Tyson Foods' recent earnings calls have painted a picture of cautious optimism, with the company highlighting its commitment to "controlling the controllables" and driving cash flow to support its dividend. This narrative revolves around disciplined capital expenditure (CapEx) management, a key pillar in Tyson's strategy to regain investor confidence and restore financial strength.

However, a deeper dive into Tyson's historical financial data reveals a curious inconsistency in this narrative. While the company proudly proclaims its commitment to CapEx control, the numbers tell a more nuanced story. Is Tyson's "disciplined" CapEx a genuine strategic shift or a carefully crafted narrative designed to appease investors concerned about the dividend's sustainability?

Tyson's recent reduction in CapEx is indeed significant. From projected spending of over $2 billion in previous years, the company has slashed its budget to a range of $1 billion to $1.5 billion for fiscal year 2024. This, coupled with robust cash flow in the first quarter, has fueled optimism about the dividend's future. John R. Tyson, the company's CFO, has repeatedly emphasized their commitment to covering the dividend through free cash flow generation.

But this "return to a normalized level of spend," as John R. Tyson describes it, masks a startling fact: Tyson's historical CapEx has been remarkably erratic. A glance at their balance sheets over the past two decades reveals wild swings in spending, seemingly untethered to consistent strategic goals. In 2018, for example, CapEx reached a peak of $1.887 billion. The following year, it plunged to $1.259 billion, only to surge again to $1.939 billion in 2020.

Historical CapEx Volatility

This volatility raises questions about the true drivers of Tyson's CapEx decisions. Is it truly a response to profitability, as the company claims, or a more reactive approach driven by short-term market fluctuations?

The inconsistency becomes even more apparent when comparing CapEx with operating income. In 2019, despite a 10% drop in operating income compared to the previous year, Tyson slashed CapEx by over 30%. Conversely, in 2020, operating income surged by 65%, yet CapEx increased by over 50%. This disconnect suggests that factors beyond profitability, such as opportunistic acquisitions or reactive responses to market shifts, play a significant role in shaping Tyson's CapEx decisions.

Furthermore, Tyson's heavy investment in new processing plants around the world, a key driver of elevated CapEx in recent years, raises concerns about their long-term profitability. With 12 new plants built in the past two-plus years, the company now faces the challenge of filling up those capacities. This raises the specter of oversupply and potential margin compression, particularly in the international segment, where macroeconomic challenges already pose significant headwinds.

The crux of the matter lies in the sustainability of Tyson's dividend. The company's commitment to covering the dividend through free cash flow is laudable, but the inherent volatility of its CapEx spending raises doubts about their ability to consistently achieve this goal. With erratic CapEx, the dividend becomes vulnerable to future market fluctuations, potentially leaving investors holding the bag.

CapEx vs. Operating Income

If Tyson truly intends to prioritize free cash flow to support its dividend, it must demonstrate consistent and disciplined CapEx management linked to long-term strategic goals rather than short-term market fluctuations. Until then, investors should remain wary of Tyson's "disciplined" CapEx narrative, viewing it with a healthy dose of skepticism. It may prove to be a temporary bandage on a deeper wound, a narrative crafted to buy time rather than a genuine solution to the dividend's long-term sustainability.

"Fun Fact: Tyson Foods processes enough chicken each year to provide every person in the United States with over 90 pounds of chicken! That's a lot of poultry!"