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Recommendation: BUY April 19, 2016 Tyson Foods, Inc.

Krause Fund Research | Spring 2016 Consumer Staples

Analysts Colin Rogers Brandon Schreiner colin-rogers@uiowa.edu brandon-schreiner@uiowa.edu

Company Overview Tyson Foods is one the largest meat processing and prepared foods companies in the world. Tyson Foods, currently headquartered in Springdale Arkansas, employs about 113,000 people and contracts more than 11,000 family farms. [24] The company began as a small chicken and feed operation and has expanded into different segment such as beef, pork and various prepared foods. In addition, they operate along with subsidiaries such as Jimmy Dean, Hillshire farms, Sara lee, Ball Park, Wright, Aidells, and State Fair. Tyson Foods predominately operates in the United States, but has operations in China and India. After the acquisition of Hillshire farms, Tyson Foods has repositioned themselves in the prepared food segments whereas previously were predominated by protein- added meats. Stock Performance Highlights 52-Week High $68.84 52-Week Low $37.24 Beta 0.92 Share Highlights Market Capitalization $25.63B Shares Outstanding 288.79M Book Value per share $24.72 Basic Earnings per Share $3.37 P/E Ratio 15.05 Dividend Yield .92% Company Performance Highlights ROA 5.30% ROE 12.57% ROIC 9.81% Sales $41,373B Financial Ratios Current Ratio 1.52 Debt-To-Equity 69.29%

Current Price: $65.79 Target Price: $77.66

MARGINS POISED FOR GROWTH

U.S CATTLE HERD STABILITY

• The US cattle herd has made a correction in favor of Tyson Foods. We expect the rebuilt herd will reduce the volatility in market prices realized in earlier periods.

• Grain and feed cost are trending near eight year lows. This should reduce input costs for all of Tyson’s company segments.

• Tyson currently operates four different protein markets. This provides a competitive advantage as fluctuations in consumer preferences can shift among segments in which they operate. As a result, a decrease in sales in one segment can result in an increase in sales in another.

• High start-up costs and robust customer relationships discourage new entrants in the market. The sector as whole has a medium concentration of ownership which provides opportunity to expand ownership, as a result, Tyson Foods can increase their purchasing power.

• Tyson Food’s has outperformed the consumer staples segment as a whole by over 20%. [35]

Source: Yahoo! Finance

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Executive Summary

Economic Outlook

We believe that Tyson Foods, Inc. is a stable investment in terms of company growth and future outlook. To elaborate further, the company has shown strong operating margins in early beginnings of fiscal year 2016. The synergies from recent acquisitions, mainly Hillshire Farms®, pose a positive outlook for future earnings. Operating conditions are strong and we predict them to continue strengthening going forward. Therefore, we issuing a ‘hold’ rating on Tyson Foods in the consumer staples segment.

We believe that there are four primary macroeconomic measures that have a notable effect on the food products industry and Tyson Foods. These measures include: Real GDP, Inflation, Employment Situation, and Consumer Confidence. Gross Domestic Product (GDP) The growth of the overall U.S economy is strongly linked with the growth of real GDP. Given that the purchases of non-durable goods makes up 15% of total GDP, this indicator is an effective measurement to consider when evaluating Tyson Foods.[2] Any growth of real GDP between economists consensus range for quarterly or yearly growth, is considered to be a sign for a healthy economy. Therefore, when real GDP is realized above consensus, it is generally a positive indicator for the food products sector growth. An overall increase of GDP is important for Tyson Foods because it can indicate that consumers will be more likely to purchase Tyson’s new product mixes generated from the acquisition of Hillshire Farms in 2014. Real GDP increased 2.4% in 2015, the same rate as in 2014. The most recent data shows Q4 of 2015 Real GDP growth at 1.4% annualized, which is above economist consensus of 1.3%.[1] While these figures show a relatively stable but negative trend in economic growth, consumer spending has been an underlying strength of total real GDP. We believe that real GDP growth beating economist estimates in Q4 contradicts the recent volatility in the capital markets. This suggests that personal consumption of 2.4% of real GDP which was .4% above estimates, shall remain strong. As a result, we expect the food products industry to perform well.[1]

Source: Bloomberg Data

We believe that the recent capital market volatility is a result of global economic uncertainty of the strength of the interest rate proposals made by the Federal Reserve. If the Federal Funds rate remains constant at a level of 0.50% in the short-term of six months, we believe that it will not drastically effect consumer spending. As a result, real GDP will be an annualized number of 2.10% in Q2 of Fiscal Year 2016. We expect this decrease is due to the weakening number of net Exports from the strengthening dollar.[2] In the long run of three years we expect GDP to increase 2.60% year-over-year because of recent strong employment numbers and a prediction of a return to stable capital markets. Unemployment Similar to GDP, low levels of unemployment contribute to increased sales in the food products industry. As more people are employed in the labor force, their income increases, which in return, enables consumers to spend more on brand protein based products offered by companies like Tyson Foods. On the other hand, when the labor force remains at a steady level while the number of unemployed persons increase, consumers tend to purchase more inferior goods to save money, which are typically off brand products Unemployment remains low as of Q1 Fiscal Year 2016 at 5.0%, which is at consensus estimates. This number is increasingly effective when paired with the drastic increase of nonfarm payrolls of 215,000, which also fall within the consensus estimates. This suggests that the number of people working match the output of jobs made which suggests the economy is nearing a steady state. As seen below, unemployment has been straddling 5.0% since May of 2015.

Source: Bloomberg Data Although the employment situation seems stable, the average hourly earnings decreased 0.1% from January to February and the year-over-year average is down 0.3% at 2.2%.[3] The most recent data it has increased 0.3% but has had no effect on the year-over-year percentage growth.[3] Theoretically, this means that consumers are going to be less likely to purchase name brand food items because their income has decreased overall; but because this number is fairly volatile it suggests that a one month of negative numbers should not affect consumer spending significantly. We believe that in the six-month short run, unemployment will decrease to 4.8% because of the strong job creation numbers in

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Capital Markets Outlook

Q1. Overall in the next three years we also believe unemployment to remain constant at 4.8% because we forecasted forward looking GDP numbers to increase. Inflation Inflation is best measured through the monthly changes in the Consumer Price Index (CPI) and the Producer Price Index (PPI). The CPI and the PPI are calculated in a similar way but the CPI is an average price level of a fixed basket of goods for consumers while the PPI is an average price level received by domestic producers of goods and services.[4] In the most recent data released for Q1 fiscal year 2016, CPI increased 0.1% month-over-month.[5] Overall, this increase is disappointing for Tyson because as prices rise consumers will presumably hold off for future prices to decrease. When each component of CPI is analyzed, food prices pull this number down 0.2%, followed by apparel and gas utilities. This means that Tyson’s consumers are already paying low prices for food and prices are not driving consumers to off brand food items at the supermarket.[4]

Source: Bureau of Labor Statistics Amidst the low CPI food prices numbers, we expect to see producer input prices to decrease, as most recent data for PPI in Q1 fiscal year 2016, shows a 0.1% decrease month-over-month.[7] This number boasts well for Tyson especially because the most recent number was brought down by food prices decreasing 0.9% month-over-month.[7] This suggests that food prices currently are deflationary and Tyson will spend less money on input prices overall which will combat the low prices that consumers are spending at the supermarket.

Source: Bureau of Labor Statisitcs

In the next six months we expect that there will be an increase of 0.3% inflation due to the rising oil prices and the oil oversupply to diminish. This prediction will also effect long run inflation because we predict oil prices to reach a steady state around $50.00 per barrel which will increase the price the producer pays for crude oil then conversely effected what consumers pay. Consumer Confidence Consumer confidence and consumer sentiment are directly correlated to consumer expenditures. The difference between the two numbers of consumer sentiment and consumer confidence is the sample size of consumers polled, which is why consumer confidence is more statistically sound to follow. This being said, the direct correlation of consumer confidence to their expenditures can be shown in the graph below.

Source: FactSet With recent capital market volatility and interest rate uncertainty, consumer confidence has followed suit in Q1 fiscal year 2016. Consumer confidence levels were 98.1, 94.0, and 96.2 for January, February, and March respectively.[9] Furthermore consumers claiming business conditions were “good” fell 0.6% while consumers feeling “bad” also fell 0.2% which suggests that consumers feel the economy is balanced.[9] This implies that consumers as a whole do not feel a need to save money at the supermarket by buying off-brand items which is a good indicator for Tyson growth. We believe that within the next six months consumer confidence will mimic our forecasted GDP growth and reach 97.0. Thus after forecasting a larger GDP growth rate relative to the short term, we believe that in the next three years consumer confidence will reach 99.0. This is mainly due to positive outlooks of inflation and unemployment remaining stable. The consumer staples sector, and more specifically and the meat industry, is defensive by nature. This can be deciphered by a relatively low industry beta which currently is 0.6.[22] Though we have recently seen one of the worst capital market performances for the beginning of a year, it has stabilized and posted gains towards the end of March. With that being said, the Consumer Staples ETF (RHS) that mimics the companies in the S&P 500, posted higher six month gains of 7.44% despite market uncertainty shown in the graph below.[23]

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Industry Analysis

Source: Yahoo! Finance We expect these gains to grow further past the S&P 500 Index because of our outlook on low commodity prices that will lower the input prices for companies like Tyson Foods. This positions Tyson to have lower gross margins and thus increase their net income. As this is a naturally defensive industry, we do not expect the industry to post major gains in the short run.

Brief Consumer Staples Breakdown As previously stated, the consumer staples sector is defensive by nature and this is because companies in this sector sell items that are non-cyclical, which means that the performance of the companies is less affected from the "ups and downs" of the business cycle unlike many other sectors. The consumer staples market consists of food, drugs, beverages, household products and personal products. [12] More specifically, the food product segment consists of the agricultural products and packaged foods which includes protein based goods.[12] Consumer staples as a whole currently makes up for about 10.50% of the S&P500 as of April, 2016.[13] Industry Description The few aspects that make up the food products industry are the following; farming, packaging, distribution and marketing. While the core product is derived from the farming aspect, only 17% of what consumers spend at the store goes to the farmer. [14] The remaining expenditure accounts for other aspects such as distribution, packaging and marketing. Tyson acts both as a producer of chicken and a processor of beef and pork. While this helps mitigate their commodity risk, it does not eliminate it as fluctuations in grain prices directly effects the prices they pay for their processing segments for beef and pork. Industry Revenues The food products industry realized a compound annual growth rate of 0.7% over the three years previous to quarter three of 2015.[16] In comparison, this slightly underperformed the consumer staples sector as a whole by 1.0%.[16] The slower growth is a result of an increasingly difficult U.S export market. This industry is ultimately in the business of feeding the world. Therefore, the strong U.S dollar and overall unstable global economic conditions has decreased U.S company’s

competitiveness abroad. Revenue growth for this industry is expected to be held back as grain costs remain low and overall supply of livestock remains stable, which ultimately keeps sales price sluggish. [16] Industry Gross Margins In recent industry developments, we have seen increasing trends for food companies to remove unprofitable sectors of the business and in return, exert more focus on core product lines. We have seen similar trends from Tyson who sold their unprofitable chicken operations in Brazil and Mexico. As a result, they can employ more emphasis on new core product lines from the Hillshire Farms acquisition. When grain prices were high in 2013, gross margins were squeezed. Companies in this industry found those costs difficult to pass on to the end consumer in the form of high sales prices, without damaging market share.[14] However, recent market conditions has improved margins. This is a result of favorable market conditions for purchasing inputs, as well as initiatives to cut unprofitable product lines. Tyson announced in its most recent earnings report a total company operating margin of 8.5%.[18] In comparison, over the previous six years, average operating margin was 4.38%, with no margin exceeding 5.5%.[19]

Moving forward, we predict improving margins is highly probably because of more efficient operations, stable livestock supply and low commodity prices. Markets & Competition: The industry of meat, beef and poultry processing has a medium concentration of ownership.[17] The four largest companies within the industry account for 37.7% of the domestic market.[17] Many major companies that compete for market share produce more than one type of protein.[17] Companies benefit from processing multiple protein based foods because when consumer preferences change, the shift from one protein to the other makes total sales volume less volatile. We included the four biggest meat processing companies’ that best fit the market share comparison. The other section includes companies that hold less than 5%.

