Good morning, and welcome to the Tyson Foods Third Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jon Kathol, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to the Tyson Foods, Incorporated earnings conference call for the third quarter of fiscal 2020. On today's call are Noel White, Chief Executive Officer; Dean Banks, President; and Stewart Glendinning, our Chief Financial Officer. Slides accompanying today's prepared remarks are available as a supplemental report in the resource center of the Tyson Investor website at ir.tyson.com. Tyson Foods issued an earnings release this morning, which has been furnished to the SEC on Form 8-K and is available on our website at ir.tyson.com. Our remarks today include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements reflect current views with respect to future events such as Tyson's outlook for future performance on sales, margin, earnings growth and various other aspects of its business. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. I encourage you to read the release issued earlier this morning and our filings with the SEC for a discussion of the risks that can affect our business, including those listed in our 10-Q filed this morning and during this fiscal year as well as our most recent annual report on Form 10-K and our current report on Form 8-K filed March 13, 2020. I would like to remind everyone that this call is being recorded on Monday, August 3 at 9 a.m. Eastern Time. A replay of today's call will be available on our website approximately one-hour after the conclusion of this call. This broadcast is the property of Tyson Foods, and any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Tyson Foods is strictly prohibited. Please note that our references to earnings per share, operating income and operating margin in today's remarks are on an adjusted basis unless otherwise noted. For reconciliations to our GAAP results, please refer to this morning's press release. I'll now turn the call over to Noel White.

Thanks, Jon, and good morning, everyone. Before we get to the quarter, I'd like to take a moment to discuss the announcement we made earlier this morning. Later this year, Dean Banks will take over President and Chief Executive Officer of Tyson Foods, effective October 3. I am excited to continue at Tyson in the new role as Executive Vice Chairman of the Board of Directors. Tyson's future is bright with Dean at the helm. As our Chairman said in the press release this morning, Dean and the entire executive leadership team have a strong breadth and depth of capabilities and they bring energy and vision to Tyson Foods. Dean has an impressive background in entrepreneurship, technology and the healthcare industry, which makes him ideally suited to lead Tyson in our efforts to integrate advanced technologies into our operations and further our focus on team member health and safety. Dean is the right person to lead our company in the next stage of growth. Dean, would you like to say a few words?

Thank you, Noel, for those kind words and for your 37 years of service and many contributions to Tyson. I also want to offer my sincere thanks to the more than 140,000 team members who have given me a warm welcome over the past three years. I've had the opportunity to get to know many of you and your integrity, passion and commitment to feeding the world is a critical part of why I am here. I am honored to lead Tyson Foods as its next CEO and look forward to working with our company's leadership and executing our strategy to capitalize on opportunities for innovation across the protein spectrum. Building upon the strong foundation established by Noel, I will continue to serve our customers, team members, stakeholders and shareholders to drive our strategic initiatives and build our business in current and new categories and geographies. And finally, thank you to the Board of Directors for entrusting me to lead Tyson into our next phase. Noel?

Thank you, Dean. Now we'll discuss the third quarter. I want to start by thanking our team members for their dedication and diligence as we continue to navigate the pandemic. This quarter has been full of challenges in the ever-changing environment. However, I am pleased with how we've adapted and adjusted to the circumstances and continue to operate our facilities without layoffs. While we've worked hard to avoid the supply chain disruptions experienced by our livestock suppliers and customers, our top priority has appropriately remained the health and safety of our team members. We've made substantial investments in COVID-19-related safety measures for our team. Earlier this year, we transformed our facilities with a host of safeguards that meet or exceed CDC and OSHA guidance. We purchased 150 walk-through temperature scanners to check workers when they arrive. We supplied face masks, have installed workstation dividers and have more than 500 social distance monitors in our facilities. About 40,000 of our team members or a third of our U.S. workforce has been tested for the virus. Currently less than 1% of Tyson Foods' U.S. workforce of over 120,000 team members has active COVID-19. Tyson Foods has partnered with outside medical experts and public health officials to understand and prevent the spread of the virus and to share what we've learned. We have partnered with Matrix Medical to set up on-site medical clinics at some of our locations. We also supplied more than 300,000 cloth masks to our team members across the country to share with their families, friends, and loved ones. And last week, we announced the launch of a new strategic COVID-19 monitoring program and the expansion of our occupational health staff, including a new Chief Medical Officer position. The new data-driven program was designed with the help of outside medical…

