Jon Kathol - VP, IR & Assistant Secretary Noel White - President, CEO & Director Stewart Glendinning - EVP & CFO

Benjamin Theurer - Barclays Bank Heather Jones - The Vertical Trading Group Michael Piken - Cleveland Research Company Adam Samuelson - Goldman Sachs Group Jacob Nivasch - Crédit Suisse Lubi Kutua - Jefferies Kenneth Zaslow - BMO Capital Markets Jeremy Scott - Mizuho Securities

Good morning, and welcome to the Tyson Foods, Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Jon Kathol, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to the Tyson Foods, Inc. Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. On today's call are Noel White, President and Chief Executive Officer; and Stewart Glendinning, Chief Financial Officer. Slides accompanying today's prepared remarks are available as a supplemental report in the Resource Center of the Tyson Investor 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 Tuesday, November 13, at 9:00 a.m. Eastern Time. A replay of today's call will be available on our website approximately one hour after the conclusion of this call. This broadcast is the property of Tyson Foods, and any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Tyson Foods is strictly prohibited. Please note that our references to earnings per share, operating income and operating margin in today's remarks are on an adjusted basis unless otherwise noted. For reconciliations to our GAAP results, please refer to this morning's press release. I'll now turn the call over to Noel White.

Thanks, Jon. Good morning. It's my pleasure to join you today on my first earnings call as CEO of Tyson Foods. I'm honored to be in this role, and I'm energized by the many opportunities ahead for this great company. I'd like to begin by acknowledging Tom Hayes. We wish him well and thank him for his leadership in refining our strategy and putting it into action. I'm committed to Tyson Foods' strategy to sustainably feed the world with the fastest-growing protein brands. As a member of the leadership team that developed this strategy, I know it's our foundation for continued growth. After 35 years with Tyson, I've been a part of the evolution from a commodity protein producer to a global food company, and we will continue on this trajectory. I have a track record of delivering results in multiple segments of our company, and my focus is to grow our Prepared Foods, our value-added chicken and International businesses to help stabilize volatility and grow earnings. We have a great team, both at the executive level and throughout the company. This team is empowered to accelerate growth and deliver results while maintaining our commitment to sustainability. Our algorithm for growth continues to be 3% value-added sales growth and high single-digit EPS growth annually over time. Our 2018 value-added growth of 4.2% exceeded our goal. EPS was $6.16, an increase of 16% over last year, including $0.78 from tax reform. We exceeded our revised guidance due to strong finish in the fourth quarter in the Beef and Pork segments. We faced several hurdles in fiscal 2018, including freight costs, trade disputes, market volatility, pricing pressures and demand shifts. It's worth noting that despite trade disruptions, U.S. beef and pork volumes were up 12% and 7%, respectively, versus last year as global demand for U.S. protein remained strong. In 2018, Tyson's overall return on sales was 8.2% as we drove results with our strong team, differentiated portfolio and diversified business model. Our Beef and Prepared Foods segments performed very well, both on an operating income and return on sales metrics. We integrated AdvancePierre Foods while acquiring Original Philly; Tecumseh Poultry; and Smart Chicken brand; American Proteins, which is a rendering and blending business; and pending regulatory approval, Keystone foods. With protein at the center of our strategy, we divested several nonprotein businesses, including Sara Lee Bakery, Kettle, Van’s and TNT Crust. Safety is one of our key metrics, and we reduced OSHA recordable incidents by 20% this year. We see a direct link between safety and our low turnover rates. And given the tight labor markets we're in, it's important to be the employer of choice in our plant communities as we focus on continuous improvement in safety and productivity. We achieved $253 million in Financial Fitness savings in 2018 versus a goal of $200 million. Going forward, Financial Fitness savings will be included in our base earnings and return on sales guidance rather than reported separately. We'll continue to track savings internally, but we've decided to eliminate the expense and considerable staff time required to report audited figures. This decision aligns with our commitment to control costs while allowing us to focus on delivering growth. 