What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2022-02-07 · 165 added, 116 removed, 271 unchanged (51% of the section changed)

6 unchanged sentences

Founded in 1935 by John W.

Tyson and grown under three generations of family leadership, the Company has a broad portfolio of products and brands like Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp® and State Fair®.

Tyson and grown under four generations of family leadership, the Company has a broad portfolio of products and brands like Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp® and State Fair®.

Some of the key factors influencing our business are customer demand for our products;

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The most significant challenge we face is the availability of team members to operate our production facilities as our production facilities continue to experience varying levels of absenteeism.

In the first quarter of fiscal 2022, we experienced an increase in COVID-19 cases, and this trend has continued into our second quarter, although these cases have been milder.

In the second quarter of fiscal 2022, we experienced an increase in COVID-19 cases associated with the Omicron variant.

The health and safety of our team members remains our top priority, and we continue to provide a variety of health and safety resources and services to team members and their family members.

Additionally, we have experienced some challenges in our supply chain such as volatility of inputs, availability of shipping containers and port congestion.

These challenges impacted our operating costs, but generally, we experienced lower direct incremental costs associated with COVID-19 in the first quarter of fiscal 2022 as compared to the same period in fiscal 2021, and we expect this trend to continue throughout fiscal 2022.

In the first quarter of fiscal 2022, demand for our retail products remained strong and foodservice demand continued to recover from the impacts of the pandemic.

These challenges impacted our operating costs, but generally, we experienced lower direct incremental costs associated with COVID-19 in the first six months of fiscal 2022 as compared to the same period in fiscal 2021, and we expect this trend to continue throughout the remainder of fiscal 2022.

For fiscal 2022, we expect retail demand to remain elevated as compared to the pre-pandemic levels and foodservice demand to continue to return to more historic levels.

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The third pillar is automation, which will leverage automation and robotics technologies to automate difficult and higher turnover positions.

We are targeting $1 billion in productivity savings by fiscal 2024 and $300 to $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline.

We are targeting $1 billion in productivity savings by the end of fiscal 2024 and more than $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline.

We are currently on track to achieve our planned productivity savings for fiscal 2022.

At this time, we do not anticipate costs associated with this program to be material.

Sales grew 24% in the first quarter of fiscal 2022 largely due to increased average sales prices across each of our segments and a $320 million legal contingency accrual recognized as a reduction to Sales in the first quarter of fiscal 2021.

The higher average sales prices were primarily due to the current inflationary environment and recovery of rapidly rising costs, such as labor, transportation, livestock, feed ingredients and other input costs.

Operating income of $1,455 million for the first quarter of fiscal 2022 was up 106% due to improved operating income in our Beef, Pork, and Chicken segments.

In the three months ended January 1, 2022, our operating income was impacted by $23 million of insurance proceeds, net of costs, related to a fire at one of our Chicken segment production facilities.

Sales grew 16% and 20% in the second quarter and first six months of fiscal 2022, respectively, largely due to increased average sales prices across each of our segments and a $320 million legal contingency accrual recognized as a reduction to sales in the first quarter of fiscal 2021.

The higher average sales prices were primarily due to the current inflationary environment and recovery of rapidly rising costs, such as labor, freight and transportation, livestock, feed ingredients and other input costs.

Operating income of $1,156 million for the second quarter of fiscal 2022 was up 61% due to improved operating income in our Beef, Chicken, and Prepared Foods segments, partially offset by a decline in the results of our Pork segment.

Operating income of $2,611 million for the first six months of fiscal 2022 was up 83% due to improved operating income in our Beef, Pork, and Chicken segments, partially offset by a decline in the results of our Prepared Foods segment.

In the second quarter of fiscal 2022, our operating income was impacted by $5 million of ongoing costs related to a fire in the fourth quarter of fiscal 2021 at one of our Chicken segment production facilities, net of insurance proceeds.

In the six months ended April 2, 2022, our operating income was impacted by $18 million of insurance proceeds, net of costs, related to the same fire.

In the six months ended April 3, 2021, our results were impacted by $19 million of charges related to the relocation of a production facility in China.

Market Environment

According to the United States Department of Agriculture (“USDA”), domestic protein production (beef, pork, chicken and turkey) decreased 1% in the first quarter of fiscal 2022 compared to the same period in fiscal 2021.

Each of our segments is experiencing improved foodservice demand.

All segments experienced strong demand, challenging labor conditions and inflation in operating costs, especially in labor, freight and certain materials, and we expect these trends to continue through the remainder of fiscal 2022.

