Jon Kathol - Vice President of Investor Relations Thomas Hayes - President and Chief Executive Officer Stewart Glendinning - Chief Financial Officer

Kenneth Goldman - JPMorgan Securities LLC Adam Samuelson - Goldman Sachs & Co. LLC Farha Aslam - Stephens, Inc. Heather Jones - Vertical Group Robert Moskow - Credit Suisse Securities Michael Piken - Cleveland Research Co. LLC Benjamin Theurer - Barclays Capital Akshay Jagdale - Jefferies LLC Michael Lavery - Piper Jaffray Eric Larson - Buckingham Research Jeremy Scott - Mizuho Securities Kenneth Zaslow - BMO Capital Markets

Good morning, and welcome to the Tyson Foods’ Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Jon Kathol, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to the Tyson Foods Incorporated second quarter earnings conference call of the 2018 fiscal year. On today’s call are Tom Hayes, President and Chief Executive Officer and Stewart Glendinning, Chief Financial Officer. Slides accompanying today’s prepared remarks are available as a quarterly supplemental report on the Investor Relations website at ir.tyson.com. Tyson Foods issued an earnings release this morning, which has been furnished to the SEC on Form 8-K and is available on our website at ir.tyson.com. Our remarks today include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements reflect current views with respect to future events such as Tyson's outlook for future performance on sales, margin, earnings growth and various other aspects of its business. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. I encourage you to read the release issued earlier this morning and our filings with the SEC for a discussion of the risks that can affect our business. I would like to remind everyone that this call is being recorded on May, May 7, at 9:00 AM Eastern time. A replay of today's call will be available on Tyson's website approximately one hour after the conclusion of this call. This broadcast is the property of Tyson Foods and any re-distribution, re-transmission or rebroadcast of this call in any form without the expressed written consent of Tyson Foods is strictly prohibited. I will now turn the call over to Tom Hayes.

