Dinner Meats giving consumers the most flavor for their dollars.

Solutions in Food Service Solutions in Retail

Presenter

Presentation Notes

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Diversified business Multi-protein Multi-channel Multi-national

Strong balance sheet and improved capital structure As of Q3’12:

Net debt of $1.6 billion (including $800+ million cash)* Liquidity of $1.8 billion TTM Total Debt/EBITDA of 1.6x* TTM Net Debt/EBITDA 1.0x* Total debt of $2.46 billion

Operational improvements in protein segments in recent years have led to very efficient, competitive operations and delivered sustainable earnings improvement

Effective and conservative risk management approach to address input cost fluctuations

Tyson Foods is Well Positioned to Withstand Risks of Market Volatility

* See disclosures on last page

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Financial Accomplishments

Q2 FY2009 - FY2011 Repurchased, redeemed or retired >$1.6 billion in senior notes Q3 FY2012 4.5% $1 billion 10 year note offering used to extinguish 10.5% $810mm 2014 Notes will reduce annualized interest expense by approximately

$55 million and extended debt maturity profile Q2 FY2011 – Q3 FY2012 Returned to investment grade ratings with S&P, Moody’s and Fitch

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Net Debt Reduction

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

FY 0

2

FY 0

3

FY 0

4

FY 0

5

FY 0

6

FY 0

7

FY 0

8

FY 0

9

FY 1

0

FY 1

1

Annual Net Debt to Cap %

(in millions) FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 Gross Total Debt 3,987 3,604 3,362 2,995 3,979 2,779 2,804 3,477 2,536 2,182 Less Cash 51 25 33 40 798 42 250 1,004 978 716 Restricted Cash - - - - - - - 183 - - Net Total Debt 3,936 3,579 3,329 2,955 3,181 2,737 2,554 2,290 1,558 1,466

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Capitalization ($ in millions)

Major Debt Maturity Schedule by Calendar Year ($ mm) – As of 6/30/12

Strong Capital Structure

Liquidity Profile ($ in millions) As of 6/30/12

$1.0 bn Revolving Credit Facility due 2016 -3.25% Convertible Senior Notes due 2013 45810.50% Senior Notes due 2014 206.60% Senior Notes due 2016 6387.00% Notes due 2018 1204.50% Senior Notes due 2022 1,0007.00% Notes due 2028 18GO Zone Tax-Exempt Bonds due 2033 (0.18%) 100Discount on Senior Notes (33)Other 143Total Debt $2,464Less: Cash (828)Net Debt $1,636

As of 6/30/12

Revolver $1,000

Outstandings 0

Letters of Credit 39

Available Revolver $961

Cash 828

Current Liquidity $1,789

$20 $638 $120 $1,000 $18

$1,000

$458 $100

2012 2013 2014 2015 2016 2017 2018 2022 2028 2033Convertible Notes Senior notes Revolver GO Zone Bonds

In July 2012, we redeemed all of the remaining 4.50% Senior Notes due 2014 In August 2012, we replaced the $1.0 billion Revolving Credit Facility due 2016 with a new $1.0 billion Revolving Credit Facility set

to mature in August 2017

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Valuation Presents Investment Opportunity

In all market valuation ratio comparisons, Tyson Foods is significantly lower than the mean of its peer group, large cap and small/mid cap food companies

See disclosures on last page Enterprise Value Multiples LTM, Bloomberg, August 2012

0.22

1.93

1.39

0.66

- 0.50 1.00 1.50 2.00 2.50

Tyson Foods, Inc.

Large Cap Food

Small & Mid Cap Food

Agribusiness

EV/Sales

7.80

14.91

14.43

14.01

- 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00

Tyson Foods, Inc.

Large Cap Food


Agribusiness

EV/EBIT

5.37

11.79

11.17

9.33

- 2.00 4.00 6.00 8.00 10.00 12.00 14.00

Tyson Foods, Inc.