According to the United States Department of Agriculture (“USDA”), domestic protein production (beef, pork, chicken and turkey) decreased less than 1% in the second quarter of fiscal 2022 compared to the same period in fiscal 2021.

All segments experienced strong demand, challenging labor conditions and inflation in operating costs, especially in labor, freight and transportation and certain materials, and we expect these trends to continue through the remainder of fiscal 2022.

Additionally, grain and feed ingredient costs have increased substantially, which impacts all of our segments.

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The Beef segment experienced strong global demand, sufficient supply of market-ready cattle and increased live cattle costs.

The Pork segment experienced strong global demand, sufficient hog supplies and increased live hog costs.

The Pork segment experienced adequate supply of live hogs.

The Chicken segment experienced strong demand and increased feed ingredient costs.

Feed ingredient costs are expected to be higher for fiscal 2022 versus fiscal 2021.

The Prepared Foods segment faced increased costs largely due to the impacts of an inflationary environment.

Our total operating margin was 11.3% in the first quarter of fiscal 2022.

The Prepared Foods segment experienced increased costs largely due to the impacts of an inflationary environment.

Additionally, the conflict between Ukraine and Russia has led to economic sanctions against Russia and certain regions of Ukraine and Belarus.

As of April 2, 2022, the impact of this conflict has not had a material direct impact on our financial performance.

However, the conflict is still ongoing and there are many risks and uncertainties in relation to the conflict that are outside of our control.

If the conflict escalates further or if additional countries join the conflict and additional economic sanctions are imposed, it could have a material impact on our business operations and financial performance.

Our total operating margin was 8.8% in the second quarter of fiscal 2022.

Operating margins by segment were as follows:

3 unchanged sentences

• Prepared Foods – 11.0%

in millions, except per share data Three Months Ended

January 1, 2022 January 2, 2021

in millions, except per share data Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Net income attributable to Tyson $ 829 $ 476 $ 1,950 $ 943

Net income attributable to Tyson – per diluted share 2.28 1.30 5.35 2.58

First quarter – Fiscal 2022 – Net income attributable to Tyson included the following items:

Second quarter – Fiscal 2022 – Net income attributable to Tyson included the following items:

• $5 million pretax, or ($0.01) per diluted share, of production facilities fire costs, net of insurance proceeds.

Six months – Fiscal 2022 – Net income attributable to Tyson included the following items:

• $40 million pretax, or $0.09 per diluted share, of production facilities fire insurance proceeds net of costs incurred.

• $36 million post tax, or $0.10 per diluted share, from remeasurement of net deferred tax liabilities at lower enacted state tax rates.

First quarter – Fiscal 2021 – Net income attributable to Tyson included the following items:

Second quarter – Fiscal 2021 – Net income attributable to Tyson included the following items:

• $19 million pretax, or ($0.04) per diluted share, related to the relocation of a production facility in China.

Six months – Fiscal 2021 – Net income attributable to Tyson included the following items:

• $320 million pretax, or ($0.67) per diluted share, related to the recognition of a legal contingency accrual.

• $6 million pretax, or $0.01 per diluted share, of production facility fire insurance proceeds, net of costs incurred.

• $6 million pretax, or $0.01 per diluted share, of Beef production facility fire insurance proceeds, net of costs incurred.

• $19 million pretax, or ($0.04) per diluted share, related to the relocation of a production facility in China.

Summary of Results

in millions Three Months Ended

January 1, 2022 January 2, 2021

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Sales $ 13,117 $ 11,300 $ 26,050 $ 21,760

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Sales growth 16.1 % 19.7 %

First quarter – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $36 million, driven by increased volume in our Chicken and Pork segments offset by decreases in sales volume in our Beef and Prepared segments and impacts associated with the challenging labor environment.

Second quarter – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $166 million, driven by decreased volumes in our Pork and Prepared Foods segments and impacts associated with the challenging labor environment and continued supply chain constraints, partially offset by slight increases in sales volume in our Beef and Chicken segments.

• Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $1,983 million.

The increase in average sales price was primarily due to the current inflationary environment and recovery of rapidly rising costs.

• The above change in average sales price for the first quarter of fiscal 2022 excludes a $320 million reduction of Sales from the recognition of a legal contingency accrual in the first quarter of fiscal 2021.