2018 was a challenging but productive year as we executed our strategy and built on the solid foundation of our diversified model and growth strategy. And now I'll give you some details about our execution at the segment level. The Beef segment generated record operating income of $348 million and an 8.9% operating margin in the fourth quarter. Compared to Q4 of last year, sales volumes increased 3.4%, while average price decreased less than 1%. For the fiscal year, Beef produced just over $1 billion in operating income, also a record, with a 6.7% margin. Volume was up 3.1%, while average price was up 1.2% for the year. Beef results were stronger than expected, driven by good cattle supplies, strong domestic demand and increased global demand. In addition, we have improved our performance relative to USDA benchmarks. Our goal is to grow value-added beef through Case Ready and premium programs to help de-commoditize more of our business and reduce some of the volatility. With cattle supplies looking good next year and into 2021, we expect the Beef segment to produce an operating margin above 6% again in fiscal 2019. In the Pork segment, for the fourth quarter, we generated operating income of $76 million with a 6.7% margin. Revenue was down due to a 2.7% decline in volume and 14.5% lower average sales price. For the year, operating income was $374 million with a 7.7% margin. Revenue was down as volumes declined 2.1% with price down 4.8%. The supply-demand imbalance of hogs that we spoke of last quarter continued the first several weeks of our fourth quarter but improved with the seasonal increase in hog supplies. And according to publicly available data, we clearly outperformed the industry on a revenue-per-head basis. As with Beef, we're growing -- we're working to grow our value-added Pork business through Case Ready and premium programs. We'll continue moving more of our pork into Prepared Foods to reduce volatility, which is a key advantage of our diversified business model. As we look to fiscal 2019, we expect the operating for Pork segment to be around 6%. The Chicken segment generated operating income of $182 million in the fourth quarter and a 5.8% operating margin. Sales volume was up 10.4%, driven by acquisitions, while average price decreased 7%, resulting from the changing product mix from acquisitions, increased domestic protein supplies and lower export prices. For the year, the Chicken segment's operating income was $947 million with a 7.9% margin. Volume was up nearly 5%, again mostly due to acquisitions, while the average price was roughly flat for the year. With a product mix that's diversified across sales channels and bird sizes and more value-added than our competitive set, our Chicken business is well positioned for the difficult pricing environment has continued into fiscal 2019. We'll continue working to improve our mix and our cost structure, which are the focus of many of our capital projects. In fiscal 2019, as we integrate several businesses, we expect an operating margin near 8% in the Chicken segment. Our outlook doesn't include the Keystone acquisition, which should close sooner than originally expected. Our Prepared Foods segment continues to perform well and, in the fourth quarter, produced a record $235 million in operating income with an 11.2% margin. Average sale of price was relatively flat, while revenue and volume decreased following the sale of noncore businesses. For the year, operating income was $979 million with an 11.3% margin. Volume was up 4.1% due to acquisitions, net of divestitures, with average price up 6.1%. We're excited about the performance of our Prepared Foods businesses as innovation continues to deliver sales growth. Jimmy Dean Simple Scrambles, for example, is maintaining its strong performance in its second year with consumer repeat purchases that are best-in-class. Hillshire Snacking delivered a 32% increase in sales dollars. We have a very strong pipeline of Prepared Foods innovation planned for 2019, and I encourage you to take a look at our slide presentation to see some of those new products. As we continue to grow volume through our base business, in addition to innovation, we expect Prepared Foods operating margin to exceed 11% again in fiscal 2019. I'll now ask Stewart to take us through the financials.

