Demand for protein lifts Tyson 2Q profits
May 5, 2014
by Erica Shaffer and Bryan Salvage
SPRINGDALE, Ark. – Tyson Foods Inc. more than doubled its earnings for the second quarter on strong consumer demand for animal proteins. For the quarter ended March 29, Tyson Foods earned $213 million, or 60 cents per share on the common stock, and an increase compared to the previous year when the company recorded net income of $95 million, or 43 cents per share.
Revenues for the quarter were $9.032 billion, an increase compared with the previous year when sales were $8.383 billion.
Donnie Smith, president and CEO, discussed the company’s plans for its Prepared Foods segment, international growth potential and more during a Tyson Foods media conference call to answer questions on its second quarter.
In discussing the company’s category performances during the most recent second quarter, Smith said he believes Tyson’s Prepared Foods category presents one of the best opportunities for earnings growth in the future. Smith told MEATPOULTRY.com, “Prepared Foods is a pretty broad segment. In that segment, we make everything from tortillas, sausage, lunch meats, pizza toppings, pizza crusts, soups and sauces, appetizers — which gives us a broad array of opportunities. These items are very popular with consumers in broad categories in broad channels. For example, we do a lot of pizza toppings in foodservice with national accounts and with the pizza-toppers in retail and in convenience stores. So, these products have broad appeal in multiple channels. That’s one of the reasons we think we have such a huge opportunity here.
“Two, we’re investing rather heavily, I might add, in this segment now for future growth,” Smith added. “This year, our earnings in the segment will be about like last year. But that’s with us spending quite a bit of money investing in new operational capabilities, new innovation platforms and increasing our MAP spending on our new launches. We fully expect this investment to pay off as we move out into the future. And we do look for a lot of growth.
“Now, as to how we would grow — I think at the core of Tyson’s product offerings there will always be protein…but this is not to say we won’t invest in carriers of protein as we do today — for example, tortillas, flatbreads, pizza crusts, etc.,” Smith continued. “So, I think you’ll see fairly good growth opportunities and certainly we’re very encouraged by what we have seen so far with our product launches and look for a good growth opportunity as far as we can see say two or three years out.”
When asked how important the international segment will be in light of news that domestic protein demand will shrink 1 percent, Smith replied, “Internationally, over time, we see great growth potential in our businesses. Think back to our pre-announced growth algorithm — we see our total sales growing 3 to 4 percent per year driven by 6 to 8 percent growth in value-added and then 12 to 16 percent growth in international.
“We have great plans for growth internationally,” Smith added. “If you look at China today, we dialed back a little bit on our growth — economic conditions have softened in China. With the avian influenza concerns, demand for poultry is still soft in the 20 to 30 percent reduction area. The third point is pork prices today in China are very soft. For the first time that I can remember, domestic pork prices [in the US] are actually cheaper than imported pork prices would be [from China]. “If you take those three things in play, and I don’t see that lasting forever — I think we have to work through these structural issues. Once we do, we have a great path for growth in China. We love our business model built around food safety and also a balanced approach both at retail and foodservice. There is still good growth there, but we sort of slowed the pace here for the near-term.”
Overall, consumer demand for protein in the US has remained steady despite higher prices. However, the company expects supplies of some proteins to tighten. Tyson noted in its earnings report the company expects overall domestic protein production (chicken, beef, pork and turkey) to decrease approximately 1 percent from fiscal 2013 levels, mainly due to further reductions in forecasted hog supplies. The company also expects US hog supplies to decrease around 4-5 percent in fiscal 2014 compared to fiscal 2013, partially offset by increased average live weights. Smith said he did not see a tally of what the porcine epidemic diarrhea virus (PEDv) has cost the pork industry in the US.
“Until recently, we have not seen mandatory reporting,” he said. “I can tell you it’s devastating for the farms [affected]. We have a very close relationship with the famers. We buy their hogs and it can have a meaningful impact on their financials. But I’m not aware of anything that has been quantified of what the impact would be.”
When asked if Tyson Foods would be doing anything to help out its hog farmers with some sort of financing or vaccine research, Smith answered, “We provide them with a great home for their hogs. I think that’s the most meaningful impact we can have for them. We continue to have a great working relationship with them. All we can do to create market activity in order to make sure there’s a good home for their hogs —that’s a great service for those guys.”
Recent severe weather and tornadoes that struck several states did not impact the company, Smith said.
“We’re thankful that no company facilities were damaged, however, some of the folks and farmers who supply us were affected experiencing damage or destroyed chicken houses,” he said. “We have been working with them on clean-up.”
Tyson Foods was also busy with disaster relief providing food for recovery efforts in five states. The company deployed meals on its disaster relief trailer as well as food, ice and cooking teams to central Arkansas the morning after the storm hit. As of April 27, Tyson served more than 63,000 meals to survivors and relief works in addition to donated food to relief efforts in Arkansas, Alabama and Kansas.