Six months – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $130 million, driven by decreased volumes in our Beef, Pork and Prepared Foods segments and impacts associated with the challenging labor environment and continued supply chain constraints, partially offset by increases in sales volume in our Chicken segment.

• Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $4,100 million.

The increase in average sales price was primarily due to the current inflationary environment and recovery of rapidly rising costs.

• The above change in average sales price for the first six months of fiscal 2022 excludes a $320 million reduction of Sales from the recognition of a legal contingency accrual in the first six months of fiscal 2021.

Cost of Sales

in millions Three Months Ended

January 1, 2022 January 2, 2021

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Cost of sales $ 11,382 $ 10,047 $ 22,300 $ 19,330

1 unchanged sentence

Cost of sales as a percentage of sales 86.8 % 88.9 % 85.6 % 88.8 %

First quarter – Fiscal 2022 vs Fiscal 2021

Second quarter – Fiscal 2022 vs Fiscal 2021

• Cost of sales increased $1,335 million.

Higher sales volume increased cost of sales $31 million while higher input cost per pound increased cost of sales $1,604 million.

Lower sales volume decreased cost of sales $145 million while higher input cost per pound increased cost of sales $1,480 million.

• The $1,480 million impact of higher input cost per pound was impacted by:

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• Increase in live hog costs of approximately $115 million in our Pork segment.

• Increase in freight and transportation costs of approximately $145 million.

• Increase of approximately $25 million in frontline bonuses.

• Increase of approximately $5 million in our Chicken segment related to costs incurred related to the fire at our production facility, net of insurance proceeds.

• Decrease due to net derivative gains of $86 million in the second quarter of fiscal 2022, compared to net derivative loss of $15 million in the second quarter of fiscal 2021 due to our risk management activities.

These amounts exclude offsetting impacts from related physical purchase transactions, which are included in the change in live cattle and hog costs and raw material and feed ingredient costs described herein.

• Remaining increase in costs across all of our segments primarily driven by net impacts on average cost per pound from mix changes as well as the impact of the inflationary environment on our labor and other input costs.

• The $145 million impact of lower sales volume was primarily driven by decreased volumes in our Prepared Foods and Pork segments.

Six months – Fiscal 2022 vs Fiscal 2021

• Cost of sales increased $2,970 million.

Lower sales volume decreased cost of sales $114 million while higher input cost per pound increased cost of sales $3,084 million.

◦ The $3,084 million impact of higher input cost per pound was impacted by:

▪ Increase in live cattle costs of approximately $990 million in our Beef segment.

• Increase of approximately $400 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses and outside meat purchases.

• Increase in raw material and other input costs of approximately $425 million in our Prepared Foods segment.

• Increase in live hog costs of approximately $220 million in our Pork segment.

• Increase in freight and transportation costs of approximately $300 million.

• Increase due to net derivative gains of $78 million in the first quarter of fiscal 2022, compared to net derivative gains of $95 million in the first quarter of fiscal 2021 due to our risk management activities.

• Increase of approximately $75 million in frontline bonuses.

• Decrease due to net derivative gains of $164 million in the first six months of fiscal 2022, compared to net derivative gains of $80 million in the first six months of fiscal 2021 due to our risk management activities.

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• The $31 million impact of higher sales volume was primarily driven by increased volumes in our Chicken and Pork segments offset by reduced sales volume in our Beef and Prepared segments.

• The $114 million impact of lower sales volume was primarily driven by decreased volumes in our Beef, Prepared Foods and Pork segments.

Selling, General and Administrative

in millions Three Months Ended

January 1, 2022 January 2, 2021

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Selling, general and administrative expense $ 579 $ 533 $ 1,139 $ 1,005

As a percentage of sales 4.4 % 4.7 % 4.4 % 4.6 %

First quarter – Fiscal 2022 vs Fiscal 2021

Second quarter – Fiscal 2022 vs Fiscal 2021

• Increase of $46 million in selling, general and administrative was primarily driven by:

• Increase of $55 million from the change in the impact of a cattle supplier's misappropriation of Company funds, as the result of a $55 million gain related to the recovery of cattle inventory in the three months ended January 2, 2021, as compared to no gain or loss recognized in the three months ended January 1, 2022.

• Increase of $20 million in technology related costs.

• Increase of $20 million in employee costs.

• Increase of $19 million in marketing, advertising and promotion expenses.

• Decrease of $12 million in commission and brokerage fees

• Remaining increase is primarily attributable to increased travel and entertainment costs, professional fees and increased donations.