Thanks, Noel, and good morning, everyone. Fourth quarter EPS of $1.58, which includes a $0.20 tax reform benefit, was up 10% compared to Q4 last year. Revenues in the quarter were down slightly to just under $10 billion as average price was impacted by trade disputes and increased protein supplies. Sales volumes were up 2.7%, driven by acquisitions. Operating income was $831 million, down about 8% versus Q4 last year. And total company return on sales was 8.3% for the quarter. For the fiscal year, earnings were $6.16, up 16%, including $0.78 from tax reform. Sales were $40 billion with volumes up 2.5% and price up 2.1%, while operating income was approximately $3.3 billion with an operating margin of 8.2%. Operating cash flows for the year were just under $3 billion, up approximately 14% over last year. Capital expenditures were $1.2 billion as we invested in growth and efficiency projects with expected returns greater than our cost of capital. Depreciation and amortization were $943 million in fiscal 2018. We repurchased approximately 5.9 million shares for $427 million in 2018. Our adjusted effective tax rate for the fourth quarter was 23.5% and 23.6% for the year. Net debt-to-adjusted EBITDA was 2.3x. Including cash of $270 million, net debt was $9.6 billion, and total liquidity was $1.4 billion as of year-end. Net interest expense was $86 million in the fourth quarter and $343 million for the full year. We received around $275 million of incremental cash flow in fiscal '18 as a result of tax reform. Now turning to fiscal 2019. Our capital allocation priorities will continue to focus on driving shareholder value and growing the business. We are committed to our investment-grade credit rating and will work to pay down debt as we deploy cash to grow our business organically and through acquisitions. We'll continue to return cash to shareholders through share buybacks and dividend growth. In fact, the Board of Directors has increased the quarterly dividend payable on December 14 to $0.375 per share on our Class A common stock. We anticipate the annual dividend rate in fiscal 2019 will be $1.50 for Class A shareholders, a 25% increase over 2018. In fiscal '19, we expect top line sales of approximately $41 billion, an increase of about $1 billion over 2018. Cash generation should remain very strong. We're planning approximately $1.5 billion of capital expenditures in fiscal '19 with spending focused on growing our business. We expect these investments to deliver substantially more than the cost of capital. Net interest expense should approximate $350 million in fiscal '19 before any impacts from financing the Keystone acquisition. As Noel mentioned, closing of the Keystone acquisition is likely to be sooner than previously expected. We are confident in our ability to finance the transaction, and we'll be ready to focus on integrating the business. We expect liquidity to remain above our minimum target of $1 billion in 2019. Our effective tax rate is expected to be around 23.5% in fiscal 2019. Based on our average share price in Q4, we expect our average diluted shares to be around 367 million before any share repurchases. As Noel said in the news release this morning, based on current assumptions, we believe fiscal 2019 adjusted earnings will be $5.75 to $6.10 per share. That's comparable to fiscal 2018 results if you exclude the $0.13 in earnings per share generated by the businesses divested in 2018. Now some of the assumptions we're making in our guidance are that there's no further movement in the grain markets, the chicken price deterioration and that we're able to continue recovering increased freight costs through pricing and that there are no extraordinary labor pressures. Although not in our current outlook, we also expect the Keystone acquisition will have financing and integration costs in 2019 as well as recognition of intangible assets, and therefore, we anticipate Keystone's accretion on an adjusted EPS basis to begin in fiscal 2021. However, we expect Keystone, as with our other recent acquisitions, to be immediately accretive on a cash basis. 2019 is going to be another great year focused on driving growth as we integrate businesses, carry out CapEx projects, drive cost savings and generate cash to create shareholder value. That concludes my remarks. Now back to Noel.

Thank you, Stewart. 2018 was challenging, but it was a good year. Looking at publicly available data, we're outperforming the competition in all segments. We made three acquisitions and completed four divestitures to better position us for long-term growth. We're actively integrating the new businesses, and we're ready to hit the ground running with Keystone. We're excited about the platform for global growth that Keystone will provide in addition to its strong domestic operations. Based on current assumptions, our outlook for fiscal 2019 is comparable to 2018. We expect another good year but not without challenges. However, we remain confident in our ability to execute and deliver growth over time because of our diversified business model, our broad product portfolio, our strong innovation pipeline, our differentiated capabilities, our tremendous financial position and the expertise and experience of our team members. These are advantages and how we will generate growth, both organically and through acquisitions, both domestically and internationally. This concludes our prepared remarks. Phil, we're ready to begin Q&A.

[Operator Instructions]. The first question comes from Ben Theurer with Barclays.

Now one of the questions I was having and looking at your guidance 2019, would you describe the outlook as somewhat conservative? Because it -- basically, I mean, midpoint, adjusting for the one-timers and so on, it's like kind of calling for zero growth in earnings. So just to understand why you came up with somewhat a conservative guidance here, and then I have a follow-up.

Yes, Ben. This is Noel. I'll take the question. The outlook is, as we see it today, Ben, so there's a lot of variables are in place, and it's really consistent with the past approach that we've taken based on everything as it stands today. If, however, that changes, our outlook could change. And at this point, it looks like some of the headwinds and tailwinds that we face are in relative balance. Again, profitability -- profitable growth is a key focus for this team as we look into 2019.

