What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2023-02-06 · 193 added, 136 removed, 299 unchanged (52% of the section changed)

18 unchanged sentences

International/Other primarily includes our foreign operations in Australia, China, Malaysia, Mexico, the Netherlands, South Korea and Thailand, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC.

Sales grew 3% in the first quarter of fiscal 2023 largely due to higher average sales prices and sales growth in our Chicken and Prepared Foods segments.

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 $467 million for the first quarter of fiscal 2023 was down 68% as we experienced lower operating income in our Beef, Pork and Chicken segments, partially offset by improved operating income in our Prepared Foods segment.

In the first quarter of fiscal 2023, our operating income was impacted by $21 million of restructuring and related charges and benefited from $35 million of insurance proceeds related to fires at our production facilities, net of costs incurred.

In the first quarter of fiscal 2022, our results were impacted by $23 million of insurance proceeds, net of costs, related to a fire at one of our Chicken segment production facilities.

Sales were relatively flat in the second quarter and grew 1% in the first six months of fiscal 2023 largely due to improved sales volume in our Chicken and Prepared Foods segments.

We incurred an operating loss of $49 million for the second quarter of fiscal 2023 as compared to operating income of $1,156 million in the second quarter of fiscal 2022 as we experienced lower operating income across all segments.

Operating income of $418 million for the first six months of fiscal 2023 was down 84% compared to the first six months of fiscal 2022 as we experienced lower operating income in our Beef, Pork and Chicken segments, partially offset by improved operating income in our Prepared Foods segment.

In the second quarter of fiscal 2023, our operating income was impacted by $22 million of restructuring and related charges and $92 million of charges related to plant closures.

Additionally, in the six months ended April 1, 2023, our operating income was impacted by $43 million of restructuring and related charges and benefited from $35 million of insurance proceeds net of costs, related to facility fires.

Operating income in the second quarter of fiscal 2022 was impacted by $5 million of production facility fire costs, 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.

Market Environment

According to the United States Department of Agriculture, domestic protein production (beef, pork, chicken and turkey) was relatively flat in the first quarter of fiscal 2023 compared to the same period in fiscal 2022.

All segments experienced inflation in operating costs, especially in labor, freight and transportation and certain materials, and we expect these trends to continue through fiscal 2023, though at a lower rate than experienced in fiscal 2022.

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

We pursue recovery of these increased costs through pricing.

The Federal Reserve recently increased interest rates, and it is anticipated that interest rates will continue to rise in the near term.

Our direct exposure to rising interest rates is somewhat tempered given our strong liquidity position in addition to our current debt structure in which nearly all of our borrowings have fixed interest rates.

At December 31, 2022, we had $2.9 billion of liquidity and our current debt was $490 million.

Should we need to issue additional debt or borrow under our existing revolving credit facility, we may be exposed to higher interest rates than our current outstanding borrowings.

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

The Pork segment experienced sufficient supply, despite herd health challenges in the industry, and increased live hog costs.

The Chicken segment experienced increased feed ingredient and other input costs, in addition to excess domestic supply as a result of challenging export market conditions associated with avian influenza.

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

According to the United States Department of Agriculture, domestic protein production (beef, pork, chicken and turkey) increased approximately 1% in the second quarter of fiscal 2023 compared to the same period in fiscal 2022.

All segments experienced inflation in operating costs, especially in labor and certain materials, however, the rate of inflation is starting to decrease and protein prices are beginning to level off.

We continue to pursue recovery of increased input costs through pricing.

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

As of December 31, 2022, the impact of this conflict has not had a material direct impact on our financial performance.

As of April 1, 2023, 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.

The Beef segment experienced reduced supply of market-ready cattle and increased live cattle costs.

The Pork segment experienced sufficient supply, despite herd health challenges in the industry, and reduced live hog costs.

The Chicken segment experienced increased feed ingredient and other input costs, challenging market conditions impacting sales pricing, and challenging export markets associated with Avian Influenza.

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

The Federal Reserve has increased interest rates, and it is anticipated that interest rates will continue to rise in the near term.

Our direct exposure to rising interest rates is somewhat tempered given our strong liquidity position in addition to our current debt structure in which most of our borrowings have fixed interest rates.

At April 1, 2023, we had $2.2 billion of liquidity and our current debt was $1.1 billion.

Should we need to issue additional debt or borrow under our existing revolving credit facility, we may be exposed to higher interest rates than our current outstanding borrowings.