Six months – Fiscal 2022 vs Fiscal 2021

• Increase of $134 million in selling, general and administrative was primarily driven by:

◦ Increase of $55 million from the change in the impact of a cattle supplier’s misappropriation of Company funds, as the result of a $55 million gain related to the recovery of cattle inventory in the six months ended April 3, 2021, as compared to no gain or loss recognized in the six months ended April 2, 2022.

◦ Increase of $35 million in employee costs.

◦ Increase of $22 million in technology related costs.

◦ Increase of $19 million in marketing, advertising and promotion expenses.

◦ Increase of $12 million professional fees.

◦ Decrease of $20 million in commission and brokerage fees.

◦ Remaining increase is primarily attributable to increased travel and entertainment costs and increased donations.

Interest Expense

in millions Three Months Ended

January 1, 2022 January 2, 2021

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Cash interest expense $ 104 $ 113 $ 209 $ 227

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Total interest expense $ 97 $ 110 $ 197 $ 220

First quarter – Fiscal 2022 vs Fiscal 2021

Second quarter and six months – Fiscal 2022 vs Fiscal 2021

• Cash interest expense primarily included interest expense related to our senior notes, in addition to commitment fees incurred on our revolving credit facility.

The decrease in cash interest expense in fiscal 2022 was primarily due to repayments of term loans and the redemption of the August 2021 Notes in fiscal 2021.

The decrease in cash interest expense in fiscal 2022 was primarily due to the redemption of senior notes in fiscal 2022 and repayments of term loans and the redemption of the August 2021 Notes in fiscal 2021.

Other (Income) Expense, net

in millions Three Months Ended

January 1, 2022 January 2, 2021

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Total other (income) expense, net $ (25) $ (12) $ (77) $ (31)

First quarter – Fiscal 2022

• Included $22 million of production facilities fires insurance proceeds and a $30 million gain on an equity investment due to an observable price change.

Second quarter and six months – Fiscal 2022 vs Fiscal 2021

• Included $22 million of production facilities fires insurance proceeds and $37 million of gains on equity investments due to observable price changes in the first six months of fiscal 2022.

Effective Tax Rate

Three Months Ended

January 1, 2022 January 2, 2021

Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

23.4 % 23.5 % 21.6 % 23.5 %

First quarter – Fiscal 2022 vs Fiscal 2021

• Our effective income tax rate was 20.2% for the first quarter of fiscal 2022 compared to 23.4% for the same period of fiscal 2021.

The effective tax rates for the first quarter of fiscal 2022 and 2021 were increased by state taxes and decreased by various tax benefits.

Additionally, the effective tax rate for the first quarter of fiscal 2022 included a $36 million benefit from the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in the first quarter.

Second quarter and six months – Fiscal 2022 vs Fiscal 2021

• Our effective income tax rate was 23.4% for the second quarter of fiscal 2022 compared to 23.5% for the same period of fiscal 2021, and the effective income tax rates for the first six months of fiscal 2022 and 2021 were 21.6% and 23.5%, respectively.

The effective tax rates for the second quarter and first six months of fiscal 2022 and 2021 were increased by state taxes and decreased by various tax benefits.

Additionally, the effective tax rate for the first six months of fiscal 2022 includes a $36 million benefit from the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in the first quarter.

Segment Results

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in millions Sales

Three Months Ended

January 1, 2022 January 2, 2021

Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Beef $ 5,034 $ 4,046 $ 10,036 $ 8,033

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in millions Operating Income (Loss)

Three Months Ended

January 1, 2022 January 2, 2021

Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Beef $ 638 $ 445 $ 1,594 $ 973

Pork 59 67 223 183

Chicken 198 6 338 (210)

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Beef Segment Results

in millions Three Months Ended

January 1, 2022 January 2, 2021 Change

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 Change April 2, 2022 April 3, 2021 Change

Sales $ 5,034 $ 4,046 $ 988 $ 10,036 $ 8,033 $ 2,003

3 unchanged sentences

Operating margin 12.7 % 11.0 % 15.9 % 12.1 %

First quarter – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales volume decreased due to the impacts associated with a challenging labor environment and increased supply chain constraints, partially offset by strong global demand.

• Average Sales Price – Average sales price increased as input costs such as live cattle, labor, freight and transportation costs increased and demand for our beef products remained strong.

• Operating Income – Operating income increased due to strong demand as we continued to optimize revenues relative to live cattle supply and a reduction in direct incremental expenses related to COVID-19, partially offset by production inefficiencies due to the impacts associated with a challenging labor environment.

