Donnie D. King
President, Chief Executive Officer & Director at Tyson Foods
Thank you, Megan, and thank you to everyone for joining us for the call.
Earlier today, we reported strong second quarter and first half fiscal year '22 results. Our results would not have been possible without the work of our team members. I'm grateful for their dedication and diligent efforts this quarter as we continue to manage a complex and dynamic operating environment. We delivered double-digit sales and earnings growth driven by strong market fundamentals, acceleration of our productivity actions and improving operational execution across our segments.
Our diverse protein portfolio, omnichannel capabilities, leading brands and value-added products all contributed to our results. Strong performance in our Beef segment, continued recovery in Prepared Foods and an improvement in Chicken supported improved sales and earnings. Our retail core business lines, which include our iconic brands, Tyson, Jimmy Dean, Hillshire Farm and Ball Park, have driven strong share performance in the retail channel since the onset of the pandemic. This quarter, we delivered share gains in bacon, hotdogs and snacking. We also continue to see recovery in the foodservice channel with our relative strength in QSRs and K-12, supporting continued share gains in branded value-added chicken.
Overall, consumer demand for protein has remained strong, and we are taking deliberate actions by segment to improve our volumes to better meet customer needs, including investing in new capacity, brands, product innovation and our team member experience. We are seeing our investments in team members making an impact. Despite continued labor challenge during the Omicron surge this quarter, we're seeing lower turnover and absenteeism. We have invested in higher wages, benefits and other workplace enhancements, such as flexible schedules, child care and transportation.
The construction of new plants continue to progress. This additional capacity will enable our team to address capacity constraints and better serve growing demand for protein across all segments. Along with ramping up utilization of our newest plants in Humboldt, Eagle Mountain and Thailand, we have 4 plants expected to commence operation in the fourth quarter of fiscal year '22. In addition to the new sites, we're continually upgrading capacity as needed with approximately 10 projects planned in the third quarter, representing 25 million pounds of volume in Prepared Foods alone.
In addition, we are working closely with our customers to ensure that the fair value of our products incorporates the inflationary cost pressures impacting our business. For the first half, our cost of goods sold rose 15% relative to the same period last year. Every part of our business has been impacted by inflation. We experienced higher costs across our supply chain for all inputs from feed ingredients, live animals and other raw materials to cooking oils and basic supplies. We're also managing higher cost of labor and transportation due to robust demand, higher fuel costs and limited availability. As part of our effort to combat inflation and increase profitability, I'm pleased by our accomplishments to drive costs lower by accelerating our productivity actions.
Also, our balance sheet and liquidity position remain healthy, providing optionality to invest in growth across our portfolio and return cash to shareholders. We have a disciplined approach to deploying capital with a focus on total shareholder return. Our first half results clearly demonstrate that we are making progress on our growth objectives and that we remain focused on outpacing the overall market, improving operating margins and driving stronger returns for our shareholders.
Now turning to the financial results. Let me give you some highlights. Sales improved 16% in the second quarter and 20% during the first half. Our sales gains were largely driven by higher average sales price and mix improvement. Average sales price trends reflect disciplined revenue management strategies in the context of a volatile, high-inflation environment. Like many other companies, we've seen varying levels of heightened inflation, notably in grains, labor, live animals, raw material and transportation costs. As I mentioned earlier, our teams have worked together with our customers to manage inflationary pressures.
We delivered solid operating income performance, up 57% during the second quarter and 47% for the first half. The performance in the first half was due to strength in Beef, Chicken and Prepared Foods. Overall, our operating income performance translated to $2.29 in earnings per share for the second quarter, up 71% and $5.16 in earnings per share for the first half of 57%.
Looking at our results on volume, we remain confident that our actions will improve our performance. But we are not where we expected to be by now as we faced the Omicron surge in the quarter and other labor and supply chain challenges. Due to these factors, our total volume was down slightly for the first half versus last year. Chicken remained a bright spot, where volume was up 2.1% through the first half compared to the same period last year. This improvement was driven by solid fundamental demand as well as operational improvements. There is much more work to be done as we focus on filling our existing capacity. We are pulling multiple levers to drive sequential improvement in our performance. And as a result, I'm confident that we will see continued volume performance in the second half.
In Prepared Foods, volumes were down 4% in the first half compared to the same period last year. Approximately 1/3 of this decline was related to the pet treats divestiture with the remainder as a result of a challenging supply environment and uneven recovery of the foodservice channel. We are working to improve these results over the remainder of FY '22 as we continue to take actions to expand and improve capacity utilization.
In Beef, volumes were down 2.9% in the first half compared to the same period last year. However, Beef volumes increased quarter-over-quarter due to higher harvest weights. We expect continued volume improvements for the remainder of our fiscal year '22 as new team member recruitment strategies support an improved labor position and higher throughput. In Pork, impacts associated with a challenging labor environment contributed to a 2.3% decline in volume in the first half compared to the same period last year. We expect tightness in live hog inventories to affect our second half volume.
In International/Other, our investments in capacity, innovation and brands are supporting our market share growth objectives and volume improvement. Overall, we will continue to take actions across our business to optimize our existing footprint, add new capacity, adjust our product mix and align our portfolio with customer and consumer needs. Although we have reduced our expectations for the full year, we still expect to grow our total company volumes in fiscal year '22.
We continue to take meaningful action toward becoming the most sought-after place to work, and we're making significant investments to attract and retain team members. Our US-based workforce is comprised of team members from more than 160 countries. In April, we announced that we are investing over $1 million in several nonprofit groups to expand legal and citizenship support for the team members aspiring to become US citizens. This will allow us to scale a program from 7 Tyson facilities to serve 40 company locations in 14 states.