Thank you, Noel. I want to start by echoing Noel's sentiment as it relates to the resilience that our team members have shown in light of COVID-19. I am humbled by the response during this difficult time and it's been both remarkable and extraordinary. I will focus my remarks today on our third quarter results and then provide additional color on each of our segments. Under the circumstances, our performance has been good. Despite challenges and with team members’ safety is our top priority, we did everything possible to maintain operations in order to keep customers shelves and refrigerator stocked and consumer spend. We shifted some of our foodservice production to focus on retail and demonstrated the strength and resonance of our brands with consumers. Our performance in core retail categories continues at an incredible pace in both volume and dollars as a result of evolving demand. Our Nielsen results showed gains of more than 26% in the latest 13 weeks, outpacing total food and beverage as well as the top 10 food manufacturers, again, outpacing all of the top 10 food manufacturers. Our retail lines are leading their categories with overall volume share growth of 2% and dollar share growth of 1.6%. Our core business lines, which represent approximately two-thirds of our measured branded retail sales, but now experienced eight consecutive quarters of growth, again, that's eight consecutive quarters of growth. Within the e-commerce channel, because we were well positioned for the increase in online buying, we continue to see significant sales growth and showed strong performance. Similar to last quarter, total e-commerce sales more than doubled versus the prior year as consumer buying patterns evolve with a continued emphasis on click-and-collect and delivery. We expect the strength in e-commerce to continue. Meals away-from-home continue to remain soft during…

Thanks Dean, and good morning, everyone. I'd like to start by congratulating Dean on his appointment to the role of CEO. I thoroughly enjoyed working with him and know that he is going to do a terrific job. Congratulations, Dean. Now I'd like to start by pulling out a few performance highlights for the quarter. As Noel mentioned earlier, third quarter results included earnings of $1.40 per share and operating income of $760 million. Sales in Q3 were down approximately 8% to just over $10 billion with a 7.6% return on sales. Average sales price for the quarter was up 2.6%. Year-to-date operating cash flows were $2.7 billion. Now as Noel mentioned earlier, our balance sheet is sound. In fact, our liquidity position improved as we progressed through the quarter. As of June 27, our liquidity was $3.1 billion, which was up $600 million from our second quarter. This substantial increase was attributable to strong operating cash flow performance and was partially offset by a reduction in debt, including our $350 million of bonds that matured and were paid off in Q3 and $150 million of dividends, which were paid during the quarter. We continue to emphasize inventory and accounts receivable management to mitigate the businesses cash flow risk during this uncertain and volatile environment. Including cash of $1.4 billion, net debt was $10.7 billion and net debt to adjusted EBITDA was 2.7x for the 12 months ended June 27. Net interest expense was $119 million for the quarter. Our effective tax rate was 21% in the third quarter and weighted-average shares outstanding were approximately 364 million. Depreciation and amortization totaled $295 million. Our capital expenditures during the third quarter totaled $283 million. We continue to target an overall CapEx return of approximately twice our cost of capital with a…

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Peter Galbo of Bank of America. Please go ahead.

Hey guys, good morning, and congratulations to Dean and to Noel.

Hey Peter.

Really appreciate the color around the COVID costs, $340 million. Obviously, a chunk of that was worker bonuses as well. But just wondering if you guys could give a little bit more granularity on some of the major cost buckets related to some of those direct COVID costs. Just as we start to think about the fourth quarter, what of those could be actually continuing and possibly into fiscal 2021? And then I have a follow-up as well.

Yes. Thanks. Good morning, Peter, Stewart here. Let me give you a little bit of color. First of all, as you know, of course, the safety of our team members is our top priority. What's good for our team members is, of course, very good for our business. If you look at the $340 million, those represent only the direct costs. And as you rightly called out the biggest chunk of that is the “thank you” bonus. We disclosed that that amount was $114 million. So that gives you a sense of the biggest driver. But there were also in there – in terms of other big drivers were enhanced benefits and pay that we paid to employees while plants were closed, but they were out. In addition, of course, we had all of the medical costs and the PPE costs. I think if you took those buckets, that would be the biggest chunk. Ongoing – of course, if you went back, we announced those "thank you" bonuses ahead of time. We don't expect the run rates to be at the same level, but we're not giving any specific guidance on what we think that number will look like for Q4.