Source: D'Costa This industry has a medium concentration of ownership, thus we believe it is in a position for potential mergers and acquisitions. As U.S export markets continues to decline, and sales price

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decreases, we believe acquisitions are a realistic option to improve top line growth in this low interest rate environment. Acquisitions create an opportunity to increase sales for new product lines, while subsequently gaining synergies such as lower overhead and supply chain efficiencies.[14] We have found a multitude of trends that show signs of increasing value of M&A. In 2015, the merger and acquisition deal value was greater than the value of the two previous year’s combined.[14] In addition, the core value of acquisitions has increased as companies compete to add to their core product lines. In 2015, the average transaction multiple for this industry was 2.7x revenue.[14] In comparison, that multiple has only breached over 2x revenue in three of the previous 11 years.[14] Competitive Forces (Porter's 5-Forces) Industry Competition This industry has moderate company concentration. However, acquisitions by larger industry operators have increased concentration over the past five years.[10] Threat of Substitutes Beef, chicken, and pork can be substituted for one another, making it advantageous for a company to operate in each of these markets. For example, if beef prices rise, consumers might buy more chicken. If a company sells chicken in addition to beef, they will be less affected than a company who sells only beef. Seafood and eggs are protein substitutes that have the possibility to impact the profitability of the meat, beef and poultry industry. However, neither of these are considered to be suitable substitutes to chicken, beef and pork, and aren't currently priced low enough to have significant impact. Buyer Power We believe buyer power in this industry is moderate to high. Supermarkets, warehouse clubs and food distributors have consolidated in recent years which has increased buyer power. We expect consolidation to continue throughout the United States and other major markets.[11] This consolidation increases buyers bargaining power for pricing and promotional programs. Supplier Power We believe supplier power for this industry is moderate to low. The four largest companies in the industry account for roughly one-third of the domestic market.[10] In addition, there are more suppliers than buyers in this industry. Threat of New Entrants Barriers to entry in this industry are medium and are steady.[10] Regulation poses the major entry barrier into the meat, beef and poultry processing industry.[10] Established contracts allow industry participants to develop long-term sales relationships with customers, making it difficult for new entrants to find sufficiently large customer bases.[10] In addition, high industry start-up costs make entry difficult. Consumer Preferences Consumer preferences for the food industry are changing. One changing demographic observed is the growing population of

millennials, who have an increased interest in natural food options.[14] The aging population has a direct effect on consumer preferences. This population segment of ages 65 and older is projected to increase from 46 million in 2014, to 88 million by 2050.[14] Increased preferences for healthy food options provides opportunities for food producers. Tyson announced in 2015 their plan to eliminate their use of human antibiotics in U.S broiler chicken flocks by the end of fiscal 2017.[20] In addition, Tyson is working with their independent contractors on efforts to reduce the use of human antibiotics on cattle, hog and turkey farms.[20] This transition, while a year and half away, shows adaptation in the industry to capture the changing consumer preferences. Demographics The package food segment of this industry is competing for market share. The packaged food industry historically has produced better margins than those of other protein segments. Tyson Foods acquisition with Hillshire Farms increases their ability to compete for that market share. For example, the country’s largest minority group, Hispanics, on average spend 14% more on consumer packaged goods when compared to the total market. [14] As the Hispanic population grows in the United States, companies who are best positioned to serve their preferences will hold a greater advantage when competing for market share. Asian Market We predict that international markets are a possible opportunity for growth. While this is a more long-term outlook, it is especially true for China. China’s import activity is expected to increase with improvements in wealth, urbanization and population growth. China imports over 20% of its beef requirements, which represents about 15% of total trade in beef.[21] The majority of China’s beef imports are from Australia. However, as their middle class income increases and taste for beef matures, the U.S market can be at a strong position to capture more of the market share since they are the premier standard for beef.[21] Catalysts for Growth/Change Many companies are realizing decreases in revenues as they cut out unprofitable segments and major crop prices trend near eight year lows. Manufacturers are having to cut operation costs, discontinue lagging product lines and focus on core products to increase their profit margins.[14] The food sector's growth is greatly affected by the foreign currency exchange rate for international markets. Due to the strength of the U.S dollar, the sector's growth rate has been sluggish. Companies within the industry need to improve their ability to adjust operations in a less favorable exchange rate environment. As a result these companies can better combat the effects of exchange rates and operating margins in foreign markets.[14] As consumer demand increases for healthy food options, we predict that growth for companies who capitalize on these consumer preferences will experience greater growth than that of the food sector average.[14]

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Company Analysis

Key Investment Positives/Negatives Positives To reiterate, investments in this industry are historically considered safe because food products are non-cyclical. Due to the volatility of commodity prices, larger companies within this industry hold an advantage because they can weather the storm when their input prices rise. This ability decreases their risk in comparison to companies with smaller economies of scale. In other words, less-efficient meat producers may be forced to exit the industry.[10] As a result, larger companies within the industry will choose to vertically integrate their product segments in order to decrease the price volatility.[10] As trends of U.S consumers move towards healthier lifestyles, major food companies have an opportunity to develop new products in order to capture market share. Negatives Food products are reliant upon the prices in the commodities market which makes food companies risk to volatile input prices impossible to eliminate. Certain factors that affect the price of inputs such as weather and disease, are difficult to control. Therefore if unfavorable conditions occur, it can severely affect companies operations.

General Business Information John W. Tyson started a chicken and feed operation in Springdale, Arkansas during The Great Depression.[31] It then thrived to become the largest meat producer in the U.S next to Conagra Foods, Smithfield Foods and Cargill Inc. based on market share and total sales.[22] After the acquisition of Hillshire Brands Company in 2014, Tyson now grows with brands such as Jimmy Dean, Sara Lee, Ball Park, Wright, Aidells, and State Fair.[24] Tyson has captured a vast amount of market share through their five business segments which include chicken, beef, pork, prepared foods, and international sales and operations.[24] Internationally, Tyson recently sold their operations in Brazil and Mexico but currently has wholly owned chicken operations in Nantong, Dalong, and Rizhao China.[24] Their chicken breeding stock subsidiary Cobb-Vantress, now handles production and sales for countries all around the world like Argentina, Brazil, and India.[24]

Though Tyson sold their wholly owned operations in Mexico and Brazil, they still maintain their global market share of chicken production. International sales accounts for only 2.12% of Tyson’s total sales but these sales were made to over 130 countries. Thus providing evidence of a strong global presence.[24]

Tyson’s sales are primarily domestic and are captured through the other four segments mentioned. To better combat the fluctuations of commodity prices, Tyson raises and produces chickens in addition to buying cattle and hogs on the market for processing.[24] Though Tyson may be more so known for chicken and beef, their prepared foods segment has recognized an increase of 99.19% year-over-year growth.[24] Through a competitive marketing strategy, Tyson is able to achieve maximum buyer potential by identifying target markets precisely and concentrate production and sales in areas which consumers

prefer Tyson.[24] Tyson is able to achieve their marketing goals more carefully with their relationship with Wal-Mart, which accounted for 16.8% of sales in 2015. This is significant because Wal-Mart is recognized as one of the largest supermarket stores in the world and if Tyson can maintain a high volume of sales to Wal-Mart as they have over time, then achieving their marketing goals will be much more attainable. Corporate Strategy Tyson is a world supplier of protein enriched foods and plans to capitalize on population growth estimates. Analysts estimate that the world will need to produce an upwards of 70% more food by 2050.[24] To match this growing need for food, major companies need to expand while increasing production efficiency. Tyson executes this strategy through their subsidiary operating all around the world, the acquisition of Hillshire Brands, and their steadily decreasing cost of sales. Tyson aims to accelerate growth of domestic value-added chicken sales, prepared food sales, and international chicken production in the coming years.[24] We predict consumer confidence will grow 0.8% in the next 6 months along with the growth of consumer expenditures. As consumer confidence rises then consumers will be more willing to purchase name brands Tyson offers like Ball Park, Jimmy Dean, and Sara Lee. Product Lines and Marketing Chicken Tyson has vertically integrated operations that starts with hatcheries and ends with processing plants for slaughter and conversion into finished products.[24] With the production of chicken, Tyson faces major costs of corn which accounted for 64% of total costs for growing live chickens domestically in 2015.[24]

Relative to their competition of domestic chicken suppliers, Pilgrim’s Pride also produces chickens from hatcheries to processing plants and recognized $7.79 Billion of chicken sales compared to Tyson’s $11.3 Billion.[29] We believe that this segment has the opportunity to outperform other protein segments as taste preference of consumers change to healthier food options. Beef As previously stated, Tyson does not raise cattle, they hire cattle buyers to purchase them on public markets or feed yards.[24] This makes Tyson’s input costs susceptible to volatile commodity prices. With cattle prices reaching their record highs in late 2014, Tyson’s beef segment was negatively impacted and forced a closure of their operation in Denison, Iowa in August, 2015.[30] This closure will effect on Tyson’s production of beef in the future, Tyson still owns and operates 12 processing plants in the Midwest. We believe that with the recent closure and change in consumer taste preference we see beef sales will fall 14% by the end fiscal year 2016. Pork Much like beef, Tyson purchases hogs on the public market and sends them to processing centers that share operations with the beef segment.[24] Pork sales have decreased year-over-year by 16.53% as pork sales price decreases. However, recent synergies

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of Hillshire Brands will increase the output of the research and development team that currently has 19 kitchens across the country accounting for $75 Million and $52 Million which is 0.18% and 0.13% of sales in 2015 and 2014 respectively.[24] We believe that with more research and development Tyson can create new value added pork products that are healthy in order to increase sales in a decreasing sales price environment. Prepared Foods This segment processes both fresh and frozen chicken, beef and pork and other raw materials into things such as; prepared meals, desserts, soups, sauces, and flour.[24] The segment is realizing growth potential as acquisition synergies and heightened research and development and recognized nearly doubled the amount of sales year-over-year.[24] Tyson continues to grow their leading brands which include Jimmy Dean, Sara Lee, Ball Park, Wright, Aidells, and State Fair. Marketing Strategy Tyson aims to be a leading branded provider for protein-based products their main product lines.[24] Currently Tyson produces approximately 1 in 5 pounds of chicken, beef, and pork in the U.S.[31] To better accommodate the consumers’ demands for healthier food and protein options, Tyson has incorporated “Better For You Products” that have options include: gluten free, multigrain, 100% all natural, and no hormone added chicken products. This incorporation of products, provides Tyson the ability to attract a wide variety of consumers. We predict that Tyson will continue to grow their marketing and consumer outreach over time because in 2014 advertising accounted for 1.7% and in 2015 it grew to 2.3% as a percent of sales.[24] In relation to competitors that specialize in value added products, Dean Foods and Hormel Foods marketing and advertising expenses only increased .27% and .28% respectively, for the same calculation. Commodity Trends