Second quarter and six months – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales volume was up slightly in the second quarter of fiscal 2022 driven by strong global demand, partially offset by a challenging labor environment and continued supply chain constraints.

Sales volume decreased for the first six months due to the impacts associated with a challenging labor environment and increased supply chain constraints, partially offset by strong global demand.

• Average Sales Price – Average sales price increased in the second quarter and the first six months of fiscal 2022 as input costs such as live cattle, labor, freight and transportation costs increased and demand for our beef products remained strong.

• Operating Income – Operating income increased in the second quarter and first six months of fiscal 2022 due to strong demand as we continued to optimize revenues relative to live cattle supply and a reduction in direct incremental expenses related to COVID-19, partially offset by production inefficiencies due to the impacts associated with a challenging labor environment and continued supply chain constraints.

Additionally, operating income in fiscal 2021 was impacted by a $55 million gain from the recovery of cattle inventory related to a cattle supplier's misappropriation of Company funds.

Pork Segment Results

in millions Three Months Ended

January 1, 2022 January 2, 2021 Change

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 Change April 2, 2022 April 3, 2021 Change

Sales $ 1,565 $ 1,477 $ 88 $ 3,191 $ 2,916 $ 275

3 unchanged sentences

Operating margin 3.8 % 4.5 % 7.0 % 6.3 %

First quarter – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales volume was up slightly as strong global demand was offset by the impacts associated with a challenging labor environment.

• Average Sales Price – Average sales price increased as input costs such as live hogs, labor, freight and transportation costs increased and demand for our pork products remained strong, partially offset by unfavorable mix associated with labor shortages.

• Operating Income – Operating income increased due to strong demand as we optimized revenues relative to live hog supply and a reduction in direct incremental expenses related to COVID-19, partially offset by the impacts associated with a challenging labor environment.

Second quarter and six months – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales volume decreased in the second quarter and first six months of fiscal 2022 primarily due to the impacts associated with a challenging labor environment.

• Average Sales Price – Average sales price increased in the second quarter and first six months of fiscal 2022 as input costs such as live hogs, labor, freight and transportation costs increased, partially offset by unfavorable mix associated with labor shortages.

• Operating Income – Operating income decreased slightly in the second quarter of fiscal 2022 due to higher input costs such as live hogs, labor and freight and transportation costs.

Operating income for the first six months of fiscal 2022 increased as we optimized revenues relative to live hog supply and due to a reduction in direct incremental expenses related to COVID-19, partially offset by higher inputs costs and the impacts associated with a challenging labor environment.

Chicken Segment Results

in millions Three Months Ended

January 1, 2022 January 2, 2021 Change

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 Change April 2, 2022 April 3, 2021 Change

Sales $ 4,086 $ 3,553 $ 533 $ 7,976 $ 6,384 $ 1,592

3 unchanged sentences

Operating margin 4.8 % 0.2 % 4.2 % (3.3) %

First quarter – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales volume increased primarily due to increased live production and a strong demand environment.

• Average Sales Price – Average sales price increased due to the effects of an inflationary cost environment.

• Operating Income (Loss) – Operating income increased due to increased sales volume and higher average sales prices, partially offset by the impacts of inflationary market conditions including $185 million of higher feed ingredient costs, increased supply chain costs and a challenging labor environment.

Additionally, operating income in the first quarter of fiscal 2022 was impacted by $23 million of insurance proceeds, net of costs incurred related to a fire at a production facility and was impacted in the first quarter of fiscal 2021 by a $320 million loss from the recognition of a legal contingency accrual.

Second quarter and six months – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales volume increased in the second quarter and first six months of fiscal 2022 primarily due to a strong demand environment partially offset by continued supply chain constraints.

• Average Sales Price – Average sales price increased in the second quarter and first six months of fiscal 2022 due to the effects of pricing initiatives in an inflationary cost environment.

• Operating Income (Loss) – Operating income increased in the second quarter and first six months of fiscal 2022 due to increased sales volume and higher average sales prices, partially offset by the impacts of inflationary market conditions including increased supply chain costs and a challenging labor environment.

In the second quarter of fiscal 2022, we experienced $100 million of higher feed ingredient costs and $101 million of net derivative gains as compared to $10 million of net derivative gains in the second quarter of fiscal 2021.