Got it. Okay. That's helpful. And then Dean, maybe just stepping back from a high kind of strategy level, the priority is obviously going forward with you stepping in as CEO, is going to continue to be on Prepared Foods and growing international. But I think the biggest point of pushback that we've gotten this morning is just around Chicken. Obviously, it's been a very challenged here with COVID and with a lot of the COVID costs going into Chicken, but how are you thinking about prioritizing a turnaround in Chicken? And when should we expect, I guess, for you to come to us with a more comprehensive plan on what a turnaround could potentially look like? Thank you.

Sure. Thanks Peter. I would say if you consider what we incurred from direct COVID costs and some of the derivative losses and really the disruption from COVID in general. I think our team did a phenomenal job of weathering the storm. We'd love to see a better financial number post, but ultimately the team did a good job in managing a lot of the challenges and uncertainties. What I would say is that clearly some of the COVID costs will fallout over time, assuming that we get the recovery that we'd like to see, and we did see some real progress prior to COVID picking up some operational efficiencies, and then we're going to be going back after that as soon as our operations return to normal. So you'll see improvements in the coming quarters I believe, but it's really too early to tell with what's going on with COVID. The disruption to our mix and related absenteeism has been quite challenging, although we do see absenteeism trends recover.

Our next question comes from Ben Bienvenu of Stephens. Please go ahead.

Hey, thanks. Good morning, everyone.

Good morning.

Hey, Ben.

I want to ask on the Pork and Beef section of the business. Those segments performed, obviously the market was favorable as it relates to packing margins, but performed pretty nicely given – or despite how challenging the operating environment must have been for you guys. I know you had a number of plants closed. We've also though – we've gotten probably a pretty big backlog of live animals coming for the balance of this calendar year in light of what's happened with COVID. So I'd love to hear your commentary on what you think around the input cost side of things looks like for packer margins for the balance of this calendar year. And then I'd also love to hear in light of the most recent cattle inventory update we got from the USDA, just kind of how you guys are thinking about the cattle cycle and we are – we're in a really strong profitability environment. At what point do you think that starts to taper off?

Ben, I'll take that. This is Noel. As we look into 2021, we're expecting – well, without COVID, we would have expected somewhat flat supplies, particularly in cattle. Breeding intention on hogs are off a couple of percent, but productivity has been picking up a couple percent, so basically flagged in. So our outlook for domestic availability has previously been roughly flat to perhaps down 0.5% due to continued strong exports. The number of hogs that have been processed over the last few months, obviously, particularly in Q3, they were down substantially. And we don't know exactly, but we estimate someplace in the vicinity of about 3 million hogs did not come to market. So that will continue to work its way through the system over the coming months. And on cattle, there's probably somewhere in the vicinity of about 1 million head of cattle that’s been backlogged as well. Over the course of months that will work itself out. But regardless, we expect adequate supplies, strong supplies of cattle and hogs as we look into our fiscal 2021.

Okay, great. Thanks. Stewart, you made some comments or Dean, I think you made comments on SAP. Are those costs entirely behind us? You know that they're behind you in Prepared Foods. I seem to recall that maybe the Chicken segment was being impacted by SAP as well. Am I recalling that correctly? And if so, is that cost behind you as well?

Yes. Our ERP-related inventory write-downs and distressed are normalized at this point. We're still rolling out SAP across the business, but the rollout’s gone smoothly. And we've not seen an uptick on any of the challenging aspects related to inventory that we’ve shown in the past. So we feel like we've got that behind us and on track.

Okay. Fantastic. Thanks and best of luck.

Thank you.

Our next question comes from Michael Piken of Cleveland Research. Please go ahead.

Yes. Hi, good morning, and congratulations to both of you guys, Dean and Noel.

Thank you.

I wanted to ask a couple of questions here. The first I guess is on the Chicken side. I guess, we’ve seen some weakness in commodity, red quarters recently. And just wondering, how much of that is driven by potentially export slowing down or maybe just the inability to de-bone dark meet, but just sort of your thoughts on kind of the overall size of the business in light of some of the weaker commodity prices for Chicken and then how do you see sort of exports trending? And how are you thinking about your own mix within Chicken?