On May 3, 2023, we entered into two new term loan facilities totaling $1.75 billion to refinance our commercial paper program and for general liquidity purposes.

A more detailed description of our new term loan facilities is set forth in Part II, Item 5 of this Quarterly Report on Form 10-Q.

We continue to proactively monitor and respond to the evolving nature of the COVID-19 pandemic and its impact to our global business.

4 unchanged sentences

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 2023 as compared to previous fiscal years.

The long-term impacts of COVID-19 remain uncertain and will depend on future developments, including the duration and spread of the pandemic, COVID-19 variants and resurgences, and related actions taken by federal, state and local government officials to prevent and manage disease spread, and effectively distribute and administer vaccinations, all of which contain some level of uncertainty and cannot be easily predicted.

Our total operating margin was 3.5% in the first quarter of fiscal 2023.

These challenges impacted our operating costs, but generally, we experienced lower direct incremental costs associated with COVID-19 in the second quarter and first six months of fiscal 2023 as compared to previous fiscal years.

The long-term impacts of COVID-19 remain uncertain and will depend on future developments, including the duration and spread of potential future COVID-19 variants and the resurgence of existing COVID-19 variants, and related actions taken by federal, state and local government officials to prevent and manage disease spread, and effectively distribute and administer vaccinations, all of which contain some level of uncertainty and cannot be easily predicted.

Our total operating margin was (0.4)% in the second quarter of fiscal 2023.

Operating margins by segment were as follows:

16 unchanged sentences

We were targeting $1 billion in productivity savings by the end of fiscal 2024 relative to a fiscal 2021 cost baseline.

We realized more than $700 million of productivity savings in fiscal 2022, which partially offset the impacts of inflationary market conditions, and we believe we will exceed our $1 billion target in fiscal 2023.

We realized more than $700 million of productivity savings in fiscal 2022, which partially offset the impacts of inflationary market conditions, and we have surpassed our aggregate $1 billion target as of the end of the second quarter of fiscal 2023, more than a year ahead of our plan.

In the fourth quarter of fiscal 2022, the Company approved a restructuring program, the 2022 Program, which is expected to improve business performance, increase collaboration, enhance team member agility, enable faster decision-making and reduce redundancies.

In conjunction with the 2022 Program, the Company plans to bring together all its corporate team members from the Chicago, Downers Grove and Dakota Dunes area corporate locations to its world headquarters in Springdale, Arkansas, through a phased relocation commencing in early calendar year 2023.

We recognized $21 million of pretax charges in the three months ended December 31, 2022 associated with the 2022 Program consisting of severance related costs, relocation and related costs, accelerated depreciation, contract and lease termination and professional and other fees.

In conjunction with the 2022 Program, the Company is bringing together all its corporate team members from the Chicago, Downers Grove and Dakota Dunes area corporate locations to its world headquarters in Springdale, Arkansas, through a phased relocation commencing in early calendar year 2023.

We recognized $22 million and $43 million of pretax charges in the three months and six months ended April 1, 2023, respectively, associated with the 2022 Program consisting of severance related costs, relocation and related costs, accelerated depreciation, contract and lease termination and professional and other fees.

The Company currently anticipates the 2022 Program will result in cumulative pretax charges of approximately $271 million.

As the Company continues to evaluate its business strategies and long-term growth targets, additional restructuring activities may occur.

The following tables set forth the pretax impact of restructuring and related charges in the Consolidated Condensed Statements of Income and the pretax impact by our reportable segments.

1 unchanged sentence

Restructuring and Related Charges (in millions).

Three months ended

December 31, 2022

Three Months Ended Six Months Ended

April 1, 2023

Cost of Sales $ (4) $ 4

1 unchanged sentence

Total Restructuring and related charges, pretax $ 22 $ 43

Three months ended 2022 Program charges to date Total estimated

December 31, 2022

Three Months Ended Six Months Ended 2022 Program charges to date Total estimated

April 1, 2023

April 1, 2023 April 1, 2023

2022 Program charges

Beef $ 8 $ 13 $ 29 $ 67

Pork 2 4 9 24

Chicken — 1 7 8

3 unchanged sentences

Summary of Results

in millions Three Months Ended

December 31, 2022 January 1, 2022

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Sales $ 13,133 $ 13,117 $ 26,393 $ 26,050

2 unchanged sentences

Sales growth 0.1 % 1.3 %

First quarter – Fiscal 2023 vs Fiscal 2022

• Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $105 million, driven by increased volumes in our Beef, Chicken and Prepared Foods segments partially offset by decreased volumes in our Pork segment as a result of balancing our supply with customer demand during a period of margin compression.