The only thing I'd add, Ben, is just to say if you looked at last year, of course, the first half of the year was better for Pork than the second half of the year, we're going to have to overcome that comparison as we enter the first part of the year. So I'd say, underscoring what Noel's emphasized here, this is the best estimate we have for the moment, okay?

Okay. And as you said, actually, Stewart, on Pork would be my follow-up question. So late July, early August, when you updated your guidance for 2018, the implications post and what we saw in Q3 was basically for a much worse environment on the Pork side. I mean, implicitly, it was basically guiding to a 0% margin in the fourth quarter. Now you actually reported an almost 7%. Could you elaborate a little bit on what had changed, actually, through the quarter than what you were expecting late July, early August, which triggered some sort of a meaningful reduction on that specific segment? So what has been better? And what do you think, how is this going to evolve into 2019 fiscal for you?

Yes, Ben, this is Noel. I'll take the question. In July and August, there's a large number of variables have that were in the markets. We had a number of trade disputes that were taking place. We had some planned expansion in production capacities that didn't happen as quick as what we anticipated. And frankly, our exports continued to be very strong, very robust in light of all of the trade disputes that you're reading about. So that's, frankly, continued as not only through Q4 but into Q1 as well. October was a little bit lighter than what we expected, but November has been a solid month for us.

Okay. So basically, actual was just -- it was -- it never got as bad as you initially expected?

I think when you look at the stats, Ben, you'd see, and to Noel's point, June and July the margin was really, really compressed. We had all of the trade noise. And it just wasn't clear to us what was going to happen. And if you look with the data after that, the spread got much, much wider, and we wanted to make sure we were in a place where we gave a range that we felt was a good estimate at that time.

The next question comes from Heather Jones with The Vertical Group.

So my first question is on Chicken. You guys mentioned that one of your key assumptions is that chicken price deterioration ends. So I don't know if the answer is linked to that, but just wondering, given where your margin came in for the -- for Q4, sub-6%, wondering what gives you confidence that you can get close to 8% in fiscal '19.

Yes, Heather, this is Noel. I'll take the questions. A couple of things, Heather. As we came through 2018, there was a number of somewhat extraordinary events that we encountered. The freight increase that we talked about last quarter, at that point in time, we had not fully recovered the freight. We're still working on doing that. We recovered a large portion of it. That's work in process. We had some live production issues that, I think, that we spoke about as well as in the rest of the industry. We had a fire in one of our large complexes that we had to overcome. And frankly, we had some production-related issues that we had to address as well. We feel good about where we're at right now as we look into 2019. There are some headwinds, you've mentioned one of those, being pricing. Grain is better than what it was when we put our plan together. It's still higher than it was a year ago. But based on what we have for visibility right now, Heather, it looks like we should be someplace close to that 8% number.

The only other thing to add, Heather, is we'll have the benefit, of course, of a full year of API this year. And of course, to a lesser extent Tecumseh, but that's where we are from an estimate standpoint.

And for my follow-up, I was just wondering if you could share with us your view of -- on African swine fever. Just wondering if you could give us a sense on what your view is right now of the severity of the break in China and the potential implications for Tyson, the entire business at Tyson.

Yes, Heather. This is Noel again. I'd say that the effect at this point is unknown. It has the potential to be a significant event. As you're well aware, African swine fever has existed in parts of Eastern Europe for a number of years. The fact that it's now in China and appears to be fairly widespread has the potential to make a significant impact. We've not seen that at this point. So unless it would become much wider spread than what it is today or if it would move into other global markets, then it could have a significant impact.

The next question comes from Michael Piken with Cleveland Research.

Yes. Just wanted to touch a little bit on the Beef side. And you guys obviously had an extraordinary quarter. And just getting your outlook, normally, the first half of the year is seasonally weaker. But how sustainable are some of the improvement in margins? And then as a follow-up, how do you see the 2019 features playing out between Beef and Chicken? Seems like Beef got a lot last year. How does 2019 seem to be shaping up?

Yes, Michael, this is Noel. I'll take the question. You know, as we look at 2019, 2020, even in 2021 we frankly we don't see a lot of change. The supply appears to be relatively stable. We have a good sense of what that looks like just due to the calf crop that gives us good visibility for at least a couple of years. We're not seeing liquidation at this point of the cowherd, which is an early indicator of what can affect us 3 or 4 years from now. It looks like it's plateaued, or at least stable. Beef demand through 2018 was strong, both domestically and in the export markets. U.S. industry exports were up 12% year-over-year. Ours exceeded the 12%. So global demand for beef continues to be very strong. So it is unusual the fact that volumes go up and pricing go up at the same time. We don't see anything at this point that is going to be any different in 2019.

