Beef, pork prices challenge Tyson's margins
NEW YORK -- Declining prices for beef and pork are pressuring profit margins at Tyson Foods, Inc., dimming the second quarter outlook. But the company remains optimistic about full-year earnings, Tyson officials told investors at the Goldman Sachs 17th Annual Agribusiness Conference in New York.
"Margins have been compressed throughout the past month as the value of beef has fallen more than the price of cattle. Historically, adjustments occur that allow for a spread between the revenue and the cattle cost," said James Lochner, Tyson's COO. "We run our plants for margin, not market share."
The Springdale, Ark.-based company's pork business also saw margins slip in the current quarter, although there have been signs of improvement recently, according to Lochner. "We expect to continue our strong performance in the back half of the year," he said.
Meanwhile, Tyson's Chicken segment has continued to do well as consumers switch from higher-priced beef and pork to less expensive proteins such as chicken. The company expects a strong performance, particularly in the second half of Fiscal 2013, leading to continued optimism that Tyson's full-year results will be better than fiscal 2012.
"Demand is strong, and we're seeing signs of consumers trading from beef to chicken," Lochner said. "Even with pricing up substantially year over year, chicken is a good value for consumers, and foodservice continues to promote chicken heavily."
In other company news, Tyson plans to launch a new line of all natural chicken under the new NatureRaised Farms brand. The product line is Tyson's entry to the cage-free, antibiotic and hormone-free category of chickens that are fed a 100 percent vegetarian diet. NatureRaised Farms brand fresh chicken will be available at retail in April.
The new brand is part of Tyson's strategy to diversify its business through higher-margin, value added products. Dennis Leatherby, Tyson's executive vice president and CFO, said there is value in the diversity of Tyson's multi-protein, multi-channel, multi-national business.
"We're going to grow sales of domestic value-added chicken and prepared foods," Leatherby said. "We're not a commodity protein company. That's not our goal, nor our destiny. Value added is currently about a third of our sales, which includes food service as well as branded retail products.
"Looking ahead to 2014 and beyond, we expect total company top-line sales to grow 3-4 percent annually, and value-added sales should grow 6-8 percent a year. We expect sales from international production to grow at an annual rate of 12-16 percent.
"International growth is focused on production and further processing in Brazil, China and India, in addition to our long-standing poultry business in Mexico. We're able to execute this growth strategy because we have a strong capital structure, and that creates opportunities for us."