Tyson Foods to ramp up prepared foods output

by Keith Nunes
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BOSTON — Noting the strength and diversity of Tyson Foods’ product portfolio, with 41% of the company’s sales in beef, 35% in chicken and the rest in pork and prepared foods, Donnie Smith, president and chief executive officer of the Springdale, Ark.-based company, said he sees additional opportunity in the prepared food segment.

Speaking at the Barclays Capital Back to School Consumer Conference on Sept. 8, Mr. Smith said, “If you look at Tyson and ask what separates Tyson from other protein manufacturers? One of the main things is the breadth of our product portfolio. Yes, beef. Yes, pork. Yes, chicken, in all forms. But also in our Prepared Foods segment. We’re the nation’s second-largest tortilla and chip manufacturer; one of the nation’s leading pizza topping manufacturers; (we have a) good presence in soups and sauces — there’s a lot of opportunity in those businesses as we move forward.”

Mr. Smith said Tyson Foods is currently expanding the company’s Council Bluffs, Iowa, processing facility. The plant conversion involves the installation of new equipment and product flows, as well as a 60,000-square-foot addition. The $48 million renovation is part of Tyson’s effort to help meet total demand in the areas of pepperoni and pizza toppings.

“We think there’s lots more opportunity in pizza toppings and so we’re expanding today,” he said. “We think demand is there for that product and we’re great at producing it. We also do other dry sausages and it’ll help us expand capacities in our current plant as well.”

The production of flavored tortillas is also on the radar of the company as well as the opportunity to wrap those tortillas around a protein product manufactured by Tyson Foods.

“One of our new items this year in our Any’tizer line is our fully cooked retail bag line with Quesa Dipper, which has a sauce, which we make; a tortilla, which we make; and a meat product, which we make. So that is another example of how we would grow Prepared Foods,” he said.

Mr. Smith also highlighted the cooked meats category as an area of opportunity, but added that Tyson Foods may need to make an additional investment in the category.

“We’re a very good private label lunchmeat supplier,” he said. “I think there are opportunities for us to continue to do that. We probably need to spend some money in our plant and upgrade some equipment, but we have the capital available to us and we've got a good business to invest in.”

The challenge facing the company, like many other food and beverage processors, is input costs.

“From the late '70s, which would be sort of the modern corn era, through 2005, $2 to $3 (per bu) cost the vast majority of corn trade,” he said. “During that time period, the average cost of a live chicken, and that would be a chicken delivered to plant, would have been about 25c a lb, okay?”

Since the renewable fuels standard in 2005, Mr. Smith said that during the first four years the cost of corn per bu shifted up to a range of $3 to $5.

“But look where we are today,” he said. “I mean, today these corn futures are trading at about $7.50.”

That increase has had a dramatic increase on the cost of a live chicken delivered to a facility, with the cost rising from 25c per lb to 46c to 47c per lb today.

“That’s a huge structural shift that, frankly, our industry is getting used to,” Mr. Smith said.

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