Source: Farmdoc Above is a graphical representation of the price of cattle. From early 2014 to the second half of 2015, we observe that prices fluctuate in a general range of 140 to 170 $/cwt.[26] However, approaching the 3rd quarter we notice a dramatic price reduction for cattle. While the recent market has shown volatility for cattle prices, the trend is still holding well below it has been for the previous year and a half. The lower cattle prices improve operating margins as a result of lower input costs for companies

in the beef processing industry such as Tyson Foods. The recent decreasing cattle prices, represented in the graph above, are a good transition point to analyze Tyson Food’s Q1 earnings announcements in fiscal 2016. Tyson’s beef segment produced an operating profit of 71 million.[18] To better explain the significance of the operating profit we will compare the profit to the quarterly results of 2015. Tyson’s beef sector sustained a loss in the first, second, third and fourth quarters of 2015, the losses were 6, 20, 7, and 20 percent respectively.[24] In almost every earnings report of 2015, Tyson emphasized that operating income decreased as a result of high cattle costs. Even more so, lower consumption of beef made it increasingly difficult to pass those costs along to the consumer. Moving forward, we predict cattle prices staying at a range below the average price over the last two years. We predict this to be true as a result of the rebuilt US cattle herd which is poised for long-term stability, holding unpredictable weather conditions and diseases constant.

Source: Mergent Online and Personal Forecast We have found sufficient data that protein market price trends do impact Tyson foods. As stated from Tyson Foods 10K, "Fluctuations in commodity prices and in the availability of raw materials, especially feed grains, live cattle, live swine and other inputs could negatively impact out earnings”.[25] Corn and other feed ingredients make up 64% of the cost of growing a live chicken.[25] As a result of feed prices accounting for majority of the costs to raise their chicken, we find it useful to analyze trends for that market. According to University of Illinois’ research, average monthly corn prices on a yearly basis hit a eight year monthly average low in 2015 at $3.70/bushel.[26] This eight year low however has decreased to a new average monthly lows of $3.66 and $3.57/bushel in January and February respectively.[26]

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Source: Farmdoc

As prices maintain at trending lows, we expect that Tyson’s cost will decrease for the production of their chickens. In Tyson’s Q1 earnings of fiscal 2016, they announced record breaking operating margins in their chicken segment.[18] This is a result of both the sale of unprofitable chicken operations in Mexico and Brazil, as well as low input costs. After the divesture, the segment still accounts for about 28% of total revenues.[19] Tyson specifically states that they do not fully hedge their input costs, therefore, as fluctuations in commodity prices occur, we expect Tysons foods input costs to follow in their respective manner.[24] Comparative Analysis

Source: Thompson One In our peer group comparison, Tyson Foods has the second best return next to Hormel Foods. Tyson Foods and other peer comparisons, have benefited from the favorable cost market conditions. However, we find it important to note, while four of these companies have realized impressive growth over the last year, we observe that two companies have realized large negative returns. Tyson has one of the lowest dividend yields among its peers. This is a result of aiming towards growth for the company as a whole, which is returned to investors in the form of high stock returns. With that being said, Tyson announced that in fiscal 2015 dividend per share would increase $.15 share, with $.10/share increases moving forward from fiscal 2017.[24] Overtime, this will increase the stability of the investment as dividend per share increases.

Research and Development Tyson Foods operates in an industry where preferences in taste will always be changing, we believe that research and development plays a major role in maintain organic growth. Tyson Foods currently has 46 Research Chef Association Certified Culinary professionals on staff. [24] Earlier in the report we discussed on the growing millennial population preferences for healthier lifestyles. Part of Tyson Food’s research and development costs are to staff professionals who specialize in human nutrition. [24] R&D costs were 75 million in 2015, which is over a 40% year over year increase. [24] Due to the cost saving environment Tyson is currently operating in, we see it highly possible for a part of those savings to be reinvested into R&D to expand presence in more attractive margin segments. [15] As consumer preferences continue to change, we see increasing R&D costs a positive indicator for supporting organic growth. Catalysts for Growth Core 9 Brand Recognition After an analysis of Tyson Food's recent earnings announcement, we noted that operating margins increased due to favorable market conditions. This was true for almost all their input costs such as feed, cattle and hogs. While short-term projections for costs such as feed, cattle and hogs are projected to be relatively stable, we believe that Tyson needs to focus on their Core 9 brand recognition to help offset when the market conditions are less favorable. According to Tyson Foods, "The Core 9 product lines represent our strongest brands, greatest pricing power, category growth opportunities and in addition, are major contributors to volume and profitability in the retail channel".[24] The acquisition of Hillshire farms has increased the prepared foods segment percentage of total revenue to about 19%, almost a 10% increase year over year.[19] By increasing their brand recognition for prepared foods, Tyson is able to capture more market share that yields more favorable operating margins, which in the recent quarter were 10.9%. [18] Looking forward, Tyson is still expected to realize synergies in 2016 and 2017 of 500 and 700 million respectively. [24] A majority of these synergies are accounted for in their prepared foods segment. This offers Tyson the opportunity to reinvest those synergies back into their core brands [11], which we see as a key success for creating organic growth. International Segments: According to Tyson's quarterly earnings report, their other operating loss for fiscal 2016 will be approximately $70 million. [18] After the sale of non-profitable operations in Brazil and Mexico, Tyson's international segment is included under other income. Feeding the world is a growing opportunity for Tyson.[27] Analysts project that in 2050 the world will need to produce 70% more food in order to feed the worlds growing population.[27] This provides Tyson an opportunity to accelerate growth in countries they operate in such as China and India.

Company Total

Return 1 Yr Dividend Yield TTM

TYSON FOODS, INC. 33.85% 0.92% SANDERSON FARMS, INC. 2.68% 0.98% HORMEL FOODS CORPORATION 44.37% 1.47% ARCHER-DANIELS-MIDLAND COMPANY (27.46%) 3.22% DEAN FOODS COMPANY (10.06%) 2.07% CONAGRA FOODS, INC. 24.80% 2.19% MCCORMICK & COMPANY, INCORPORATED 25.92% 1.81% Average 7.51% 1.58%

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Valuation Assumption Investment Pros/Cons Pros

• Tyson recorded all operating margins at or above normalized ranges in Q1 of fiscal 2016.

• Tyson operates in a non-cyclical sector, therefore experiences less volatility when the overall market is down.

• Grain and feed costs are trending near eight year lows and have decreased in the first two months of 2016. In addition, a stable cattle supply reduces the risk for another price increase similar to 2014 and into the first half of 2015. This provides an opportunity to open a new and more efficient beef processing plant after the closing of the Denison Iowa plant.

• Tyson is expected to realize synergies in 2016 and 2017 of 500 and 700 million respectively. The majority will be captured in their prepared foods segments, which has desirable operating margins for Tyson.

Cons • Tyson operates in a low margin industry, and while

outlook for commodities markets seems in their favor, factors such as draughts and diseases are difficult to control. As commodity prices rise, Tysons margins can be negatively affected as increased in sales price cannot always be accurately timed.

• While China is a major opportunity for growth in the future, it is a forward outlook. As a result, Tyson may continue to realize operating losses in their international markets year-over-year. In addition, the strong dollar makes U.S protein exporting less competitive with other countries.

• Due to the nature of the business, organizations often arise voice to the way animals are processed. Which in return, can negatively impact opinions about the company.

Revenue Decomposition

Source: Personal Forecast and Investor Relations We decomposed Tyson’s revenue into the following segments; Chicken, Beef, Pork, Prepared Foods and Other. After the divestiture of chicken operations in Brazil and Mexico, Tyson’s International sales are included in the ‘other’ section. Our first year’s forecasted revenue is derived from both managerial guidance and Q1 results. We predict in 2017, sales will increase by 2% across all segments and moving forward, have an incremental half percent increase until our continual value year. As observed from the chart above, beef accounts for about 40% of total revenue.[24] For the protein industry as a whole, we expect beef to be the driver of the market because we believe beef is the most desired protein. Therefore, as beef as both our market driver and majority of sales, we forecast our continual value growth based on the historical beef market.

Source: Farmdoc We found a 94% R-squared between 10 years of live cattle prices and 10 years of Tyson fiscal year sales.[26][19] Therefore, we feel there is strong relationship between the cattle market and Tyson Food’s sales. Over the previous 50 years, the geometric annual average price increase of cattle has been 2.49%. [26] Due to the high correlation between the live cattle market and Tyson’s sales, we will grow our sales in continuing value years at 2.49%.

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Cost of Goods Sold/Gross Margin The nine years before fiscal 2015, Tyson’s cost of goods sold has accounted for an average of about 92.25% of sales.[19] However, in fiscal 2015, this amount dropped to a record low of 88.81%.[19]

Even more so, in Q1 of fiscal 2016, cost of goods sold was about 86.7% of sales, compared to 91.63% in Q1 of fiscal 2015.[18] As Tyson continues to operate in favorable market cost conditions, we have forecasted cost of goods sold to be 87.10% in fiscal 2016.