Okay, thanks John and good morning everybody. Thanks for joining us today. At Tyson Foods, we continue to grow our business through differentiated capabilities and deliver Financial Fitness through continuous improvement as we seek to the feed the world with the fastest growing protein brands. Overall, we are pleased with the progress we have made in the second quarter and the first half of the fiscal year. As we shared our on our Q1 call, we knew we are facing challenging conditions and despite these challenges and additional headwinds we delivered solid second quarter results in all four segments. Based on the hard work of our resilient team we are in a good position in the second half of the fiscal year and we expect to reach our annual adjusted earnings guidance of between $6.55 and $6.70 a share. As international demand for protein continues to increase, we are positioned to meet it with well established network of global offices. We have $1 billion brands and rapid growth brands and we continue to build capabilities across each of our supply chains that serve our segments. With our at home or away from home we serve consumers wherever they eat with breadth and depth that give us unmatched insights into consumer behavior, we are partnering now more than ever with our customers to drive growth together. We are innovating across every parts of Tyson Foods from state-of-the-art technology in robotics and automation to transforming our information systems from Analog to Digital. We are investing in new disruptive technologies through Tyson Ventures and delivering best-in-class new products from the fastest growing categories in food. We are making agility contagious in each of our segments as we gain momentum against our Financial Fitness program. Across the business, we achieved $65 million in savings for the quarter and a $102 million for the first half of fiscal year. We are on track to deliver at least $200 million in fiscal 2018 and we are building momentum for fiscal 2019. In Q1 we spoke on transportation cost challenges. Increased freight costs affected all four segments that had a net impact of about $0.14 per share for the quarter. Also as I mentioned on our last call, we took early action in the form of pricing to mitigate the impact to our margins. While we were climbing the hill, the grade steepened and now we are estimating the full-year impact to be roughly $250 million. We will be working nearly cover the increase for the remainder of the year through pricing and additional cost reductions program such as improving truck weights, lead times and continues improvement projects. We are expecting the cost impact in Q3 to decline and in Q4 we should be close to full recovery. However, the gap on cost recovery for the fiscal is estimated to be $155 million or about $0.31 in EPS. Our guidance includes these variances and assumes no additional cost increases. Going forward, product prices much reflect the true cost that we cannot subsidize the increased freight. In addition freight, we are seeing increased labor cost as we invest in our team members to increase productivity, efficiency and yields. We have already had positive results from our programs to reduce team member turnover and improve both safety and productivity. These types of initiatives are added cost now, but we expect to return on our investment overtime in addition to simply being the right thing to do for our team members. Moving to my commentary on each segment. Please note the references to operating income and operating margin will be an on adjusted basis. In the Beef segment in Q2, we generated operating income of $120 million with a 3.3% operating margin. Volume was up 1.8% and that’s a good outcome, especially considering poor weather conditions which prevented us from running some of our plants during the quarter. Revenue increased 5.6% as domestic and international demand for U.S. Beef remain strong. Our Beef exports were up 22% versus the same quarter last year and despite all the conversation about trade and tariffs, we haven't seen a significant impact on our Beef business. That said, trade flow is incredibly important to Tyson Foods and we continue to urge our political leaders to support our efforts to provide certainty in the markets. As we look for more ways to add value in our Beef products in domestic markets, our premium programs continue to do very well. Our Open Prairie Natural line of Angus Group, Angus Beef grew volume of 26% compared to second quarter last year. Barring any disruptions we anticipate the favorable operating environment in Beef to continue into 2020. The U.S. cattle herd expansion is slowing, but there is still ample supply of livestock and demand for U.S. Beef continues to be robust. Given supply forecast of the regions in which we operate and our continued focus on productivity, we expect the segment’s operating margin to be above 6% for the fiscal year. In the Pork segment, we generated second quarter operating income of $79 million with a 6.2% margin. Revenue was down 2.8% as livestock prices fell, we slightly reduced volume to balance our production with customer demand. Winter weather was a challenge in our Pork segment as well creating staffing difficulties and at times also preventing us from running some of our plants. We are innovating within the Pork segment to grow our margins and we are seeing success in our branded and premium Pork programs. In Q2, our Chairman’s Reserve brand, grew volume by 12%, which includes our new Chairman's Reserve prime brand extension and our Open Prairie Natural line grew volume nearly 75% versus Q2 last year. Customer demand for our Case Ready products overall has continued to grow, the market dynamic support an expansion of our case ready capacity. For the year, we believe our Pork segment will continue to execute well, hog supply is expected to be up to 2% to 3%. However there's still a significant amount of new production capacity that has pressured margins. We are projecting that our operating margin for the year should be around 8% and we expect more hogs will be available in the fall, which should be supportive of the strong operating environment in Pork heading into our fiscal year 2019. The Chicken segment operating income of $288 million generated in Q2 with a 9.7% operating margin. The volume was up 2% on strong demand and an incremental volume from AdvancePierre, while revenue increased nearly 6%. Segment benefited from $23 million in Financial Fitness savings. Our Chicken segment also faced challenges in Q2 consistent with USDA reports a production and hatch were down pressuring supplies. However, demand for our Chicken was so strong that created supply inefficiencies. Nevertheless, we are committed to getting customers and consumers to Chicken they want, which in some cases meant adding staff, moving products and running plans on weekends. But most importantly, we were successful in meeting and in some cases exceeding our customer’s expectations. Also within the quarter to optimize returns on Tyson Any'tizers wings will reduce the package rate, knowing it would result in a temporary volume decline, which is evident in the IRI Nielsen Data. It also resulted in a temporary decline in share that’s beginning to rebound. There is a right move to get an appropriate margin for a branded product with strong consumer demand. Despite the challenges, our Chicken segment operating income was up nearly 15% year-to-date versus last year. Giving us confidence in our expectation of an operating margin of around 10% for the year and carrying momentum into fiscal 2019. Moving to Prepared Foods, the segment produced $222 million in operating margin with the margin of 10.3%. The nearly 11% volume increased for the quarter is primarily attributed with the incremental volume of AdvancePierre, which also contributed to the revenue increase of nearly 23% in Q2. The segment benefited from $38 million of Financial Fitness savings. Of importance to the Prepared Foods segment, is a significant milestone we achieved 2 weeks ago. We successfully completed the integration of the AdvancePierre and Original Philly businesses ordered to cash process into our systems allowing us to pursue synergy capture on scheduled and additional providing customers the ability to combined Prepared Foods orders. An inherent advantage in our Prepared Foods business was access to protein from our Beef, Pork and Chicken segments, we are building on that strong foundation to upgrade our product mix to more value added proteins and deliver long-term sustainable growth. In doing so, we incurred several one-time costs in Q2 related to certain purchasing contracts, exiting non-protein businesses and expanding capacity at a plant. Even with those events, the Prepared Foods segment delivered strong results and is on track to deliver an operating margin of around 11% for the year. Let’s move from our segment results to our sales channels. Price in retail continues to outperform total food and beverage in all but two of the top 10 CPG retail food manufacturers in both sales dollars and volume over the last 52 weeks. Of note, the two confectionary companies ahead of us benefited disproportionally from two week search in the 52 weeks period. Tyson Core 9 retail product lines continue to grow albeit at a slower pace as we lapsed strong comps but we are achieving our goal of outperforming category growth. In particularly, the Jimmy Dean brand continues to drive significant growth and Hillshire Snacking was named the Top 10 IRI New Product Pace Setter for the year. It’s also worth noting that we increased our customer brands volume share within the Core 9 categories through strong customer partnerships that are focused on growth. In food service, check size maintained the steady 2% increase we have seen for the past several quarters, which continues to drive growth in food service. Within broadline distribution, Tyson’s Focus 6 product lines are up nearly 6% in volume over the prior year, which is more than three times of growth for the total distribution channel and five of the six are driving growth in their categories. Innovation continues to fuel our growth engine, and today we are bringing innovation to our retail category that hasn’t seen in years, individually frozen Chicken. Using consumer insights, our team identified an opportunity to disrupt this category by providing a meal solution. In April, we launched Tyson Dinner Kit that consists of frozen raw Chicken, precut vegetables, a starch and a sauce and they are found in the case for raw frozen Chicken is sold. We have also launched fully cooked dinner kits positioned in the freezer case alongside of fully cut Tyson Chicken products and snacks. These products are on trend and because they are frozen the shelf life is extended substantially for both the retailer and the consumer. We are adding to our snack line as well with Tyson Any'tizers Snackers. These are twist on a loaded potato skin using crispy Chicken instead of potatoes. With this product, we are beginning to transition to new packaging as we refresh the Tyson brand. We are carrying the mindset of innovation across the business and becoming more agile. We are transforming the model where we launch, learn and then tip it quickly and that starts with our innovation lab where we are developing new products that solve for sustainability challenges. At the same time, we are working with two business incubators that directly connect us to the startup communities in Silicon Valley in Chicago. In short, we are giving people reasons to think differently about Tyson Foods. Looking ahead, we see significant opportunity to continue to grow our business. We are building on a strong foundation and we will keep challenging the status quo to drive growth across through our iconic brands and our customer’s brands. Our team is excited and motivated to deliver a great fiscal year in 2018 that will set us up for an even better 2019. And now Stewart will take us through the financials. Stewart.

