Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2025-11-10, FY ended September 27, 2025) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP — Unqualified opinion (1 critical audit matter: goodwill impairment)
One-line verdict: Tyson Foods produced $54.4 billion in revenue but only $474 million in net income — a 0.9% net margin reflecting the brutal economics of a commodity protein processor. The Beef segment reported an operating loss of $1.14 billion as "compressed Beef margins, goodwill and intangible impairments, legal contingency accruals and increased restructuring and related charges" crushed profitability. Despite this, CFFO of $2.16 billion (4.55x net income) and FCF of $1.18 billion demonstrate the business generates cash even in bad years. The F grade is driven by two balance sheet flags: $8.8 billion debt covered by only $1.2 billion cash, and $15.1 billion goodwill+intangibles at 83% of equity — acquired over decades of consolidation in the U.S. protein industry.
| Metric | Result |
|---|---|
| ❌ Red Flags | **2** (Cash 14% of debt; Goodwill+Intangibles 83% of equity) |
| ⚠️ Watch Items | **0** |
| Checks Completed | **17/18** (1 N/A: impairment data) |
| Beneish M-Score | **-2.62** (clean) |
| Altman Z-Score | **3.54** (safe zone) |
| Auditor | PwC — Unqualified, 1 critical audit matter (goodwill) |
Four Segments, One Under Water
Per the 10-K, Tyson operates through Beef, Pork, Chicken, and Prepared Foods, plus International/Other. Segment results for FY2025:
| Segment | Sales | Operating Income (Loss) | Operating Margin |
|---|---|---|---|
| Beef | $21,623M | ($1,135M) | (5.2%) |
| Pork | $5,781M | ($199M) | (3.4%) |
| Chicken | $17,556M | $1,389M | 7.9% |
| Prepared Foods | $9,259M | $1,215M | 13.1% |
Beef is hemorrhaging. Per the filing, the Beef segment's operating loss increased by $754 million due to "compressed Beef margins, goodwill and intangible impairments, legal contingency accruals and increased restructuring and related charges." Average sales price increased 9.0% but volumes declined 1.9%. The filing notes "a $318 million reduction of Sales from the recognition of legal contingency accruals."
Pork also lost money. Operating loss of $199 million, with volumes down 1.7%.
Chicken is the bright spot — $1.4 billion operating income at 7.9% margin, driven by "higher volumes, spread improvement, improved operational execution and the impact of the Beef facility that was reopened for chicken production."
Prepared Foods delivered $1.2 billion operating income at 13.1% margin — the highest-margin segment.
The International/Other segment included "$238 million goodwill and intangible impairments" in fiscal 2023, suggesting recurring impairment risk.
Cash Flow: The Business Generates Cash Even in Terrible Years
| Metric | FY2025 | FY2024 | FY2023 |
|---|---|---|---|
| Operating Cash Flow | $2,155M | $2,590M | $1,752M |
| Net Income | $474M | $800M | ($648M) |
| CFFO / NI | 4.55 | 3.24 | -2.70 |
| CapEx | $978M | $1,132M | $1,939M |
| Free Cash Flow | $1,177M | $1,458M | ($187M) |
CFFO/NI of 4.55x looks anomalous, but it reflects Tyson's heavy depreciation base and non-cash impairment charges flowing through net income. Even in FY2023 when Tyson lost $648 million, it generated $1.75 billion operating cash flow. This is a capital-intensive business where depreciation consistently exceeds net income.
FCF improved from negative $187 million in FY2023 to $1.18 billion in FY2025 primarily through CapEx reduction: $978 million vs. $1.94 billion two years earlier. The filing notes one Beef segment facility was closed during FY2025, consistent with capacity rationalization.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | ✅ | DSO 17 days, flat |
| A2 | AR vs Revenue Growth | ✅ | AR +4.9% vs revenue +2.1% |
| A3 | Revenue vs CFFO | ✅ | Revenue +2.1%, CFFO -16.8% |
Revenue quality is clean. DSO of 17 days is very low, reflecting Tyson's position selling to major retailers and food service operators.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | Inventory +9.4% vs COGS +2.4% |
| B2 | CapEx vs Revenue | ✅ | CapEx -13.6% vs revenue +2.1% |
| B3 | SG&A Ratio | ✅ | SG&A/Gross Profit = 59.5% |
| B4 | Gross Margin | ✅ | 6.5%, -0.3pp |
Gross margin of 6.5% — among the lowest of any S&P 500 company — is structural for a commodity processor. The margin contracted from 12.5% in FY2022 to 5.0% in FY2023 (the cattle cycle trough) and has partially recovered. This volatility is inherent to the business.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 4.55, backed by cash |
| C2 | Free Cash Flow | ✅ | FCF $1.18B, FCF/NI = 2.48 |
| C3 | Accruals Ratio | ✅ | -4.6%, low |
| C4 | Cash vs Debt | ❌ | Cash $1.2B covers 14% of $8.8B debt |
C4: Total debt of $8.8 billion against $1.2 billion cash. Debt/EBITDA of 3.4x and interest coverage of 3.2x are both on the edge of comfort zones for an investment-grade company. The filing states the company expects to meet cash needs "with current cash on hand, cash flows provided by operating activities or short-term borrowings."