• Average Sales Price – Sales were positively impacted by higher average sales prices in our Pork, Chicken and Prepared Foods segments, partially offset by lower average sales prices in our Beef segment, which accounted for an increase of $222 million.

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

Second quarter – Fiscal 2023 vs Fiscal 2022

• Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $434 million, driven by increased volumes in our Chicken and Pork segments partially offset by decreased volumes in our Beef segment due to reduced domestic availability of live cattle and in our Prepared Foods segment due to uneven foodservice recovery.

• Average Sales Price – Sales were negatively impacted by lower average sales prices, which accounted for a decrease of $418 million, driven by reduced pricing in our Beef and Pork segments, partially offset by higher average sales prices in our Chicken and Prepared Foods segments.

Six months – Fiscal 2023 vs Fiscal 2022

• Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $539 million, driven by increased volumes in our Chicken and Prepared Foods segments partially offset by decreased volumes in our Pork segment as a result of balancing our supply with customer demand during a period of margin compression.

• Average Sales Price – Sales were negatively impacted by lower average sales prices, which accounted for a decrease of $196 million, driven by reduced pricing in our Beef and Pork segments, partially offset by higher average sales prices in our Chicken and Prepared Foods segments.

Cost of Sales

in millions Three Months Ended

December 31, 2022 January 1, 2022

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Cost of sales $ 12,606 $ 11,382 $ 24,898 $ 22,300

1 unchanged sentence

Cost of sales as a percentage of sales 96.0 % 86.8 % 94.3 % 85.6 %

First quarter – Fiscal 2023 vs Fiscal 2022

Second quarter – Fiscal 2023 vs Fiscal 2022

• Cost of sales increased $1,224 million.

2 unchanged sentences

• Increase in live cattle costs of approximately $305 million in our Beef segment.

• Increase due to net derivative losses of $21 million in the second quarter of fiscal 2023, compared to net derivative gains of $86 million in the second quarter of fiscal 2022 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.

• Increase of $92 million due to costs associated with plant closures.

• Increase of $71 million related to an increase in inventory lower of cost or net realizable value adjustments, primarily in our Chicken segment.

• Increase in raw material and other input costs of approximately $55 million in our Prepared Foods segment.

• Increase of approximately $45 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses, partially offset by reduced outside meat purchases.

• Increase due to net derivative gains of $12 million in the first quarter of fiscal 2023, compared to net derivative gains of $78 million in the first quarter of fiscal 2022 due to our risk management activities.

• Decrease in freight and transportation costs of approximately $40 million.

• Decrease in live hog costs of approximately $30 million in our Pork segment.

• 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, partially offset by savings from our productivity program.

• The $373 million impact of increased sales volume was primarily driven by increased volumes in our Chicken and Pork segments.

Six months – Fiscal 2023 vs Fiscal 2022

• Cost of sales increased 2,598 million.

Higher sales volume increased cost of sales $462 million while higher input cost per pound increased cost of sales $2,136 million.

• The $2,136 million impact of higher input cost per pound was impacted by:

• Increase in live cattle costs of approximately $835 million in our Beef segment.

• Increase of approximately $220 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses, partially offset by reduced outside meat purchases.

• Increase due to net derivative losses of $9 million in the first six months of fiscal 2023, compared to net derivative gains of $164 million in the first six months of fiscal 2022 due to our risk management activities.

• Increase in live hog costs of approximately $55 million in our Pork segment.

• Increase in raw material and other input costs of approximately $105 million in our Prepared Foods segment.

• Increase of $30 million in our Chicken segment due to $7 million of costs incurred, net of insurance proceeds, for the first quarter of fiscal 2023 compared to $23 million of insurance proceeds, net of costs incurred, in the first quarter of fiscal 2022 related to a fire at our production facility in the fourth quarter of fiscal 2021.

• Increase of $25 million related to inventory lower of cost or net realizable value adjustments.

• Increase in freight and transportation costs of approximately $25 million.

• Increase of $92 million due to costs associated with plant closures.

• Increase of $85 million related to an increase in inventory lower of cost or net realizable value adjustments, primarily in our Chicken segment.

• Increase in live hog costs of approximately $25 million in our Pork segment.

• Increase of $25 million in our Chicken segment due to $7 million of costs incurred, net of insurance proceeds, for the first six months of fiscal 2023 compared to $18 million of insurance proceeds, net of costs incurred, in the first six months of fiscal 2022 related to a fire at our production facility in the fourth quarter of fiscal 2021.