Thanks Tom and good morning everyone. We delivered record adjusted operating income and adjusted EPS for the first half of fiscal 2018 despite the challenges that Tom discussed. Each of our segment's performed well as our diversified portfolio of protein brands and ongoing investments continue to provide strong stable growth. Revenues for the first half of fiscal 2018 were up nearly 10% compared to prior year and were up over 7% in our second quarter to $9.8 billion as total Company volume grew 1.9%. Adjusted operating income for the first half of fiscal 2018 was a record $1.6 billion up 2% over the strong comparable period last year. Adjusted operating income for Q2 was $694 million up 11% over the last year. Total Company adjusted return on sales was 8.2% for the first half of the year and 7.1% in Q2. Our record adjusted EPS for the first half of fiscal 2018 was $3.08 which includes a $0.38 benefit due to Tax Reform and results in an 18% increase versus the strong comparable period last year. Our operating cash flow through the first two quarters was over $1.1 billion and we spent $559 million on capital expenditures. This outpaced our depreciation by $206 million as we continue to invest in projects with a focus on delivering returns well excess of our cost of capital. During the first half of the year, we repurchased 2.3 million shares for $180 million. Our adjusted effective tax rate in the first half of the year was 22.8% and for the second quarter was 23.8%. Net debt to adjusted EBITDA was 2.3 times on a pro forma basis, including AdvancePierre's results for full 12 months. We expect to resume share repurchases once our leverage nears our target of two times, which we expect to occur during the fiscal 2018. Including cash of $198 million, net debt was $9.8 billion and total liquidity was just shy of $1 billion. Net interest expense was $170 million during the first six months. We expect approximately $300 million of incremental cash flow in fiscal 2018 as a result of Tax Reform and in the second quarter, we invested $109 million of our tax savings in one-time bonuses for our front line team members. This investment was adjusted out for EPS purposes. Please see the reconciliation in our earnings release for the impact by segment. As we have demonstrated, our capital allocation priorities are focused on driving shareholder value and growing the business. We will remain disciplined in our long-term focus as we deploy cash to reduce debt and grow our business organically through sustainable operational efficiency and capital expansion projects along with investing in innovation and brand building. We also have the flexibility and the investment grade credit ratings to acquire businesses that support our strategic objectives. And of course, we will continue to return cash to shareholders through stock buybacks and dividend growth. Now, here are some additional thoughts on fiscal 2018. We expect top line sales of between $40 billion to $41 billion, which is growth of around 6%. The expected increase is attributed to base business volume growth as well as incremental AdvancePierre sales of approximately $1.1 billion. Net interest expense should approximate $340 million. Our adjusted effective tax rate is expected to be around 24%. CapEx is expected to approximate $1.3 billion as we focus on capacity expansion and operational improvements that create long-term shareholder value. We have a great pipeline of capital projects, but due a slower rate of spending than originally planned, we have reduced our projected CapEx this year by $100 million. Based on our average share price in Q2, we expect our average diluted shares to be around $370 million before share repurchases. Last fall, we mentioned, we would evaluate our existing normalized ranges for our segments and I want to provide you an update on our conclusion. As we transform into a modern food company, we believe our historical normalized ranges are no longer reflective of our long-term growth opportunities as we continue to reshape our business with a prudent capital allocation strategy and execute strategic acquisitions. As a result, going forward, we will provide an annual outlook for each segment focused on our margin expectations rather than be indexed to a historical range. We are reaffirming our adjusted EPS guidance of $6.55 to $6.70 even with the challenging conditions we experienced in the first half of the year. Note, many of these will continue to be headwinds in the back half as well, we will continue to pull all the levers to mitigate these costs and pursue recovery through pricing. This concludes our remarks. Operator, we are ready to begin the Q&A.

Thank you, Mr. Glendinning. We will now begin the question-and-answer session. [Operator Instructions] And your first question will be from Ken Goldman of JPMorgan. Please go ahead.

Hi, good morning, everybody.

Hey, good morning, Ken.

Good morning.

Tom I’m not going to congratulate you on the Celtics for the series over, so we have to wait on that. I just wanted to make sure I understood you right. I think last quarter you expected $200 million in higher freight costs and you said the majority of which is going to be recovered through pricing. I don’t think you mentioned the specific gap. Now you are talking about 250 in higher costs, you call that $155 million gap. I’m just trying to get a sense of what the gap was you were expecting last quarter and maybe where you are making this up in your P&L? Because it sounds like pricing, I’m just doing this quick math here is not going to be quite the offset you expected, but it sounds like your EPS guidance is being where it is, if your EPS guidance is being maintained. So I guess, I’m trying to figure out where the other offsets are? Or maybe I’m just not reading this, right?

No, I think you are right Ken. We said last quarter that it was going to be about $200 million and I have said in my prepared remarks, it’s up to 250 and so there is, you know what was it difficult situation as it relates to transportation as we saw it emerging, actually played out and then it got that worse. We knew it was going to be a drag in this quarter. I don’t know how much more clear, I could have been on that at CAGNY and even the Q1 call. And we said that for this quarter, about $0.14 in EPS. Nobody likes to take in the cost increases, and we go to answer your question about how we get it back, it’s through pricing. And our brand strength matters also how we partner with our customers is important and it really is something that we are focused on getting phenomenal through pricing, but then also we have to take costs out. As I mentioned again in my prepared remarks, truck weights and lead times and smoothing out the supply chain, there are other continuous improvement projects we are pursuing. So we are simultaneously pulling the lever of pricing as well as all the cost reduction levers. There is quite a bit of focus on this, as you can well imagine, inside the Company. Yes, we are maintaining our guidance. I do believe that we will be sort of on that low end of the range, given what we have seen, the cost coming on freight and that is all baked into the forecast, but it is causing us to stay closer to the lower end of the range. The other thing that I would like to just to make sure that everybody takes away is that Q4 will be much stronger than Q3. So as get a lot of these pricing moves in place as the projection very strong Q4, much stronger than Q4. And like I said maintaining that full-year projection, but certainly at the lower end of that.