In the first six months of fiscal 2022, we experienced $285 million of higher feed ingredient costs and $159 million of net derivative gains as compared to $83 million of net derivative gains in the first six months of fiscal 2021.

Additionally, operating income in the first six months of fiscal 2022 was impacted by $18 million of insurance proceeds, net of costs incurred related to a fire at a production facility and was impacted in the first quarter of fiscal 2021 by a $320 million loss from the recognition of a legal contingency accrual.

Prepared Foods Segment Results

in millions Three Months Ended

January 1, 2022 January 2, 2021 Change

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 Change April 2, 2022 April 3, 2021 Change

Sales $ 2,393 $ 2,164 $ 229 $ 4,726 $ 4,277 $ 449

3 unchanged sentences

Operating margin 11.0 % 10.0 % 9.5 % 11.3 %

First quarter – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales volume decreased due to the divestiture of our pet treats business in the fourth quarter of fiscal 2021 as well as lower production throughput primarily associated with a challenging labor and supply environment.

• Average Sales Price – Average sales price increased primarily due to the effects of revenue management in an inflationary cost environment.

• Operating Income – Operating income decreased due to the impacts of inflationary market conditions, including $215 million of increased raw materials and other input costs, increased supply chain costs and a challenging labor environment, partially offset by favorable pricing.

Second quarter and six months – Fiscal 2022 vs Fiscal 2021

• Sales Volume – Sales volume decreased in the second quarter and first six months of fiscal 2022 due to lower production throughput primarily associated with a challenging labor and supply environment, uneven foodservice recovery and the divestiture of our pet treats business in the fourth quarter of fiscal 2021.

• Average Sales Price – Average sales price increased in the second quarter and first six months of fiscal 2022 primarily due to the effects of revenue management in an inflationary cost environment and favorable product mix.

• Operating Income – Operating income increased in the second quarter of fiscal 2022 due to higher average sales prices, partially offset by the impacts of inflationary market conditions, including $210 million of increased raw materials and other input costs, increased supply chain costs and a challenging labor environment.

Operating income decreased in the first six months of fiscal 2022 due to the impacts of inflationary market conditions, including $425 million of increased raw materials and other input costs, increased supply chain costs and a challenging labor environment, partially offset by higher average sales prices.

International/Other Results

in millions Three Months Ended

January 1, 2022 January 2, 2021 Change

in millions Three Months Ended Six Months Ended

April 2, 2022 April 3, 2021 Change April 2, 2022 April 3, 2021 Change

Sales $ 565 $ 487 $ 78 $ 1,115 $ 956 $ 159

Operating income (loss) (2) (15) 13 $ 7 $ (4) $ 11

First quarter – Fiscal 2022 vs Fiscal 2021

• Sales – Sales increased due to increased pricing from favorable product mix and increased volume in China & Korea.

• Operating Income (Loss) – Operating income decreased primarily due to increased raw materials and other input costs as well as increased advertising and promotional costs.

Second quarter and six months – Fiscal 2022 vs Fiscal 2021

• Sales – Sales increased in the second quarter and first six months of fiscal 2022 primarily due to increased pricing from favorable product mix and increased volume.

• Operating Income (Loss) – Operating income increased in the second quarter and first six months of fiscal 2022 primarily due to a $19 million charge incurred in the second quarter of fiscal 2021 related to the relocation of a production facility in China, partially offset by increased advertising and promotional investments as well as increased raw material and other input costs.

LIQUIDITY AND CAPITAL RESOURCES

8 unchanged sentences

Cash Flows from Operating Activities

in millions Three Months Ended

January 1, 2022 January 2, 2021

in millions Six Months Ended

April 2, 2022 April 3, 2021

Net income $ 1,959 $ 949

5 unchanged sentences

Net cash provided by operating activities $ 1,224 $ 1,349

• The increase in net cash provided by operating activities was due primarily to higher earnings, as a result of strong operations in fiscal 2022, offset by higher payments related to annual incentive plan and legal accruals.

Comparative changes in working capital balances were also positively impacted by the decrease in accounts receivable as a result of timing of sales, offset by decrease in accounts payable due to the timing of payments.

• The decrease in net cash provided by operating activities was due to higher payments related to legal accruals, deferred payroll tax liabilities under the CARES Act and income taxes and an increase in inventory primarily due to increased finished inventory, offset by higher earnings as a result of strong operations in fiscal 2022.