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ❌ | $15.1B = 83% of equity |
| D2 | Leverage | ✅ | Debt/EBITDA = 3.4x |
| D3 | Soft Asset Growth | ✅ | Other assets +10.5% vs revenue +2.1% |
| D4 | Asset Impairment | — | No structured data |
D1: Goodwill of $9.5 billion and intangibles of $5.6 billion total $15.1 billion — 83% of the $18.1 billion equity base. These were accumulated through decades of acquisitions (IBP, Hillshire Brands, etc.). PwC's critical audit matter was specifically goodwill impairment, noting "a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's significant assumptions related to sales growth, operating margin, and discount rate." With the Beef segment running operating losses, any further deterioration could trigger impairment of the Beef reporting unit's goodwill.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF after acquisitions positive |
| E2 | Goodwill Surge | ✅ | Goodwill+Intangibles -4% YoY |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | ✅ | -2.62, clean |
Key Risks from the 10-K
1. Cattle Cycle Compression — Multi-Year Problem
The Beef segment's $1.14 billion operating loss reflects the structural phase of the cattle cycle: reduced U.S. cattle herds mean higher input costs that Tyson cannot fully pass through. This cycle typically lasts 3-5 years. The filing warns of "compressed Beef margins" and notes the $318 million legal contingency accrual adds insult to injury.
2. Trade Restrictions and Tariff Exposure
The filing explicitly warns: "trade restrictions, new or increased tariffs or quotas, and customs restrictions, could require us to change the way we conduct business." Tyson operates in "China, Malaysia, Mexico, South Korea, Thailand and the Kingdom of Saudi Arabia" and exports significantly. Tariffs "could affect the pricing of commodities and result in less or no demand."
3. Restructuring and Plant Closures
The filing discloses one Beef segment facility closure in FY2025 and references "restructuring and related charges." The "decision to sell the facility" at one location and broader capacity rationalization signal management recognizes the current asset base is oversized for available cattle supply.
4. Legal Contingencies
The $318 million legal contingency accrual booked against Beef segment revenue is unusual in its size and placement (reducing revenue rather than as an expense). This likely relates to ongoing antitrust litigation in the protein industry. Further legal exposure could materialize.
5. Goodwill Impairment Risk
PwC's critical audit matter focused specifically on goodwill impairment testing. With the Beef segment generating operating losses exceeding $1 billion, the carrying value of Beef-related goodwill is at risk. Any further decline in Beef profitability or negative revision to long-term projections could trigger a material impairment charge.
Summary
Grade: F. Two balance sheet flags — thin cash coverage and elevated goodwill — drive the grade, but the Z-Score of 3.54 is safely in the non-distress zone.
Tyson is a commodity processor with inherently low margins (6.5% gross, 0.9% net) that generates substantial operating cash flow ($2.16 billion) through its massive scale. The Beef segment is in cyclical crisis, losing $1.14 billion on compressed margins, plant closures, and legal contingency accruals. Chicken ($1.39 billion operating income) and Prepared Foods ($1.22 billion) are carrying the company.
The M-Score is clean. Revenue quality is clean. Accruals are low. The real risks are the cattle cycle (structural, multi-year), goodwill impairment (PwC's critical audit matter), and the thin cash buffer against $8.8 billion debt at a time when the company's highest-revenue segment is losing money. If Beef margins don't recover in FY2026-2027, the goodwill impairment that PwC is watching will likely materialize.
**Disclaimer**: This report is based on Tyson Foods' FY2025 10-K filed with SEC EDGAR on November 10, 2025. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP (Unqualified opinion, 1 critical audit matter — goodwill impairment)
Fiscal year ended: September 27, 2025