• Decrease of approximately $42 million in our Beef segment from insurance proceeds related to the fire at our production facility in the fourth quarter of fiscal 2019.

• Decrease in freight and transportation costs of approximately $15 million.

• The $89 million impact of increased sales volume was primarily driven by increased volumes in our Beef, Chicken and Prepared Foods segments.

• The $462 million impact of increased sales volume was primarily driven by increased volumes in our Chicken and Prepared Foods segments.

Selling, General and Administrative

in millions Three Months Ended

December 31, 2022 January 1, 2022

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Selling, general and administrative expense $ 576 $ 579 $ 1,077 $ 1,139

As a percentage of sales 4.4 % 4.4 % 4.1 % 4.4 %

First quarter – Fiscal 2023 vs Fiscal 2022

Second quarter – Fiscal 2023 vs Fiscal 2022

• Decrease of $3 million in selling, general and administrative was primarily driven by:

• Decrease of $55 million in employee costs primarily from incentive-based compensation.

• Decrease of $27 million in technology related costs.

• Decrease of $13 million in professional fees.

• Increase of $26 million in restructuring and related costs.

• Increase of $16 million in marketing, advertising and promotion expenses.

• Increase of $11 million in product donations.

• Increase of $6 million in technology related costs.

Six months – Fiscal 2023 vs Fiscal 2022

• Decrease of $62 million in selling, general and administrative was primarily driven by:

• Decrease of $111 million in employee costs primarily from incentive-based compensation.

• Decrease of $31 million in professional fees.

• Decrease of $21 million in technology related costs.

• Increase of $39 million in restructuring and related costs.

• Increase of $12 million in donations.

• Increase of $29 million in marketing, advertising and promotion expenses.

• Increase of $23 million in product donations.

Interest Expense

in millions Three Months Ended

December 31, 2022 January 1, 2022

First quarter – Fiscal 2023 vs Fiscal 2022

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

$ 89 $ 97 $ 173 $ 197

Second quarter and six months – Fiscal 2023 vs Fiscal 2022

• 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 interest expense for the three months ended December 31, 2022 was primarily due to the redemption of senior notes in fiscal 2022.

The decrease in interest expense for the three and six months ended April 1, 2023 was primarily due to the redemption of the June 2022 Senior Notes in fiscal 2022.

Other (Income) Expense, net

in millions Three Months Ended

December 31, 2022 January 1, 2022

$ (42) $ (52)

First quarter – Fiscal 2023

• Included $15 million of joint venture earnings and $25 million of foreign exchange gains in the first quarter of fiscal 2023.

First quarter – Fiscal 2022

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

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Total other (income) expense, net $ (1) $ (25) $ (43) $ (77)

Second quarter and six months – Fiscal 2023

• Included $18 million of joint venture earnings and $29 million of foreign exchange gains in the first six months of fiscal 2023.

Second quarter and six months – Fiscal 2022

• Included $14 million of joint venture earnings in the second quarter of fiscal 2022.

Included $22 million of production facilities fire insurance proceeds and a $37 million gain on an equity investment due to an observable price change in the first six months of fiscal 2022.

Effective Tax Rate

Three Months Ended

December 31, 2022 January 1, 2022

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

29.4 % 23.4 % 24.7 % 21.6 %

First quarter – Fiscal 2023 vs Fiscal 2022

• Our effective income tax rate was 26.1% for the first quarter of fiscal 2023 compared to 20.2% for the same period of fiscal 2022.

The effective tax rates for the first quarter of fiscal 2023 and 2022 were increased by state taxes.

The effective tax rate for the first quarter of fiscal 2022 also 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 of fiscal 2022, and various other tax benefits.

Net Income Attributable to Tyson

in millions, except per share data Three Months Ended

December 31, 2022 January 1, 2022

Net income attributable to Tyson $ 316 $ 1,121

Net income attributable to Tyson – per diluted share 0.88 3.07

First quarter – Fiscal 2023 – Net income attributable to Tyson included the following items:

Second quarter – Fiscal 2023 vs Fiscal 2022

• The percentage impacts of items on the effective tax rate were greater in fiscal 2023 due to the level of pretax income (loss) in fiscal 2023 compared to fiscal 2022.

• In both periods, the effective tax rates were increased due to state taxes and include the impact of various tax benefits;

however, tax benefits increase the effective tax rate in a period of pretax loss and decrease the effective tax rate in a period of pretax income, resulting in a higher effective tax rate in the second quarter of fiscal 2023.