So our mix was certainly affected by absenteeism and we really wanted to just get food to the American global population as quick as we could. So we had to take some action there for mix. And then as it relates to general operational improvements, like I said, we captured about a $100 million in total operational savings coming into COVID, which benefited us, but looking forward, it's going to take us some time to work through that. In our contract pricing business, we’ll be going into pricing negotiations this fall. I don’t know we'll see any impacts from that coming in the first or second quarter. And then related to exports, our exports have generally been strong. We're seeing ports move. They are somewhat backed up, but we are seeing product flow through, testing at the borders in places like China, and exports in Japan and Mexico continue to be strong.

Okay. Yes. And then as a follow-up, just on the red meat side, if you could talk a little bit. I know the daily slaughter rates have come back really strong and quickly. But on the fabrication side, are you guys able to deliver the specific cuts at this point on Beef and Pork to your targeted customers? Or are there still shortages of particular SKUs or things kind of backing on the fabrication side? Thanks.

Michael, I can take that. I can tell you that no, production has largely rebounded to pre-COVID activities. So the SKU and product mix is not being impacted anywhere to the extent that it was through the March, April, May time period, so nearly back to normal.

Our next question comes from Heather Jones of Heather Jones Research LLC. Please go ahead.

Good morning. Thanks for taking the questions.

Good morning.

My first question is on Chicken. I was wondering if you could give us some more granularity as to how much of your capacity you've been able to shift to retail away from foodservice and how that may cause volumes to look going forward relative to what we saw in Q3?

So we're not necessarily calling out the percentages that we've able to ship, but we've seen foodservice recovered about 80%, 90% in general. And so we have obviously strong products in QSRs.

Maybe, Heather, just a couple of additional facts just to help with your model. If you look back to Q3 last year, retail versus foodservice in Chicken, that was about 50/50. And if you look at that ratio in 2020, that's about 60/40. So you've seen a shift. Obviously, it would have been worse had we not been able to shift some of the manufacturing over to retail. But I think if you look in our Q, you'll get some of that data.

Okay. Thank you. And then as a follow-up, I was wondering – so all the initiatives you've put in place as far as healthcare for your workers, et cetera. Just wondering if you could give us your thoughts about the preparedness going into the fall, like, I know there's some concern in the industry about there potentially being another surge and just like, how do you think you're prepared relative to the spring? If there is a surge and workers getting stuck, like, how do you think it will look for you relative to what it looks like in April, May this year – I mean, April May earlier this year?

Hi, Heather. Thanks. As you know, team member safety is our top priority. You can tell by our numbers. We've invested heavily in a variety of precautionary measures, the protective equipment and stuff that we've put in including temperature testing. That stuff will benefit us in quarters and years to come. You probably also saw the recent announcement that we've really implemented what I would consider a cutting-edge monitoring program. What we get from that is to ensure that we're assessing the health of our team members and making sure that we know what's going on in our plants, but also helps better understand what's going on in the communities. That's really been the key is knowing what's going on in the disease load in the communities. And we've been very open about sharing that with public health officials to make sure that they see what we're seeing, and they're working with us. Also putting a lot of effort to educate and inform our team members about what we're learning about the virus and how it spreads, and we've seen them be very responsive and respond positively to protective measures at home and in their communities. And so I would say we're as prepared as we can be. We are still investing in research, making sure that we very much understand this virus. We’re really working closely with the communities and health officials to ensure that we've got every possible precaution in place.

Okay. Thank you.

Our next question comes from Ken Goldman of JPMorgan. Please go ahead.

Hi, good morning. Dean, congratulations.

Thanks Ken.

Thanks. I wanted to ask – if we're on similar call like this 10, 20 years from now, you're retiring. What do you want to be known for? What are the biggest changes that you want to see at Tyson? With the obvious caveat that right now is a completely uncertain time for everybody, but I'm just curious about your long-term strategy and the changes you want to implement?

