John R. Tyson
Executive Vice President, Chief Financial Officer at Tyson Foods
Thanks, Donnie. First, let's review a summary of our total company financial performance. Then we can dive deeper into the details for the individual segments. As Donnie stated, sales were up year-over-year for the first quarter, benefiting from both volume growth and disciplined revenue management to offset elevated inflationary increases in our cost of goods. Looking at our sales results by channel, retail drove $324 million of top-line improvement led by chicken and prepared Foods. Our industrial and other channel sales increased by $108 million led by beef and chicken. And this was offset by slight decreases in sales to the food service and international channels. As expected, given the record strength in beef a year ago, we delivered lower adjusted operating income in the prior year of $453 million. This translated to an adjusted earnings per share of $0.85.
Now, turning to the adjusted operating income bridge. We significantly grew prepared foods' earnings in the quarter, but underperformance in chicken, pork, and beef led to $979 million lower operating income compared to the prior year. While pricing actions led to an improvement of $222 million, higher input costs per pound increased cost of goods sold by $1.3 billion. About two-thirds of this increase was driven by inflationary impacts on raw material and supply chain costs. The remainder was primarily due to a shift to producing more value added mix, higher labor costs, and unfavorable derivative impacts. Excluding the impact of restructuring, SG&A expenses as a percentage of sales was down to 3.7% from 4.3% in the prior fiscal year as we continue to eliminate non-value added spend across our business while investing to support the future growth of our brands. Our productivity program continues to play a critical role in the long-term improvement of our margin profile.
Now, to the individual segment results. Starting with the beef segment. Sales in the quarter remained strong at more than $4.7 billion, but were down 5.6% compared to record high sales in the prior year. Volume gains of 2.9% were supported by improved staffing for higher throughput while the average sales price was down 8.5% due to softer domestic demand for beef. Live cattle costs increased approximately $530 million in the quarter as cattle supplies continue to tighten. Net-net, segment operating income for beef, was $129 million for an operating margin of 2.7%, off the previous year's historical record first-quarter margin of 19%. We saw higher cattle prices as beef herd numbers continue to decline. We will continue to monitor the beef cutout value and balance our supply with customer demand during a period of margin compression while pushing volume growth in case-ready and premium branded products. Although the near-term operating environment remains challenging, we have reasons to believe in our long-term outlook for beef. This outlook is supported by our investment in strategic supplier relationships that provide higher quality beef, a growing global demand, specifically, in Asia, and the strengthening drop credit as well as opportunities to shift our beef products up the value pyramid.
Now let's look at the pork segment. Sales were approximately $1.5 billion for the quarter, down 60% for the record high in the prior year. Average sales price gains of 1.4%, mostly driven by higher-value specialty products, were offset by volume decreases of 7.4%. International demand for U.S. pork products continues to be impacted by the strong U.S. dollar, while domestic demand is being affected by high retail prices despite the cutout realigning to historical norms. However, we're optimistic that when these factors normalize, demand will improve. We expect to see continued industry supply challenges in the fiscal year as the producer navigates herd health issues and higher input cost.
On expenses, we incurred greater costs as lean hog costs increased approximately $55 million over the prior year. We also experienced an unfavorable year-over-year derivative impact of $35 million. Segment operating income was lower than expected, a loss of $19 million for the quarter, down from a profit of $160 million in the prior year. As we move forward, pork margins should be supported over time with the normalization in the strength of the U.S. dollar, aiding future export demand, a strengthening dropped credit, and additional opportunity to shift pork products up the value pyramid, especially, into our case-ready business.
Now, let's move on to the chicken segment's results. Sales were a record first-quarter high at $4.3 billion, up 9.6% from the prior year. The sales increase was attributable to a 2.5% uptick in volume and 7.1% gain in pricing compared to the prior-year quarter. Volume gains are due to a combination of strategic choices to maximize our capacity utilization and pursue an optimal mix strategy with products and customers. Our pricing results, while improved, were lower than expected. We peg this to a combination of factors that influence chicken prices, mostly related to total protein availability, notably chicken and beef. We anticipate these factors easing in the back half of 2023 as beef availability lessens and total poultry harvest normalizes, providing support for improvement in our chicken prices. The fall in commodity chicken prices, driven by heightened protein supply in the market and seasonal demand weakness, does not change our strategy. Based on current USDA industry poultry placement data, we're optimistic on a forward-looking supply conditions in the intermediate term. We intend to grow our domestic production to 42 million head per week during this fiscal year, which should enable us to improve our fixed-cost leverage, grow volume, and gain market share. We'll continue optimizing our plant network and portfolio mix to maximize the profitability of our chicken segment, particularly by growing our portfolio of value added products which remain in high demand.
Operating income in the quarter was negatively impacted by $225 million of higher feed ingredient costs and an unfavorable year-over-year derivative impact of approximately $40 million. Net-net, our chicken segment delivered operating income of $77 million in the first quarter. We see significant room for improvement in the long-term operating margin of our chicken segment as there is still work to do to attain industry-leading performance. And we are optimistic it can be achieved due to the following: our diversified value added portfolio with lower-margin volatility, our brand strength with the highest consumer awareness and brand loyalty according to Nielsen data, our growth strategy taking advantage of existing capacity, optimization of our portfolio by shifting from commodity to value-added products, and last, a further implementation of our productivity program as we ramp up more automation.
