Tyson Foods expands prepared foods portfolio with another acquisition

by Monica Watrous
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Original Philly Cheesesteak Co., Tyson Foods
Original Philly Holdings produces Philly-style sandwich steak and cheesesteak appetizer products for food service, retail and convenience stores.
 

SPRINGDALE, ARK. — Tyson Foods, Inc. has acquired Original Philly Holdings, Inc., a producer of raw and fully cooked Philly-style sandwich steak and cheesesteak appetizer products. Financial terms of the transaction were not disclosed.

Based in Philadelphia, Original Philly consists of two business units, Original Philly Cheesesteak Co. and Philadelphia Pre-Cooked Steak Co., which merged earlier this year. The company employs approximately 250 and operates two plants in Philadelphia, serving customers in food service, retail and convenience store channels.

Tom Hayes, Tyson Foods
Thomas Hayes, president and c.e.o. of Tyson Foods

“This is a great tuck-in acquisition of a company highly regarded in the food service industry and a natural, strategic fit, combining our commercial and operational resources with their product portfolio,” said Thomas P. Hayes, president and chief executive officer of Tyson Foods, during a Nov. 13 earnings call. “Original Philly is a strong, double-digit margin business with approximately $130 million of annual sales, and the transaction will be immediately accretive. Going forward, the majority of Original Philly’s results will be reported in the Prepared Foods segment, with the remainder going to the Chicken segment.”

Tyson Foods announced the deal in conjunction with the release of its fourth-quarter and full-year earnings on Nov. 13.

Original Philly Cheesteak Co., Tyson Foods
The acquisition of Original Philly will be immediately accretive for Tyson Foods.
 

In the year ended Sept. 30, net income attributable to Tyson Foods was $1,774 million, equal to $4.94 per share on the common stock, up from $1,768 million, or $4.67 per share, in the prior year. Sales for the year totaled $38,260 million, up from $36,881 million.

“We delivered our overall goal of at least 4% operating income growth, e.p.s. growth in the high single digits and 3% volume growth in value-added products,” Mr. Hayes said. “Fiscal 2017 was a year of great change, and despite some challenges, our team remained focused on delivering for long term for our shareholders and driving demand for consumer-relevant products through innovation, customer growth and through category leadership initiated through transformation to a more agile and efficient organization structure to accelerate growth and sustainability.

“Not only did we deliver exceptional results, we also strengthened our ability to lead change and grow in a dynamic marketplace while delivering ongoing financial fitness.”

AdvancePierre Foods products, Tyson Foods
The addition of AdvancePierre has increased Tyson Foods' customer focus.
 

Fourth-quarter net income attributable to Tyson was $394 million, or $1.10 per share, up from $391 million, or $1.06 per share, in the year-ago period. Sales of $10,145 million were up from $9,156 million.

The purchase of Original Philly Holdings comes about six months after Tyson Foods completed its acquisition of AdvancePierre Foods in a transaction valued at approximately $4.3 billion. During the earnings call, Mr. Hayes highlighted three areas in which the combination has benefited Tyson Foods.

“One is …  the focus on customer growth,” Mr. Hayes said. “And we as Tyson, prior to AdvancePierre, (were) very focused on customer growth, but I would say AdvancePierre cranks it up a notch. They really are focused on making sure the customer gets what they need as it relates to branded products or customer brands.”

AdvancePierre Foods Big Az Jalapeno Burger, Tyson Foods
AdvancePierre's position in convenience stores has benefited Tyson Foods.
 

The second advantage, he said, is “the level of accountability that the team has across the organization.”

“I would say they are extremely focused on removing non-value-added costs, so things that aren’t valued by the customer; and having a disciplined approach to looking at it on a weekly basis, where we’re red or yellow,” Mr. Hayes said. “And so we are adopting that across the system. There are some ideas that they brought to the table that I think are very, very exciting.

“And the third is just the channel, the channels that they played in, predominantly in convenience stores, provide us some great benefits, enthusiasm about what the program together can offer overall to customers because that is a space that is growing. And also … I would just kind of throw in the retail perimeter, the products that are served either ready to heat or ready to eat, they have done a very, very nice job.” 
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