Value-added products focus of Tyson growth plan

by Keith Nunes
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SPRINGDALE, Ark. – Prepared foods and value-added poultry are two areas of growth for Tyson Foods, Inc. in the next three years, said Donnie Smith, president and chief executive officer.

“You should expect to see our top-line sales grow between 3 percent and 4 percent annually,” he said Nov. 19 in a conference call with securities analysts. “Our value-added sales should grow at twice that rate, or at 6 percent to 8 percent, and the sales from international production should grow at twice that rate, or 12 percent to 16 percent a year.

“We will grow our existing domestic businesses as our customers’ go-to supplier by providing quality, service, and innovation. We will make headway into other channels, like convenience stores. We’ll focus on developing new value-added products and, of course, we’ll grow our international business. Our intention is to grow that business aggressively.”

In the Prepared Foods business unit, Jim Lochner, chief operating officer, said the company will focus on frozen, hand-held snack items, Tyson-branded lunch meats, chicken lunch meat and hot dogs.

“We have invested in our Houston plant to improve efficiencies and increase our flexibility for lunch meat production, which will allow us to grow that business,” Lochner said. “In addition, we’re following the success of Wright-brand bacon with Wright-brand fully cooked ribs and sliced beef brisket.

“Wright is a premium brand and these products are exceptional in quality and flavor. Our R&D, culinary, consumer insights, sales, and marketing teams are working closely with our customer base to provide new products and category solutions. In the deli channel, Tyson continues to solidify our position as a leader in consumer and shopper research.”

Lochner added that Tyson Foods will focus on growing its position in the food service pepperoni category.

“Earlier this year we completed a state-of-the-art expansion of our Council Bluffs, Iowa, pepperoni plant,” he said. “We are also exploring growth opportunities in tortillas and ethnic foods, and developing a greater presence in the convenience store channel, in addition to our improvements in luncheon meat.”

Developing and selling more value-added poultry products is at the heart of Tyson’s strategy to weather the anticipated increase in feed costs during the coming year. Product formats mentioned by Mr. Smith included cooked, breaded or par-fried.

“In terms of new platforms as we move forward, we’ll be adding products in our better-for-you line,” he said. “Some of those may be using whole grain breading (or are) gluten-free-type products. I think you will also see us making some strides in ethnic – in our ethnic offerings in Mexican food, in Asian.”

Smith’s discussion about Tyson’s outlook occurred while he was discussing the company’s financial performance during fiscal 2012. For the year ended Sept. 29, the company had income of $583 million, equal to $1.64 per share on the common stock, which compared with income of $750 million, or $2.04 per share, during the previous year. Sales for the year were $33,278 million, up 3 percent from $32,266 million.

Commenting on the fiscal 2012 earnings decline, Smith said Tyson Foods made some “missteps” during the year.

“For perspective, our start-up operations in Brazil and China lost a little over $100 million in fiscal year ‘12,” he said. “In China, as we bring on more company-owned housing in 2013, allowing us to move more of our mix away from wholesale and into more desirable channels, we will reduce our losses substantially. We’re also executing better in Brazil and will benefit from the progress we’re making there in moving our mix to include more value-added offerings.

“Frankly, in fiscal year ‘12, we made some missteps in parts of our domestic business that cost us, too. Even with these missteps we still had very strong results in 2012. We learned from our mistakes. We won’t be making them again, which gives us a head start on 2013.”

In fiscal 2013, Tyson Foods is anticipating an incremental $600 million in feed ingredient costs. Smith said the company will offset the increase through pricing, value-added innovation, efficiency improvements and other measures.

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