Large Cap Food


Agribusiness

EV/EBITDA

-

5.0

10.0

15.0

20.0

2012 2013

Calendar P/E

Tyson Foods, Inc. Large Cap FoodSmall & Mid Cap Food Agribusiness

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Financial Benchmarks

Normalized operating margins for each segment:

Chicken 5.0 – 7.0%

Beef 2.5 – 4.5%

Pork 6.0 – 8.0%

Prepared Foods 4.0 – 6.0%

Target >20% ROIC for Acquisitions and International Joint Ventures

Profit-improvement CapEx should generate MIRR >20%

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Strong Financial Position Drives Plans

Continue to invest in the business FY2012 CapEx plan = $700 million

Poultry production and labor efficiencies, yield improvements and sales channel flexibility

Continuing to build out foreign operations

Continue to reduce debt No major scheduled maturities until October 2013

Opportunistic repurchases

Return capital to shareholders Since reactivating our share repurchase program in May 2011, repurchases totaled 19 million

(~5% of shares outstanding) through June 2012

Board of Directors on May 3, 2012, expanded repurchase authorization by 35 million shares

Sustain investment grade credit metrics Net Debt/EBITDA, EBITDA/Interest, Liquidity

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Strategy for Growth

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Strategic Plan

Primary Strategic Theme Key Elements

Manage our Capital Structure for Sustained Competitive Advantage and Opportunistic Agility

• Continue to invest in our infrastructure to drive sustained competitive advantage

• De-risking and optionality

• Fill strategic gaps: Build vs. Buy

Never Lose Focus on the Fundamentals (Book of Metrics)

• Tie compensation directly to key metrics

• Drive the business and manage for the best return from our Team Members for our Shareholders

• Active, ongoing engagement to drive workplace safety and compliance

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Strategic Plan

Accelerate Growth in International and Value-Added

• Focus on China, Brazil, Mexico and India, building on key existing global relationships

• Build domestic value-added business in chicken and prepared foods

• Increased value-added chicken and prepared foods’ sales and marketing investment

• Manage our protein supply for maximum returns by capturing the value of owning the raw materials by growing our value-added categories


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Strategic Plan


Innovation Leadership: Products / Analytics / Processes

• New products, categories and channels utilizing existing capacities and incremental investment where required

• New proprietary ingredients and packaging for food safety and shelf-life

• Business analytics

• Optimization of existing processes for the right product at the right cost

Talent Development • Passionate about Team Member development, but also practical

• Succession planning and Functional Excellence

• Global cross-training

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Improvements in Chicken Segment

Achieved approximately $900 million in operating efficiencies since FY2008 Yields Labor and line efficiencies Product mix changes Freight optimization Reduction in live costs

Operating improvements generated positive earnings in FY2011,

while most other chicken models did not Anticipate delivering $125 million in incremental savings

in FY2012

Anticipate delivering $100 million in incremental savings in FY2013

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Growth Platform – Value-Added Chicken and Prepared Foods

Aggressively grow Value-Added Chicken and Prepared Foods market share in under-penetrated channels Convenience Stores Drug Stores Dollar Stores Regional Chains Deli Schools Retail

Take advantage of growth of chicken on foodservice menus Develop categories in which we don’t currently participate

Complete transition and sell out dry sausage capacity

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Growth Platform – International

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Growth Platform – International

Concentrate in-country production in China, Brazil, Mexico and India

Accelerate in-country growth by strengthening relationships with key QSR and retail customers

Innovate against locally identified, country-specific consumer needs by leveraging U.S. expertise

Build scalable supply chain to ensure quality and food safety

Cultivate Team Member development with emphasis on building in-country management teams

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International Growth – China

Produce 3 million head per week by 2014 (currently at 2 million) Gain first-mover advantage with high standards of food safety and quality

Fully integrated, 100% company-controlled housing with strict biosecurity

Production efficiencies and competitive cost structure

Focus on premium QSR and retail channels for higher revenues

Great long-term growth opportunity

Presenter

Presentation Notes

Competitive costs + higher revenue = expanded margins

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International Growth – Brazil

Produce 2 million head per week by 2014 (currently at 1.3 million)

Full capacity utilization in all three plants

Align with key customers to address volume growth to continue 60/40 export/domestic ratio

Continue upgrading to higher value mix

Mitigate labor cost increases through automation

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International Growth – Mexico

Maintain production at 2.7 million head per week

Maximize product mix

Increase volume to maximize current asset capacity

Focus on value-added growth in key market segments

Improve live production assets

Focus on customer-oriented organization

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International Growth – India

Produce 450,000 head per week by 2014 (currently at 280,000) Expand to meet growing QSR, foodservice and retail growth