Last, I want to turn to our prepared foods business. In this segment, we had a solid quarter with growth in both revenue and volume. This was driven by strong brands, increased support for our customers, and pricing aimed at recovering the continued inflation. Revenue was approximately $2.5 billion for a record first quarter, up 8.8% compared to the prior year. Volume gains of 1.2% were driven by strength in retail, notably, Jimmy Dean, and improved customer fulfillment, despite decreased volumes in food service. This quarter was our third sequential quarter of volume growth and we saw significant pricing power of our portfolio with a year-over-year increase of 7.6%. Driven by top-line growth and productivity savings, we delivered segment operating income of $266 million for the quarter. The operating margin of 10.5% was up from 8% in the prior year. We're very pleased with the performance of this quarter in prepared foods as this segment is critical to drive profitable growth for Tyson by valuing of beef, pork, and chicken commodity meat products.
We continue to be optimistic for the outlook of this segment due to the following. Our diversified portfolio meets consumers across meal eating occasions and snacking occasions in all sales channels. We're outperforming our competition in retail with a room to grow further market household penetration. Our comprehensive food service portfolio has opportunity to grow by regaining lost customers and broadening our customer base. We've got additional operational efficiencies to unlock by increasing plant utilization in addition to the implementation of our various productivity initiatives. And finally, we have an opportunity to innovate, expand, and acquire into new spaces through new offerings, the growth of our existing products, and attractive disciplined approach to M&A.
Now, turning to talk about our financial position. Building financial strength, investing in our business, and returning cash to shareholders remain the priorities of our capital allocation strategy. We produced operating cash flows of $762 million for the quarter and our leverage ratio finished the quarter at 1.6 times net debt-to-adjusted EBITDA, demonstrating our commitment to a sound balance sheet. Focused primarily on new capacity and automation objectives, we invested nearly $600 million into our business in the first quarter to capitalize on projected demand growth over the next decade. Investment in the business, both organically and inorganically, is expected to generate returns at or above our 12% return on invested capital target over time. Our capital allocation priorities are, first, to invest in growth and productivity in our existing footprint. Then we will employ a disciplined M&A approach by investing in opportunities that fit well with our existing portfolio.
Next, we remain focused on returning cash to shareholders through dividends and share repurchases. Notably, we will continue to support and grow the dividend for our shareholders as evidenced by its continuous payment since 1977 and annual increases each fiscal year since 2013. Our approach to share buybacks will continue to be managing for dilution and entering the market opportunistically when assessing for multiple factors. We returned nearly $500 million in cash to shareholders in the quarter through $169 million in dividends and $313 million of share repurchases. At Tyson, we utilize a disciplined capital allocation approach to invest in our business for both organic and inorganic growth, and we returned cash to shareholders while maintaining a robust balance sheet.
Now, let's turn to the fiscal 2023 financial outlook. We're maintaining our total company sales guidance of $55 billion to $57 billion, which implies a 3% to 7% sales growth for the year. Supported by the factors detailed earlier, we expect future beef segment margins to be in a normalized range of 5% to 7% in the long term. However, based on current market dynamics, we now expect to perform between 2% and 4% this fiscal year. Given the result in pork in the first quarter, we are lowering margin guidance for the year to be between 0% and 2%. Counter to normal seasonality for our pork segment, we expect the back half of the year to outperform the first half of the year. For our poultry business, we now expect full-year margins to be between 2% and 4% but gaining momentum through the year and exiting the fourth quarter at a margin above this range.
Prepared foods had a strong first quarter in performance. As this is historically normal seasonality for the segment, we're maintaining our expected full-year margin performance to be between 8% and 10%. In international, we continue to see volume and sales growth year-over-year and we anticipate improved profitability in fiscal 2023, driven by volume and revenue growth from new facilities ramping up. We've remain committed to growing our business internationally, representing the fastest-growing protein consumption markets in the world.
Our expectation for capex for the remainder of the year is unchanged at approximately $2.5 billion. Our expectations for productivity savings remain unchanged at $300 million to $400 million. Our net interest expense and tax rate are now expected to be around $330 million and 24%, respectively. We remain committed to our investment-grade rating and managing our net leverage ratio to be at or below two times net debt-to-adjusted EBITDA over the long term, providing optionality for inorganic investment and additional return of cash to shareholders.
In summary, we had a slower start than expected but are optimistic on the outlook for the remainder of the fiscal year and long term. We have a great team, growing demand for our products, strong portfolio diversity, and a differentiated asset footprint needed to win in the marketplace. Overall, we see some persistent market factors, some operational challenges, and some expected seasonality influencing our second-quarter results. And therefore, we're expecting total company volume revenue and operating income to be meaningfully stronger in the second half of the year compared to the first half of the year. We remain in a strong financial position to support continued investment in our existing footprint, productivity in the support of our brands as we continue to grow our business and provide desirable returns for our shareholders.
So, with all that, I'll turn the call back over to Sean for Q&A instructions.