So for first off, I've been really lucky to get a chance to work with Noel, the entire ELT and the Board for the past three years now. And I've been on the strategy and acquisitions committee and we've all been working closely to make sure that we've got a long-term perspective on the business that not only leads to long-term growth, but also Tyson's position in helping see the world sustainably. So it's 20, 30 years down the road, we know we're going to have a few more billion people on the planet and we're going to have to make sure that we can provide food for them and do it in a sustainable way. And given Tyson's balanced portfolio or investments in alternative proteins and our global footprint, we're confident that we can really take bold position in doing that.

Okay. Thank you for that. And then follow-up, I'm just curious if – you guys talked about Chicken margins improving a little bit. Can you give us some idea of the range there? Obviously, you'll have some costs in terms of your mark-to-market or your derivatives that won't repeat. But excluding that, can you just give us some idea how things are beginning so far a month or so into the quarter so we can model a bit more accurately as we look ahead?

Yes, look, I think – Stewart here. I think you could probably look at some of the data coming through public data on pricing. I think what that will show actually is a pricing for the moment is a little bit weakened and we saw it in the middle of the quarter. If you look then at some of the big impacts that Dean called out earlier, in the quarter we had $70 million worth of impact on derivatives and on a year-over-year basis that was $100 million. So certainly I can't say what derivatives will do, but that will be a big impact going forward. The other cost that's noteworthy is to call out the $340 million worth of COVID costs. Chicken took a big chunk of that. And as I mentioned earlier, we expected that ran rate will be lower. If I think – those are probably the big – that's probably the big factors to call out as we get into this quarter.

Thank you.

Our next question comes from Michael Lavery of Piper Sandler. Please go ahead.

Good morning, and congratulations to you Dean again.

Thank you.

Just wanted to touch on the guidance. You mentioned in Chicken and Prepared Foods that you expect a decline in volumes in the fourth quarter. Do we read that correctly that you think beef and pork will be up or just that you're not sure, and can you give some of what the assumptions are around your thinking there?

Michael, when you say beef and pork will be up, in what terms?

Well, I think it's specific to volumes that you mentioned the expected decline for Chicken and Prepared Foods. And so would we infer correctly that the volumes in beef and pork are expected to rise.

Well, we're not going to give any guidance specifically on volumes. I mean you can of course, take our comments that we've made this morning. But you could look back of course this past quarter and you'll see that beef and pork had considerable disruption. Noel, earlier talked about the backlog of animals. Of course, we're looking to get our operations back to normal level as quickly as we can. So that's about all the detail we want to give just looking forward.

I think it'd be fair to say though, as we come into Q4 that volumes are in fact stronger than what they were in Q3. So relatively Q3, I'd say the answer would be, yes. We're a month into our Q4 that compared to – relative to a year-ago. But that's a different question because it depends on absenteeism, but there's certainly enough livestock to be able to run equal or greater numbers in Q4 than a year-ago.

Okay. That's helpful. And then just following up on your comment on ASF, you said it presents opportunities, obviously there's been some expectation of that for some time and it always seems to twist and turn in different ways and of course, overshadowed by coronavirus in some respects. But as you size it up and think of potential opportunities there, do you have any sense of how it's likely to play out or what we should be looking for catalysts there that maybe we haven't seen that?

Mike, I don't think that there's really been any substantial change from roughly a year-ago that ASF continues to spread albeit at a lower rate than I think what it was a year-ago. There's been a substantial reduction in the global hog herd, so there's – it’s kind of roughly 25%, and the demand continues to be equal or growing. And so our outlook a year-ago is no different today than it was basically a year-ago that continues to be strong demand from basically all parts of the world, including China. So fundamentals have not changed. And I’d just refer back to Dean's comment that from a longer term perspective, we expect global demand for protein to continue to grow over the coming years at a pace greater than what the expansion and production is going to be.

Okay. Great. Thank you very much.

Your next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Yes, Thanks. Good morning, everyone.

Good morning.

Good morning.

So maybe continuing, just thinking about kind of how the Chicken business specifically is evolving? And I think going forward, it seems like we've got this kind of tension between kind of absenteeism on the worker side and the inefficiencies and production challenges that presents to your, to your production footprint and the ongoing disruption in foodservice markets, and a) way to maybe give us a sense of how those two have evolved over the course of the last three months through July. You've been just a pop those down on the trajectory of where things stand today and the balance of those in terms of margin impact?