Six months – Fiscal 2023 vs Fiscal 2022

• The effective tax rates for both periods were increased by state taxes and decreased by various tax benefits.

• 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 of fiscal 2022.

Net Income (Loss) Attributable to Tyson

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

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Net income (loss) attributable to Tyson $ (97) $ 829 $ 219 $ 1,950

Net income (loss) attributable to Tyson – per diluted share (0.28) 2.28 0.61 5.35

Second quarter – Fiscal 2023 – Net income (loss) attributable to Tyson included the following items:

• $22 million pretax, or ($0.05) per diluted share, of restructuring and related charges.

• $92 million pretax, or ($0.19) per diluted share, of charges related to plant closures.

Six months – Fiscal 2023 – Net income attributable to Tyson included the following items:

• $35 million pretax, or $0.07 per diluted share, of production facilities fire insurance proceeds, net of costs incurred.

• $43 million pretax, or ($0.09) per diluted share, of restructuring and related charges.

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

• $92 million pretax, or ($0.19) per diluted share, of charges related to plant closures.

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.

5 unchanged sentences

in millions Sales

Three Months Ended

December 31, 2022 January 1, 2022

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Beef $ 4,617 $ 5,034 $ 9,340 $ 10,036

6 unchanged sentences

in millions Operating Income (Loss)

Three Months Ended

December 31, 2022 January 1, 2022

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Beef $ — $ 638 $ 166 $ 1,594

5 unchanged sentences

Beef Segment Results

in millions Three Months Ended

December 31, 2022 January 1, 2022 Change

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 Change April 1, 2023 April 2, 2022 Change

Sales $ 4,617 $ 5,034 $ (417) $ 9,340 $ 10,036 $ (696)

3 unchanged sentences

Operating margin — % 12.7 % 1.8 % 15.9 %

First quarter – Fiscal 2023 vs Fiscal 2022

• Sales Volume - Sales volume increased driven by sufficient supply of live cattle and improved operational performance.

Second quarter and six months – Fiscal 2023 vs Fiscal 2022

• Sales Volume - Sales volume decreased in the second quarter of fiscal 2023 driven by lower availability of live cattle.

Sales volume remained flat in the first six months of fiscal 2023.

• Average Sales Price - Average sales price decreased due to reduced export demand and softening domestic demand associated with increased supply of competing proteins in the market.

• Operating Income - Operating income decreased as margins compressed from historically high levels, paired with continued increased operating costs as a result of the inflationary market environment.

Additionally, operating income benefited from $42 million of insurance proceeds related to a fire at a production facility in the fourth quarter of fiscal 2019.

• Operating Income - Operating income decreased due to unfavorable market conditions, including higher fed cattle costs and reduced demand for beef products, which made it difficult to pass along increased input costs.

Additionally, operating income in the first six months of fiscal 2023 benefited from $42 million of insurance proceeds related to a fire at a production facility in the fourth quarter of fiscal 2019.

Pork Segment Results

in millions Three Months Ended

December 31, 2022 January 1, 2022 Change

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 Change April 1, 2023 April 2, 2022 Change

Sales $ 1,421 $ 1,565 $ (144) $ 2,950 $ 3,191 $ (241)

3 unchanged sentences

Operating margin (2.3) % 3.8 % (1.8) % 7.0 %

First quarter – Fiscal 2023 vs Fiscal 2022

• Sales Volume - Sales volume decreased as a result of balancing our supply with customer demand during a period of margin compression.

• Average Sales Price - Average sales price increased primarily due to a shift to higher value specialty products.

Second quarter and six months – Fiscal 2023 vs Fiscal 2022

• Sales Volume - Sales volume increased during the second quarter of fiscal 2023 due to increased availability of live hogs.

Sales volume decreased in the first six months of fiscal 2023 as a result of balancing our supply with customer demand during a period of margin compression.

• Average Sales Price - Average sales price decreased due to reduced global demand.

• Operating Income (Loss) - Operating income decreased due to compressed pork margins and increased operating costs as a result of the inflationary market environment.

Additionally, volatile market conditions resulted in net derivative losses of $20 million in the first quarter of fiscal 2023 and net derivative gains of $15 million in the first quarter of fiscal 2022, which excludes the impacts of related physical purchase transactions.