Source: Farmdoc Above is a graphical depiction of our cost of goods sold assumptions subsequent to fiscal 2016. The focus point of the graph is the linear spread as time progresses. The spread between cattle and corn prices is increasing over time. This provides us with the following assumption; as farm yields and efficiencies increase in respect to technological advances, greater yields will increase supply and lower the cost of grain. Therefore, as we see the price of cattle increase at a faster rate than that of corn, we see it plausible for Tyson to see increases in gross margin year-over-year. Therefore, we have cost of goods sold decreasing a tenth of a percent each year subsequent to fiscal 2016. Debt We forecasted two accounts for debt. The first being the current portion of long-term debt under current liabilities. The first four years were forecasted in line with Tyson’s annual maturity of debt schedule. The remaining two years were forecasted by multiplying beginning long-term debt by the appropriate average maturity of debt, which for Tyson was 8.14 years.[24] The next account is long-term debt. Historically, Tyson’s average percent of long-term debt to non-cash assets is about 25.15%.[19] Therefore, to keep capital structure consistent, we have forecasted each year based on 25.15% of non-cash assets. Treasury Stock, at Cost Over the previous three fiscal years 2015, 2014 and 2013, Tyson repurchased, $495, $296 and $614 million dollars in shares respectively.[24] Treasury stock at cost, is netted for stock-based compensation. Over the previous six years, stock-based compensation has been on average about 30% of the total gross repurchase amount.[24] [11] However, five months into fiscal 2016 Tyson has reported they have repurchased about $600 million in common stock. [18] Therefore, holding that trend constant, we forecasted that gross repurchases for fiscal 2016 will be $1.2 billion. Once the account is netted of stock-based compensation,

the net increase for our treasury account will be $840 million. On January 2, 2016, Tyson’s board of directors announced that another 50 million shares are available to be repurchased, this amounts to 59.2 million shares available for repurchase as of February 4, 2016. [18] We forecasted gross share value of repurchased to begin at $1.2 billion and decrease $100 million in the subsequent four years. In the remaining two forecast years into our continual value year, we have gross repurchases as $468 million, which is an average of 2015, 2014 and 2013 values. Inventories Prior to fiscal 2015, inventories have accounted for an average of 8.30% of sales.[19] The concentrated nine year range had high and low percentages of 9.45 and 7.52 respectively.[19] However, in 2015, after the divesture of Chicken operations in Brazil and Mexico, as well as the closing of their Denison Iowa beef plant, inventories represented only 6.96% of sales.[19] Therefore, we see historical average inventory percentages are a less credible value than that of the 6.96% realized in 2015. As a result of our slightly increasing revenue forecasts, we forecasted inventories to be 7.00% of sales in fiscal 2016, with a tenth of a percent increase in the fiscal years subsequent to 2016. Weighted Average Cost of Capital (WACC) Tyson’s cost structure consists of 77% weight of equity and 23% weight of debt. Their corresponding market values are $24,533 and $7,176 million respectively. After accounting for corresponding costs of equity and debt, our WACC calculation yielded 6.27% Cost of Equity Our capital asset pricing model (CAPM) for the cost of debt operates under the following assumptions; 1) Risk-free rate of 2.58% based on 30 year treasury,[37] 2) Market risk premium of 5.15%[36] based on Damodaran @4/1, 3) Beta of .92 based on an raw weekly, two year beta, that helps reflect post-acquisition.[38] As a result of these assumptions, our CAPM produces a cost of equity of 7.33%. Cost of Debt For our cost of debt calculation, we used a 28 year bond with an YTM of 4.36%, which most closely matched that of our 30 year risk-free rate.[39] As a result, our default spread for our calculation is 1.78%. We used a marginal tax rate of 39.44% which was the tax rate for fiscal 2015. After applying the tax effect, our after-tax cost of debt is 2.64%. Discounted Cash Flow and Economic Profit Model Over the extent of this report, we have portrayed our optimism about our outlook on Tyson Foods. The assumptions that we see fueling the value of the company are a direct influence on Tyson’s net operating profit less adjusted taxes (NOPLAT). As NOPLAT increases, free cash flow (FCF) increases. As a result, an increasing NOPLAT can raise the intrinsic value of a stock. Before the acquisition of Hillshire Farms, years 2007 to 2013, Tyson’s NOPLAT only surpassed one billion dollars once. [19] While differences in sales revenue may explain part of that, we want to discuss NOPLAT as a percentage of sales. In the seven years prior to the acquisition, average NOPLAT as a percentage of sales was

11

1.94%. [19] In the subsequent two years, 2014 and 2015, the same calculation had an average of 5.59%. [19] In our forecasted years, our average NOPLAT as of a percentage of sales is 4.42%. In addition, the percentage is increasing year-over-year. While there are many factors that influence the intrinsic price calculation for the DCF and EP models, we find the importance of our key assumptions more accurately portrayed in these models. The assumptions are the following; cost of goods sold margins, revenue growth, forecasted operating liabilities and assets, value of debt calculations and continual value (CV) growth for the model. For our CV growth assumptions, we chose the 50 year average percentage growth of beef less the average percentage growth of corn prices. The value is 2.416%. [26] We find this growth rate reasonably assured as it is in line with our GDP forecasts of 2.6%. With that being said, we have chosen the DCF and EP model as our most accurate intrinsic price. Our models predicted an intrinsic price of $77.66. This prediction suggests that the stock is undervalued by 18.04%. Dividend Discount Model (DDM) A major component of this model is derived from the value of the dividend a company pays. Tyson Food’s dividend yield is .92%. [28]

On a comparative basis from the companies mentioned in the comparative analysis, Tyson has the lowest dividend yield.28] With that being said, Tyson has announced quarterly dividend increases of five cents/share in each fiscal quarter of 2016. Subsequent to 2016, Tyson projects ten cent/share increases in each year following fiscal 2016. Similar to our CV growth assumptions for our DCF and EP models, we chose the 50 year average percentage growth of beef less the average percentage growth of corn prices. The value is 2.416%. [26] We find this growth rate reasonably assured as it is in line with our GDP forecasts of 2.6%. With increases in dividends forecasted accordingly, our DDM model predicted an intrinsic price of $71.62. This prediction suggests that the stock in undervalued by 8.86%. While we agree that the stock is undervalued, we believe that the DDM carries less weight because of the low dividend yield of Tyson Foods. Relative Valuation Our relative valuation consists of seven companies in the food industry that possess a mixture of value-added protein based food companies and non-protein based value added food companies. We chose to include non-protein based food companies as a result of the Hillshire Farms acquisition. This industry consists private companies like Smithfield Foods, Land O’ Lakes, and Great Lakes Cheese Company. [22] Pilgrim’s Pride, a major competitor with Tyson’s chicken segment, has P/E and PEG ratios that are significantly higher than the rest of the competition. Therefore while Pilgrim’s Pride is a direct competitor, we had to remove the outlier. Given our average P/E ratios for 2016 and 2017 of 20.4 and 19.4 respectively, our target prices are $89.83 and $89.98, which are not near our estimated growth levels. After determining that Pilgrim’s Pride is an outlier and the meat products industry has a few key private companies, the relative P/E and PEG prices are less dependable than our DCF and EP models predict.

Sensitivity Analysis Equity Risk Premium and Beta These two values are vital in the computation of a stock’s intrinsic value, therefore, we included them in an analysis together to better understand their relationship to the stock price. The Equity Risk Premium is often subject to conversation and as a result is calculated in more than one way. Our goal was to understand the effects on our intrinsic price in regards to systematic risk. We found that if the Beta remains constant, the stock price decreases 0.93% with each increase of 0.4% in the Equity Risk Premium. Conversely, if the Equity Risk Premium was held constant and Beta increased by 0.4 then the stock price faced a 6.0% drop for each subsequent move of Beta. DCF CV Growth and Equity Risk Premium Equity Risk Premium holds a critical role in the CAPM and cost of equity calculation. We feel that it is important to examine these variables because as an investor expects a higher return from the market in general, investors should also see companywide growth. We found that if DCF CV Growth remained constant and the Equity Risk Premium increased 0.4%, then the stock price dropped 0.97%. On the other hand, if the Equity Risk Premium was held constant and DCF CV Growth grew 0.4% then the stock price grows only 0.68%. As each variable increases we found that the stock price decreases. This suggests that as investors expect more return from the market, additional growth is expected of Tyson. WACC and CV ROIC These computations are included in the calculation of EP. As the spread of the two percentages fluctuates, EP follows the spread change respectively. As Tyson increases their amount of invested capital, they should expect a higher return of their cost of capital. Therefore, we wanted to analyze how this spread effected the intrinsic value of the stock price. We found that as CV ROIC remains constant and WACC increases 0.1% the stock price falls 3.62%. As WACC remains constant and CV ROIC increases 0.1% the stock price increases 0.74%. Consequently, as both numbers increase by 0.1% then the stock price decreases by 3.43%. DCF CV Growth and COGS Tyson operates in a naturally low margin industry, therefore small changes cost of goods sold as a percentage of sales greatly effects their net income, which impacts the intrinsic value of the stock. As Tyson’s COGS decrease in line with our forecasts, we wanted to see how the stock price will be effected given changes of company growth. We found that if DCF CV Growth was held constant and COGS increased by 0.2%, then the stock price decreased 0.17%. On the other hand if COGS was held constant and DCF CV Growth increased by 0.2% then the stock price increases 3.19%. COGS and CapEx Growth With the recent closure of their Beef processing plant in Dennison, Iowa and acquisition of Hillshire Brands we observed that CapEx has varied. Our goal is to gain a greater understanding of the relationship of CapEx to COGS. As Tyson increases their PPE through CapEx, COGS should be effected and as a result, change their intrinsic stock price. We found that if COGS was held

12

Sources

constant and CapEx Growth grew an additional 0.5%, the stock price decreased 1.3%. On the other hand if CapEx Growth was held constant and COGS increased 0.2%, the stock price decreased 0.15%. This suggests that as Tyson grows and they still need to decrease their COGS to increase their stock price.

[1] 2016 Economic Calendar. (2016, March). Retrieved April 17, 2016, from http://bloomberg.econoday.com/byshoweventfull.asp?fid=472137 [2] National Data. (2016, March). Retrieved April 19, 2016, from http://www.bea.gov/iTable/iTable.cfm?ReqID=9 [3 ]2016 Economic Calendar. (2016, April). Retrieved April 19, 2016, from http://bloomberg.econoday.com/byshoweventfull.asp?fid=472113 [4] 2016 Economic Calendar. (2016, April). Retrieved April 19, 2016, from http://bloomberg.econoday.com/byshoweventfull.asp?fid=472090 [5] News Relaese: Bereau of Labor Statisitcs, CPI. (2016, April). Retrieved April 19, 2016, from http://www.bls.gov/news.release/pdf/cpi.pdf [6] 2016 Economic Calendar. (2016, April). Retrieved April 19, 2016, from http://bloomberg.econoday.com/byshoweventfull.asp?fid=472198 [7] News Relaese: Bereau of Labor Statisitcs, PPI. (2016, April). Retrieved April 19, 2016, from http://www.bls.gov/news.release/pdf/ppi.pdf [8] Consumer and Small Business Sentiment. (2016, April). Retrieved April 19, 2016, from http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?Conference-Board-consumer-confidence-index.gif [9] Consumer Confidence. (2016, April). Retrieved April 19, 2016, from https://www.conferenceboard.org/data/consumerconfidence.cfm [10] IBIS World, Industry Reports (US): Meat, Beef, and Poultry Processing in the US http://clients1.ibisworld.com.proxy.lib.uiowa.edu/ [11] Tyson Foods, Inc. (2014). Form 10-K 2014. <http://www.sec.gov/edgar/searchedgar/companysearch.html> [12] Global- Consumer Staples. (2011, April 15). Retrieved April 18, 2016, from http://advantage.marketline.com/Product?pid=MLIP0242-0001 [13] Consumer Staples Snapshot. (2016, April 15). Retrieved April 17, 2016, from https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml?tab=learn§or=30