Cash Flows from Investing Activities

in millions Three Months Ended

January 1, 2022 January 2, 2021

in millions Six Months Ended

April 2, 2022 April 3, 2021

Additions to property, plant and equipment $ (847) $ (557)

Proceeds from sale of (purchases of) marketable securities, net — —

Acquisition of equity investments (96) —

Other, net 58 49

1 unchanged sentence

• Additions to property, plant and equipment included spending for production growth, safety and animal well-being, acquiring new equipment, infrastructure replacements and upgrades to maintain competitive standing and position us for future opportunities.

◦ Capital spending for fiscal 2022 is expected to approximate $2 billion and will include the spending for capacity expansion and utilization, automation to alleviate labor challenges and brand and product innovations.

• Other, net for the first three months of fiscal 2022 primarily included additional investment in other investments and changes in deposits for capital expenditures.

For the first three months of fiscal 2021, Other, net was impacted by changes in deposits for capital expenditures.

◦ Capital spending for fiscal 2022 is expected to approximate $2 billion and will include spending for capacity expansion and utilization, automation to alleviate labor challenges and brand and product innovations.

• Other, net for the first six months of fiscal 2022 primarily included insurance proceeds received related to a fire at one of our Chicken production facilities, proceeds from the disposition of assets and change in deposits for capital expenditures.

For the first six months of fiscal 2021, Other, net primarily included changes in deposits for capital expenditures.

Cash Flows from Financing Activities

in millions Three Months Ended

January 1, 2022 January 2, 2021

in millions Six Months Ended

April 2, 2022 April 3, 2021

Proceeds from issuance of debt $ 47 $ 557

5 unchanged sentences

Net cash used for financing activities $ (1,767) $ (1,345)

• During the first six months of fiscal 2021, proceeds of $557 million from issuance of debt included $500 million of proceeds from the issuance of a term loan facility due March 2023.

• In March 2022, we extinguished the $1 billion outstanding balance of our senior notes due June 2022.

• During the first six months of fiscal 2021, we extinguished the $1.5 billion outstanding balance of our term loan facility using proceeds received from the issuance of debt and cash on hand.

• Purchases of Tyson Class A stock included:

◦ $300 million of shares repurchased pursuant to our share repurchase program during the three months ended January 1, 2022.

◦ $48 million and $17 million of shares repurchased to fund certain obligations under our equity compensation programs during the three months ended January 1, 2022 and January 2, 2021, respectively.

• Dividends paid during the three months ended January 1, 2022 reflected a 3% increase to our fiscal 2021 quarterly dividend rate.

◦ $420 million of cash paid for shares repurchased pursuant to our share repurchase program during the six months ended April 2, 2022.

◦ $91 million and $34 million of shares repurchased to fund certain obligations under our equity compensation programs during the six months ended April 2, 2022 and April 3, 2021, respectively.

• Dividends paid during the six months ended April 2, 2022 reflected a 3% increase to our fiscal 2021 quarterly dividend rate.

Expiration Date Facility

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Borrowed Amount

January 1, 2022

April 2, 2022

Cash and cash equivalents $ 1,151

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• Liquidity includes cash and cash equivalents, short-term investments and availability under our revolving credit facility, less outstanding commercial paper balance.

• At January 1, 2022, we had current debt and accrued legal contingencies of $1,090 million and $390 million, respectively, which we intend to pay with cash generated from our operating activities and other existing or new liquidity sources.

• At April 2, 2022, we had accrued legal contingencies and current debt of $267 million and $79 million, respectively, which we intend to pay with cash generated from our operating activities and other existing or new liquidity sources.

• The revolving credit facility supports our short-term funding needs and also serves to backstop our commercial paper program.

We had no borrowings under the revolving credit facility during the three months ended January 1, 2022.

We had no borrowings under the revolving credit facility during the six months ended April 2, 2022.

Under the terms of the facility, we have the option to establish incremental commitment increases of up to $500 million if certain conditions are met.

• We expect net interest expense to approximate $360 million for fiscal 2022.

• Our current ratio was 1.7 to 1 at January 1, 2022 and 1.6 to 1 at October 2, 2021.

• At January 1, 2022, approximately $459 million of our cash was held in the accounts of our foreign subsidiaries.

• Our current ratio was 1.9 to 1 at April 2, 2022 and 1.6 to 1 at October 2, 2021.

The increase in the six months ended April 2, 2022 was primarily due to the $1 billion debt repayment and payments of deferred payroll tax liabilities under the CARES Act and income taxes, partially offset by increased inventory.