Additionally, volatile market conditions resulted in net derivative gains of $25 million and $5 million in the second quarter and first six months of fiscal 2023, respectively, as compared to net derivative losses of $30 million and $15 million in the second quarter and first six months of fiscal 2022, respectively, which excludes the impacts of related physical purchase transactions.

Chicken Segment Results

in millions Three Months Ended

December 31, 2022 January 1, 2022 Change

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 Change April 1, 2023 April 2, 2022 Change

Sales $ 4,430 $ 4,086 $ 344 $ 8,693 $ 7,976 $ 717

1 unchanged sentence

Average sales price change 2.0 % 4.5 %

Operating income $ 69 $ 140 $ (71)

Operating income (loss) $ (258) $ 198 $ (456) $ (189) $ 338 $ (527)

Operating margin (5.8) % 4.8 % (2.2) % 4.2 %

First quarter – Fiscal 2023 vs Fiscal 2022

• Sales Volume - Sales volume increased primarily due to improved domestic production partially offset by inventory growth and strategic initiative mix impacts.

• Average Sales Price - Average sales price increased primarily due to the effects of pricing initiatives in an inflationary cost environment, partially offset by challenging export market conditions due to the impacts of avian influenza.

• Operating Income - Operating income decreased primarily due to the impacts of inflationary market conditions including increased supply chain and labor costs.

Operating income was impacted by $225 million of higher feed ingredient costs, coupled with $20 million of net derivative gains as compared to $60 million of net derivative gains in the first quarter of fiscal 2022.

Additionally, operating income was impacted by a $30 million reduction in insurance proceeds, net of costs incurred related to a fire at a production facility compared to the first quarter of fiscal 2022.

Second quarter and six months – Fiscal 2023 vs Fiscal 2022

• Sales Volume - Sales volume increased primarily due to improved domestic production as well as the sell-through of inventory, partially offset by strategic initiative mix impacts.

• Average Sales Price - Average sales price increased primarily due to the effects of pricing initiatives in the second half of fiscal 2022, partially offset by challenging market conditions and the sell-through of inventory.

• Operating Income (Loss) - Operating income decreased primarily due to the impacts of inflationary market conditions including increased supply chain and labor costs as well as operational impacts associated with strategic decisions.

In the second quarter of fiscal 2023, we experienced $145 million of higher feed ingredient costs and $35 million of net derivative losses as compared to $101 million of net derivative gains in the second quarter of fiscal 2022.

In the first six months of fiscal 2023, we experienced $370 million of higher feed ingredient costs and $15 million of net derivative losses as compared to $159 million of net derivative gains in the first six months of fiscal 2022.

Additionally, operating income was impacted by $92 million of charges associated with plant closures and a $25 million reduction in insurance proceeds, net of costs incurred related to a fire at a production facility compared to the first six months of fiscal 2022.

Prepared Foods Segment Results

in millions Three Months Ended

December 31, 2022 January 1, 2022 Change

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 Change April 1, 2023 April 2, 2022 Change

Sales $ 2,422 $ 2,393 $ 29 $ 4,960 $ 4,726 $ 234

3 unchanged sentences

Operating margin 10.0 % 11.0 % 10.1 % 9.5 %

First quarter – Fiscal 2023 vs Fiscal 2022

• Sales Volume – Sales volume increased due to increased retail demand and improved operational performance.

Second quarter and six months – Fiscal 2023 vs Fiscal 2022

• Sales Volume – Sales volume decreased slightly in the second quarter of fiscal 2023 due to uneven foodservice recovery.

Sales volume increased slightly in the first six months of fiscal 2023 due to strong retail demand and improved operational performance.

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

• Operating Income – Operating income increased due to higher average sales prices and increased sales volumes, partially offset by the impacts of inflationary market conditions, including $50 million of increased raw materials and other input costs in addition to increased supply chain and labor costs.

• Operating Income – Operating income decreased in the second quarter of fiscal 2023 due to the impacts of inflationary market conditions, including $55 million of increased raw materials and other input costs, slightly offset by higher average sales price.

Operating income increased in the first six months of fiscal 2023 due to higher average sales price offset by inflationary market conditions, including $105 million of increased raw materials and other input costs.

International/Other Results

in millions Three Months Ended

December 31, 2022 January 1, 2022 Change

in millions Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 Change April 1, 2023 April 2, 2022 Change

Sales $ 634 $ 565 $ 69 $ 1,246 $ 1,115 $ 131

Operating income (loss) 1 (2) 3 (4) 7 (11)

First quarter – Fiscal 2023 vs Fiscal 2022

• Sales – Sales increased due to volume growth and improved pricing.

