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Investor Presentation Tyson Foods, Inc.
August 22-23, 2012
2
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
3
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
5
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%
6
U.S. Operations
7
International Operations
8
Customer Relationships
Food Service Retail
9
Protein & Prepared Foods Capabilities
10
© 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
11
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
12
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
$55 million and extended debt maturity profile Q2 FY2011 – Q3 FY2012 Returned to investment grade ratings with S&P, Moody’s and Fitch
13
Net Debt Reduction
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
FY 0
2
FY 0
3
FY 0
4
FY 0
5
FY 0
6
FY 0
7
FY 0
8
FY 0
9
FY 1
0
FY 1
1
Annual Net Debt to Cap %
(in millions) FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 Gross Total Debt 3,987 3,604 3,362 2,995 3,979 2,779 2,804 3,477 2,536 2,182 Less Cash 51 25 33 40 798 42 250 1,004 978 716 Restricted Cash - - - - - - - 183 - - Net Total Debt 3,936 3,579 3,329 2,955 3,181 2,737 2,554 2,290 1,558 1,466
14
Capitalization ($ 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
15
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
Small & Mid 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
Small & Mid 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
16
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%
17
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
18
Strategy for Growth
19
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
20
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
Primary Strategic Theme Key Elements
21
Strategic Plan
Primary Strategic Theme Key Elements
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
22
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
23
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
24
Growth Platform – International
25
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
26
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
27
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
28
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
29
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
30
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
33
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)
34
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
Prepared by Robert A. Brown, Inc., August 10, 2012
$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
Prepared by Robert A. Brown, Inc., August 10, 2012
$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
37
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
38
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
39
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
44
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
45
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
200.0( ¢ Per Pound )
5-Yr Avg: 126.3Current: 187.0
20.0
30.0
40.0
50.0
60.0
70.0( ¢ Per Pound )
5-Yr Avg: 45.0Current: 50.5
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