The next question comes from Adam Samuelson with Goldman Sachs.

Maybe continuing on Chicken and going back to the pricing comment. Can you talk a little bit about your actual exposures to pricing changes from here in the business? You participate in so many segments, you have the Prepared for the processed chicken as well -- and the buy versus grow. So sometimes we struggle to -- where -- can you talk about the commodity price sensitivity in the Chicken segment and how you see it lining out through the next 12 months?

Yes, Adam, it's difficult to give you a specific answer because we do have a great number of pricing scenarios with many different types of customers. And the pricing pressure that I spoke about is -- was not -- is not necessarily across the board on all products. As an example, in some of the different channels that we participate in, we don't see the pricing pressure. Same thing would be true in our value-added products. We're not seeing that type of pressure. However, in some segments of our business, there is pressure. I think others have spoken about that. We're seeing the same thing. And it doesn't -- I mean, it doesn't happen all at once. Our pricing agreements are varied throughout the year. So we have some agreements that are coming to now. We have others in the spring and others in the summer. So when I talk about pricing pressure, that's not necessarily for our full fiscal 2019, and it's not in all segments.

Yes. Adam, I think Noel's absolutely right on this one. It's one of the reasons why we give guidance just so that we can help to try to sort through the impacts for you. I would say that the best you could do probably is to look back at pricing over time and then model that against our earnings. That's going to -- or against our top line. That's going to give you some sense of the sensitivity.

Okay. So maybe I'll just take this a different way. And it's again a continuation, sort of Heather's question a little bit different light. In the second half of this fiscal year, your Chicken margins were a little bit over 6%. You're expecting them to get to around 8% in fiscal '19, and in the first half, second half, breakup of the comps are very different. How much of it is simply the absence of some of the negative one-timers that you had in the last couple of quarters versus fundamental improvement in your net margin or net price realization, underlying productivity, kind of net cost recovery from some of the inflationary pressures you had? Just help give us some of the pieces that get us from where you were in the second half of this year to where you expect to be for the full year of 2019.

Yes, got it. Okay. Well, Adam, I'm a little reluctant to sort of break out our P&L for next year. But I'll just point to some of the bigger items. And I think if you just looked at the impact to us last year, from a freight perspective, that's one of the largest impacts in our Chicken business. You think about the live costs that Noel talked about, those are probably the two biggest areas that we don't expect to repeat for this year outside of the impact of pricing. And that's probably the easiest way to look at the business. I'm sorry, I'm just going to go back and just -- I just want to make sure, Adam. I know you've sort of come out of the queue. But specifically, remember that as we took those big pricing -- took the big freight increases last year, it took us until the back part of the year until we had pricing in place to start to overcome the increases in freight. We are expecting to see some amelioration of that freight increase in this year. You've seen fuel prices coming down. But our run right now looks a lot better than it looked in the first half of last year.

The next question comes from Robert Moskow with Crédit Suisse.

This is actually Jake Nivasch on for Rob. One of my questions was actually kind of answered regarding freight. But I just have one quick one. Last call, you guys mentioned that you were guiding to $42 billion in sales for '19, and now we're looking at $41 billion. So I'm just -- if you guys can just provide any color as to why the specific guide down there. I know you guys kind of regarded -- you covered some of the headwinds, but just any additional information would be great.

I'd probably say that the biggest impact is going to be meat pricing. And what really matters for us, of course, is the margin. And you're going to see those meat prices sort of varying. We're very focused on making sure that managing the margin is where we're focused. So I'd look for the margin line, not to the top line.

Okay. The next question comes from Akshay Jagdale with Jefferies.

This is Lubi filling in for Akshay. Just a quick follow-up on Chicken. I know your guidance assumes no further price deterioration, and you're also cycling some of those extraordinary items that you mentioned, which gives you the confidence of reaching that 8% margin target. But are you concerned at all about a possible acceleration in domestic supply growth, which could further upset the balance between supply and demand? I mean, from our perspective, it seems like there are quite a few factors like new capacity, sort of a growing breeder flock and potential improvements in bird productivity that could potentially lead to faster supply growth, so just curious to get your thoughts on that.