• Operating Income (Loss) – Operating income decreased primarily due to the continued impacts of COVID-19 in China and the impacts of global inflationary market conditions.

Second quarter and six months – Fiscal 2023 vs Fiscal 2022

• Sales – Sales increased due to volume growth as we continued to invest in our business and improved pricing in an inflationary cost environment.

• Operating Income (Loss) – Operating income decreased for the first six months of fiscal 2023 primarily due to the impacts of global inflationary market conditions and the slower than anticipated recovery of the economy in China post COVID-19 lockdowns.

LIQUIDITY AND CAPITAL RESOURCES

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Cash Flows from Operating Activities

in millions Three Months Ended

December 31, 2022 January 1, 2022

in millions Six Months Ended

April 1, 2023 April 2, 2022

Net income $ 229 $ 1,959

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Net cash provided by operating activities $ 769 $ 1,224

• The decrease in net cash provided by operating activities was due to lower earnings as a result of operations, offset by decreases in legal and annual incentive payments and an increase in insurance proceeds received.

• In fiscal 2023, we anticipate a net cash outflow related to changes in our operating assets and liabilities as we grow our business in addition to inflationary market conditions.

• The decrease in net cash provided by operating activities was primarily due to lower earnings as a result of operations, offset by lower payments for income taxes, legal accruals and annual incentive payments as well as comparative decreases in Accounts Receivable, Inventories and Accounts Payable.

Cash Flows from Investing Activities

in millions Three Months Ended

December 31, 2022 January 1, 2022

in millions Six Months Ended

April 1, 2023 April 2, 2022

Additions to property, plant and equipment $ (1,097) $ (847)

Proceeds from sale of (purchases of) marketable securities, net (1) —

Acquisition, net of cash acquired (39) —

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• Capital spending for fiscal 2023 is expected to approximate $2.3 billion and includes spending for capacity expansion and utilization, automation to alleviate labor challenges and brand and product innovations.

• Acquisition, net of cash acquired for the first three months ended December 31, 2022 included our 60% equity stake in Supreme Foods Processing Company, a producer and distributor of value-added and cooked chicken and beef products.

• Acquisition, net of cash acquired for the six months ended April 1, 2023 included our 60% equity stake in Supreme Foods Processing Company, a producer and distributor of value-added and cooked chicken and beef products.

• 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.

Cash Flows from Financing Activities

in millions Three Months Ended

December 31, 2022 January 1, 2022

in millions Six Months Ended

April 1, 2023 April 2, 2022

Proceeds from issuance of debt $ 88 $ 47

Payments on debt (121) (1,088)

Proceeds from issuance of commercial paper 4,773 —

Repayments of commercial paper (4,182) —

Purchases of Tyson Class A common stock (332) (511)

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Net cash used for financing activities $ (101) $ (1,767)

• During the first six months of fiscal 2022, we extinguished the $1 billion outstanding balance of our senior notes due June 2022.

• During the first six months of fiscal 2023, we had net borrowings of $591 million pursuant to our commercial paper program.

• Purchases of Tyson Class A stock included:

• $300 million of cash paid for shares repurchased pursuant to our share repurchase program during the three months ended December 31, 2022 and January 1, 2022.

• $13 million and $48 million of shares repurchased to fund certain obligations under our equity compensation programs during the three months ended December 31, 2022 and January 1, 2022, respectively.

• Dividends paid during the three months ended December 31, 2022 reflected a 4% increase to our fiscal 2022 quarterly dividend rate.

• $300 million and $420 million of cash paid for shares repurchased pursuant to our share repurchase program during the six months ended April 1, 2023 and April 2, 2022, respectively.

• $32 million and $91 million of shares repurchased to fund certain obligations under our equity compensation programs during the six months ended April 1, 2023 and April 2, 2022, respectively.

• Dividends paid during the six months ended April 1, 2023 reflected a 4% increase to our fiscal 2022 quarterly dividend rate.

Expiration Date Facility

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Borrowed Amount

December 31, 2022

April 1, 2023

Cash and cash equivalents $ 543

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

• At December 31, 2022, we had current debt of $490 million, which we intend to pay with cash generated from our operating activities and other existing or new liquidity sources.

• At April 1, 2023, we had current debt of $1,065 million, 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 December 31, 2022.

We had no borrowings under the revolving credit facility during the six months ended April 1, 2023.

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.

• In the second quarter of fiscal 2023 through the date of this filing, we increased our commercial paper balance by $355 million for operational purposes.