Probably won't break out specific margin impact, but what I will describe is foodservice – I'll start with the latter server with a ladder first with foodservice loans and return somewhere between 80%, 90%, depending upon the channel customer. We've seen some areas of foodservice that are our key Chicken customers performing extremely well at or near break over levels. And so that's performing well in some areas. We do have areas still – still struggling to catch up, distribution, et cetera. And then remind me again the first part of the question?

Just absenteeism and the impact that's had on your cost and your production mix through the third quarter into the fourth?

Sure. Clearly we had a big spike and absenteeism related to COVID in a variety of other things. Like I said before, the trim line trim on absenteeism is trending to the positive. So we expect the S&T has an impact on our production to start to return to normal here relatively soon.

Okay. And then my second question, it's a bit more of a clarification, but just going through the disclosure in the queue related to retail sales by segment looks like kind of Chicken and prepared foods, Chickens up 8% year-on-year for retail sales prepared foods up 12? And I'm just trying to think about kind of the implications of that relative to what we see in the – whether it's the core business lines, your total Tyson, sales change that you put in your from Nielsen, you put in your slide deck. And I know that there's some things aren't deli and some of the tray pack product that can create some noise there, but I'm just trying to think about how to reconcile just the retail component of what you disclose for sales growth relative to sell…

I think difficult for us to sort of take you through the full reconciliation on the call. But first of all, I mean, great performance from the prepared foods team, eight quarters in a row, a shared gain, so that that's not a blood. But having said that that is just all of the branded all of the branded products, primarily prepared foods, but also in chicken as well. If you look at that our core retail lines are about two thirds of the branded retail volume. So just to give you a sense, but of course all the non-branded stuff also is coming through. Most of that is the foodservice. So when you go back to that note in the queue. They moved in retail up driven, which is largely driven by that core retail move and then foodservice sit down because of COVID. Is that helpful?

Yes, maybe I'll pause, I'll find. I appreciate the color. Thank you.

Yes.

Our next question comes from Robert Moskow of Credit Suisse. Please go ahead.

Hi. Thank you. I think you talked about price negotiations beginning for Chicken and the fall. I guess I've been all over CX, that's a target positives and I'll ask a couple of weeks here. The breeding flock is up and yet total demand for Chicken is down because of a foodservice channel. Is there a hope for a stronger negotiating power in this contract season or is this a supply environment that is not conducive to during the crisis we need to get to normal modules.

Robert, certainly appreciate your diligence and looking into the public data. We're just not going to be able to comment on what we'd expect to happen in pricing negotiations, and it's your it's just to really to tell awesome.

Okay. And one follow-up. The derivative losses, I assume that's on corn, right, because corn prices fell during the quarter? Or are there other whole grain that's involved for chicken?

No, you are correct, Rob. It was corn, soybean meal, the combination of two.

Okay. Thank you very much.

Thank you, Rob.

Our next question comes from Ben Theurer of Barclays. Please go ahead.

Hey. Good morning, everyone. Thanks for taking my question. Just want to follow-up on the Prepared Foods commentary you've made on Adam's question. So I wanted to understand what – the exact impact wasn't profitability, which clearly was down on a year-over-year basis, but you've mentioned the strength within the retail portion, which is branded and then, obviously, the weakness in foodservice. Could you elaborate a little more on how much actually input cost pressure you had from the raw material side considering that branded piece actually grew by the not branded piece within Prepared Foods declined to understand a little bit the magnitude of the input cost pressure?

So I won't give a specific number related to input costs, but clearly the increase in pork and beef prices had an impact on our business. As you know, some of our foodservice business primarily is formulaic in nature, and there's some lag related to when the formula is ultimately materialized into our market price. In the retail side and some parts of foodservice, we actually have contract pricing. And the blips in input costs come and go before we actually get back into price negotiations on those products. We're also seeing exceptional demand on the retail side, too. So taking in all of the prices related to what we're experiencing in these report, could have a depressionary effect on demand. So we're focused on growing that category and that's important to us. So not necessarily able to capitalize on the full spike in beef and pork and capture all that margin back.

Okay. Perfect. That was good commentary. Thank you very much. And then just one question as it comes back to the beef piece and your outlook into next year, and thanks for elaborating on the cattle you're seeing available. So is it fair to assume – this was obviously a very strong quarter and we should not assume that to be a normalized margin environment. But thinking everything else equal, what you were initially expecting for 2020 is most likely going to be what we should in a normal environment expect for next year considering the availability of cattle, et cetera. Is that a fair assumption?

Ben, this is Noel. The fundamentals as we go into next year, demand has been strong. Supplies are adequate now. Trying to forecast where margins will be next year relative to this year, we're not prepared to do that. But the fundamentals, Ben, I’d say look favorable with continued strong demand and adequate supplies.

Okay. Thank you very much.

Thank you.

Our next question will come from Ken Zaslow of Bank of Montreal. Please go head.

Hey. Good morning, everyone. Noel, best of luck, and Dean, congratulations.

Thanks Ken.

Thank you, Ken.

Just two questions. One is, Dean as you look at your balance sheet, you have more cash than you've probably had in a long time. How do you expect to allocate that? What is the thought behind that and how do you tie that into a strategy?

Well, I would say for the time being with all of the uncertainty related to COVID, we think it's important to have ample liquidity to make sure that we can adapt. We've invested heavily into capital equipment and a variety of things to make sure that we can service retail versus foodservice as we've seen demand shift in our markets. Stewart, if you want to…

Yes. Ken, look maybe just a couple of other comments. We are very pleased obviously with our liquidity position, but just thinking about the fourth quarter, we do have some cash payments that are coming up. We've got debt of almost $700 million that's going mature this quarter. We've got dividends. We've called out $1.2 billion of CapEx for the year. So you've got about $300 million coming through in capital expenditures. And there’s a number of places in which cash will go out the door. Don't forget also that as we see the market start to improve, then you're going to also see some increased use of working capital. So I think there are a few specific things on the docket that will absorb some of that cash.

Okay. My second question is, I know that you talked about the direct costs, but the indirect costs, can you provide the magnitude relative – I know you're probably not going to give an exact number, but can we kind of size it? Is it bigger than a breadbox, closer to $340 million, something like that of how much indirect cost you think pressured the company's margins? And where was the greatest degree and sort of kind of helping us frame it? And not so much to give away corporate secrets, but it just helps us kind of forecast going forward, if that's okay.

Yes. Ken, there's no specific way to give you a number on indirect costs and that's why we haven't called them out. Obviously things like absenteeism causes a huge amount of disruption in our applause, I think Dean spoke to that that obviously does drive very different financial results. There's huge amount of opportunity cost. I mean, just think about it our foodservice businesses way down ordinarily, that would be operating full steam, so very difficult to give you a number. My best advice is to start with the current run rates and then make some assumptions from that. But I think it's fair to say they were significant like sure said it's impossible to quantify because a lot of it is opportunity cost. However, product mix was also impacted in a fairly substantial way. And as far as the degree of impact, it largely is depending on the number of team members that have been in each one of the sectors, pull through has our greatest number of team members. So they were impacted to a greater extent than our other businesses. But it's fair to say that the likely impact was substantial.

Would you say that half of it back to normal, three quarters back to normal, it just some sort of barometer. I know it's really hard and I'm not trying to box you into a corner. It's just trying to figure out, the volatility of number of – this quarter is really not representative of what's going to happen in the future, right? This quarter is an isolated event. I was just trying to figure out if there's a way to kind of start figuring out fundamentals and adjusting it for the inopportune cost.

Yes. Okay. Ken it's really – it's not possible to do that, but a lot of the inefficiencies were driven by absenteeism as Dean said that the – that has improved. So we can't give you a specific number of the degree, but it's better than what it was a couple months ago.

Correct, and by the way, best of luck everybody. Thank you very much.

Thank you, Ken.

Thank you, Ken.

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

Thank you for your time today. While the pandemic has been challenging, I'm convinced will come through as an even stronger company. We are the right portfolio, the right resources and the right team to drive long-term performance and shareholder value for a strategy to grow, deliver, and sustain. Once again, I want to thank our team members for their continued efforts during this unprecedented time. There are health and safety are fundamental to our long-term success. Please stay safe and thank you for interest in Tyson Foods.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.