Getting beef and pork on track
Tyson Foods’ Beef business unit incurred a loss of $20 million during the quarter on sales of $4,130 million.
“We knew it would be a tough quarter for beef, but it was more disappointing than expected,” Mr. Smith said. “Higher fed cattle cost, and lower export volumes due to the West coast port slowdown, made it difficult to pass along increased input costs. The product is moving again out of the West coast, albeit slower than we’d hoped, and it could take another two to three months to clear.”
The company expects the supply of fed cattle in the United States will fall an additional 5% to 6% compared with last year, but that will be the bottom of the beef supply cycle.
“After this year, we believe we’ll see slow incremental improvement in supply,” Mr. Smith said. “Our beef segment results should improve in the back half of the year, and while profitable for the year, F.Y.15 results are expected to be below F.Y.14. It is important to remember that we’ll continue to run our beef business for margin, not market share.”
The Pork businesses operating income was $99 million during the quarter, down from $107 million during the second quarter of fiscal 2014. Sales also fell 4.4% to $1,204 million.
“Demand for pork has been a little softer than expected, as wholesale price declines have not been realized in the retail channel,” Mr. Smith said. “We expect feature activity to improve soon, which should improve pork consumption. Because a higher percentage of pork is exported than beef, the West coast port issue had a greater effect on domestic pork supplies.
“In addition, there are more hogs coming into the market, and coupled with increased weights, pork supply could be up 8% to 10% in the near term. However, we don’t think it will stay at those levels for long, because that scenario isn’t sustainable.”
Looking ahead to the rest of the year, the company said it expects domestic protein production to increase 2% from fiscal 2014 levels. Grain supplies are expected to increase during the year, which will subsequently result in lower input costs as well as decreased costs for cattle and hog producers.
“Protein is extremely relevant to today’s consumers,” Mr. Smith said. “According to I.R.I., 99% of our refrigerated product sales are in categories that are showing positive year-over-year growth. In frozen foods, 92% of our products are in categories that are showing growth over last year.
“We are currently No. 2 among all other major food and beverage companies in terms of dollar sales growth for the 52 weeks ended March 19. And let’s not forget food service, where restaurant traffic is showing growth, as consumers benefit from lower gas prices and improved economic conditions. We have a lot going for us, and we are comfortable projecting at least 10% e.p.s. — adjusted e.p.s. growth in F.Y. ‘16, which is in keeping with our stated goals.”