• On May 3, 2023, we entered into two new term loan facilities totaling $1.75 billion to refinance our commercial paper program and for general corporate purposes.

• We have entered into definitive acquisition agreements expected to close in fiscal 2023 that are pending certain customary closing conditions.

We expect to incur net cash outflows from investing activities in the range of $200 million to $250 million associated with the pending activity.

• We expect net interest expense to approximate $340 million for fiscal 2023.

• Our current ratio was 1.8 to 1 at December 31, 2022 and October 1, 2022.

• At December 31, 2022, approximately $465 million of our cash was held in the accounts of our foreign subsidiaries.

• Our current ratio was 1.7 to 1 at April 1, 2023 and 1.8 to 1 at October 1, 2022.

• At April 1, 2023, approximately $508 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 December 31, 2022, amounts available for borrowing under our revolving credit facility totaled $2.25 billion.

At April 1, 2023, amounts available for borrowing under our revolving credit facility totaled $2.25 billion before deducting amounts to backstop our commercial paper program.

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 December 31, 2022, we had no commercial paper outstanding under this program.

As of April 1, 2023, $593 million was outstanding under this program with maturities of less than 25 days.

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 December 31, 2022, and October 1, 2022, the ratio of our net debt to EBITDA was 1.6x and 1.3x, respectively.

At April 1, 2023, and October 1, 2022, the ratio of our net debt to EBITDA was 2.4x and 1.3x, 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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and engage in certain consolidations, mergers and sales of assets.

We were in compliance with all debt covenants at December 31, 2022, and we expect that we will maintain compliance.

We were in compliance with all debt covenants at April 1, 2023, 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 December 31, 2022.

Accounting Policies, for updates to our significant accounting policies during the six months ended April 1, 2023.

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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Conditions existed as of the end our first quarter that required an interim assessment of goodwill for two of our International reporting units which had goodwill totaling $0.2 billion at December 31, 2022.

The interim assessment was deemed necessary due to higher discount rates used in estimating the fair value of the reporting units as well as lower than anticipated operating results during the first quarter of fiscal 2023.

Based on the interim assessment, we determined no impairment was necessary as the fair value of the reporting units exceeded their carrying value.

Had we assumed future operating margins consistent with those realized in the first quarter of the current fiscal year, both reporting units would have failed the quantitative step of the interim impairment test, which may have resulted in a goodwill impairment loss.

The first quarter interim assessment was deemed necessary due to higher discount rates used in estimating the fair value of the reporting units as well as lower than anticipated operating results during the first quarter of fiscal 2023.

Based on the first quarter interim assessment, we determined no impairment was necessary as the fair value of the reporting units exceeded their carrying value.

Had we assumed future operating margins consistent with those realized in the first three months of the current fiscal year, both reporting units would have failed the quantitative step of the first quarter interim impairment test, which may have resulted in a goodwill impairment loss.

The goodwill for these reporting units originated from acquisitions in fiscal 2019 and fiscal 2018, and we are still integrating them and investing in our international and global business strategy, in addition to managing through the temporary impacts of COVID-19.

The reporting units' projected long-term operating margins included in the interim impairment test had to exceed an average of 4% to achieve breakeven results in the analysis.

The reporting units' projected long-term operating margins included in the first quarter interim impairment test had to exceed an average of 4% to achieve breakeven results in the analysis.

A hypothetical increase in the discount rates of approximately 50 basis points, with all other assumptions unchanged, at December 31, 2022, would have caused the carrying values of these reporting units to approximate their fair values.

Our qualitative assessment for the second quarter did not indicate that it was more likely than not the fair value of any of our reporting units may be impaired, and as such, no quantitative goodwill test was deemed necessary;

however the assessment of impairment for these reporting units continues to be sensitive to future discount rate increases and achievement of projected long-term operating margins as previously quantified.

Our impairment analysis contains inherent estimates and assumptions, many of which are outside the control of management including interest rates, cost of capital, tax rates, market EBITDA comparables and credit ratings, which could positively or negatively impact the anticipated future economic and operating conditions.

The assumptions and estimates used in determining fair value require considerable judgement and are sensitive to changes in underlying assumptions.

These assumptions can change in future periods as a result of overall economic conditions, including the impacts of inflationary pressures, increased interest and discount rates and global supply chain constraints, amongst others.

As a result, there can be no assurance that estimates and assumptions made for the purpose of assessing impairments will prove to be an accurate prediction of the future.

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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