Tyson builds on 'house of brands'

by Erica Shaffer
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Tyson Foods executives Dennis Leatherby and Donnie King
Dennis Leatherby, executive vice president and CFO and Donnie King, president of North American operations and foodservice explained their bullish outlook for Tyson Foods, Inc.

NEW YORK – Tyson Foods Inc.’s acquisition of The Hillshire Brands Co. has transformed the chicken processor into a hybrid business with a strong foundation in animal proteins supporting a house of brands. That was the message executives with the company delivered to investors at the Goldman Sachs Consumer Staples Conference in New York.

Donnie King, president of North American operations and foodservice, said Tyson’s transformation from a protein processing company to a protein-centric branded food company has positioned the Tyson to achieve consistent growth through the balance of 2015 and into 2016. He said, “...with this business model that we presently have, we would suggest that there’s more stability, less volatility and a growth story on top of all that.”

The numbers tell the tale — second-quarter earnings for Tyson exceeded expectations by rising 10.5 percent to $10 billion over the comparable year-ago quarter. The growth story also is playing out in the Tyson’s prepared foods segment. Second-quarter sales in the segment jumped 27.4 percent on increased sales at delis and convenience stores.

“As you may recall, Tyson had embarked on a strategy to brand its businesses,” Dennis Leatherby, executive vice president and CFO, explained. “And when Hillshire came along, we pulled back on that branding effort, consolidated some plants and took some costs out of the business. And those costs are running well ahead of the original forecast.”

Leatherby said the company has raised profit targets for its prepared foods segment to more than $250 million from $225 million for the current fiscal year, $400 million in fiscal 2016 and $600 million in fiscal 2017. He attributed the earnings improvement to the $77 million in synergies captured through the Hillshire acquisition along with “legacy Tyson prepared foods”.

“As far as the question around our optimism for 2016, we see prepared foods of course improving even more from the synergies,” he said. “We see pork being solid, beef getting on better legs. And then, the chicken business really is in a very good place right now. We have described this year would be approximately 11 percent margin.”

King said having “advantaged brands in advantaged categories” provides tailwinds for Tyson Foods’ future growth.

“We're demonstrating more stability and less volatility, and we have a growth story,” King said. “We have the #1 or #2 brands in 13 core categories. Our products are growing 1.6 times faster than the total retail food and beverage category. Ninety-two percent of our frozen product sales and 99 percent of our refrigerated product sales are in categories that are growing, and we were No. 2 in retail dollar sales growth for the last 52-week period (according to IRI data).”

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