Yes, Lubi, this is Noel. Yes, we agree that we are, in fact, expecting increase in production over the course of the next couple of years. Our projected domestic disappearance is in the 1% to 2% range, right? And that's fairly consistent with the demand growth that we have seen in the United States over the course of the last 20 years. So yes, production's increasing. It does depend on the timing of when the plants open, when they come online. But over the course of the next 2 or 3 years, which is kind of the timeframe that these facilities are being built and coming online, we're projecting demand to grow at about the same pace as production increases.

Got it. That's helpful. If I could ask another question on M&A. So there have been a few news articles recently, and I know you can't comment on those, but that have suggested that Tyson is placing an increased focus or emphasis on international growth. Can you just comment on how you're thinking about international growth longer term? I mean, it seems to us that most companies have had some challenges in international, given the volatility in FX and geopolitical uncertainty and also your own challenges in international. So just any thoughts about how you're thinking about international growth longer term.

Yes. I can take the question. The -- we're forecasting about 90% of the growth in global protein demand will take place outside the United States. We do plan to participate in that demand growth as we see economies grow and develop. I think you saw the first step, which is Keystone, which gives us a solid base to build from. My priority is no different than what Tom or my predecessors have been is to grow our business in Prepared Foods, value-added products and in the international market, simultaneously working to provide stability with more of the commodity portions of our business being segments of our Chicken, Beef and Pork businesses.

And the only add, I would say two things. One, acquisition or expansion of any business comes with risk. And I don't think if you looked at any of the large CPG companies in the world that are global that you would add advocate that they shrink away from this global market. So we think we're going to pursue that growth, and we're going to do it in a sensible, a financial way. And that's my second point. This is a company that's using a very return-focused lens as we look at opportunities to expand our business, and it will be no different internationally than domestically.

The next question comes from Alexia Howard with Bernstein.

This is actually Jihan [ph] on for Alexia. Just a quick question in terms of the current trade [indiscernible], in terms of how the ongoing trade negotiations are kind of affecting your outlook on the industry. So overall, it seems like the North American trade disputes have been largely resolved by now, but the U.S.-China negotiation's still going on. I know China is not a big market for you, but how do you expect the uncertainties to expect the overall supply-demand?

Yes, you cut out in the first part of your question, so I'm not sure I caught all of it. If I understand correctly the question is with NAFTA.

With NAFTA somewhat resolved, yes.

How does the trade issues China -- how is that expected to impact us? Is that...

Exactly.

Okay. I'd say that with China, there's nothing but upside at this point. We're not currently shipping product to China, beef, pork or poultry. So if there is any change, I would say that, that would provide upside export potential for us.

Got it. Just a quick follow-up on China. So understanding China is not a big market for you, but how does that affect the overall supply-demand? Is there still kind of an increased domestic protein supply because of the trade issue with China?

Yes. To answer your question, Jihan. We think that as we look into fiscal 2019, in total, domestic available protein is going to be up about 1.8%. On a per-capita base because of population growth, that's up a little over 1%. So yes, some growth in per-capita protein available. However, I mentioned the export numbers, I think, specifically on Beef, which was up right at 12%. On Pork, it was up 7% as an industry. Again, our numbers exceeded both the industry benchmarks. So despite all of the trade disputes, global protein demand, our exports continue to grow and increase. So part of the equation with domestic disappearance is exports. There is upside potential to the current forecast of what's in, plugged in, for exports.

Your next question comes from Ken Zaslow with BMO Capital Markets.

With that, what do you think your biggest contribution will be in 2019 and beyond?

Good question, Ken. It's really the continuity of what Tom had put in place. It is, in fact, to profitably grow our value-added businesses. There was a question earlier on International expansion. That's certainly a component. It's growing this business in a profitable, sensible way while containing some of the costs that have crept in as well. So we have an extraordinarily strong team. We have a really solid base. We have great cash flow. So all of the initiatives that have started with sustainability, adding and growing our business, that's my focus, Ken.