Okay. Thank you for that. It very helpful. And my follow-up would be on AdvancePierre. You tweaked your guidance down lower for AdvancePierre sales. I think you did last quarter as well. I also recall last quarter, you really weren’t concerned, I think the reduction had to do with costs and pricing, a really like a lack of demand. Can you just update us, if that’s the same dynamic this quarter?

Yes. I will pick that up. I mean certainly the same dynamic this, think if you go and look at the volume, we are up over 1%. And if you looked at dollar volume were up more than twice. So we feel good about AdvancePierre.

Thank you.

The next question will come from Adam Samuelson of Goldman Sachs. Please go ahead.

I guess my first question, maybe continuing on some of Ken’s question and really just wanted drill down to understand what has changed in the outlook versus prior, I guess specifically in Chicken. You took the volume guidance in Chicken and came down marginally, the margin guidance came down about 100 basis points for the full-year. Can you help kind of just bridge kind of how those expectations have changed between freight, feed, the volume mix, et cetera?

So hey Adam. What I would say is we feel really good about our delivery in Chicken so far this year, so we feel great about the full-year. We meet our expectations, just to see around 10%. It’s going to be a fantastic year for Chicken because we are also growing volumes. So EBIT year-over-year should improve. The thing that is obviously a challenge for us as called out in prepared remarks, certainly we have hatchability. It’s been an issue for us and we expect that we are going to continue to make progress on that. And the challenge that we do see for sure is that overcoming this first half where we had some weekends, where we just weren’t working, the weather, I don’t like to use that as an excuse, but it actually had an impact on us. Those were things that were just following, so the back half looks much stronger. The higher feed cost environment, at this point everything is sort of based on forward curve, but are certainly its included in our estimates, we do have higher feed costs. So we need to overcome that with pricing. As we have said previous calls, previous years, it takes us a bit of time to overcome that a quarter or two before the pricing goes into the market, but certainly we want to get that back. And then, I would say in terms of the volume growth, I couldn’t be happier with how the team is progressing. They are doing an excellent job and certainly, we have had a tough second quarter, but that just makes the team that much more excited and engaged to kill it in the back half.

Okay and maybe just thinking about that in a probably different light. It seems like more of the pressure is on the fresh and the live side. I mean, can you talk about, any way you characterized the profitability of the prepared for the process poultry is in the Chicken segment versus first is the live operations and how those two might be working differently. I think there is a lot of concerned in the market related to weaker kind of commodity poultry prices and the impact that would have what some of yourselves. But you do have this large further process businesses that does have that offset and how those two are moving in tandem or in opposite direction at this point?

Yes. So for competitive reason, I’m not going to go into too much detail, Adam. As you can well imagine, we want to make sure we maintain that for our investors, but certainly we are focused on matching our supply with our demand .So as we have great further process business cuts and par fried, we are seeing massive growth there. We have a new plant that came up and that’s is fall. However, we like where we are positioned as it relates to total demand. There is no question that different parts of the business are in different amounts depending upon the year and so that is not something that is new to us, but we feel like we are demonstrating is regardless of that, we continue to deliver strong margins. So we deliver 10% margin. The rates that we have and continually driving, they fluctuate a bit, but we say are stable. And so that mix that we really focus on and that maybe a little bit unsatisfactory to you to not have the break out of the individual pieces, but you know I like where we sit. Stewart do you want to add?

The only thing I would always say is that you look at the performance of the business, the business had some challenges in the first quarter, Tom called those out, sorry in the second quarter had some challenges, but I think when you look the way the business is positioned from the back part of the year, it’s going to be serving both parts of the market. What is great about our business and the reason why the margin is so strong is exactly the piece you have called out, it’s that further process part of our chicken business and that part of the business is strong.

Okay that’s a helpful color, I will pass it on. Thanks.

The next question will be from Farha Aslam of Stephens, Inc. Please go ahead.

Hi good morning. Tom, could you share with us some color on your beef business. It’s look like you anticipate a very strong back half in order to hit your 6% plus margins. What are the current dynamics that you are seeing that gives you confidence on that number?

Yes. Farha, it’s definitely the cattle on feed. So we know there is going to be in our regions. So cattle on feed overall, but certainly in our regions we feel like we are well set out. As expected Q2 was tough, like it was really choppy and 3.3%, even though it’s above sort of historical rates not what we were playing for. To be about 6% for 2018, it’s really on the back of those cattle on feed reports and knowing that the supplies in our regions are exceptionally good.

That’s helpful. And then bigger picture question going into next year. Currently, Tyson’s stock is trading at about five-year low, largely because there is questions about your ability to grow earnings for next year. You have moved way from giving kind of segment level margins outlook. Could you give us some bigger picture color on where you expect to drive growth into next year without of course giving particular guidance for the year?

Yes. So Farha, when we have talk about this historically there has been - almost like we are bound between in these ranges and that’s something they do, you are a very commoditized company. I understand the purpose that they served in the past. But we want to continue to at the best margins, while we are continuing to grow the business. So we can deliver year-over-year improved EBIT. As a relates to 2019. Clearly too early to totally quantify, but we see some really strong themes developing across the portfolio. Certainly the value added businesses are expected to continue on the growth trajectory, we are in great categories. We have great businesses both Prepared Foods and Chicken will benefit from a higher value-added mix for sure. Strong demand is supported by the continuous improvement in our Financial Fitness program that we have, the more volume that we drive, the stronger the cost reduction is going to be and we continue to go faster in the categories we plan. As I said in the prepared remarks, getting the businesses on one IT platform is enormous because it not only allows customers to place one order, but that also with the distribution centers, everything just starts to kick in. So another tailwind for us would be accelerating cost improvement into 2019. We expect strong back half which will certainly us a momentum as I called up before Q4 better than Q3. Not for nothing. Any M&A benefit will be incremental to that. So there certainly we have a strong balance sheet and we sure we can talk about capital allocation, but we feel great about where we are positioned as it relates taking advantage of M&A. And the last thing I will say is that commodity businesses, Beef, Pork and parts of maybe the Chicken business will benefit from increased supply, counterbalanced certainly with global and domestic demand increases, have get a lot of noise as it relates to tariffs and so forth. But all the things that we are seeing in terms of themes developing for fiscal 2019 are all very positive and we are excited.