[14] S&P Capital IQ NetAdvantage. (2015, December). Retrieved April 18, 2016, from http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/showIndustrySurvey.do?task=showIndustrySurvey [15] D'Costa, V. (2016, March). Meat, Beef & Poultry Processing in the US. Retrieved April 17, 2016, from http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=251 [16] Mathews, K., & Haley, M. (2016, January 19). Livestock, Dairy, and Poultry Outlook. Retrieved April 17, 2016, from http://www.ers.usda.gov/media/1996967/ldpm259-revised-final.pdf [17] D'Costa, V. (2016, April 17). Meat, Beef & Poultry Processing in the US. Retrieved April 17, 2016, from http://clients1.ibisworld.com/reports/us/industry/competitivelandscape.aspx?entid=251#MSC [18] Tyson Foods, Inc. 10-Q. (2016, February). Retrieved from http://s1.q4cdn.com/900108309/files/doc_news/2016/Tyson-Foods-Segments-Deliver-Record-Results-as-First-Quarter-Earnings-Soar-49-to-115.pdf [19] Tyson Foods Company Financials. (n.d.). Retrieved April 18, 2016, from http://www.mergentonline.com/companyfinancials.php?pagetype=asreported [20] Antibiotics Announcement. (2015, August). Retrieved April 18, 2016, from http://www.tysonfoods.com/Media/News-Releases/2015/04/Antibiotics-Announcement.aspx [21] USDA, Rabobank, 2016, from http://www.ers.usda.gov/topics/animal-products/cattle-beef/market-outlook.aspx [22] FactSet Research Systems. (n.d). Industry Outlook: Non-durable Consumer Goods: Meat/Dairy/Fish [23] Yahoo! Finance. Retrieved on April 19, 2016. http://finance.yahoo.com/echarts?s=RHS+Interactive#{%22range%22:%226mo%22,%22allowChartStacking%22:true} [24] Investor relations. (2015). Retrieved April 18, 2016, from http://ir.tyson.com/investor-relations/financial-reports/resource-center/default.aspx [26] Farmdoc - Management - US Price History. (2016, February). Retrieved April 18, 2016, from http://www.farmdoc.illinois.edu/manage/uspricehistory/us_price_history.html

[27] Investor relations. (2015). Retrieved April 18, 2016, from http://ir.tyson.com/investor-relations/financial-reports/resource-center/default.aspx

[28] TSN-US Comparable Analysis. (2016, January). Retrieved April 18, 2016, from https://www.thomsonone.com/Workspace/Main.aspx?View=Action=Open

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[29] Pilgrim’s Pride Corporation, 10-k (2015, December). Retrieved from: http://files.shareholder.com/downloads/AMDA-YDB9Z/1910559695x0x883096/7C8C8202-B239-464A-88B7-5103CE84C87D/2015_10-K_Report.pdf [30] Sioux City Journal, (2015, August 14). Tyson to Close Dennison, Iowa Beef Plant. http://siouxcityjournal.com/business/agriculture/tyson-to-close-denison-iowa-beef-plant/article_b982dce6-1a55-5da8-82d3-0c07f152151d.html [31] Tyson Foods, Investor Overview. (2016, April). Retrieved from http://ir.tyson.com/English/investor-relations/investor-overview/who-we-are/default.aspx [32] Tyson Foods, Company Products (2016, April). Retrieved from: http://www.tyson.com/Products/Our-Products/Better-For-You-Products.aspx [33] Dean Foods Company, 10-k(2015,December). Retrieved from: http://www.deanfoods.com/media/103777/deanfoodscompany2015annualreport.pdf [34] Hormel Foods Corporation 10-k(2015,October). Retrieved from: http://investor.hormelfoods.com/Cache/32276036.pdf [35] TSN Interactive Stock Chart | Yahoo! Inc. Stock - Yahoo! Finance. (n.d.). Retrieved April 18, 2016, from http://finance.yahoo.com/echarts?s=TSN Interactive#{"range":"ytd","allowChartStacking":true} [36] Damodaran Online: Home Page for Aswath Damodaran. (2016, April 1). Retrieved April 19, 2016, from http://pages.stern.nyu.edu/~adamodar/

[37] ^TYX: Summary for Treasury Yield 30 Years- Yahoo! Finance. (n.d.). Retrieved April 19, 2016, from http://finance.yahoo.com/q?s=^TYX [38] Bloomberg L.P. (2016) Historical Weekly Beta Graph from 04/13/2016 to 04/13/2016. Retrieved April 14, 2016 from Bloomberg database. [39] Finra.org(2016) Outstanding Bonds Table : Bond Matures 08/15/2044. Retrieved April 14, 2016. [40] FactSet Research Systems. (n.d). Economic Outlook: Consumer Confidence & Key Economic Indicator

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Important Disclaimer This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

Tyson Foods Inc.Revenue Decomposition

Fiscal Years Ending Oct.3rd 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021CVChicken 12,296 11,116 11,390 10,821 11,037 11,313 11,652 12,060 12,360

Year-Over-Year Growth 6.08% -9.60% 2.46% -5.00% 2.00% 2.50% 3.00% 3.50% 2.49%Beef 14,400 16,177 17,236 14,823 15,119 15,497 15,962 16,521 16,932

Year-Over-Year Growth 4.69% 12.34% 6.55% -14.00% 2.00% 2.50% 3.00% 3.50% 2.49%Pork 5,408 6,304 5,262 4,262 4,347 4,456 4,590 4,750 4,869

Year-Over-Year Growth -1.85% 16.57% -16.53% -19.00% 2.00% 2.50% 3.00% 3.50% 2.49%Prepared Foods 3,322 3,927 7,822 7,587 7,739 7,933 8,171 8,457 8,667

Year-Over-Year Growth 2.63% 18.21% 99.19% -3.00% 2.00% 2.50% 3.00% 3.50% 2.49%Other 46 1,381 879 874 891 913 941 974 998

Year-Over-Year Growth -72.46% 2902.17% -36.35% -0.60% 2.00% 2.50% 3.00% 3.50% 2.49%Intersegment Sales (1,098) (1,325) (1,216) (1,143) (1,166) (1,195) (1,231) (1,274) (1,306)

Year-Over-Year Growth 11.81% 20.67% -8.23% -6.00% 2.00% 2.50% 3.00% 3.50% 2.49%Total Sales 34,374 37,580 41,373 37,224 37,968 38,917 40,085 41,488 42,521

Year-Over-Year Sales Growth 3.29% 9.33% 10.09% -10.03% 2.00% 2.50% 3.00% 3.50% 2.49%

Tyson Foods INC.Income Statement

Fiscal Years Ending Oct.3rd 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021CVSales 34,374$ 37,580$ 41,373$ 37,224$ 37,968$ 38,917$ 40,085$ 41,488$ 42,521$ Cost of Sales 31,497 34,365 36,745 32,422 33,051 33,858 34,854 36,053 36,929

Depreciation 474 494 609 638 651 665 679 694 711 Amoritization of Intangibles 45 36 102 80 78 76 72 69 69

Gross Profit 2,358 2,685 3,917 4,084 4,188 4,319 4,480 4,672 4,812 Selling, General and Administrative 983 1,255 1,748 1,407 1,435 1,471 1,515 1,568 1,607 Goodwill impairment - - - - - - - - - Operating Income 1,375 1,430 2,169 2,677 2,752 2,848 2,965 3,104 3,205 Other (Income) Expense:Interest income (7) (7) (9) (10) (10) (10) (10) (10) (10) Interest expense 145 132 293 150 162 188 155 168 170 Other, net (20) 53 (36) - - - - - - Total Other (Income) Expense 118 178 248 140 152 178 145 158 160 Income from Continuing Operations before Income Taxes 1,257 1,252 1,921 2,536 2,600 2,669 2,820 2,946 3,044 Income Tax Expense 409 396 697 982 1,007 1,034 1,092 1,141 1,179 Income from Continuing Operations 848 856 1,224 1,554 1,593 1,636 1,728 1,805 1,865 Loss from Discontinued Operations, Net of Tax (70) - - - - - - - - Net income 778 856 1,224 1,554 1,593 1,636 1,728 1,805 1,865 Less: Net Income (Loss) Attributable to Noncontrolling Interests - (8) 4 (12) (12) (12) (12) (12) (12) Net income Attributable to Tyson 778$ 864$ 1,220$ 1,566$ 1,605$ 1,648$ 1,740$ 1,817$ 1,877$ Dividends Declared Per Share:Class A 0.31 0.33 0.43 0.63 0.73 0.83 0.93 1.03 1.13 Class B 0.28 0.29 0.38 0.58 0.68 0.78 0.88 0.98 1.08 Dividends Per Share 0.29 0.31 0.40 0.60 0.70 0.80 0.90 1.00 1.10

Basic EPS 2.26 2.28 3.37 4.41 4.64 4.86 5.23 5.49 5.69Total Shares Outsdanding 344 376 363 352 343 336 331 329 328Dividend payout ratio 0.13 0.14 0.12 0.14 0.15 0.17 0.17 0.18 0.19

Tyson Foods Inc.Balance Sheet

Fiscal Years Ending Oct.3rd 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021CVAssetsCurrent Assets:Cash & cash equivalents 1,145$ 438$ 688$ $ 336 $ 1,310 $ 2,865 $ 2,310 $ 3,826 $ 4,965 Accounts receivable, net 1,497 1,684 1,620 1,612 1,644 1,685 1,736 1,796 1,841 Inventories 2,817 3,274 2,878 2,606 2,696 2,802 2,926 3,070 3,189 Other current assets 145 379 195 194 197 202 208 216 221 Assets held for sale - 446 - - - - - - -Total Current Assets 5,604 6,221 5,381 4,747 5,847 7,555 7,180 8,908 10,217 Property, plant & equipment, at cost 9,202 10,381 10,816 11,560 12,320 13,098 13,900 14,730 15,580

Less accumulated depreciation 5,149 5,251 5,640 6,278 6,930 7,594 8,273 8,967 9,677 Net property, plant & equipment 4,053 5,130 5,176 5,282 5,390 5,504 5,627 5,763 5,903 Goodwill 1,902 6,706 6,667 6,667 6,667 6,667 6,667 6,667 6,667 Intangible assets subject to amortization 138 1,189 1,090 1,010 932 856 784 715 646 Intangible assets not subject to amortization 4,078 4,078 4,078 4,078 4,078 4,078 4,078 4,078 Other assets 480 623 612 532 543 557 573 593 608 Total assets 12,177$ 23,956$ 23,004$ 22,317$ 23,458$ 25,216$ 24,909$ 26,725$ 28,119$ Liabilities and Shareholders' EquityCurrent Libilities:Current debt 513 643 715 79 627 1,559 258 691 698 Accrued payroll 419 490 478 421 429 440 453 469 480 Accounts payable 1,359 1,806 1,662 1,537 1,568 1,607 1,656 1,713 1,756 Other current liabilities 1,138 1,207 1,158 1,199 1,223 1,253 1,291 1,336 1,369 Liabilities held for sale - 141 - - - - - - -Total current liabilities 3,010 3,656 3,535 2,815 3,418 4,419 3,204 3,740 3,824 Long-term debt 1,895 7,535 6,010 5,612 5,528 5,570 5,621 5,684 5,759 Deferred income taxes 479 2,450 2,449 2,401 2,353 2,306 2,261 2,216 2,172 Other Liabilities 560 1,270 1,304 1,217 1,242 1,273 1,311 1,357 1,390 Redeemable noncontrolling interest - - - - - - - - -Minority interest in subsidiaries - - - - - - - - -Total Liabilities 5,944$ 14,911$ 13,298$ 12,045$ 12,540$ 13,569$ 12,397$ 12,996$ 13,145$ Shareholders' Equity:Class A 32 35 35 35 35 35 35 35 35 Convertible Class B 7 7 7 7 7 7 7 7 7 Capital in excess of par value 2,292 4,257 4,307 4,366 4,424 4,483 4,542 4,601 4,659 Common stock 2,331 4,299 4,349 4,408 4,466 4,525 4,584 4,643 4,701 Retained earnings 4,999 5,748 6,813 8,160 9,517 10,888 12,324 13,809 15,323 Accumulated comprehensive loss (108) (147) (90) (90) (90) (90) (90) (90) (90) Treasury stock, at cost (1,021) (1,010) (1,381) (2,221) (2,991) (3,691) (4,321) (4,649) (4,976) Total Tyson shareholders' equity 6,201 8,890 9,691 10,257 10,902 11,633 12,497 13,713 14,959 Non-controlling interests 32 14 15 15 15 15 15 15 15 Total shareholders' equity 6,233$ 8,904$ 9,706$ 10,272$ 10,917$ 11,648$ 12,512$ 13,728$ 14,974$ Total Liabilities and Shareholders' Equity 12,177$ 23,815$ 23,004$ 22,317$ 23,458$ 25,216$ 24,909$ 26,725$ 28,119$

