01—Abstract
Summary
Summary of the 10-K filed November 21, 2016. Cited figures are marked; the original filing is the authoritative source.
Tyson Foods, Inc. reported fiscal 2016 (ended October 1, 2016) sales of $36.88 billiona, down from $41.37 billion in fiscal 2015, while operating income rose to $2.83 billion from $2.17 billion.
Net income attributable to Tyson was $1.77 billionb, or $4.53 per diluted share, versus $2.95 in fiscal 2015. The filing attributes the sales decline mainly to lower average sales prices, led by Beef, and to the additional week in fiscal 2015 and the Mexico and Brazil chicken divestitures. Operating income improvement was led by the Beef segment, which swung to $347 million from a loss of $66 million, along with record Prepared Foods operating income of $734 million.
Chicken operating income was $1.31 billionc and Pork was $528 million. Cash generation and balance sheet items were solid. Operating cash flow was $2.72 billion, and the company repurchased $1.94 billion of Class A stock during the year.
Total debt fell to $6.28 billiond from $6.69 billion, and total debt to capitalization was 39.5%. Cash and cash equivalents were $349 million, with total liquidity of $1.3 billion. Management expects Hillshire Brands integration synergies of around $675 million in fiscal 2017, and projects capital spending of about $1.0 billion for fiscal 2017.
Key risks include Wal-Mart Stores, Inc., which accounted for 17.5% of fiscal 2016 consolidated sales, and exposure to commodity costs, including feed ingredients representing roughly 57% of the cost of growing a live chicken. Tyson Limited Partnership controls approximately 71.18% of total voting power, and goodwill and indefinite-life intangible assets total $10.7 billion, about 48% of total assets. The filing also discloses pending litigation, including an EPA criminal investigation related to a 2014 Monett, Missouri incident and a broiler chicken antitrust class action filed in September 2016.
02—Key points
Key Highlights
- Sales fell 10.9% to $36.88 billion in fiscal 2016, driven by a 6.5% decline in average sales price and a 4.6% decline in sales volume.
- Operating income rose 31% to $2.83 billion, led by a $413 million improvement in Beef segment operating income to $347 million.
- Diluted net income per share was $4.53 in fiscal 2016, up from $2.95 in fiscal 2015, and included $53 million of previously unrecognized tax benefits and audit settlements.
- Operating cash flow was $2.72 billion, and the company repurchased $1.94 billion of Class A stock during fiscal 2016.
- Total debt declined to $6.28 billion from $6.69 billion, with a total debt to capitalization ratio of 39.5% and net debt to EBITDA of 1.7x.
- Prepared Foods delivered record operating income of $734 million, with $580 million of Hillshire Brands synergies realized in fiscal 2016 and about $675 million expected in fiscal 2017.
- Wal-Mart Stores, Inc. accounted for 17.5% of fiscal 2016 consolidated sales, and Tyson Limited Partnership controls approximately 71.18% of total voting power.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Tyson Foods kept $0.05.
- Revenue$36.88B100.0%
- Cost of revenue−$32.18B87.3%
- Gross profit$4.70B12.7%
- Operating costs−$1.86B5.1%
- Operating income$2.83B7.7%
- Interest, other & tax−$1.06B2.9%
- Net income$1.77B4.8%
Where FY2016 revenue went
$36.88B- Cost of revenue: $32.18B, 87% of revenue
- Net income: $1.77B, 4.8% of revenue
- R&D: $96.0M, 0.3% of revenue
- SG&A: $1.86B, 5.1% of revenue
- Interest, other & tax: $1.06B, 2.9% of revenue
Kept 4.8% as net incomeNet income $1.77B · 4.8%R&D $96.0M · 0.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed November 21, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $36.88B$41.37B | −10.9% |
| Cost of Revenue | $32.18B$37.46B | −14.1% |
| Gross Profit | $4.70B$3.92B | +19.9% |
| R&D Expenses | $96.00M$75.00M | +28.0% |
| SG&A Expenses | $1.86B$1.75B | +6.6% |
| Operating Income | $2.83B$2.17B | +30.6% |
| Net Income | $1.77B$1.22B | +44.9% |
| EPS (Diluted) | $4.53$2.95 | +53.6% |
| Shares Outstanding (Diluted) | 390.00M413.00M | −5.6% |
05—Questions
Frequently Asked Questions
Why did sales decline while operating income increased?
Sales fell to $36.88 billion from $41.37 billion mainly due to lower average sales prices, especially in Beef, along with the extra week in fiscal 2015 and the sale of the Mexico and Brazil chicken operations. Operating income rose to $2.83 billion because the Beef segment swung to a $347 million operating income from a $66 million loss, lower input costs decreased cost of sales by about $3.6 billion, and Prepared Foods benefited from synergies and lower input costs.
How much did Tyson return to shareholders in fiscal 2016?
Tyson repurchased $1.944 billion of Class A stock in fiscal 2016, including $1.868 billion under its share repurchase program, and paid $216 million in dividends. Dividends declared per Class A share rose to $0.650 in fiscal 2016 from $0.425 in fiscal 2015. The company also said it repurchased $255 million of stock after October 1, 2016, through November 18, 2016, and that 40.3 million shares remained authorized.
What is the company's debt and liquidity position?
Total debt was $6.28 billion at October 1, 2016, down from $6.69 billion a year earlier, and the company was in compliance with all debt covenants. Total liquidity was $1.3 billion, including $349 million of cash and cash equivalents and $943 million available under a $1.25 billion revolving credit facility. Management expects net interest expense of about $225 million for fiscal 2017.
What are the most significant risks to investors?
The filing highlights reliance on Wal-Mart Stores, Inc., which represented 17.5% of fiscal 2016 sales, and exposure to commodity costs such as corn, soybean meal, and live cattle and hogs. Tyson Limited Partnership holds approximately 71.18% of voting power, giving it substantial control over matters requiring shareholder action. Goodwill and indefinite-life intangible assets of $10.7 billion, about 48% of total assets, could be impaired if performance weakens. The company also discloses an EPA criminal investigation related to a 2014 Monett, Missouri incident and a broiler chicken antitrust class action filed in September 2016.
What growth drivers does management highlight for fiscal 2017?
Management expects about $675 million of synergies in fiscal 2017 from the Hillshire Brands acquisition and its legacy Prepared Foods profit improvement plan, down from a previous estimate of $700 million as some synergies shift to fiscal 2018. It plans capital spending of about $1.0 billion for production growth, safety, infrastructure, and efficiency improvements. The company also continues to focus on growing domestic value-added chicken and prepared food sales.
06—Continue