Reduce exposure to volatile live market

Explore live operations in other areas of the country

Expand value-added production in other areas to reduce

logistical costs and improve product availability

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Long-term Fundamentals Generally Favorable

U.S. protein availability per capita Declined 10% since 2006 peak and will likely continue to decrease

Meat exports have continued to grow and will likely stay on this trend

Global supply and demand for protein Lower global supplies

Growing worldwide demand fueled by developing economies

Composite protein pricing has trended up

U.S. is a low-cost producer

However, high grain costs and volatility likely to remain Effect on production decisions and balance sheets

31

U.S. Per Capita Protein Consumption

0

20

40

60

80

100

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

P

2013

P

2015

P

2017

P

2019

P

2021

P

Chicken Beef Pork Turkey

Source: USDA, February 2012

Poun

ds

32

Protein Production & Exports

Exports % of Production Imports Exports

Source: USDA and Robert A. Brown, Inc. August 10, 2012

2012 and 2013 are RAB forecasts

Chicken

0%

5%

10%

15%

20%

25%

30%

35%

40%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

% of production million pounds

0%5%10%15%20%25%30%35%40%45%50%

-

1,000

2,000

3,000

4,000

5,000

6,000

Pork million pounds % of production

0%

5%

10%

15%

20%

25%

30%

35%

40%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000million pounds % of production

Beef

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U.S. Per Capita Protein Availability & Pricing

Lower production coupled with increasing net exports resulting in reduced U.S. protein availability and increased wholesale prices

Source: Historical Actual Data – USDA; 2012 Forecast by Robert A. Brown, Inc. (1) Represents Beef, Pork, Chicken and Turkey; Based on Carcass Weight Equivalent (2) Annual Composite Average Price is a simple average of monthly USDA wholesale price for beef, pork and poultry 2012 protein price represents YTD2012 (July), updated August 10, 2012

Per Capita Domestic Protein Availability(1) Annual Composite Average Price(2)

100

110

120

130

140

150

160

170

180

190

200

240

245

250

255

260

265

270

275

280

Poun

ds P

er C

apita

Combined Per Capita Domestic Meat Availability (Beef, Pork, Chicken, Turkey; Carcass Weight Equivalent)

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Chicken Demand Planes

Prepared by Robert A. Brown, Inc., August 10, 2012

$120

$130

$140

$150

$160

$170

$180

$190

$200

100.0 105.0 110.0 115.0 120.0 125.0

B/S

Chi

cken

Bre

ast P

rice

, $/c

wt.

Per Cap Broiler Production, pounds

B/S Chicken Breast DemandAnnual, 1998-2013E

98

99

00 01 02

03

04

05

06

07

0809

10

1112E13E

35

Beef Demand Planes


$90$100$110$120$130$140$150$160$170$180$190$200$210

58.0 59.0 60.0 61.0 62.0 63.0 64.0 65.0 66.0 67.0 68.0 69.0 70.0 71.0 72.0 73.0 74.0 75.0 76.0

$/Cwt.

USA S&H Beef Disappearance Per Cap, Pounds

USA Choice Beef Cutout DemandAnnual, 1996-2013E

02

0304

05

969798

99

0001

060708

09

10

11

12E13E

36

Pork Demand Planes


$50

$55

$60

$65

$70

$75

$80

$85

$90

$95

$100

59.00 60.00 61.00 62.00 63.00 64.00 65.00 66.00 67.00 68.00 69.00 70.00

$/Cwt.

USA+Canada Pork Disappearance Per Cap, Pounds

USDA Pork Cutout DemandAnnual, 1996-2013E

02

03

0405

9697

9899

00010607

08

10

09

11

12E 13E

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Global Protein Consumption

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

449% Growth over 50 Years

Met

ric T

ons

in M

illio

ns

Source: USDA FAS and OECD. Includes Beef/Veal, Pork, Broilers, and Turkey

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Global Protein Production

Source: Robert A. Brown, Inc., August 10, 2012

E 0

20,000

40,000

60,000

80,000

100,000

120,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

World Pork, Beef and Broiler Production2001-2012E

000 Metric Tons

Pork

Beef

Broiler

E

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U.S. Corn Usage for Feed, Ethanol & Export