Tyson Foods Inc.Cash Flow Statement

Fiscal Years Ending Oct.3rd 2013 2014 2015Cash From Operating ActivitiesNet income (loss) 778$ 856$ 1,224$ Adjustments to Reconcile net income provided by operating activites

Depreciation 474 494 609 Amortization 45 36 102 Deferred income taxes (12) (105) 38 Convertible debt discount - (92) -Gain on disposition of businesses - - (177) Impairment of assets 74 107 285 Share-based compensation expense - - 69 Other, net 26 31 71 (Increase) decrease in accounts receivable (126) (93) 66 (Increase) decrease in inventories 15 (148) 220 Increase (decrease) in accounts payable (12) 202 (162) Increase (decrease) in income taxes payable/receivable 80 (133) 177 Increase (decrease) in interest payable (1) 5 (23) Net changes in other operating asserts and liabilities (27) 18 71

Cash Provided By Operating Activities 1,314$ 1,178$ 2,570$ Cash Flows From Investing Activities:

Additions to property, plant and equipment (558) (632) (854) Purchases of marketable securities (135) (18) (38) Proceeds from sale of marketable securities - 33 52 Acquisitions, net of cash acquired (106) (8,193) -Proceeds from sale of businesses - - 539 Other, net 39 10 31

Cash Used for Investing Activities (643)$ (8,800)$ (270)$ Cash Flows From Financing Activities:

Payments of debt (91) (639) (1,995) Proceeds from issuance of long-term debt 68 5,576 501 Borrowings on revolving credit facility - - 1,345 Payments on revolving credit facility - - (1,345) Proceeds from issuance of debt component of tangible equity units - 205 -Proceeds from issuance of common stock, net of issuance costs - 873 -Net proceeds from issuance of equity component of tangible equity units - 1,255 -Purchases of Tyson class A common stock (614) (295) (495) Dividends (104) (104) (147) Stock options exercised 123 67 84 Other, net 18 (23) 17

Cash Provided By (Used For) Financing Activities (600)$ 6,915$ (2,035)$ Effect of Exchange Rate Change on Cash 3 - (15) Increase (decrease) in Cash and Cash Equivalents 74 (707) 250 Cash and Cash Equivalents at Beginning of Year 1,071 1,145 438 Cash and Cash Equivalents at End of Year 1,145$ 438$ 688$

Tyson Foods Inc.Cash Flow Statement

Fiscal Years Ending Oct.3rd 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021CVCash From Operating ActivitiesNet income (loss) 778$ 856$ 1,224$ 1,566$ 1,605$ 1,648$ 1,740$ 1,817$ 1,877$ Adjustments to Reconcile net income provided by operating activites

Depreciation 474$ 494$ 609$ 638 651 665 679 694 711 Amortization 45$ 36$ 102$ 80 78 76 72 69 69 Deferred income taxes (12)$ (105)$ 38$ (48) (48) (47) (46) (45) (44)

Change in working capital accounts(Increase) decrease in accounts receivable (126)$ (93)$ 66$ 8 (32) (41) (51) (61) (45) (Increase) decrease in inventories 15$ (148)$ 220$ 272 (90) (106) (124) (144) (119) Increase (decrease) in accounts payable (12)$ 202$ (162)$ (125) 31 39 48 58 43 (Increase) decrease in other current assets 1 (4) (5) (6) (7) (5) Increase (decrease) in other current liabilities 41 24 31 38 45 33

Cash Provided By Operating Activities 1,314$ 1,178$ 2,570$ 2,434$ 2,215$ 2,259$ 2,350$ 2,426$ 2,520$ Cash Flows From Investing Activities:

Net Capital Expenditures (558)$ (632)$ (854)$ (744) (759) (778) (802) (830) (850) (Increase) decrease in long-term investments 80 (11) (14) (17) (20) (15)

Cash Used for Investing Activities (643)$ (8,800)$ (270)$ (665)$ (770)$ (792)$ (818)$ (850)$ (865)$ Cash Flows From Financing Activities:

Proceeds from issuance (payment) of ST debt (636) 548 932 (1,301) 433 8 Proceeds from issuance (payment) of LT debt 68$ 5,576$ 501$ (398) (84) 42 51 63 75 Proceeds from other liabilties (87) 24 31 38 46 34 Stock Issuance 59 59 59 59 59 59 Stock repurchases (840) (770) (700) (630) (328) (328) Dividends paid (219) (248) (276) (304) (332) (363)

Cash Provided By (Used For) Financing Activities (600)$ 6,915$ (2,035)$ (2,121)$ (471)$ 88$ (2,087)$ (60)$ (515)$ Increase (decrease) in Cash and Cash Equivalents 74$ (707)$ 250$ (352) 974 1,555 (555) 1,516 1,139 Cash and Cash Equivalents at Beginning of Year 1,071$ 1,145$ 438$ 688 336 1,310 2,865 2,310 3,826 Cash and Cash Equivalents at End of Year 1,145$ 438$ 688$ 336$ 1,310$ 2,865$ 2,310$ 3,826$ 4,965$

Tyson Foods Inc.Common Size Income Statement

Fiscal Years Ending Oct.3rd 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021CVSales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Cost of Sales 91.63% 91.44% 88.81% 87.10% 87.05% 87.00% 86.95% 86.90% 86.85%

Depreciation 1.38% 1.31% 1.47% 1.71% 1.72% 1.71% 1.69% 1.67% 1.67%Amoritization of Intangibles 0.13% 0.10% 0.25% 0.21% 0.21% 0.20% 0.18% 0.17% 0.16%

Gross profit 6.86% 7.14% 9.47% 10.97% 11.03% 11.10% 11.18% 11.26% 11.32%Selling, general and administrative 2.86% 3.34% 4.22% 3.78% 3.78% 3.78% 3.78% 3.78% 3.78%Goodwill impairment 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Operating Income 4.00% 3.81% 5.24% 7.19% 7.25% 7.32% 7.40% 7.48% 7.54%Other (Income) Expense:Interest income 0.02% 0.02% 0.02% 0.03% 0.03% 0.03% 0.02% 0.02% 0.02%Interest expense 0.42% 0.35% 0.71% 0.40% 0.43% 0.48% 0.39% 0.41% 0.40%Other, net -0.06% 0.14% -0.09% - - - - - - Total Other (Income) Expense 0.34% 0.47% 0.60% 0.38% 0.40% 0.46% 0.36% 0.38% 0.38%Income from Continuing Operations before Income Taxes 3.66% 3.33% 4.64% 6.81% 6.85% 6.86% 7.04% 7.10% 7.16%Income Tax Expense 1.19% 1.05% 1.68% 2.64% 2.65% 2.66% 2.72% 2.75% 2.77%Income from Continuing Operations 2.47% 2.28% 2.96% 4.18% 4.20% 4.20% 4.31% 4.35% 4.39%Loss from Discontinued Operations, Net of Tax - - - - - - - - - Less: Net Income (Loss) Attributable to Noncontrolling Interests 0.00% -0.02% 0.01% 0.03% 0.03% 0.03% 0.03% 0.03% 0.03%Net income Attributable to Tyson 2.26% 2.30% 2.95% 4.21% 4.23% 4.23% 4.34% 4.38% 4.42%

Tyson Foods Inc.Common Size Balance Sheet

Fiscal Years Ending Oct.3rd 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021CVAssetsCurrent Assets:Cash & cash equivalents 3.33% 1.17% 1.66% 0.90% 3.45% 7.36% 5.76% 9.22% 11.68%Accounts receivable, net 4.36% 4.48% 3.92% 4.33% 4.33% 4.33% 4.33% 4.33% 4.33%Inventories 8.20% 8.71% 6.96% 7.00% 7.10% 7.20% 7.30% 7.40% 7.50%Other current assets 0.42% 1.01% 0.47% 0.52% 0.52% 0.52% 0.52% 0.52% 0.52%Assets held for sale - - - - - - - - - Total Current Assets 16.30% 16.55% 13.01% 12.75% 15.40% 19.41% 17.91% 21.47% 24.03%Property, plant & equipment, at cost 26.77% 27.62% 26.14% 31.06% 32.45% 33.66% 34.68% 35.50% 36.64%

Less accumulated depreciation 14.98% 13.97% 13.63% 16.87% 18.25% 19.51% 20.64% 21.61% 22.76%Net property, plant & equipment 11.79% 13.65% 12.51% 14.19% 14.20% 14.14% 14.04% 13.89% 13.88%Goodwill 5.53% 17.84% 16.11% 17.91% 17.56% 17.13% 16.63% 16.07% 15.68%Intangible assets subject to amortization 0.40% 3.16% 2.63% 2.71% 2.45% 2.20% 1.96% 1.72% 1.52%Intangible assets not subject to amortization 0.00% 10.85% 9.86% 10.96% 10.74% 10.48% 10.17% 9.83% 9.59%Other assets 1.40% 1.66% 1.48% 1.43% 1.43% 1.43% 1.43% 1.43% 1.43%Total assets 35.43% 63.75% 55.60% 59.95% 61.78% 64.79% 62.14% 64.42% 66.13%Liabilities and Shareholders' EquityCurrent Libilities:Current debt 1.49% 1.71% 1.73% 0.21% 1.65% 4.01% 0.64% 1.66% 1.64%Accrued payroll 1.22% 1.30% 1.16% 1.13% 1.13% 1.13% 1.13% 1.13% 1.13%Accounts payable 3.95% 4.81% 4.02% 4.13% 4.13% 4.13% 4.13% 4.13% 4.13%Other current liabilities 3.31% 3.21% 2.80% 3.22% 3.22% 3.22% 3.22% 3.22% 3.22%Liabilities held for saleTotal current liabilities 8.76% 9.73% 8.54% 7.56% 9.00% 11.36% 7.99% 9.01% 8.99%Long-term debt 5.51% 20.05% 14.53% 15.08% 14.56% 14.31% 14.02% 13.70% 13.54%Deferred income taxes 1.39% 6.52% 5.92% 6.45% 6.20% 5.93% 5.64% 5.34% 5.11%Other Liabilities 1.63% 3.38% 3.15% 3.27% 3.27% 3.27% 3.27% 3.27% 3.27%Redeemable noncontrolling interest - - - - - - - - - Minority interest in subsidiaries - - - - - - - - - Total Liabilities 17.29% 39.68% 32.14% 32.36% 33.03% 34.86% 30.93% 31.33% 30.91%Shareholders' Equity:Class A 0.09% 0.09% 0.08% 0.09% 0.09% 0.09% 0.09% 0.08% 0.08%Convertible Class B 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%Capital in excess of par value 6.67% 11.33% 10.41% 11.73% 11.65% 11.52% 11.33% 11.09% 10.96%Common stock 6.78% 11.44% 10.51% 11.84% 11.76% 11.63% 11.44% 11.19% 11.06%Retained earnings 14.54% 15.30% 16.47% 21.92% 25.07% 27.98% 30.75% 33.29% 36.04%Accumulated comprehensive loss 0.31% 0.39% 0.22% 0.24% 0.24% 0.23% 0.22% 0.22% 0.21%Treasury stock, at cost 2.97% 2.69% 3.34% 5.97% 7.88% 9.48% 10.78% 11.20% 11.70%Total Tyson shareholders' equity 18.04% 23.66% 23.42% 27.55% 28.71% 29.89% 31.18% 33.05% 35.18%Non-controlling interests 0.09% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04%Total shareholders' equity 18.13% 23.69% 23.46% 27.59% 28.75% 29.93% 31.21% 33.09% 35.21%Total Liabilities and Shareholders' Equity 35.43% 63.37% 55.60% 59.95% 61.78% 64.79% 62.14% 64.42% 66.13%

