SPRINGDALE, ARK. – Tyson Foods, Inc. spent $340 million on employee bonuses, safety equipment and safety measures during the third quarter of fiscal 2020. Those are the direct costs related to the coronavirus (COVID-19) pandemic management quantified for investors. Providing additional pressure was such indirect costs as employee absenteeism, which management declined to quantify. The result was a challenging quarter further muddied by shifting consumer purchasing patterns.

Net income for the quarter ended June 27 was $527 million, equal to $1.48 per share on the common stock, and a decline from the same period of the previous year when Tyson Foods earned $676 million, equal to $1.90 per share.

Sales were $10 billion for the quarter, down from $10.8 billion the year prior.

“Without a doubt, our third quarter was one of the most volatile and uncertain periods I've seen during my 40-year career in the industry,” said Noel W. White, chief executive officer, during a conference call with analysts on Aug. 3. “Even after accounting for these COVID-19-related costs during the quarter, our business continued to show strength and resilience. While COVID-19 has been disruptive, we have a strong long-term outlook for Tyson Foods.”

The company’s Beef business unit, its largest, saw sales fall to $3.7 billion from $4.2 billion. But operating income rose sharply to $651 million from $270 million.

“We saw large supplies of market-ready livestock during the quarter but continued to experience production inefficiencies and lower throughput due to our decisions to temporarily idle some facilities in an effort to protect our team members,” said Samuel Dean Banks, executive vice president. “The combination of large supplies of livestock, production shortfalls and strong consumer demand drove a much wider margin spread.

“As foodservice demand softened, we were able to shift parts of our operation to retail. As cutout values rose during the quarter, we offered (price cuts) to support our customers and preserve demand in both retail and foodservice.”

Disruption at foodservice weighed on Tyson’s Chicken business unit. Sales for the quarter were $3.1 billion, down from $3.3 billion in 2019, and the business recorded a loss of $120 million.

“No part of our business has seen greater COVID-19 impacts than our Chicken segment,” Mr. Banks said. “We've experienced significant amounts of complexity in the current environment and continue to work through what's proven to be a very dynamic situation.”

Operating income was impacted by volume declines, costs associated with COVID-19 and negative derivative mark-to-market adjustments when compared to the same period in fiscal 2019.

“Additionally, we experienced some degradation in our mix as we shifted capacity to serve retail channels and struggle to maintain efficient levels of production,” Mr. Banks said. “During the quarter, we responded to the dramatic shift in demand from foodservice to retail, shifting some of our chicken production capacity accordingly. Although this cost us in the form of capital investments and some plant efficiency, we were able to get more meat to consumers when retail capacity was particularly strained.”

Prepared Foods sales dipped to $2 billion from $2.1 billion, and operating income also fell to $145 million from $229 million.

“In total for this segment, sales were down 2.6%, with volume down 6% and pricing up 3.4%,” Mr. Banks said. “Despite these challenges, we were pleased that our total household penetration increased in the third quarter with significant gains in Jimmy Dean Breakfast Sausage, Ball Park hotdogs and Hillshire Farm lunchmeat.

“Although availability of raw material has started to return to pre-virus levels, the surge in demand in retail, coupled with raw material supply shortages, has resulted in lower finished goods inventory levels across the network. Some of the tail effects of this shortage will continue to impact us in the fourth quarter.”

Pork unit sales for the quarter were $1.1 billion vs. $1.3 billion in 2019. Operating income rose to $107 million from $42 million. Mr. Banks said strong demand and ample hot supplies buoyed the business unit during the quarter.

Tyson Foods did not provide guidance, but did indicate the management team is preparing for the pandemic to last for a prolonged period.

“We are investing in operational flexibility to ensure that we can continue to meet customer demand while living in a potentially long-term COVID-19 environment,” Mr. White said. “We recognize that our level of future growth is dependent on away-from-home eating occasions, which will be impacted by communities opening up and potentially reclosing. We will thus remain nimble and remain ready to adjust our facilities as demand picks up or shifts.”

Stewart F. Glendinning, chief financial officer, added, “As Q4 started, we continue to see heightened levels of retail demand, which still only partially offset the COVID-related decline seen in the foodservice channel. While we’re not certain the path of COVID, we have demonstrated our ability to deliver profits during this challenging time, and we expect to continue to do so.

“Our plants are experiencing varying levels of challenges in the current environment, but capacities have significantly improved since the extremes experienced during the third quarter. Our actions taken to ensure that health and safety of our team members will enable us to move capacity closer to historical levels.”