We recently announced an expansion of the Upward Academy program as our latest investment in our team members. Starting this summer, US team members will have access to free education, including masters, undergraduate and associate degrees, career certificates as well as class in literacy and technology fundamentals. And Tyson will pay 100% of the cost of tuition, books and fees with an estimated investment of $60 million over the next 4 years. Ensuring the health and safety of our global team is a top priority. We continue to challenge ourselves to be an organization that stays ahead of the unforeseen event and adjusting our protocols to keep our team members healthy and safe. We have educated and encouraged team members to get vaccine boosters and have offered over 100 clinics across our office and plant locations.
We are also investing to support team member well-being more proactively in our rural communities. We now have 7 on or near-site Tyson health centers opened and operating. These clinics provide comprehensive health care services, including preventive screenings, chronic condition coaching, mental health counseling, lab services and sick visits at little to no cost to most of our team members or their spouses and dependents. Overall, we're confident that our actions will increase Tyson staffing levels and position us for future growth, and we will continue to explore innovative benefit offerings that make our team members' lives better.
We're making excellent progress on our productivity program, which will deliver more than $1 billion in recurring productivity savings by the end of fiscal year '24. Based on current progress, we now expect to deliver more than $400 million of savings in fiscal year '22, which is on the high end of our previously disclosed range for the year. Last quarter, I highlighted our work in Prepared Foods to build a digital manufacturing platform that utilizes data to simplify complexity and optimize processing. I also shared our work to enhance the mix and allocation of our trucking fleet resources to enable better on-time deliveries to customers. This quarter, deployment of our Tyson production system approach has improved our yield across all segments versus a year ago. Additionally, our procurement program is addressing total company spend, including direct material as well as plant and corporate indirect areas. This program continues to deliver savings in line with expectations.
Our digital solutions journey has also progressed. In our supply chain, we are leveraging new processes and digital tools to quickly identify gaps in fulfillment. Meeting the demands of our customers on time and in full is of the utmost priority, and we are continuing to maximize our service levels. The early results of our finance automation and digitization work also remain promising. For example, this program is providing more accurate billing and improved collections for Tyson while lowering our intensive labor. We are also investing aggressively in automation and technology to help address some of our most difficult roles in repetitive tasks. This is a well-planned program of automation to use common designs and equipment across our plants to optimize cost, maintenance and asset utilization.
The debone automation program is continuing to scale in plants, and our Tyson proprietary debone automation solution is also beginning to roll out in select facilities. Looking ahead, we're starting to scale new programs like pack-out robotics to continue automating highly manual processes and deliver savings. Chicken remains a top priority, and we continue to execute against our road map to restore top-quartile profitability for this segment. We've been committed to returning our operating margins to 5% to 7% level by the middle of FY '22.
This quarter, we delivered a 5% adjusted operating margin, in line with our previously communicated plan. Critical to improving our profitability is maximizing our fixed cost leverage of being staffed to standard and having enough birds to run our plants full. Since September, we have seen an improvement in our hatch rate that is consistent with the expectations that we shared at our December Investor Day. We are committed to growing our harvest capacity utilization, and we outpaced the industry in the second quarter. Achieving improved chicken harvest and higher capacity utilization will allow us to build on the volume growth delivered by Chicken in the first half.
In parallel to actions to improve volume, we have also worked with customers to manage inflationary pressures by adjusting pricing to achieve a fair value for our products. This will be important to ensuring we deliver sequential improvement in our operating margins in the second half of fiscal year '22, especially with continued increases in key input costs, such as labor and feed ingredients. As I mentioned a moment ago, we are also making good progress on our automation objectives for the segment. This includes the rollout of debone automation and a range of other equipment, which will enhance our productivity and cost effectiveness. We have come a long way in a short period of time, and I'm pleased with the progress we are making in Chicken.
To recap, we have strong consumer demand, a powerful and diverse portfolio across geographies and channels and a team that is positioned to take advantage of the opportunities in front of us. The 5 imperatives on this slide show how we will achieve our commitments and drive value creation for our shareholders. This starts first with our commitment to our team members with a focus on ensuring their health, safety and well-being as well as investing in improving our team member experience.
Second, we are working to enhance our portfolio and capacity to better address demand. This includes increasing the contribution of branded and value-added sales. As a result, we expect our volume to outpace overall market growth over the next several years. Third, we are aggressively restoring competitiveness in our Chicken segment and continue to achieve key milestones on our road map to top-quartile profitability. Fourth, we are driving operational and functional excellence and investing in digital and automation initiatives. This is at the heart of our productivity program, where we are accelerating our efforts and now expect to deliver more than $400 million in savings this year.
Fifth, to address projected demand growth over the next decade, we're using our financial strength to invest in our business. We're on track to invest $2 billion in fiscal year '22 with a disproportionate share focused on new capacity and automation objectives. We also continue to return cash to shareholders. Through the first half, we returned approximately $850 million in dividends and share repurchases.
As a final comment before turning the call over to Stewart, I want to highlight that Tyson Foods understands we have a critical role to play in the global food system to make it more resilient, more sustainable and more equitable for current and future generations. Just recently, we completed a materiality analysis that will inform our long-range strategy. These insights from key stakeholders shape our strategic framework and provide direction on the expectations of our company.
I will now turn the call over to Stewart to walk us through more detail on the financial results for the second quarter.