And it capital allocation. Your share repurchase program, do you anticipate starting that in the third quarter or fourth quarter?

Yes. So let’s be clear on that. Of course, we have always had couple of aspects to share repurchase, it’s been ongoing in respect of offset through our long-term incentive programs and nothing has changed in that. So we will have a share repurchase ongoing there. Relative to more discretionary share repurchase, we are not saying specifically when. We are saying we like to see our leverage come down. We expect that to acceptable levels, and we expect that to happen in the second half. I don’t want to make myself prudent to say it’s going to happen in Q3 or Q4. I would like to have the flexibility to make that choice.

Appreciate that. Thank you.

The next question will be Heather Jones of the Vertical Group. Please go ahead.

Good morning. A quick question. I was wondering, you mentioned earlier in the Chicken segment, you talked about egg production hatch. I was wondering, if you could give us a sense of the magnitude of headwind that’s been, because I would think that that’s something that would abate potentially into 2019. And just wondering, if we could get a sense of how much that’s been a headwind for you guys?

It’s definitely has been a headwind, and it is, our intention is that it will abate by 2019. We haven’t put a lot of emphasis on that because it’s still a bit of an issue, like we are still working through it. And that’s been the best I can say as we are managing through it. It’s not solved yet, but that is getting better. We expected some decline in egg productivity with a bit of this the trade off in the breast meat yield to go into different breeds. But decline in hatchability has been a bit more than expected. If we just point to the USDA reports, it sounds like the whole industry has seen the same thing, but we feel really good about what Tyson is doing, the progress that we are starting to see, which gives us confidence about 2019. But it is something we continue to work.

Okay, perfect, thank you. My second is on the Pork business. So this was the lowest margin, both per head and percent since Q3 of 2013. And when you look at the cut out and hog costs during the quarter, that wouldn’t suggest that kind of year-on-year decline you guys had and I know labors up and freights costs are up, but the magnitude was very surprising. So I was just wondering, has been some in how you price that product into Prepared Foods? Or has there been some change in your longer-term hog contracts that aren’t priced off the spot market? Just trying to get a sense so we can know because it was a very big year-on-year change and so I’m just trying to understand that better.

Yes. So remember last year was incredibly high on Pork. And so it was just a exceptional year and so we wish those margins would continue with us. They will not. Our assumptions that are built into our annual outlook of around 8% are strong margins. So certainly, there is nothing that's changed, Heather. We haven’t modify our approach or anything like that. What you are seeing is equilibrating to what will be sort of the new normal. So that continues to play out about as we expected as new players enter the market. We are not having trouble getting hogs or seeing more hogs coming. That’s also something that gives us a lot of confidence for 2019. The hog supply will meet the harvest capacity. This is something that we just have work through the turbulence, but heading into 2019, we feel really good about the supplies that we anticipate coming into the market in the fall.

Okay. Thanks so much.

Yes.

The next question will be from Rob Moskow of Credit Suisse. Please go ahead.

Couple of questions. The first just getting back to freight and pricing assumptions. Tom as you get into fiscal 2019, I think you said that, that you and the industry will need to keep taking pricing in order to offset these costs going forward. Is your assumption that freight cost inflation could happen again in fiscal 2019, or do you think it will be kind of flat? And are you also saying that, everyone needs to take some more pricing in fiscal 2019, because as it stands today, you have take it some pricing, but you had to offset a lot it just through your own kind of productivity. Is that really the message?

The message for 2019, I would ask you to take away is that we are that going to have the pricing that we need, based on what we see today to have us net to zero if nothing else changed in fiscal 2019. So do I think there is going to be more constantly, it doesn’t feel that way as it relates to the drivers. I think we are doing, everything we can do to get on top of that, and it feels good. What I don’t know is fuel. Like what is going to be the fuel situation in that, to the extent it goes up will look to price with that as well. As it relates to pricing overall, as you well imagine, I can only speak to what we are facing in Tyson versus the industry. This is an input costs you to recognize by the customers and hopefully the consumer. And we want to continue to provide value and we don’t want this to hurt our earnings, we can’t continue to do the investments that we would to drive growth that we have been driving. So we are going to play to have it net to zero by the end of Q4 and if costs stayed the same Rob, you should expect that would be overcome. Like, I don’t know about what happens with oil and so forth into 2019.

Okay. And a quick follow-up. This is a more esoteric question. There are some byproducts that get exported to China in the pork complex, things that would not get absorbed here domestically. I heard that the value might be $3 ahead. Have you seen those types of exports cutoff and has influenced your Pork margins at all? Or is anyone talking about that internally?

I think it’s a good insight. It hasn’t affected us Rob. If you think about our total business, we sell, we, Tyson less than 0.5% in total sales to China in pork. So it’s about 150 million-ish, I think in 2017. So the tariff and everything that’s going on has created some issues. And certain, demand would be backed up into the, or the supply would be backed up in the U.S.. As it relates to byproducts not a big factor given the small base that are already is that we rely on. The big thing with traffic is what happens to other companies and therefore you know the cost of the supply in the U.S. goes down. That’s not so much byproducts, but I think that’s a good question.

Okay. Thank you.

The next question will come from Michael Piken of Cleveland Research. Please go ahead.

Yes, hi. Just wanted to touch base a little bit more on the red meat side in particular as we look to the outer years. How much of a big deal is the labor potentially for people to add workers to add second shifts and the ramp of some of the capacity and you have been able to maintain your shifts as high as you want just in terms of labor from a labor perspective?

