Tyson Foods capitalizing on demand for protein

by Keith Nunes
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Tyson Foods
Tyson Foods delivered a strong financial performance during the first quarter of fiscal 2018.
 

SPRINGDALE, ARK. — Tyson Foods, Inc. delivered a strong financial performance during the first quarter of fiscal 2018 as consumer demand for animal protein remained robust. Net income for the quarter ended Dec. 30, 2017, surged 175% to $1,632 million, equal to $4.40 per share on the common stock. The results were favorable when compared with the same period of the previous year when the company earned $593 million, equal to $1.59 per share.

Sales for the quarter rose to $10,229 million, up 11% from $9,182 million.

Issues bolstering earnings included a 21c benefit from the tax legislation passed at the end of 2017.

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

“But even without it, e.p.s. still would have been at an all-time high,” Thomas P. Hayes, president and chief executive officer, said during a conference call with securities analysts on Feb. 8. “In addition, we grew volume 5% in the quarter, and notably, growing value-added volume by 9%, driven by organic sales and the recent acquisitions.”

Tyson’s Beef business unit sales rose to $3,886 million during the first quarter, up 10% from $3,528 million the year prior.

“In Q1, the Beef segment generated operating income of $257 million with a 6.6% operating margin,” Mr. Hayes said. “While solid, these numbers are down compared to Q1 of last year, which was the segment’s best quarter ever. Volume was up 4.5%, and revenue was up over 10%, driven by strong domestic and international demand.”

Tyson chicken drumsticks
Tyson's Chicken unit saw its sales rise to $2,997 million.
 

He added that an expanding U.S. cattle herd is providing Tyson Foods plants with plenty of cattle and management expects the trend to continue through fiscal year 2020.

The company’s Chicken unit saw its sales rise to $2,997 million.

“Although we faced a challenging environment related to labor, freight and small bird pricing, the Chicken segment generated operating income of $281 million with a 9.4% operating margin,” Mr. Hayes said. “Strong demand in our base business and some incremental volume from AdvancePierre helped drive volume up 7.3%, and revenue increased nearly 11%. Notably, the segment also benefited from about $14 million in financial fitness savings.”

The company is investing heavily to increase processing capacity. Further processing capacity has been added to a processing plant in Arkansas, and a new plant in Humboldt, Tenn., is expected to start production in late 2019 or early 2020.

Tyson Foods AdvancePierre sandwich
AdvancePierre products helped increase revenue for Tyson.
 

Prepared Foods sales rose to $2,292 million from $1,895 million the year prior. Operating income rose to $261 million from $190 million during the first quarter of fiscal 2017.

“In the Prepared Foods segment, we have aligned our strategy, people and actions to build on our advantage and unlock the top- and bottom-line potential of this business,” Mr. Hayes said. “As we continue integrating AdvancePierre and achieving financial fitness cost savings, we expect the Prepared Foods segment to have a strong year. Due to the seasonality of our sales, there will be the usual quarter-to-quarter variability, but for the full year, we expect an operating margin of around 11%.”

Pork sales rose slightly during the quarter to $1,283 million from $1,252 million.

“In the Pork segment in the first quarter, we delivered $152 million in operating income with an 11.8% margin,” Mr. Hayes said. “While those are very strong results, income and margins declined compared to the record results of Q1 last year. Volume was down 2.6% as we ran to manage our margin. Revenue was up 2.5% on increased hog costs.

Tyson pork butt
Tyson's Pork sales rose slightly during the quarter to $1,283 million.
 

“As expected, the new capacity of industry has compressed our margins from recent record highs. That said, our margins are still above normal, and we expect fiscal '18 to be around 9%.”

Headwinds facing the company during the rest of the year will be freight and labor costs, said Mr. Hayes.

“Across all segments, freight costs have escalated as trucking capacity has tightened nationwide,” he said. “We expect these costs to continue to rise as carriers compete for drivers and new federal regulations come into play. We estimate this will add more than $200 million to our costs this year. At the same time, marketplace dynamics are driving wages higher, pushing up our labor costs. These additional costs are included in our outlook. However, we're assuming we’ll recover the majority through pricing.”
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