John R. Tyson
Chief Financial Officer at Tyson Foods
Thanks, Donnie.
I'll start with an overview of our total company results before moving on to our individual segments. Sales in Q1 grew slightly year-over-year as an increase in beef revenue was nearly offset by a decrease in chicken. The decline in adjusted operating profit was driven by lower profitability in beef, which was partially offset by growth in chicken and pork. It's important to note that AOI improved significantly on a sequential basis despite the modest decline versus last year. Adjusted EPS nearly doubled compared to last quarter, highlighting the ongoing improvement in our operational performance.
Now let's review our segment results, starting with Prepared Foods. In Prepared Foods, Q1 revenue was flat year-over-year. Volume growth was led by benefits from the Williams acquisition and continued recovery in our Foodservice business. Lower pricing primarily reflects the mix impact of the lower contribution from retail. AOI in Q1 was also in line with last year. Lower raw material cost and operational efficiencies were offset by increased brand support expenses, start-up costs associated with new capacity additions and mix. AOI dollars and margin both increased significantly on a sequential basis due to strong operational performance and great seasonal execution by the team.
Moving on to chicken. Sales in Q1 declined 5.4% year-over-year, primarily driven by the impact of lower commodity protein prices. Volume declined 1.5% due to lower production, which was partially offset by continued sell-through of finished goods inventory. Despite the decline in sales versus last year, AOI more than doubled in Q1, primarily driven by the benefits of our strategic actions and other operational efficiencies. These include lower plant spend, improved yield and better live performance.
While input costs were clear tailwind, these were largely offset by the impact of lower pricing. As Donnie mentioned, this is the third consecutive quarter of more than $100 million of AOI improvement as we were able to pull forward the benefits of closures of inefficient plants and improvements in our live operations.
Now moving to beef. In beef, revenue increased 6.4% year-over-year in Q1 with lower head throughput more than offset by higher prices per pound. While revenue increased, AOI decreased versus last year, primarily reflecting compressed spreads as was expected. As Donnie mentioned, in Q1, nearly half of the operating loss was driven by an unfavorable inventory valuation adjustment, which was primarily due to the rapid and significant decline in cattle futures. Moving to pork. Q1 revenue was down modestly as volume growth was offset by lower pricing. However, AOI increased year-over-year, benefiting primarily from improved spreads driven by lower hog costs as well as better execution. And finally, a brief comment on our international business. AOI improved as we begin to lap some of the start-up costs of our newer facilities and continue to focus on improving execution despite a decline in sales driven by macroeconomic challenges.
Shifting to our financial position and capital allocation. Our commitment to building financial strength, investing in our business and returning cash to shareholders primarily via our dividend remains unwavering. While market conditions remain challenging, we are laser-focused on disciplined management and deployment of our capital resources to drive cash flow. Q1 showcased a robust operating cash flow of $1.3 billion, above our expectations, and working capital was a solid source of cash as we continue to manage inventory levels. We were also disciplined with CapEx, which came in at just over $350 million in the quarter, below last year's exit rate. During the quarter, we returned $171 million to shareholders via dividends. Our net leverage declined sequentially, coming below 4 times, driven by our improved profitability and strong cash generation. We ended Q1 with more than $3.7 billion of liquidity. Our balance sheet management approach remains unchanged. We are committed to building financial strength and maintaining our investment-grade credit rating and returning net leverage to at or below 2 times net debt to EBITDA.
We remain committed to maintaining a disciplined yet opportunistic capital allocation strategy, ensuring that we deploy resources to maximize long-term shareholder value. Now let's take a look at our updated outlook for fiscal 2024. Given the solid results in Q1, we have confidence that our financial performance in 2024 will improve versus last year. However, as it's still early in the new fiscal year and uncertainties remain, especially in our Beef segment, we have made only modest changes to our outlook. Our focus for fiscal 2024 remains to manage the business for profit and cash dollar generation, reflected in our guidance presented in dollar terms rather than margin percentages. With that in mind, we are reiterating our overall sales guidance to be roughly flat year-over-year.
Moving to each of the segments. Prepared Foods had a solid start and a seasonally strong period. For the remainder of the year, we expect strong volume results as we continue our momentum in Foodservice and see the benefits of our capacity additions. We remain focused on operational efficiencies while we support our brands and anticipate continued start-up costs. Taking all this into account, we're maintaining our AOI guidance to be in the range of $800 million to $1 billion. In chicken, our operational turnaround is progressing as anticipated. For the remainder of the year, we expect to return to normal seasonality where Q2 is typically a weaker quarter. Given the strong start in Q1 and that we believe that there are more tailwinds than headwinds, we are tightening our AOI guidance range to be between $500 million and $700 million.
In beef, spreads are compressing as expected. However, uncertainty remains around how the cattle cycle will progress. Therefore, we are maintaining our full year guidance at a loss of $400 million to breakeven. In pork, on the back of our strong Q1 results, we're now raising our guidance to be between breakeven and $100 million. For the total company AOI, we're maintaining our guidance of between $1 billion and $1.5 billion, reflecting the portfolio nature of our segments. To round out the key P&L items, we anticipate interest expense to be roughly $400 million and a tax rate to now be between 23% and 24%.
Turning to CapEx. We're maintaining tight controls on spending in line with profitability and cash flow and we expect CapEx to remain between $1 billion and $1.5 billion this year. Finally, on free cash flow, we're committed to managing working capital and CapEx, and we're even more confident now than we were last quarter that we will generate positive free cash flow for the year. To further help model the shape of the rest of the year, we anticipate more typical seasonality across our business. As a reminder, Q2 is seasonally our weakest quarter for AOI and cash flow driven by beef and chicken. And as you may be aware, this January has already been impacted by severe winter weather disrupting operations. And again, we expect start-up costs in Prepared Foods to impact Q2 as well.
So in summary, 2024 is off to a promising start, and we're cautiously optimistic on our prospects for the remainder of the year as well as for the long term. Tyson is a leader in the global protein industry. We have strong brands, a broad portfolio of products and a great team, all of which uniquely position us to win in the market.
With that, I'll turn the call back over to Sean for Q&A instructions.
