Tyson beef operations
Tyson Foods processes about 132,000 head of cattle every week, according to the company.

SPRINGDALE, ARK. — Strong performances in Tyson Foods’ Beef and Pork divisions helped drive earnings to record levels during the first quarter of fiscal 2017, ended Dec. 31, 2016. The positive results prompted the company to raise its guidance for the year to $4.90 to $5.05 per share.

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

“We expect the earnings cadence for the remainder of the fiscal year to follow more normal patterns, including the seasonality typical of our second quarter,” said Tom Hayes, president and chief executive officer. “We’re on a path toward what we expect to be our fifth straight year of record results. Our path won’t be linear, but our team is focused on delivering long-term growth and creating shareholder value.”

In the Beef segment, operating income was a record $299 million, according to the company, with an operating margin of 8.5%. Volume was up 4.5% while the average price was down 6.6%, reflecting a lower cutout value.

“Plentiful cattle supplies and lower consumer pricing that stimulated both domestic and export demand contributed to the record results,” Mr. Hayes said Feb. 6 during a conference call with securities analysts.

Tyson Pork Shoulder

The Pork business’s operating income during the quarter was $247 million, a record 19.7% operating margin. Volume was up 4.3%, while average price was down 1%.

“Demand was strong and especially in export markets,” Mr. Hayes said. “The U.S.D.A. recently issued a report stating that China will likely remain a large importer of pork, given its rising production costs, constraints on land use, and stricter environmental regulations. While Tyson Foods doesn’t export a significant amount of pork to China, other U.S. packers do, which creates domestic disappearance. We’re certainly aware of the additional (domestic) capacity coming on-line, but there appears to be enough hog production to support these plants, and continuing export demand should absorb the additional supply.”

As a result of the strong performances, Tyson Foods’ net income for the quarter was $593 million, equal to $1.64 per share on the common stock, and an increase compared with the previous year when earnings were $461 million, or $1.18 per share.

Sales for the quarter rose slightly to $9,182 million during the first quarter compared with sales of $9,152 million the previous year.

Operating income in the company’s Chicken and Prepared Foods business units both fell during the quarter compared to the previous year. The Chicken unit recorded an operating income of $263 million, compared with $358 million during the first quarter of fiscal 2015, and Prepared Foods operating income fell to $190 million from $207 million during the previous year.

Tyson chicken breasts

The decline in the Chicken operating income was due to increased marketing, advertising and promotion spending and higher operating costs, which included $23 million of compensation and benefit integration expense, according to the company.

“We expect more pricing pressure from competing proteins for chicken, while our feed costs are projected to be flat with last year,” Mr. Hayes said of the Chicken business for the rest of the year.

Higher operating costs in Prepared Foods as well as higher marketing and promotion expenses affected that business unit. During his comments, Mr. Hayes also said the Prepared Foods business unit will experience compressed margins for the next 18 months.

“Within Prepared Foods we have two well-developed businesses in both retail and food service channels,” he said. “These channels are complementary in reaching all consumers. Our scale in both channels provides a natural volume hedge as consumer eating behavior shifts between channels.

“Network investments to upgrade capacity and throughput for long-term growth have increased the cost structure in our plants that serve the food service channel and further pressured margins. As the capacity investments translate into improved efficiency and volume growth over the next 18 months, these pressures will abate, but in the interim, they will continue to compress margins, possibly dropping the segment below 10% return on sales for the year and around 9% for the second quarter.”