Okay. And let me just ask. So do you think that total promotional dollars across foodservice and retailer has changed? And if the promotional dollars were actually not shifted to Chicken -- or not shifted to Beef and Pork, do you think your overall possibility would have been any different? So just said differently, does it really matter where the promotional dollars are spent, if it's spent on Beef, Chicken or Pork? And does it affect your overall Tyson profitability?

No, I really don't think it does, Ken, because some of the features that we saw in 2018 where it, seemingly, beef was promoted more heavily at foodservice than poultry. If the promotions would have been on poultry rather than on beef, we would've gained on the poultry side. And that's truly advantage of the portfolio that we have between Beef, Pork, Poultry and Prepared Foods, that we play in all sectors. So it really didn't make a difference to us if Beef was promoted more heavily than Chicken. And if that would happen to switch in 2019, we'll benefit on the poultry side to the detriment of potentially on the Beef side.

Okay. And just my last follow-up is, when you think about Beef for 2019, is there any reason why you shouldn't be at the same levels as 2018, particularly given that you had one quarter that was kind of particularly weak? And given that we've had, call it, two decades of a down cycle, why would we not have at least 2 to 3 years of an up cycle? And I'll leave it there.

Yes. Ken, as we look into 2019, no, our results are not expected to be much different than they were in 2018. The fundamentals are very similar looking into 2019, as to what we just had. So now we're really not expecting any sizable changes. And in the Beef business, it can vary from month-to-month and quarter-to-quarter. Cattle can be pulled ahead, they can be pushed back. So what we may fall short in one quarter, typically, we'll make up in the next quarter or vice versa.

Okay. The next question comes from Jeremy Scott with Mizuho.

So you mentioned that you maintain the Financial Fitness commitment, but you're no longer reporting the synergy targets separately. I guess, how do we square that with the fact that your Prepared Foods margin outlook doesn't seem to be meaningfully different than fiscal '18? I appreciate that's an open-ended target, but given that you're removing that disclosure, maybe you can elaborate on some of the headwinds and tailwinds there. And just will you be rethinking those targets post-Keystone? Should we be waiting for that to close? I guess, I'm struggling with why it's an arduous task to track cost savings versus your targets.

Yes. So Jeremy, let me handle that. The issue, actually, in reporting is that every project needs to be audited. And there's a huge administrative effort with a lot of paperwork that, frankly, isn't giving investors any return. Having said that, I mean, the savings programs are absolutely vital to our performance as a business. And we remain fully committed to ensuring that we continue to save those dollars, and our teams are actively working on all of the same projects. When you think -- one of the questions we get all the time is how much drops to the bottom line and, as you rightly point out, there are a number of factors at play. And so when you look at the Prepared Foods business for this coming year, we know, for example, that there will be a fairly good chunk of increased meat costs in that business. How do we pay for some of that? Well, obviously, we'll look to get some pricing. How do we grow our bottom line, is that we need to continue to drive cost savings. So easiest thing for us to do is to continue drive hard at the cost savings and to bake that into the return on sales guidance that we give to you.

All right. And just maybe a follow-up on the M&A, open to more international opportunities as a way to diversify against some of the softness domestically. So I guess, first, are you seeing that there is an oversupply of meat and meat products as a structural issue and not a cyclical one? And if so, why the step-up in growth CapEx? And then second, given some of the stops and starts that may give investors pause, what's different about your approach to driving returns in international? And is Keystone the springboard here to a new demand-led strategy? And of course, why is anything better than buying back when your stock at 10x the low end of your guidance?

Okay, well there was about eight questions in there, but let me see if I can get a some of them, and if I leave any out, you can come back to me. So look, let's start with a buy back and say that we have, as a company, used an approach, which has pulled all of the capital -- all of the capital allocation levers, right? We just announced a terrific increase in the dividend that is great for shareholders. We bought back almost $500 million worth of stock last year. We've invested in M&A, and we've invested in really strong CapEx projects. So we're going to continue to use all the levers, and I think that, that is a good approach for our business. Relative to International, Noel's point is that when you look at growth in the world, where is the growth going to be in the world? 90% of the increase in protein consumption is going to come from outside the U.S. So we want to participate as a global food player, and remember, we sell almost $5 billion worth of product overseas already. That's a big number. If we want to participate in that growth. We are going to need to sort of a broaden our platform. That doesn't mean that we will do that any way that we can. It means that we'll bring a great deal of financial discipline to that expansion. You're right, Keystone is a platform, and Keystone is a powerful platform, a well-run organization that drives good margins with good customers in good geographies. And we certainly should expect to leverage that platform as we grow our international business. That said, we aren't going to ignore opportunities at home. There are lots of opportunities domestically, and we'll bring the same kind of M&A lens that we've used historically to focus on opportunities that are here. So if I've left any of your questions out, let me know.

That's good. If I could just squeeze in one more. It seems like you talked about the promotional activity picking up here. And you mentioned that you're starting to see it maybe in both the foodservice and retail space. Certainly, tracking the QSR space, seems like there is momentum all of a sudden. But can you clarify where that strength is emanating? And I wonder if Chicken pulls a little margin back from the Beef segment in the upcoming quarters.

No. I don't think it'd be appropriate to comment if it's coming in Beef or Chicken. And we don't have the degree of visibility until, in many cases, the promotions are -- have already put in place. So I'm going to avoid the question.

Yes, look, sorry, I'll just go back to that. We shouldn't forget, and I've been in this role now almost a year. But one of the questions I got pretty aggressively when I first joined the company was how did I see Beef, and beef was such a laggard. And actually, the point that was -- has been made before I arrived and will continue to be made is that this is a bit of a three-legged stool, and so things work together. And so in terms of the promotions, if you're not promoting Beef, you're going to be promoting one of the others. And the good news is since we're playing in all of the areas of protein, we're going to be able to take advantage of promotions are in play.

The next question is a follow-up from Heather Jones with The Vertical Group.

So I wanted to follow up on your answer to Ken's question. I'm a little confused because in my years of covering Tyson, the Beef business has been characterized as more of you guys managing spread, and you've done a great job of managing spreads. And things can get squeezed there when liquidation's going -- ongoing or whatever, whereas the Chicken business is more of you valuing up and less of a spread business. And so when you get less feature activity at retail and thus less demand at retail, and then that product has to be sold into more commodity-type market, so to me, the way I've always understood this company is that you have a better ability to manage the spreads in Beef business, but you -- demand is much more critical to Chicken. And if you got the demand there, you're going to be able to extract higher margins from that demand than you would from Beef demand. So it would seem like to me, you would prefer an environment where Chicken is getting the preponderance of the features. And so -- but based upon your answer to Ken, I think I've, like, been misunderstanding this all these years. So I'm hoping to get some clarification.

So I mean, historically, of course, you're right that Beef margins have not been as powerful as Chicken. And it's true, we would like to see Chicken performing well. The point that we were making is that it's not disastrous when product shifts from one of the proteins to the other. It's the benefit of having a diversified portfolio. So I hope that answers your question. I don't think you're misinterpreting the business. It is worth noting, and you will have seen in our slides this morning that there is a great deal of focus in our Chicken business in our value-added products. And you will see that in terms of the kinds of new products that we are rolling out. All of that innovation is focused at the higher end of the margin. That doesn't leave Beef out. In fact, in Noel's comments, he purposely pointed out that we were focusing very heavily on developing our Case Ready business. We have previously commented in our earnings releases about attribute-based products that we are driving from a Beef prospective. So, it's not only in Chicken that we're looking to value up. We're doing the same things in Beef although coming from a -- obviously that base of value-added is smaller as we grow it. Does that help?

It does. And just a quick follow-up on Keystone. So you made the comments in your prepared comments that it would be accretive by 2021. Excluding deal-related costs, but just looking at it on a GAAP EPS basis with incremental D&A, et cetera, financing costs, but excluding any nonrecurring transaction costs, what kind of impact are you anticipating for '19 and '20? Neutral, dilutive or how should we be thinking about that?

Yes. I mean, I think we've made it clear that we expect it to be dilutive. The biggest driver there is increased D&A as we revalue the assets and pick up the various amortizable intangibles, that will have an impact. The reason I pointed to the cash number is because we are very focused on what those cash returns are doing, and that will be immediately accretive as soon as the deal closes. And by the way, sorry, Heather, one other thing. Obviously, as that deal closes, we will give you more that's a better picture of the business when the deal closes.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Noel White for any closing remarks.

First of all, thanks for joining us this morning. Thanks for your interest in Tyson Foods. This concludes the conference call and wish you a very happy holiday season.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.