• At April 2, 2022, approximately $454 million of our cash was held in the accounts of our foreign subsidiaries.

Generally, we do not rely on the foreign cash as a source of funds to support our ongoing domestic liquidity needs.

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We also have a revolving credit facility, with a committed capacity of $2.25 billion, to provide additional liquidity for working capital needs and to backstop our commercial paper program.

At January 1, 2022, amounts available for borrowing under our revolving credit facility totaled $2.25 billion.

At April 2, 2022, amounts available for borrowing under our revolving credit facility totaled $2.25 billion.

Our revolving credit facility is funded by a syndicate of 20 banks, with commitments ranging from $35 million to $175 million per bank.

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The maturities of the notes may vary, but may not exceed 397 days from the date of issuance.

As of January 1, 2022, we had no commercial paper outstanding under this program.

As of April 2, 2022, we had no commercial paper outstanding under this program.

Our ability to access commercial paper in the future may be limited or its costs increased.

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We monitor the ratio of our net debt to EBITDA as support for our long-term financing decisions.

At January 1, 2022, and October 2, 2021, the ratio of our net debt to EBITDA was 1.0x and 1.2x, respectively.

At April 2, 2022, and October 2, 2021, the ratio of our net debt to EBITDA was 1.0x and 1.2x, respectively.

Refer to Part I, Item 3, EBITDA Reconciliations, for an explanation and reconciliation to comparable Generally Accepted Accounting Principles (“GAAP ” ) measures.

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The below table outlines the fees paid on the unused portion of the facility (“Facility Fee Rate ” ) and letter of credit fees and borrowings (“All-in Borrowing Spread ” ) that corresponds to the applicable ratings levels from S&P and Moody’s.

Ratings Level (S&P/Moody's/Fitch) Facility Fee Rate All-in Borrowing Spread

A-/A3/A- or above 0.090 % 1.000 %

BBB+/Baa1/BBB+ 0.100 % 1.125 %

BBB/Baa2/BBB (current level) 0.125 % 1.250 %

BBB-/Baa3/BBB- 0.175 % 1.375 %

BB+/Ba1/BB+ or lower 0.225 % 1.625 %

Ratings Level (Moody’s/S&P) Facility Fee Rate All-in Borrowing Spread

A2/A or above 0.070 % 0.875 %

A3/A- 0.090 % 1.000 %

Baal/BBB+ (current level) 0.100 % 1.125 %

Baa2/BBB 0.125 % 1.250 %

Baa3/BBB- or lower 0.175 % 1.375 %

In the event the rating levels fall within different levels, the applicable rate will be based upon the higher of the two Levels or, if there is more than a one-notch split between the two Levels, then the Applicable Rate will be based upon the Level that is one Level below the higher Level.

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and engage in certain consolidations, mergers and sales of assets.

We were in compliance with all debt covenants at January 1, 2022 and we expect that we will maintain compliance.

We were in compliance with all debt covenants at April 2, 2022, and we expect that we will maintain compliance.

RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS

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Refer to Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 1:

Accounting Policies, for updates to our significant accounting policies during the three months ended January 1, 2022.

Accounting Policies, for updates to our significant accounting policies during the six months ended April 2, 2022.

These critical accounting policies require us to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes.

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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 COVID-19 global pandemic and associated responses thereto have had an adverse impact on our business and operations, and the extent that the COVID-19 pandemic continues to impact us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, public adoption rates of COVID-19 vaccines and their effectiveness against emerging variants of COVID-19, including the Delta and Omicron variants, and the speed and effectiveness of new vaccine and treatment developments and their deployment;

(i) the COVID-19 global pandemic and associated responses thereto have had an adverse impact on our business and operations, and the extent that the COVID-19 pandemic continues to impact us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, public adoption rates of COVID-19 vaccines and their effectiveness against emerging variants of COVID-19, the speed and effectiveness of new vaccine and treatment developments and their deployment and COVID-19 related impacts on the market, including production delays, labor shortages and increases in costs and inflation;

(ii) the effectiveness of our financial excellence programs;

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(xxiii) the effect of, or changes in, general economic conditions;

(xxiv) impacts on our operations caused by factors and forces beyond our control, such as natural disasters, fire, bioterrorism, pandemics or extreme weather;

(xxiv) impacts on our operations caused by factors and forces beyond our control, such as natural disasters, fire, bioterrorism, pandemics, armed conflicts or extreme weather;

(xxv) failure to maximize or assert our intellectual property rights;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis