Prepared remarks
Good day, and welcome to the Tyson Foods Third Quarter 2026 Earnings Call. Operator provides 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.
Good morning, and welcome to Tyson Foods Third Quarter Fiscal 2026 Earnings Conference Call. On today's call, Tyson Foods' President and Chief Executive Officer, Donnie King; Chief Financial Officer, Curt Calaway; and incoming Chief Executive Officer, Jeff Schomburger, will provide prepared remarks. Also joining us today and available for Q&A is Wes Morris, our new Chief Operating Officer. Following the prepared remarks, we will have a Q&A session. We have also provided a supplemental presentation, which may be referenced on today's call and is available on Tyson's Investor Relations website and via the link on our webcast. During today's call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during this call are provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking statements are subject to risks, uncertainties and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statement disclaimers on Slide 2 as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Segment results are presented on a segment operating income level and will be discussed on an adjusted basis. Please note that references to earnings per share, segment operating income, operating income and operating margin in our remarks are on an adjusted basis for our fiscal periods unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I will turn the call over to Donnie.
Thank you, Jon, and good morning to everyone joining us today. Overall, I am pleased with our performance in the third quarter. This is the 12th consecutive quarter of doing what we said we would do. Our strategy is working, and I want to take a moment to reinforce what we have built at Tyson, a differentiated and diversified protein-centric company positioned to capture growing demand for high-quality protein. Animal protein remains a top priority for consumers and continues to gain momentum as a foundational part of a healthy diet. As consumers increasingly prioritize nutrient density and protein quality, including those adopting newer wellness and weight management routines, our portfolio aligns exactly with the foods they are choosing. We are directly tied to and stand to benefit from consumer preference as protein is economically advantaged versus every other food category. Before I discuss the segment details, I want to emphasize how proud I am of the progress this team has made, improving our operational performance and execution, strengthening our portfolio and positioning this company for continued long-term growth. We are the leader in the industry, have a portfolio of iconic brands that consumers are drawn to, and I am confident in where we are headed. Our brands are winning in the retail marketplace. In Prepared Foods, all 13 weeks of Q3 showed continuous volume and revenue share gains, including our highest volume share ever, with volume share up 70 basis points, unit share up 70 basis points and dollar share up 50 basis points. This performance was driven by strong consumer demand, disciplined promotional execution and targeted marketing investments. We hold leading positions across lunch meat, dinner and smoked sausage, and we are managing price gaps and promotion with discipline to compete more effectively. Prepared Foods is a branded protein platform that raises the quality and the predictability of our earnings. Innovation and distribution gains remain key engines for this business with notable brand wins in the quarter such as Hillshire Snacking up 18.4%, Hillshire Farm Lunch Meat up 7%, Aidells dinner sausage up 5.8%, Hillshire Farm and Wright Smoked Sausage up 3.4% and Jimmy Dean Refrigerated Breakfast up 2.7%. Our Tyson branded chicken categories continued their momentum in retail at 0.9% for value-added chicken category and 3.1% for fresh chicken. Innovation is central to our strategy and is showing up across our entire branded portfolio. Last quarter, we launched our Jimmy Dean high-protein platform, which continues to perform, earning broad retail distribution and resonating with younger consumers looking for convenient, protein-centric options throughout the day. This quarter, I want to highlight Hillshire brand. This is a brand built for innovation, and our portfolio reflects that. Hillshire Farm brand anchors that everyday occasion, smoked sausage, lunch meat and ham that consumers have trusted for decades. The Hillshire brand has also extended into snacking, where the line is rapidly growing with consumers seeking convenient on-the-go options. And with the launch of Hillshire Reserve lunchmeat, we're now capturing consumers seeking premium offerings, craft-inspired chef-quality lunchmeat for a more elevated eating experience. Together, these brand extensions reach new consumers with a multi-tier offering. These launches share a common thread. They deliver on the priorities driving demand across our business: protein focus, bold flavors and everyday convenience, whether through simple ingredient renovation of our core products or new high-protein forms. We are innovating exactly around what consumers are looking for, and we see meaningful runway to expand distribution and bring new products to market. Now let me walk you through our third quarter results, a view of the current and future environment before Curt covers the financials and updated outlook. In the third quarter, Prepared Foods continued to outpace broader category performance in both retail and foodservice. Q3 marks our third consecutive quarter of volume and sales growth, with sales up 1.7% or $42 million year-over-year to $2.6 billion. Prepared Foods segment operating income was $321 million with a margin of 12.6%. Operating income was down slightly year-over-year as roughly $30 million of higher commodity costs in the quarter outpaced pricing, which continues to catch up. As commodity costs moderate, that benefit will take time to flow through production and inventory. We expect it to be realized later in the fourth quarter and into fiscal 2027. Our results demonstrate continued execution on the controllables and the continued momentum of our strategy and diversified portfolio of leading brands and proteins. We delivered yet another impressive quarter in Chicken with segment operating income of $488 million, an increase of $40 million year-over-year at a margin of 11.2%. Demand remained robust, and our customer-centric approach continued to drive volume gains. Our retail and foodservice volume was up 3.8%, nearly four times our total volume growth of 1%, reflecting the strength of our strategic customer partnerships and consumer demand. We hold the number one brand of chicken, and our differentiated chicken model continues to outperform commodity producers. The outperformance is grounded in structural drivers, including end-to-end execution, live performance, branded and value-added mix and strategic customer relationships. We continue to strengthen live performance, yields, asset utilization, labor productivity and supply chain discipline, supporting our seventh consecutive quarter of year-over-year volume and sales growth and reinforcing the consistency of our chicken business. Importantly, our chicken results are increasingly driven by consumers and customers rather than commodity markets, supported by a favorable mix of value-added and branded products, disciplined revenue management and strong operational execution. Notably, our net price realization increased versus the prior year even as input markets softened, further evidence that our results are driven by mix, innovation and execution rather than commodity pricing. To put that in context, industry chicken cutout values fell, yet our commercial model anchored in improving mix, volume commitments and value-added pricing structures enabled us to grow net price realization. In Beef, we continue to navigate the well-documented challenges of the current cattle cycle. Beef segment operating income was a loss of $138 million. Sales reflected that environment. Volume declined 15.9%, while pricing rose 12.1% as constrained supply pushed input costs and pricing higher. Our footprint optimization actions from the second quarter delivered as expected. However, it was more than offset by USDA margin compression. We remain focused on what we control: customer mix, revenue management, network productivity, cost discipline within a footprint better aligned to the current supply environment. The recent announcement of a phased reopening of the Mexican border for the importation of cattle shows potential improvements to long-term cattle availability. We appreciate and support the USDA efforts to protect and to reopen the border. Although the reopening won't have a material impact on the remainder of this fiscal year, which ends in September, it does provide the potential for some level of improvement in 2027 and beyond. To be clear, the reopening of the Mexican border will not solve the entire gap of beef losses we are currently seeing. We are not waiting passively for the cattle cycle to turn, and we continue to focus on improving the variables within our control. Simply stated, our mission in beef is to be the best operators in the areas in which we compete. Our Pork segment continued to operate in a stable environment. Operating income was $60 million with a margin of 3.8%. Consumer demand was solid and hog supplies were adequate. Together, these factors have kept the pork value chain well balanced, supporting more consistent and predictable operating margins. We also continue to benefit from greater integration with Prepared Foods, allowing us to optimize product mix and direct raw materials toward their highest value uses. We remain focused on improving mix and further integration across the value chain. Finally, our International segment continued its steady performance. International segment operating income was $48 million with a margin of 8%, supported by continued cost discipline and improved execution across key markets. We remain on track with our annual outlook for this segment. Let me briefly address the macro environment. While consumer sentiment continues to be pressured and inflation remains elevated, demand for protein remains resilient. Consumers are making value-conscious choices, and protein-centric foods, including our Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, State Fair and Aidells brands are winning that consideration. The breadth of our brand and product offering allows us to fulfill the needs of the consumer wherever they are on their journey. Foodservice volume remained constructive throughout the quarter, growing 1.8% versus last year, and our retail performance continues to outpace the broader food and beverage category. This reinforces the enduring nature of our protein-centric portfolio across economic cycles. Our scale, operational capabilities and brand strength allow us to serve customers and consumers effectively even in a challenging macro environment. And we believe these advantages will compound as conditions improve. We will continue to be disciplined and intentional about where we invest, whether in brand support, innovation, automation, supply chain capabilities, or network optimization. Our focus is on projects that strengthen service, improve productivity and drive cash flow and long-term shareholder value. Looking ahead to fiscal 2027, I am confident in the year ahead. In many respects, we expect it to look a lot like 2026, building on the momentum of our end-to-end execution that has defined this year. With that, I will now turn the call over to Jeff Schomburger, our incoming CEO, for a few introductory remarks.
Thank you, Donnie, and a huge thank you for your years of leadership and the strong foundation the team has built. This puts us in a position to build on our strong momentum going forward. I want to take just a minute to introduce myself to our investment community. I'm looking forward to meeting you all soon. While my title is new, Tyson Foods is not new to me. I've had the privilege of serving on the Tyson Foods Board of Directors for more than 10 years. And over that time, I have developed a deep respect for this company, its people, culture, brands, customers and long-term potential. I've watched this management team navigate complex cycles, make disciplined decisions and build a more consistent organization. I spent time over the past few weeks meeting with our team members, visiting facilities, engaging with our customers and consumers in their homes, and I'm excited about their energy and passion. As one team, one Tyson, we will remain focused on operational execution, strengthening the iconic brands in our multi-protein portfolio, investing behind differentiated capabilities and generating long-term shareholder value. Innovation, quality, affordability and understanding what consumers want will be critical so our brands continue to earn a place at tables around the world every day. To our shareholders and analysts on the call today, I look forward to getting to know you better, sharing more about our priorities and continuing to earn your trust through consistent results and transparency. With that, I'll turn it over to Curt to walk through the financial details.
Thanks, Jeff, and welcome. It's great to have you on the call. Total company sales were $13.9 billion, essentially flat compared to the prior year as a 3.4% increase in average sales price offset a 2.8% decline in volume, the latter driven largely by tighter cattle supply in beef. Third quarter segment operating income was $779 million, an increase of $18 million versus the prior year, driven by stronger results in Chicken, Pork and International, partially offset by lower Beef results. Corporate expenses and amortization were lower by $24 million compared to the same period last year, driven by disciplined cost management. Total company adjusted operating income was $547 million, a margin of 3.9%. Adjusted earnings per share for the quarter were $0.99, up 9% compared to last year. Turning to our financial position. Our approach to capital allocation remains disciplined, deliberate and forward-looking, supported by a strong balance sheet. Our priorities remain balanced: investing in the highest return areas of our business, maintaining balance sheet strength and our investment-grade credit profile and returning cash to shareholders over time. Free cash flow remains central to our strategy, and we are encouraged by the cash generation trends through the first nine months of the year. Operating cash flow for the first nine months of the year was $1.47 billion, and capital expenditures were $556 million, resulting in free cash flow of $913 million. We ended the quarter with $4 billion in liquidity and net leverage of 2.1x. In the quarter, we repurchased $31 million of our shares. And year-to-date, we have returned $652 million to shareholders, including dividends. Since quarter end, we have repurchased an additional $49 million of our shares. Our balance sheet remains very healthy as we continue to prioritize financial strength, our investment-grade credit rating and cash management to drive long-term shareholder value. Let's take a moment to review our updated outlook for fiscal 2026. As a reminder, our accounting cycle results in a 53-week year in 2026 compared to a 52-week year in 2025. Our guidance is presented on a comparable 52-week basis. We narrowed full year sales growth guidance to 2.5% to 3.5% year-over-year. Total company adjusted operating income range is now forecasted to be $2.1 billion to $2.3 billion, driven by the challenges in our Beef segment relating to cattle availability. We still anticipate interest expense of approximately $365 million and a tax rate of around 25%. Capital expenditures are now expected to be between $700 million and $900 million, and we have narrowed the range of our free cash flow to $1.3 billion to $1.7 billion. Turning to our segment outlook. In Prepared Foods, we are raising the midpoint of our full year segment operating income outlook with a revised range of $1.3 billion to $1.35 billion. We expect continued growth in top line and bottom line in the fourth quarter and for the full year. In Chicken, we are reaffirming our full year segment operating income outlook at a range of $1.9 billion to $2.05 billion. This is broadly comparable with 2025 and supported by our commercial model, operational execution and the impact of our live operations, along with continued volume growth. In Beef, industry conditions are challenged, and we now expect a full year segment operating income loss in the range of $650 million to $500 million as continued USDA margin compression and higher cattle costs more than offset the benefits of our network optimization actions. In Pork, we are reaffirming our segment operating income outlook of $250 million to $300 million. In International, we are also reaffirming our outlook of $150 million to $200 million. Our corporate expenses and amortization outlook remain the same at $950 million to $975 million. Overall, I remain confident that 2026 will be another strong year for the company. I will now turn the call back to Donnie for closing remarks.
Thank you, Curt. I'm excited for the opportunities in front of us in 2027 and confident in the long-term prospects for Tyson Foods. Let me quickly recap our forecast and focus areas. In Chicken, we anticipate continued strength in our differentiated chicken model, underpinned by our end-to-end execution, live performance, branded and value-added mix and strategic customer relationships. In Prepared Foods, we expect continued growth in both volume and profit, supported by the strength of our brands, ongoing innovation and sustained consumer demand for convenient protein-centric options. In Beef, we will remain focused on operational discipline and performing competitively within our optimized long-term footprint as we continue to navigate the challenging cattle cycle. In Pork and International, we expect stable results with continued gains in operational execution across both segments. Before we open the call for questions, I want to take a moment to say thank you to our team members, our customers, our family farmers and ranchers and our shareholders. I'd also like to thank our Chairman, John Tyson and the Tyson family, Barbara, John Randal and Olivia, for their support and leadership throughout my time as CEO. Tyson is a strong company because of the people behind it, and I'm grateful for the work they do every day. We operated with discipline throughout another dynamic quarter, and I feel good about the progress we are making. Our strategy is working. Our portfolio is strong, and this team is well positioned for the opportunities ahead. Most importantly, we have a solid foundation in place. We are building momentum, growing the business and staying focused on delivering stronger performance over time. I am incredibly proud of what this team has built and energized by what lies ahead under Jeff and his leadership team. With a clear focus on accelerating our brands and value-added mix, deepening our connection with consumers, strengthening strategic customer relationships and continuing to raise the bar on operational execution, Tyson is well positioned to build on the momentum and create meaningful long-term value for our shareholders. While I'm stepping out of the CEO role, I will remain on the Board and stay closely engaged in the company's performance and long-term direction. This strategy matters deeply to me, and I will continue to support Jeff and the team as we deliver on the commitments we have made to our shareholders. With that, I will turn the call back to Jon to begin the Q&A session.
Thank you, Donnie. We will now open the line for questions. Please note that our cautions regarding forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Donnie, Curt, Jeff and Wes are available for your questions. Operator, please provide the Q&A instructions.
Questions and answers
Operator provides instructions. Our first question comes from Andrew Strelzik with BMO.
Great. And first, I wanted to say congratulations, Donnie, as you take this next step. My question: you've highlighted strong performance in Chicken and Prepared Foods. As we look forward, what gives you confidence in the sustainability of that performance in 2027 against a tough commodity chicken and consumer backdrop? And do you expect to hold or grow profits in those segments next year?
Great question, Andrew, and thank you. So let me start with what we've done. We're really pleased with our Q3 performance. We've improved volume, gained market share and increased profitability. That's our 12th consecutive quarter of doing what we said we'd do. Prepared Foods raised its guidance at midpoint to $1.3 billion to $1.35 billion on a third straight quarter of volume and share growth. Chicken delivered its seventh straight quarter of volume and net sales growth with $488 million of segment operating income and 11.2% margin, a $40 million improvement year-over-year. This is an execution story, end-to-end execution. So Andrew, back to your question about FY 2027. I need to make this really clear. I don't think about Tyson as a commodity chicken company. About three quarters of our Chicken segment's operating income now runs on the same model as Prepared Foods, a pull business, built against committed strategic customer demand, our investment in the number one brand in chicken, and direct digital engagement with our consumers. This is not a push business exposed to the open cutout market. Industry-wide chicken oversupply is a commodity market dynamic. It pressures processors selling into that spot market. This is not us because most of our chicken volume is already spoken for before we place the baby chicken. Chicken is running the same playbook that has made Prepared Foods so resilient: growing through mix, brand investment, customer partnership and consumer-centric discipline, not by chasing commodity price. Our portfolio, excluding beef, grew segment operating income $172 million or 6.5% over the first nine months led by Chicken, Prepared Foods and Pork. Pork's role in the portfolio is largely a raw material supply to Prepared Foods. Beef hasn't performed the way we expected, and we're not pretending otherwise. But we're controlling what we can control there, and we're not waiting passively for the cycle to turn. Beef is our only true commodity business. All of this taken together, Andrew, it's hard to find another consumer staples food company growing both volume and profitability the way we are, a customer-built business, not a commodity one. That's why I'm confident this will continue in FY 2027 and beyond.
Okay. That's super helpful. A follow-up: if I heard you correctly, I think you made a comment in the prepared remarks about 2027 looking a lot like fiscal 2026. I wanted to clarify if you were talking about earnings or operating profit? Or was that a broader comment about the strategic priorities, the operational discipline, those types of things?
Great follow-up. As I think about 2027, when I said it would look a lot like 2026, we think the momentum continues across all of our businesses. That would be growth in the business: growth in volume, growth in profitability. We'll continue to execute with our strategic customers. Even in beef, where performance is disappointing, our execution is still very good. Our model, as I pointed out, is not a commodity company except for beef. From a pricing standpoint, even if you use Q3 as a proof point, it wasn't a price story for us. If you look at underlying cutout values for commodity chicken, they were down significantly, yet our net price realization improved, driven by mix, a more value-added mix, which we've discussed often, and pricing models that smooth and protect value. We feel good about our customer partnerships and service, quality and innovation rather than discounting. A proof point is the 11.2% margin in chicken in Q3. We are growing via mix and execution, and that gives me confidence for 2027 and beyond.
Our next question comes from Ben Theurer with Barclays.
Also, Donnie, congrats on a great tenure here with Tyson. Let me pick up on the Chicken business and the commentary you had. As we look at your chicken year-to-date and last year's fourth fiscal quarter, we're kind of at the low end of the guidance for fiscal 2026. What would take you to the higher end of the guidance versus a year-over-year fourth quarter flat? A little more detail on the fourth quarter, particularly in Chicken, to understand the high versus low for the full year guidance would be helpful.
Sure. I'll start by noting that last year's fourth quarter was an all-time record and the market was exceptional. We took advantage of that by producing product and selling into the market. This year, we won't see the same peaks in Q4 that we saw a year ago because we won't take the same market-dependent actions. Our bread and butter will be our branded and value-added portfolio and strategic customers. We think Q4 will be a really good quarter and a good year for us as a company, but you won't see the same peaks from the extraordinary market last year.
Ben, this is Curt. As you look at the guidance, we maintained chicken's range from last quarter. That implies a midpoint a little over $500 million. Our average through the nine months is running around $490 million. So it's a pretty balanced year in total. The high-low could be a front-half/back-half split of 52/48 or 48/52. At the high end, roughly a 48/52 split. We had a very strong Q4 a year ago for the reasons Donnie mentioned. Overall it's balanced across the range provided.
Okay. Got it. And then on Prepared Foods, how did you reach the margin level you've achieved? How confident are you into next year to maintain that margin level? Any cost pressure risks as we move into fiscal 2027?
Prepared Foods results are driven by the fundamentals: selling real protein-focused food, strong brands, innovation and distribution gains. We had three consecutive quarters of volume and net sales growth, outpacing the industry. In Q3 we gained share across volume, dollars and units, with share gains in all 13 retail weeks and achieving our highest ever volume share. Wins were broad-based: Hillshire Snacking up 18.4%, Lunchmeat up 7%, Aidells up 5.8%, Smoked Sausage up 3.7%, and Jimmy Dean Breakfast up 2.7%. Prepared Foods is performing as promised. Our commercial tools, strategic customer partnerships, innovation and digital capabilities are differentiators. We expect continued distribution gains and household penetration increases, and we see significant runway ahead. We believe our consumer-first approach, product alignment and commercial discipline will sustain margin performance into next year.
I would add that our tightened Prepared Foods range implies Q4 somewhere around $290 million to $340 million. Our nine-month average is just inside $340 million. Historically, Prepared Foods has been a little underweighted in the second half, but we've reshaped the portfolio and expect a more balanced second half this year, closer to a 52/48 split. We will lap a Q4 of a year ago that was a little under, but the outlook is positive for Q4 and into 2027.
Our next question comes from Michael Lavery with Piper Sandler.
Donnie, congrats and Jeff, welcome. I wanted to come back to Chicken and specifically genetics, which got attention last quarter. Could you give an update on genetics and how big a role that could play? Also, given other tailwinds you mentioned like potential Mexico cattle imports and easing Prepared Foods costs flowing through, should we think fiscal 2027 could be better than 2026?
