SPRINGDALE, ARK. — The second quarter of every fiscal year is traditionally the weakest for Tyson Foods, Inc. To underscore how the acquisition of Hillshire Brands and the impact of low feed input prices have affected the company, Tyson Foods achieved its best second quarter ever for the period ended April 2.
|Donnie Smith, president and c.e.o. of Tyson Foods|
“Our business continues to perform very well, delivering record second-quarter operating income and return on sales, in what is typically the most challenging quarter of our fiscal year,” said Donnie Smith, president and chief executive officer of Tyson Foods. “Sales are growing in key retail product lines. The pricing and marketing investments we’ve made are paying off in increased volumes in strategic products, including Hillshire Farm smoked sausage and lunchmeat, Jimmy Dean breakfast sausage and Ball Park hot dogs. With a focus on the longer term, we have a three-year pipeline of innovation across all segments with exciting new product launches to keep our offerings in the retail, food service and international channels relevant to consumers.”
Net income for the quarter equaled $434 million, equal to $1.14 per share on the common stock, and an increase compared with net income of $334 million, or 78c per share, for the same period of the previous year.
Sales for the quarter fell slightly to $9,170 million compared with $9,979 million the year prior.
“Diving into the specifics for the quarter, Prepared Foods, Chicken and Pork were in or above their normalized margin ranges, while Beef just missed its range after recovering from losses a year ago,” Mr. Smith said May 9 during a conference call with securities analysts. “Total volume was up 2.1%, excluding the divestiture of our Mexico Chicken operation. Top-line sales were down across the board, as the deflationary environment continued for beef, pork and chicken prices.”
In the Chicken business unit, sales fell slightly to $2,737 million compared with sales of $2,829 million the previous year. Business unit operating income improved to $347 million from $332 million as a result of stronger demand, according to the company. Average sales prices decreased as feed ingredient costs declined, but were partially offset by mix changes.
“We’ve differentiated our chicken business by being more consumer driven, upgrading our mix, diversifying our pricing mechanisms, improving our cost structure, implementing our ‘buy vs. grow’ strategy and providing industry-leading quality and customer service,” Mr. Smith said.
He added that the company is raising its annual normalized margin range for the Chicken segment to 9% to 11% due to the strong performance.
Sales for the Prepared Foods unit were flat at $1,804 million compared with the second quarter of fiscal 2015 when business unit sales were $1,871 million. The company attributed the results to a carryover effect from last year’s avian influenza outbreak. The business unit’s operating income of $197 million was an improvement that was positively impacted by $111 million in synergies since the acquisition.
“Despite a challenging quarter, Beef showed significant improvement over Q2 last year,” Mr. Smith said. “Operating income was $46 million, with a 1.3% return on sales. Volume was up 2.8%, due to an increase in live cattle processed as a result of higher fed cattle supplies, while sales dollars were down 11.9%. We’re pleased with the performance of our Beef business and we expect the segment’s operating margin to be in its normalized range of 1.5% to 3%.”
He added that Pork had a “great quarter” with $140 million in operating income and an 11.8% return on sales of $1,190 million.
“Demand for Pork was strong and volume was up 3.1% compared to the same period last year, resulting in improved capacity utilization,” Mr. Smith said. “As pricing declined, sales dollars were down 1.2%. With the increased hog supplies in F.Y.16, we believe the Pork segment’s operating margin will be above its normalized range, at around 10%.”
For the first six months of fiscal 2016, Tyson Foods recorded net income of $895 million, or $2.25 per share, compared with $619 million, or $1.49 per share. Sales for the period were $18,322 million, which compared with sales of $20,796 million.
“We`re in a great position, and we`re generating momentum that will take us into 2017 and beyond,” Mr. Smith said. “We`ve produced record results in the first half of the fiscal year, and we expect continued strong performance in the second half. To reflect what we’ve accomplished and to demonstrate our confidence, we’re raising adjusted earnings guidance for fiscal 2016 to $4.20 to 4.30 per share.”