Source: USDA

40

Corn Futures/Chicken Live Cost

Sources: Corn Futures, DTN Prophet X; Live Cost, Tyson Foods E

41

Chicken – Vertically Integrated

42

Beef – Spread Business

43

Pork – Spread Business

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Protein Supply Chain Timelines

Pullet placed

Birth to breeding

Birth to breeding

Hogs = 20 months

Broilers = 9 months

Cattle = 39 months

Pullet Lay

Hatch

House

Birth to Breeding

Birth to Breeding

Gestation

Gestation

Wean

Finish

Wean Feedlot Stocker

5 months 1.5 .75 2

8 months 1 4 2 4.5

13 months 10 8 3 4.5

Significant lead time to increase production

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Protein Production Drivers

Contract grower

Feed conversion

1.92 : 1 3.7 bushels of corn to produce 100 lbs. of boneless skinless meat

Independent producer Feed conversion 3.5 : 1

Approx. 8 bushels of corn to produce 100 lbs. of boneless skinless meat

Independent feedlot

Feed conversion 7-9 : 1 Yearling (750 lbs.) fed beef (300 lbs.) 11 bushels corn to produce 100 lbs. of boneless fed beef

46

USDA Beef Industry Spread

Strong correlation between revenue and cost of cattle

Dol

lars

per

Hea

d

47

USDA Pork Industry Spread

Strong correlation between revenue and cost of hogs

Dol

lars

per

Hea

d

48

Chicken Market Data

USDA Eggs Set

Source: USDA

175,000

180,000

185,000

190,000

195,000

200,000

205,000

49

Boneless Skinless Breast Prices Chicken Wing Prices

Whole Bird Prices Source: Bloomberg as of 08/3/12

Source: Bloomberg as of 08/3/12 Source: Bloomberg as of 08/3/12

Chicken Market Data

Chicken Leg Prices Source: Bloomberg as of 08/3/12

75.0

95.0

115.0

135.0

155.0

175.0

195.0

215.0( ¢ Per Pound )

5-Yr Avg: 151.0Current: 155.0

50.0

75.0

100.0

125.0

150.0

175.0



20.0

30.0

40.0

50.0

60.0



70.0

75.0

80.0

85.0

90.0

95.0

100.0 ( ¢ Per Pound )5-Yr Avg: 83.4Current: 94.75

50

Disclosures

EBITDA Reconciliations (in millions) (unaudited)

(a) Excludes the amortization of debt discount expense of $29 million and $33 million for the nine months ended June 30, 2012, and July 2, 2011, respectively, and $44 million for the fiscal year ended October 1, 2011, as it is included in Interest expense. EBITDA represents net income, net of interest, income tax and depreciation and amortization. EBITDA is presented as a supplemental financial measurement in the evaluation of our business. We believe the presentation of this financial measure helps investors to assess our operating performance from period to period and enhances understanding of our financial performance and highlights operational trends. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies. However, the measurement of EBITDA may not be comparable to those of other companies in our industry, which limits its usefulness as a comparative measure. EBITDA is not a measure required by or calculated in accordance with GAAP and should not be considered as a substitute for net income or any other measure of financial performance reported in accordance with GAAP or as a measure of operating cash flow or liquidity. EBITDA is a useful tool for assessing, but is not a reliable indicator of, our ability to generate cash to service our debt obligations because certain of the items added to net income to determine EBITDA involve outlays of cash. As a result, actual cash available to service our debt obligations will be different from EBITDA. Investors should rely primarily on our GAAP results, and use non-GAAP financial measures only supplementally, in making investment decisions.

Nine Months Ended

Fiscal Year Ended Twelve Months

Ended June 30, 2012 July 2, 2011 October 1, 2011 June 30, 2012 Net income $ 395 $ 638 $ 733 $ 490 Less: Interest income (9 ) (8 ) (11 ) (12 ) Add: Interest expense 316 187 242 371 Add: Income tax expense 231 311 341 261 Add: Depreciation 327 327 433 433 Add: Amortization (a) 13 24 29 18 EBITDA $ 1,273 $ 1,479 $ 1,767 $ 1,561

Total gross debt $ 2,182 $ 2,464 Less: Cash and cash equivalents (716 ) (828 ) Total net debt $ 1,466 $ 1,636 Ratio Calculations: Gross debt/EBITDA 1.2x 1.6x Net debt/EBITDA 0.8x 1.0x

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