Tyson Foods Inc.Weighted Average Cost of Capital (WACC) Estimation

6.24%Risk Free (30 year Treasury from Finra.Org) @ 4/7 2.58%Risk Premium (MRP from Damodaran @ 4/1) 5.15%Beta 0.92Cost of Equity 7.32%

Debt Rating (Standard and Poor) BBB28 Year Equivalent Yield 4.36%Default Spread 1.78%Pre-Tax Cost of Debt 4.36%Tax Rate 39%After-Tax Cost of Debt 2.64%

MV of Equity 23,882$ Shares Outstanding 363 Share price 66

MV of Debt 7,177$ Book Value- Long Term Debt 6,010 Book Value- Short Term Debt 715 PV of Operating Leases 452

Weight of Equity 77%Weight of Debt 23%

Forward WACC 6.24%

Tyson Foods Inc.Value Driver Estimation(In millions)

Fiscal Years Ending Oct.3rd 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021CVNOPLAT Computation EBITA:

Net sales 34,374 37,580 41,373 37,224 37,968 38,917 40,085 41,488 42,521 Less: Costs of Sales 31,497 34,365 36,745 32,422 33,051 33,858 34,854 36,053 36,929

Depreciation 474 494 609 638 651 665 679 694 711 Amortization of intangiables 45 36 102 80 78 76 72 69 69 Selling, general and administrative 983 1,255 1,748 1,407 1,435 1,471 1,515 1,568 1,607 Implied interest on operating lease 8 10 12 13 14 14 15 16 17

EBITA 1,383 1,440 2,181 2,689 2,766 2,862 2,981 3,120 3,222

Less: Adjusted Taxes:Add: Income tax expense 409 396 697 982 1,007 1,034 1,092 1,141 1,179

Tax shield on interest expense 55 54 123 58 63 73 60 65 66 Tax on interest income (3) (3) (4) (4) (4) (4) (4) (4) (4) Tax shield on amortized goodwill - - - - - - - - - Tax shield on loss of discontinued operations (26) - - - - - - - - Tax shield on implied lease interest 3 4 5 5 5 6 6 6 7

Adjusted Taxes 437 448 819 1,041 1,071 1,108 1,154 1,208 1,248

Plus: Net Change In Deffered Tax Liabilities:Deferred income tax 479 2,450 2,449 2,401 2,353 2,306 2,261 2,216 2,172

Net Change in Deferred Tax Liability (79) 1,971 (1) (48) (48) (47) (46) (45) (44)

NOPLAT 867 2,963 1,361 1,599 1,647 1,707 1,781 1,867 1,930

Invested Capital Operating Current Assets:

Normal cash 705 438 668 376 778 798 822 851 872 Accounts Recievable 1,497 1,684 1,620 1,612 1,644 1,685 1,736 1,796 1,841 Inventory 2,817 3,274 2,878 2,606 2,696 2,802 2,926 3,070 3,189

Total Operating Current Assets 5,019 5,396 5,166 4,593 5,118 5,285 5,484 5,717 5,902

Operating Current Liabilities:Accounts Payable 1,359 1,806 1,662 1,537 1,568 1,607 1,656 1,713 1,756 Accrued Payroll 419 490 478 421 429 440 453 469 480

Total Operating Current Liabilities 1,778 2,296 2,140 1,958 1,997 2,047 2,108 2,182 2,237

Net Operating Working Capital 3,241 3,100 3,026 2,635 3,121 3,238 3,375 3,535 3,665

Plus: Net PPE 4,053 5,130 5,176 5,282 5,390 5,504 5,627 5,763 5,903

Plus: Other long Term Operating AssetsPV of Operating Leases 305 380 452 483 514 547 580 615 650 Net Intangibles 138 5,267 5,168 5,088 5,010 4,934 4,862 4,793 4,724

Total Other Long Term Operating Assets 443 5,647 5,620 5,571 5,524 5,481 5,442 5,408 5,374

Invested Capital 7,737 13,877 13,822 13,488 14,036 14,223 14,444 14,706 14,943

ROIC Computation:NOPLAT 867 2,963 1,361 1,599 1,647 1,707 1,781 1,867 1,930 / Beginning Invested Capital 6,887 7,737 13,877 13,822 13,488 14,036 14,223 14,444 14,706

ROIC 12.59% 38.29% 9.81% 11.57% 12.21% 12.16% 12.52% 12.93% 13.13%

Free Cash Flow Computation:NOPLAT 867 2,963 1,361 1,599 1,647 1,707 1,781 1,867 1,930 - Change in Invested Capital 849 6,140 (55) (333) 547 187 222 261 237

FCF 18 (3,177) 1,417 1,933 1,100 1,520 1,559 1,606 1,693

Economic ProfitBeginning Ivested Capital 6,887 7,737 13,877 13,822 13,488 14,036 14,223 14,444 14,706 * (ROIC-WACC) 6.35% 32.06% 3.57% 5.33% 5.98% 5.93% 6.28% 6.69% 6.89%Economic Profit 438 2,480 496 737 806 832 894 966 1,013

Tyson Foods Inc.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: OrganicCV DCF CV Growth CV Growth 1.61% 2.416% CV ROIC 13.13% WACC 6.24% Cost of Equity 7.32%NOPLATCV 1,930 Fiscal Years Ending Oct.3rd 2015 2016E 2017E 2018E 2019E 2020E 2021CVDCF Model:Free Cash Flow 1,933 1,100 1,520 1,559 1,606 1,693 Free Cash Flow Continuing Value 41,219 Periods to Discount 1 2 3 4 5 5Discount Factor 1.0624 1.1286 1.1990 1.2738 1.3533 1.3533FCF/ Discount factor 1,819 975 1,268 1,224 1,187 30,459 Value of Operating Assets 36,931

Value of Non-Operating AssetsOther Current Assets 195Other Assets 612Non-Controlling Interests 15

822Value of Debt

Short Term Debt 715Long-Term Debt 6010PV of Operating Leases 452 Other Current Liabilities 1158Other Liabilities 1304

9,639 Value of Other Non-Equity Claims

Underfunded Post-Retirement Liabilities 323Stock Option Plan 577

900

Value of Equity 27,215 Shares Outstanding 363Share Price 74.97$ Adjusted Price 77.66$

Fiscal Years Ending -12 2015 2016E 2017E 2018E 2019E 2020E 2021EEP Model:

Economic Profit 737 806 832 894 966 1,013 EP continuing value 26,513 periods to discount 1 2 3 4 5 5Discount factor 1.0624 1.1286 1.1990 1.2738 1.3533 1.3533

694 714 694 701 714 19,592 Sum of Discounted EP 23,109 Beg Invested Capital 13,822 Value of Operating Assets 36,931

Value of Non-Operating AssetsOther Current Assets 195 Other Assets 612 Non-Controlling Interests 15

822Value of Debt

Short Term Debt 715Long-Term Debt 6,010 PV of Operating Leases 452Other Current Liabilities 1,158 Other Liabilities 1,304

9,639 Value of Other Non-Equity Claims

Underfunded Post-Retirement Liabilities 323Stock Option Plan 577

900

Value of Equity 27,215 Shares Outstanding 363Share Price 74.97$ Adjusted Price 77.66$

Tyson Foods Inc.Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Oct.3rd 2016E 2017E 2018E 2019E 2020E 2021CV

EPS $4.41 $4.64 $4.86 $5.23 $5.49 $5.69

Key Assumptions CV growth 2.42% CV ROE 12.57% Cost of Equity 7.32%

Future Cash Flows P/E Multiple (CV Year) 16.48 EPS (CV Year) $5.69 Future Stock Price $93.84 Dividends Per Share 0.60$

Future cash flows 0.60$ 0.70$ 0.80$ 0.90$ 1.00$ 1.10$ CV Stock Price 93.84$

Discount Period 1.00 2.00 3.00 4.00 5.00 5.00 Discount factor 1.0732 1.1517 1.2360 1.3264 1.4235 1.4235Discounted cash flow 0.56$ 0.61$ 0.65$ 0.68$ 0.71$ 65.92$

Intrinsic Value 69.14$

Adjusted value 71.62$

Tyson Foods Inc.Relative Valuation Models

EPS EPS Est. 5yrTicker Company Price 2016E 2017E P/E 16 P/E 17 EPS gr. PEG 16 PEG 17MKC McCormick & Company, Inc. $99.88 $3.70 4.08$ 27.0 24.5 9.5 2.84 2.58 HRL Hormel Foods Corporation $43.98 $1.56 1.63$ 28.2 27.0 10.0 2.82 2.70 ADM Archer-Daniels-Midland Co. $36.60 $2.54 2.89$ 14.4 12.7 3.4 4.24 3.72 TSN Tyson Foods Inc. $65.79 $4.41 $4.64 14.9 14.2 3.23 4.6 4.4 DF Dean Foods Co. $17.48 $1.37 1.38$ 12.8 12.7 9.9 1.29 1.28 CAG Conagra Foods, Inc. $44.98 $2.41 2.36$ 18.7 19.1 9.2 2.03 2.07 K Kellog Co. $76.84 $3.70 3.98$ 20.8 19.3 4.7 4.42 4.11 GIS General Mills, Inc. $63.30 $3.03 3.03$ 20.9 20.9 5.5 3.80 3.80

Average 19.7 18.8 3.3 3.1 Implied Value: Relative P/E (EPS16) $ 86.90 Relative P/E (EPS17) 87.10$ PEG Ratio (EPS16) 46.40$ PEG Ratio (EPS17) 46.16$