We have been taking wages out from labor cost is going up. The other things that we are doing is, we are definitely putting more and more emphasis on safety and also something we called upward academy which is bringing skills and training into the plants to train and focus on English as a second language, it could be basic financial skills, things that are allowing us to retain team members more. Those relates to whether it’s second shifts, we said that we want to do it or just overall sort of labor challenges, I think we are well position to make sure that those don’t affect us. The other thing I would say on this Michael is that, we have been spending quite a bit money on automation and robotics. I would say probably less focused on beef more on probably Chicken and Prepared Foods. But we also have been spending it on for safety reasons and for otherwise. So the net is feeling that we are in a good position such that we needed to add incremental labor or incremental shifts, I don’t think that’s anything that I feel nervous about.

Okay, great. And do you expect like those investments in robotics. Is that being done primarily for safety or is that also margin accretive overtime?

Both. Yes. Margin accretive overtime, again we reduced the turnover. Frankly we are not necessarily obtaining that massive reduction in headcount, because what we are doing is as we grow and as putting those automation projects in place those two for transferring and other parts of the plan and just the natural turnover goes down and we like that, that’s a good outcome for us.

Okay, great. And then the last question is just any updates on the pepperoni plant and any type of accretion you might expect in 2019? Thanks.

On track on the pepperoni projects and it would be nice when we don’t have to talk about it anymore, but I'm happy to talk about it. We have everything in place that we wanted to have in place. Let's say probably on track with a little more optimism as I hear the team talk about what they are going after in terms of bringing new customers or customers that we have back on, the operations they are going really well. So I feel like that is going to be a non-issue after 2019 if we maintain this, they are going to be solved in 2019. But its touch wood things are going really well there.

Michael the only thing to add is that your question relative to sort of how much, we don’t break that out separately, but what I can say is that's baked both into EPS guidance for this year and of course will be baked into that guidance for next year.

Thank you.

And the next question will be from Ben Theurer of Barclays. Please go ahead.

Hi good morning Tom, Stewart. Thank you very much for questions. I just wanted to go back a little bit on trade and you mentioned that you are baked on exports and volume growth is very strong. So two things I wanted to check with you. So obviously you mentioned China is not important for you, but clearly for some of your competitors. And we know that the U.S. has always been a very significant exporter of pork products to China. So could you quantify if you have seen a little bit of the headwind by just products that’s not being able to shift or just overloading the market to China and is that to a certain degree as well affecting an oversupply situation in your domestic market where you basically struggle in and then I have a follow-up question on trade. A - Thomas Hayes: Yeah. Sorry, this is not a little bit of repetitive, but because it is relatively small part for us. I hate to talk a lot about total industry dynamics rather than just talking to what effects Tyson done. But certainly the certainty will help us getting this behind us and not having to be in a situation where we are talking about this a lot. Question whether or not we will actually be in a situation, where this is an effect. When we had this whole situation emerge where the trade war was looming and pork was going to back up into the U.S. in terms of supply was limit down. Like that day I think on a total hog cost. So the hog cost can way down certainly it backs up to the producer. I will just reminds you as you well know that we are in the middle and we make our money on the spread. So if we have lots of supply that is generally good thing for us. I guess I will just finish with, its I’m involved in this a lot [indiscernible]. But it seems like it's just as hard to pin down where it's ultimately going to wind down. And I guess being as a person cautiously optimistic I feel like it's going to sort of fine.

Okay perfect. Thank you very much. And then just on Chicken globally. As you know maybe that well some of your Brazilian competitors on the international market were having some restrictions in terms of trade currency to the European Union. So is that something - I know that you need special certifications in order to be able to export to the European Union but is that something you would consider as an opportunity to further grow and also to basically endeavor into other market and to grab some share there? Just some thoughts on that high level would be much appreciated.

We would love to, we would love to ship more Chicken to the EU for sure and to the extent that opened up, we will be all about it. That’s not something that is necessarily available to us today, but we do believe that it could be certainly very supportive for the companies like ourselves for Tyson, we really take advantage of our worldwide offices and we have been doing a great job under Noel White’s leadership, understanding what are the opportunities beyond where we currently sell. So opening up new markets on all products, prepare foods by the way, not just Chicken and pork. And so, yes, if the EU opened up for Chicken and other products of course, we would be ringing the bell here. So that’s good.

Okay, perfect. Thank you very much.

The next question will come from Akshay Jagdale of Jefferies. Please go ahead.

Good morning. Yes. I wanted to talk about value added business, so Chicken and prepared foods, and just what I'm really trying to understand is how much of your guidance change on those two businesses, is really transitory versus something competitive or structural? It sounds to me like a lot of it is transitory related to commodity costs and some operational issues, right. So, that's what it sounds like, but I just wanted to run this by. So it looks like your grain costs are higher by about $100 million, prepared food raw material costs are up by $30 million relative to your previous guidance and then freight, overall guidance is up by $50 million, but let's say half of its assigned to these two businesses. That's $150 million plus sort of headwind relative to your previous guidance and your expectation for EBIT on both those segments is, it’s not down as much, right. So that’s how I'm looking at it, the majority of the change in your guidance primarily in Chicken is related to sort of timing issues as to when your costs are going up versus when the pricing is going through. So there is some looks like issues in terms of operating perfectly that tend to happen that's also included, but it doesn't sound to me like there's anything competitive that's changed dramatically, that's causing the guidance to be slightly lower. So am I understanding that correctly?

