Tale of a turnaround
by Keith Nunes
SPRINGDALE, Ark. — A combination of increased chicken and beef demand and improved operational efficiencies within both business units allowed Tyson Foods, Inc. to post strong results for the third quarter of fiscal 2013. The company’s net income in the quarter ended June 29 surged 236 percent.
Click the infographic to view Tyson Foods’ financial results for the quarter.
“It took us a few years to turn this business around but I like where we are and I like the momentum we have,” said Donnie Smith, president and CEO, in a conference call with financial analysts on Aug. 5. “I’m confident we’re going to take it into the next year and well beyond.”
Tyson’s Chicken business unit recorded an operating income of $220 million, a 7 percent increase compared with the third quarter of fiscal 2012, on sales of $3,158 million. The company said its sales volume grew due to increased domestic and international production, which was driven by strong demand for chicken products.
“Consumer demand for chicken is expected to remain strong driven by food service promotions, along with the value of chicken relative to beef,” said Jim Lochner, COO. “Meanwhile, analysts project chicken production to be up 2 percent to 3 percent next year.”
Smith said chicken’s position as a low price protein compared to other proteins gave Tyson’s chicken products strength in a variety of market categories.
“We had a great year, or we are having a great year at retail and fresh, we’re having a great year at foodservice,” he said. “We have a good market share of the QSR (quick-service-restaurant) volume at foodservice which is clearly winning in foodservice today.”
Despite a decline in fed cattle supplies, Tyson Foods also saw an uptick in demand for its beef products. As a result, the Beef units operating income also increased.
“Beef demand was good despite higher pricing,” Lochner said. “Although the first half of the third quarter was more difficult, our performance began to rebound in May due to our improved execution, which included product mix and yield. Our performance relative to the industry improved as well. Additionally, our export market share increased. Industry-wide exports are down 6 percent year-to-date while ours are up substantially led by Japan.”
The company’s Prepared Foods business saw its operating income decline, but much of the issue was associated with efforts to reinvigorate Tyson’s lunch meat business.
“Many of the food categories showing year-over-year growth at foodservice are in alignment with Tyson’s key competencies, particularly chicken items, breakfast sandwiches and soups,” Smith said. “Sales of high-carb foods are declining, which may be part of consumers moving toward healthier food products that we’re seeing. Tyson has been out front in the health and wellness trend for several years by providing nutritionally responsible choices for consumers. We’ve been working toward cleaner labels and sodium reduction, sometimes by as much as 30 percent while still making food that tastes great.
“Foodservice customers are coming to us to help them improve the nutritionals on their products. This is especially true of the products made for schools as new dietary guidelines with calorie and sodium limits have gone into effect. As we enter this back-to-school season, practically our entire product line has been reformulated to meet the new standards which I think is a testament to the strength of our R&D team and the innovation resources of the Discovery Center.”