Tyson Foods Inc.Key Management Ratios

Fiscal Years Ending Oct.3rd 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021CV

Liquidity RatiosCurrent Ratio Current Assets/Current Liabilities 1.86 1.70 1.52 1.69 1.71 1.71 2.24 2.38 2.67Quick Ratio (Current Assets - Inventory)/Current Liabilities 0.93 0.81 0.71 0.76 0.92 1.08 1.33 1.56 1.84Cash Ratio (Cash & Cash Equivalents)/Current Liabilities 0.36 0.31 0.12 0.24 0.10 0.30 0.89 0.62 1.00

Activity or Asset-Management RatiosReceivables Turnover Sales/Average Accounts Receivable 21.23 23.21 25.55 22.99 23.44 24.03 24.75 25.62 26.26 Average Collection Period 365/Receivables Turnover 17.20 15.73 14.29 15.88 15.57 15.19 14.75 14.25 13.90 Inventory Turnover COGS/Average Inventory 14.01 15.28 16.34 14.42 14.70 15.06 15.50 16.03 16.42Inventory Period 365/Inventory Turnover 26.06 23.88 22.34 25.31 24.83 24.24 23.55 22.76 22.22

Financial Leverage RatiosDebt Ratio Total Debt/Total Assets 19.77% 34.14% 29.23% 25.50% 26.24% 28.27% 23.60% 23.85% 22.96%Debt-to-Equity Ratio Total Debt/Total Equity 38.63% 91.85% 69.29% 55.41% 56.38% 61.21% 46.99% 46.43% 43.12%Interest Coverage EBIT/Interest Charges 9.48 10.83 7.40 17.81 16.94 15.13 19.10 18.44 18.80

Profitability RatiosGross Profit Margin (Sales - Cost of Sales)/Sales 8.37% 8.56% 11.19% 12.90% 12.95% 13.00% 13.05% 13.10% 13.15%Return on Assets Net Income Attributable to Tyson/Total Assets 6.39% 3.61% 5.30% 7.02% 6.84% 6.53% 6.99% 6.80% 6.68%Return on Equity Net Income Attributable to Tyson/Shareholder Equity 12.48% 9.70% 12.57% 15.25% 14.70% 14.15% 13.91% 13.23% 12.54%

Payout Policy RatiosPayout Ratio Dividends per Share/Earnings per Share 13.02% 13.59% 11.98% 13.69% 15.18% 16.53% 17.30% 18.30% 19.39%Total Payout (Dividends + Repurchases)/ Net Income Attributable to Tyson 0.93 0.46 0.53 0.91 0.84 0.77 0.69 0.44 0.44

Tyson Foods Inc.Sensitivity Analysis

Share Price Share Price77.66 2.31% 2.34% 2.38% 2.42% 2.45% 2.49% 2.52% 77.66 5.94% 6.04% 6.14% 6.24% 6.34% 6.44% 6.54%5.03% $ 78.36 $ 78.89 $ 79.44 $ 79.99 $ 80.56 $ 81.13 $ 81.72 12.84% $ 85.98 $ 82.87 $ 79.93 $ 77.22 $ 74.50 $ 71.98 $ 69.59 5.07% $ 77.60 $ 78.13 $ 78.66 $ 79.20 $ 79.76 $ 80.32 $ 80.90 12.93% $ 86.15 $ 83.03 $ 80.09 $ 77.37 $ 74.64 $ 72.12 $ 69.73 5.11% 76.86$ 77.37$ 77.90$ 78.43$ 78.97$ 79.52$ 80.09$ 13.03% 86.31$ 83.19$ 80.24$ 77.52$ 74.78$ 72.26$ 69.86$ 5.15% 76.13$ 76.63$ 77.14$ 77.66$ 78.20$ 78.74$ 79.29$ 13.13% 86.47$ 83.34$ 80.39$ 77.66$ 74.92$ 72.40$ 69.99$ 5.19% 75.40$ 75.90$ 76.40$ 76.91$ 77.43$ 77.96$ 78.50$ 13.22% 86.62$ 83.49$ 80.53$ 77.81$ 75.06$ 72.53$ 70.12$ 5.23% 74.69$ 75.17$ 75.67$ 76.17$ 76.68$ 77.20$ 77.73$ 13.32% 86.78$ 83.64$ 80.68$ 77.95$ 75.20$ 72.66$ 70.25$ 5.27% 73.99$ 74.46$ 74.94$ 75.44$ 75.94$ 76.45$ 76.97$ 13.41% 86.93$ 83.79$ 80.82$ 78.09$ 75.33$ 72.79$ 70.38$

Share Price Share Price77.66 0.86 0.88 0.9 0.92 0.94 0.96 0.98 77.66 1.83% 2.02% 2.22% 2.42% 2.61% 2.81% 3.00%

5.03% 86.93$ 84.52$ 82.21$ 79.99$ 77.87$ 75.82$ 73.86$ 86.50% 70.58$ 72.83$ 75.30$ 78.03$ 81.05$ 84.42$ 88.20$ 5.07% 86.09$ 83.70$ 81.40$ 79.20$ 77.09$ 75.07$ 73.12$ 86.70% 70.45$ 72.71$ 75.18$ 77.91$ 80.93$ 84.30$ 88.08$ 5.11% 85.27$ 82.89$ 80.61$ 78.43$ 76.33$ 74.32$ 72.38$ 86.90% 70.33$ 72.58$ 75.06$ 77.79$ 80.81$ 84.18$ 87.95$ 5.15% 84.46$ 82.09$ 79.83$ 77.66$ 75.58$ 73.58$ 71.66$ 87.10% 70.21$ 72.46$ 74.94$ 77.66$ 80.69$ 84.06$ 87.83$ 5.19% 83.66$ 81.31$ 79.06$ 76.91$ 74.84$ 72.86$ 70.95$ 87.30% 70.09$ 72.34$ 74.81$ 77.54$ 80.56$ 83.93$ 87.71$ 5.23% 82.87$ 80.54$ 78.31$ 76.17$ 74.12$ 72.14$ 70.25$ 87.50% 69.96$ 72.22$ 74.69$ 77.42$ 80.44$ 83.81$ 87.59$ 5.27% 82.09$ 79.78$ 77.56$ 75.44$ 73.40$ 71.44$ 69.56$ 87.70% 69.84$ 72.09$ 74.57$ 77.30$ 80.32$ 83.69$ 87.46$

Share Price77.66 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

86.50% 81.21$ 80.15$ 79.09$ 78.03$ 76.97$ 75.91$ 74.85$ 86.70% 81.09$ 80.03$ 78.97$ 77.91$ 76.85$ 75.79$ 74.73$ 86.90% 80.96$ 79.90$ 78.85$ 77.79$ 76.73$ 75.67$ 74.61$ 87.10% 80.84$ 79.78$ 78.72$ 77.66$ 76.60$ 75.55$ 74.49$ 87.30% 80.72$ 79.66$ 78.60$ 77.54$ 76.48$ 75.42$ 74.36$ 87.50% 80.60$ 79.54$ 78.48$ 77.42$ 76.36$ 75.30$ 74.24$ 87.70% 80.47$ 79.41$ 78.36$ 77.30$ 76.24$ 75.18$ 74.12$

Equity Risk Premium

COGS

CapEx Growth

COGS

DCF CV Growth WACC

Equity Risk Premium

CV ROIC

Beta DCF CV Growth

Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)

Operating Operating Operating OperatingFiscal Years Ending Oct.3rd Leases Fiscal Years Ending Oct.3rd Leases Fiscal Years Ending Leases Fiscal Years Ending Leases2016 125 2015 107 2014 97 2013 1012017 85 2016 68 2015 57.5 2014 59.52018 85 2017 68 2016 57.5 2015 59.52019 43.5 2018 34.5 2017 21.5 2016 26.52020 43.5 2019 34.5 2018 21.5 2017 26.5Thereafter 111 Thereafter 104 Thereafter 78 Thereafter 55Total Minimum Payments 493 Total Minimum Payments 416 Total Minimum Payments 333 Total Minimum Payments 328Less: Interest 41 Less: Interest 36 Less: Interest 28 Less: Interest 25PV of Minimum Payments 452 PV of Minimum Payments 380 PV of Minimum Payments 305 PV of Minimum Payments 303

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 2.64% Pre-Tax Cost of Debt 2.64% Pre-Tax Cost of Debt 2.64% Pre-Tax Cost of Debt 2.64%Number Years Implied by Year 6 Payment 2.6 Number Years Implied by Year 6 Payment 3.0 Number Years Implied by Year 6 Payment 3.6 Number Years Implied by Year 6 Payment 2.1

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment1 125 121.8 1 107 104.2 1 97 94.5 1 101 98.42 85 80.7 2 68 64.5 2 57.5 54.6 2 59.5 56.53 85 78.6 3 68 62.9 3 57.5 53.2 3 59.5 55.04 43.5 39.2 4 34.5 31.1 4 21.5 19.4 4 26.5 23.95 43.5 38.2 5 34.5 30.3 5 21.5 18.9 5 26.5 23.36 & beyond 43.5 93.0 6 & beyond 34.5 86.7 6 & beyond 21.5 64.5 6 & beyond 26.5 46.4PV of Minimum Payments 451.5 PV of Minimum Payments 379.7 PV of Minimum Payments 305.0 PV of Minimum Payments 303.4Implied interest on operating lease 11.9 10.02 8.05 8.01

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 14,735,065Average Time to Maturity (years): 7.10Expected Annual Number of Options Exercised: 2,075,361

Current Average Strike Price: 28.30$ Cost of Equity: 7.32%Current Stock Price: 65.79$

2016E 2017E 2018E 2019E 2020E 2021CVIncrease in Shares Outstanding: 2,075,361 2,075,361 2,075,361 2,075,361 2,075,361 2,075,361Average Strike Price: 28.30$ 28.30$ 28.30$ 28.30$ 28.30$ 28.30$ Increase in Common Stock Account: 58,732,724 58,732,724 58,732,724 58,732,724 58,732,724 58,732,724

Change in Treasury Stock 840,000,000 770,000,000 700,000,000 630,000,000 327,600,000 327,600,000Expected Price of Repurchased Shares: 65.79$ 70.60$ 75.77$ 81.32$ 87.27$ 93.65$ Number of Shares Repurchased: 12,767,898 10,905,819 9,238,320 7,747,524 3,753,995 3,498,011

Shares Outstanding (beginning of the year) 363,000,000 352,307,463 343,477,006 336,314,047 330,641,884 328,963,250Plus: Shares Issued Through ESOP 2,075,361 2,075,361 2,075,361 2,075,361 2,075,361 2,075,361Less: Shares Repurchased in Treasury 12,767,898 10,905,819 9,238,320 7,747,524 3,753,995 3,498,011 Shares Outstanding (end of the year) 352,307,463 343,477,006 336,314,047 330,641,884 328,963,250 327,540,600

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol TSNCurrent Stock Price $65.79Risk Free Rate 2.58%Current Dividend Yield 0.92%Annualized St. Dev. of Stock Returns 26.70%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 14,735,065 28.3 7.10 39.12$ 576,500,771$ Total 14,735,065 28.30$ 7.10 43.10$ 576,500,771$