Based on what you have laid up for me, it sounds like you are pretty well on the mark Akshay. I would say that as it relates to transitory, they are, some of them are more sort of immediate and acute than sort of will last a little bit longer, right. So as we look at the fore curve on grains who knows that’s sort of where we are looking today. But to the extent that we just talk about tariffs, it really backs up in the U.S., we could be in a situation we are not as - the costs are very low. But the overarching comments that you made, I would align with I would say that $100 million, yes, in terms of grain that's about the right number, $30 million up in raw material for prepared foods, but I would caution you on that one just that given where we are based on our current projections that's what we see. Going forward, there's I think that probably a strong argument that those prices could go lower and so that those costs could be less for prepared foods, which is a good thing and then freight, yes, we are just going to go to top of it it’s a battle, it’s something that should be once we get through it, it would be fine, but they are as we call out sort of transitory issues.

Yes. The only thing I would jump in on is, you just say that if you look at some of the challenges in Q2 and then look at the back half of the year. Those things starts to diminished, I know for one thing it’s not going to snow this summer. And if you look at some of the production challenges we have with them on in Chicken in Q2 that we are going to be on top of for the back half of the year. Think about freight, from a freight perspective, we told you about our approach pricing there. So those things all start to move with us and when if you add on top of that the sort of favorability we expect to see a beef in the back part of the year. All of those things start flowing through certainly to our Chicken business and to our prepared business.

Perfect and then one follow-up please Stewart on the comment you may on normalized earnings. So we obviously appreciate all the guidance we can get, we are not that smart to start off, but that’s great. But just trying to get a little more color on what you are saying and the expectations your setting. So the way, I’m interpreting what you said is, we are going to give you guidance annually, but basically what you are saying as we are going to grow off of the base that we have right. Is that sort of the higher arching message that we should away? Is like you, you are not managing the businesses to some percentage number? It’s just, you are going to keep growing off of this space. Is that a fair way to interpret the normalized range comments?

Yes. Let me just a step back. I think normalize ranges are not a good reflection of our business, because they effectively pigeon hole us. This is a business that we are trying to margin up, that we are trying to grow, that we are trying to increasingly brand. And all of those things are not consistent with static set of margins. This is also a business as you really point out, because a lot of guidance to the analyst community help you peg where we are going to end up. And in desire to sort of help me that helpful to you. At the beginning of the year, we will say, this is what we see, this is how we see the margin for Chicken, for prepared, et cetera for the year and that will be normal for that year. And so each year you will get to see what that looks like and of course our desire to use that is the base to build on sequentially.

Perfect. I will pass it on thank you.

The next question will be from Michael Lavery of Piper Jaffray. Please go ahead.

Good morning. Just tolling up on that, I know from CAGNY, you gave the total picture company level margin look of an 8.6 to 8.9 range. Sorry, if I had missed this, but I didn’t see that, the segment detail is great. But when you add it all up, is that still what you would give as your view for the total company picture as well?

Well, we have given you the EPS guidance and we have given you the top-line. So you ought to be able to drive the numbers by using that math.

I guess, just in terms of within the range. Are you expecting the sales - when you give the updated, is it just that the EPS is at the lower end in part because the sales coming down, or do you expect such a strong in the second half margin outlook that you are putting that up towards the higher end or would everything be set maybe a little towards the lower end. Where is the right kind of way to think about in that range I suppose?

Well, I think what Tom called out relative to our range. Is that a number of the pressures that we felt the first half of the year, like freight principally labor. These will be with us in the back half of the year and of course we are working to offset those. But with the kind of $155 million that Tom called out. That will push us to the lower end of the EPS guidance range. No question about that, but we have it all in the forecast and pulling the levers to get there.

Okay that's helpful. And just on the frozen meal kits. What sort of shelf space incrementality does that have? Is that swapping out for other items or are you getting new placements incremental to the portfolio already?

So there are new placements. Some of it will be replacing some of these products we have, but it's just generally new placements. Now the insight there is that consumers are not - I’m assuming you are talking about in my prepared remarks that frozen Chicken. Yes, so the insight is that consumers want more convenience, the individually frozen Chicken as it exists historically is not a particularly exciting product. And we are trying to come up with what can we do to sort of reinvest and disrupt that category, but to the extent that those facings when those distribution points win over classic IF products Individually Frozen products that wouldn't surprise me. But our play should be net incremental and to derive more velocity on those distribution points is a key thing as well as margin and brand.

Okay thank you very much.

The next question will be from Eric Larson of Buckingham Research Group. Please go ahead.

Yes. Good morning everyone. Thanks for squeezing me in here. Just to push a little harder on kind of the whole net pricing impact. You know Tom this goes back to your Hillshire days in 2011 and 2012 when we had our last real bout of inflation and I think the industry was taking 5%, 6%, 7%, 8% pricing and that's when you have all the elasticity issues, et cetera. But when you kind of net it all out, it looks like a point, maybe 1.5 points of pricing across your value add portfolio is what is needed to kind a cover your cost increases here, which I know that has got some near-term pain, but this is not an unmanageable problem. Would that be a fair way to frame this?

Well. Yes is it. However, just go back to - it's not easy as customers want to maintain their cost, certainly it's hard for us to go to them and say look your cost is affecting everybody and push that through. Nobody breaks out the party hat and we come in with a price increase on anything. But freight is - they are trying to make sure that they maintain their cost. So we are trying to do all the things we can from a Tyson margin perspective, we are passing on the cost, but we are also making sure that we are doing everything we can to lean out our system, making sure that trucks are full, we don't have more stem miles in the system than as needed that continuous improvement projects are accelerated. So your opening question is that reasonable to assume that we should be able to get that? Absolutely, that's our job, but that's doesn't come without a lot of hard work is I guess the point I want to make.

Yes, I know it's not easy to go to your customers for pricing, but I think everybody is or at least the majority of your competitors are across the package through the group or the cost the consumer group, whether it would be a CPG company or food companies, I think they are all attempting to do something on that front. So it's not like you are the lone ranger in that.

I don't expect - exactly you are right, yes.