A lot in that question, Michael. First, the genetics business is part of our Chicken segment and is important to the story, but our entire end-to-end chicken business is performing well. Within the genetics business we have two primary types: small bird genetics and big bird genetics. We sell genetics internally to our domestic chicken business and externally to outside customers. Historically, our big bird genetics declined through 2014 and troughed around 2024, which disadvantaged us on metrics like eggs per hen house, livability and breast meat yield. We now have a competitive big bird genetics rolling through our supply chain. By the end of the calendar year, in locations that use big bird genetics, about 75% will be this new line of genetics. The remaining 25% will convert in fiscal 2027. This will produce a P&L benefit for the genetics company and, more importantly, a larger benefit for the domestic chicken business, where the real impact is realized.
That's helpful. On the broader look ahead, given genetics flow-through, easing Prepared Foods cost pressure and potential cattle imports, there seems to be room for nice improvement in 2027. Is it fair to think 2027 could be better than 2026?
Michael, it's Curt. We appreciate where we are in the cycle. We're not giving guidance for 2027 today; we need to finish 2026 before we provide guidance. Qualitatively, we expect to continue the trend in Prepared Foods of growing volume and profitability. We believe our Chicken business is differentiated and expect another constructive year there. We'll manage beef by controlling the controllables. We will provide more commentary next quarter, but that's the qualitative context for 2027.
Our next question comes from Heather Jones with Heather Jones Research.
Donnie, it's been wonderful to work with you all these years, and you'll be truly missed. Jeff, welcome. My question is on capital allocation. With the balance sheet stronger than it has been, how are you thinking about capital allocation, share repurchases, and is large-scale M&A on the table?
Thanks, Heather. We've worked hard on capital allocation choices. Our priorities remain: maintain financial strength, invest in the business both organically and inorganically, and return cash to shareholders. We've demonstrated building financial strength. We have about $4 billion of liquidity, net leverage about 2.1x. We've reduced gross debt about $800 million this year, generated over $900 million of free cash flow, invested about $550 million in CapEx, and returned roughly $650 million to shareholders year-to-date via dividends and repurchases. We repurchased about $45 million in early Q4, which we view as an attractive use of capital. We still see attractive opportunities to invest organically and will take a balanced approach.
Okay. My follow-up: I'm trying to reconcile chicken volumes. Industry volumes grew 4.7% year-to-date, but your volumes were up about 1%. Is that due to lower external purchases or a change in mix? How should I think about that going forward?
Good question. We match supply to demand. We're growing in branded and value-added offerings at a faster pace than overall category growth. Our growth is concentrated in value-added items—portion-controlled, boneless, skinless items, ready-to-eat items. So while overall industry supply may have grown more in commodity whole-bird forms, our business is growing where we want it to grow. Our branded and value-added growth is roughly four times our total sales growth, which explains the discrepancy with industry numbers.
Our next question comes from Leah Jordan with Goldman Sachs.
Donnie, thanks and best wishes. Jeff, welcome. On Prepared Foods, you're taking share while the category has broadly decelerated and the consumer backdrop is mixed. Can you comment on the competitive environment, promotional activity, and how you think about category growth versus share gains driving your volume growth into next year?
Leah, in the categories we compete in, being the category leader requires growing the category. We take that responsibility seriously. While categories may trend down generally, we're driving growth through new product innovation, improved distribution and appealing to younger consumers. Our Jimmy Dean high-protein platform resonates with younger consumers, and Hillshire Snacking captures on-the-go demand. Our point of difference is protein focus, bold flavors and everyday convenience. We have best-in-class commercial tools and digital engagement that use first-party data, and we've tested products using agentic AI. We're connecting closer with consumers and delivering products that taste good, are affordable, nutritious and convenient. That combination drives growth and efficiency across cycles.
Great color. For my follow-up, you said some cost recovery should flow later in Q4. Can you give more detail on the timing into next year and what you're seeing in input inflation or deflation across different inputs?
In Q3 we had about $30 million of higher commodity costs, concentrated predominantly in beef trim. Pork commodity costs have begun to decline, but the benefit was largely in inventory in Q3 and will flow through in Q4 and into 2027. Fuel and distribution costs increased starting mid-April and were a headwind in Q3, but customer freight is a pass-through and recovery can lag one or two quarters. We will ultimately recapture those costs. We continue to be conservative and manage inputs carefully. We're proud of our Prepared Foods business and see significant runway ahead.
Our next question comes from Peter Galbo with Bank of America.
Curt, on beef you mentioned potential improvement next year with the Mexico reopening, though slow. Street estimates are looking for a material improvement in beef next year. Is halving the losses this year within the realm of possibility given your update, or should we be more conservative?
Peter, the administration's phased opening of the border historically represents about 5% of U.S. harvest coming from Mexico. The phased approach starts August 24 in Arizona, then New Mexico, and finally Texas. Much of those are feeder cattle, so it will take six months or more after they go on grass or into feedlots before they impact the harvest. Heifer retention up about 3% is a positive signal, but it's not the rapid rebuild seen in 2014. So it's encouraging but slow, and the positive effects will be gradual.
Okay. On pork inputs moving lower, is that supply-driven or is there demand destruction in certain industry subcategories that's pushing down input costs? What's the industry context?
We have seen pork costs decline and the pork supply chain looks stable. Earlier concerns around PRRS affected sentiment, but we haven't seen significant impact to our operations, since many of our hogs are in the Midwest and were not affected. Hog supplies look adequate and demand is solid. Chicken absorbed much of the demand shift from high-priced beef, which limited pork's volume pickup. From Tyson's perspective, hog supplies are largely an input for Prepared Foods, and we expect stable, predictable raw material costs as we optimize their use in Prepared Foods.
Our next question comes from Thomas Palmer with JPMorgan.
Donnie, congratulations and best wishes. Jeff and Wes, welcome. Jeff, given your background in traditional CPG, what will be your key focus items or initiatives and will that signal any change in Tyson's focus on value-added protein?
Thanks, Thomas. Donnie has been clear: the strategy is working and we will stay the course and accelerate the strategy that's delivering results. I've spent weeks listening, learning, visiting plants and meeting customers and consumers. We have a great foundation for the next chapter of growth. Our people, culture and brands are strong, and customers want us to help them grow. I'll have more to say next quarter, but I like where we are and our chances.
A follow-up on Chicken: feed cost tailwinds have been helpful; they were neutral this quarter. What is the path forward for input costs in Chicken and to what extent do you use price escalators with customers to mitigate impacts?
Looking at futures, we see some moderate increases in feed costs going forward. Importantly, we have alignment with strategic customers to collectively manage input cost risk and diversified pricing models that mitigate exposure. We're not trying to outguess the market; we work with customers to stabilize pricing. If input costs rise, they will be real, but our processes and customer arrangements are in place to mitigate risks. Based on current projections for corn and soy, we feel good about our position into 2027.
Our next question comes from Alexia Howard with Bernstein.
On Beef, how much more cost-cutting, productivity savings and benefits remain? You've closed plants and right-sized capacity to the herd. Is there more to come, and what would it take to get beef back to profitability?
Alexia, I've been in the role for seven weeks and beef is a top priority. We have a cross-functional team focused on controlling everything we can in this period of tight cattle supply. Past optimization delivered as planned, but in the quarter live-to-cutout spreads offset those benefits. We're focused on continuing to control the controllables and drive productivity. There are opportunities, but the current cattle cycle and margin compression are significant headwinds.
Separate question on freight: other companies have called out freight cost inflation. You have a lot of owned freight—what is your exposure if freight costs continue to rise?
We have seen higher fuel costs since mid-April, which impacted the quarter. Customer freight is a pass-through and we don't subsidize it, though recovery can lag one to two quarters. Our significant internal fleet helps mitigate overall cost impacts and performs well, but we are seeing higher costs that we manage through our processes.
Our next question comes from Pooran Sharma with Stephens.
Congrats on a successful tenure, Donnie, and looking forward to working with Jeff. On heifer retention, I was surprised to see it up around 3%. Given chatter about drought in key cattle-producing states, was that increase a surprise? And on the Mexico border reopening, how long would it take to reach the full historical 5% contribution?
There have been enough positive environmental conditions that the 3% heifer retention wasn't a surprise, but it's not the rapid rebuild seen in 2014. The border reopening will be phased and involve young cattle that will go to grass or feed yards; it will take up to a year to see the positive impact on slaughter as the cattle move through the system.
This concludes our question-and-answer session. I would like to turn the conference back over to Donnie King for any closing remarks.
Thank you for your time and continued interest in Tyson Foods. We look forward to sharing our continued progress with you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.