SPRINGDALE, ARK. — A trio of tack-on acquisitions in the past year has positioned Tyson Foods, Inc. to grow its prepared foods business. While operating income for the segment dropped by more than 50% during the company’s first quarter, Tyson said it expects improved results for the coming year and beyond.
“If you just look forward into our vision in prepared foods, continue to think about a broad portfolio of items that meet changing consumer requirements,” said Donnie Smith, president and chief executive officer, during a Jan. 31 earnings call with analysts. “We’ve got very broad capabilities. We’ve got access to raw materials. Obviously, we’ve got a great sound capital structure and the ability to invest in those businesses, and we will continue to do that. And you should expect to see strong growth in prepared foods.”
Tyson’s recent string of prepared foods purchases began in February 2013, when the company acquired Don Julio Foods, a Utah-based tortilla and snacks manufacturer. Tyson Foods then purchased Circle Foods L.L.C., a San Diego-based maker of frozen and refrigerated handheld Mexican foods, uncooked tortillas and Indian flatbreads under Nuevo Grille, Tortillaland and Rotiland brands the following June.
In January 2014, Tyson topped its portfolio with the acquisition of Bosco’s Pizza Co., a Warren, Mich., manufacturer of partially baked frozen pizza made with traditional and whole grain crusts, pizza sticks that feature a variety of fillings and pizza sauces.
“Bosco’s is a great fit with our pizza toppings, and it aligns nicely with our K-12 school food service business,” Mr. Smith said. “We have to look at a variety of options and avenues for growth.”
Additional investments in the prepared foods segment have recently included rebuilding the lunchmeat business and rolling out new value-added products, such as the Day Starts frozen breakfast line, which launched in January.
“We’re investing a lot in this business,” Mr. Smith said. “I view prepared foods a lot like where we were with chicken four or five years ago, where we just had to get in the basics and build a strong foundation under that business. You can see kind of the results, two, three, four years later about doing all of that work.”
The uncompromising consumer
The company said it must be nimble to navigate the evolving consumer landscape.
“Consumers today are expanding their food purchases beyond the traditional food service and retail channels, creating opportunities for us in dollar, convenience, drugstores and even on-line,” Mr. Smith said.
As consumer confidence rebounds, he added, shoppers are becoming less defensive in their spending.
“Expectations are different,” he said. “The definition of value is different, and it isn’t limited to price. The consumer is asking, ‘What am I getting for my dollar? What are the ingredients, is it fresh, is it good for me?’ All of those factors are part of the consumers’ new value equation.”
While consumers are more willing to pay for convenience, Mr. Smith said a product should fill an unmet need or solve a problem in a unique way.
“Our insights-driven approach to new product development is focused on those unmet needs,” he said.
Health and clean-label trends figure in to Tyson’s portfolio plans.
“They want to know where their food comes from and that we’re being responsible in how we produce it,” Mr. Smith said. “They are uncompromising about food safety, and rightly so, but they also want only a few ingredients on the label, so that’s our challenge and an area of focus for our R.&D. and innovation.”
To answer increasing demand for non-bioengineered ingredients, Tyson may expand its presence in the natural and organic category. Last spring, the company extended its NatureRaised Farms line of antibiotic-free chicken offerings to positive results.
“It’s a pretty small percentage versus our traditional lines, but it’s growing at a pretty healthy pace, and so it’s something we can’t ignore,” Mr. Smith said. “The category is big enough that a national player can make some difference in. We will continue to focus on the category.”
Tyson also is considering implications of reductions to the federal government’s supplemental nutritional program and how the company may retain affected shoppers.“I think one of the characteristics that makes Tyson Foods a great company is our ability to be flexible and to reassess and that’s what we’re doing to grow our business and optimize shareholder returns,” Mr. Smith said. “I remain confident about 2014. I think it's going to be another great year for us.”