Yes and I would say dimensionally, you have framed it right. I mean, it has the size to be managed, but to Tom's point, it comes with a bit of the difficulty pattern.

Yes. Then just the only follow-up, if that type of price increase that I have quoted out maybe its high as 2%, maybe it's not that high. Does that lead to any significant negative elasticity or what your competitors follow do you think. I mean, how do you look at those sales impact on that?

What I would tell you is the sales impact should be relatively flat, if we have more cost coming in the price goes up, that's certainly going to be effective, but as we are talking about maybe units or volume that should be flat, it shouldn’t stop us from growing. Our competitors like I said who knows what they are going to do. They don't pass thoughts on and their margins are going to take a hit. So how elastic our categories are, or not depended upon which category you are talking about and is it branded or not branded, or do we have an exceptionally strong partnership with customers that they understand these things are things that we have to get back, we have to make a proper margin as a partner to them. So there is a lot of factors that work - that’s going back to the dialogue that we have with our customers, certainly where we have strong partnerships with strong brands, it’s certainly easier than if we are in commoditized, non- strategic partner relationship which we have fewer today than we had yesterday, but you are calling out all the right stuff I think.

Alright. Thank for your comments.

Yes, sure.

The next question will be from Jeremy Scott of Mizuho. Please go ahead.

Hey, thanks. Good morning, guys. I just want to ask again on the beef margin, I appreciate your comments that it was choppy in the quarter, but it seems at least on our numbers that there were more up chops and there were down chops. So I wanted just and maybe give the opportunity to specify whether or not there was - how much of that weather impact, if you can quantify that separately if there was any hedging issues and then third, maybe you can quantify the freight impacts specifically for that segment and then maybe the same three questions for the pork segment as well.

So, let me start with the freight, Jeremy. We are not going to price that out individually, because there is competitive aspects of that and I want to make sure that we are remaining as competitive as possible for our shareholders. What I will say is that I don't know how other people are affected in our regions, we have to stop production, we have closed plants, several times in the quarter, not every plant, but several plants in the quarter and that just hurt you. And so as Stewart said hopefully we are not going to get any snow this summer, but I think that it definitely was maybe something versus - larger said that it hit us disproportionately, but I don’t know, I just know what happened to us.

Okay, is there any way to quantify that for the quarter?

We won’t quantify that as you can understand that's something that's just not something we are willing to do based on the competitive approach, but I appreciate the question.

Yes, I mean, look Jeremy, I think you see the results for the quarter, so certainly you can take some - based on public day you can take some calculation what you think that looks like. I think more importantly we are giving you guidance for the back half of the year and we are telling you that we think the back half is going to look a lot stronger and that's positive for our business.

Yeah.

Okay. Thank you.

The next question will be from Ken Zaslow of Bank of Montreal. Please go ahead.

Hey good morning guys. So I think we could continue on that line, but I’m just trying to figure out a little bit bigger picture. How much of the issues in 2018 will not recur in 2019? If you are recall labor issues, the hatchability issues, things like that. How do we frame that, that is non-recurring?

Yes. It’s a difficult question to answer entirely. But I would say that the headline should be that these were a lot of issues that our specific to 2018 now. I don’t know, if the same weather issues are going up play, there seems to be really increasingly difficult wild card to predict. But as it relates to hatchability and some other things I spoke of. We believe we will be pass those, we believe we will be pass freight. So if barring any sort of crazy events, we feel like 2019 is setting up really well to be again another year of improved earnings and that’s what we are most excited about.

Yes. Ken maybe just one other thing Tom called out in his prepared remarks. He referred to some inefficiencies as we ran our Chicken business really hard this second quarter. That’s another example of something I think we will be totally on top off in the back half of the year and certainly into 2019.

Right. That was exactly my point. So I’m trying to figure out, call it is it 100 basis points of reduction in the Chicken margins and is it probably another 50 to 60 basis points in beef. Just conceptual, because I think as you are saying most of it is just one-time in nature and I know everybody is trying to circle around it. I just didn’t know if there was some sort of framework that we did kind of use for 2019 and 2020?

Yes. So we don’t have that for you today Ken, but let us take down on board on future calls as we get closer to 2019 and we get more specific on the segment margins. We will do our best declare and what was one-time in 2018 that wouldn’t repeat in 2019 as we present our case.

Great. And then my last question. Given where your stock is, why hold yourself to the two times leverage. Like that seems just an artificial number like why not 1.9, why not 2.3 or why two is such an important number. And if it’s not an important number, why not just stop buying back stuff as is and say you know what we are in good shape, because we have a good financial outlook, our stock is probably undervalued. I’m assuming that’s what you are thinking. Why not just buyback the stock and hold your stuff not to the two times leverage?

Thanks for Ken. First of all, the view from the rating agencies is important to us, because it allows us of course to drive financial funding for acquisitions, et cetera. That’s where the two times comes from. I never said that it was sort of hard line in the sand. In fact, I think if you recall in an earlier question I answered, I said that specifically wanted to have the flexibility to decide Q3 or Q4 based on the way that we see our stock and our ability to drive a return for shareholder. So it’s not hard and fast for me.

Great. I appreciate it. Thank you guys.

And ladies and gentlemen that will conclude question-and-answer session. I would like to hand the conference back to Mr. Tom Hayes for his closing remarks.

Okay. Thanks again for all the questions. And thanks for bearing with us on a choppy quarter. And thanks for owning our stock and analyzing our stock as we are a great Company to own, well into the future long-term big bet. I appreciate your interest. We are encouraged by the performance halfway through our fiscal year. We know we are sitting up for a great 2019 as we talk about. If you want to say to the team members that are listening to the call at 1pm Central Time we will be having our team talk live discussion. So please tune into that whether it's on mobile or live in the auditorium, and look forward to talking to you then and everybody have a great day.

Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines.