Tyson continues to fine-tune product mix

by Keith Nunes
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 Hillshire
With Hillshire Brands now in the fold, Tyson Foods is working to fine tune its portfolio. 
 

SPRINGFIELD, Ark. — With Hillshire Brands now in the fold, Tyson Foods, Inc. management is working to fine tune the mix of value-added products versus volume sold in an effort to maximize profitability. The company’s third-quarter financial results indicate the effort, as it develops, is working.

For the quarter ended July 2, Tyson Foods earned $484 million, equal to $1.29 per share on the common stock, up from $343 million, or 86 cents per share, in the same period a year ago.

Sales for the quarter fell to $9,403 million from $10,071 million the year prior.

Donnie Smith, Tyson Foods
Donnie Smith, CEO Tyson Foods

“Our differentiated business model and our strong performance across all segments, are contributing to higher, more stable margins,” said Donnie Smith, CEO, during a conference call with financial analysts on Aug. 8.

Tyson Foods’ Chicken business was the star of the quarter for the company.

Tom
Tom Hayes, president of Tyson Foods 

“Chicken produced operating income of $380 million, with a 13.9 percent return on sales,” said Tom Hayes, president. “The important call-out in Chicken is that we have continued to improve our product mix. We’ve grown value-added sales by 5 percent, and reduced commodity sales by 10 percent, which is why the average selling price was up 40 basis points in the quarter where our volume was down 90 basis points versus the same quarter last year.

“We’re being really strategic about our growth. We’re growing where we want to grow, and it’s reflected in the record return on sales.”

For the quarter, Chicken segment sales dipped slightly to $2,743 million from $2,757 million the year prior.

Looking ahead, the company sees more opportunity for the production of value-added products.

 

 
Tyson Foods' Chicken business was the star of the quarter for the company. 
 

“ … We see there’s going to be plenty of opportunities for us to drive growth in areas where right now there hasn’t been a lot of innovation,” Hayes said. “You think of fresh tray-pack chicken; it’s been relatively static for years and years. We like that opportunity for us to continue to think about how it can be different.”

Prepared Foods sales and operating income were flat during the quarter, with sales flat at $1,809 million compared with $1,810 million during the same period of the previous year, and operating income coming in at $197 million versus $207 million the previous year.

“Volume compared to Q3 last year was up 1.9 percent, and sales dollars were virtually flat,” Hayes said. “The lower average selling price resulted from decreased raw material costs, and successful pricing strategies to drive volume. We’re particularly pleased with the volume increases in Ball Park hot dogs, Hillshire Farms smoked sausage, and lunch meat.

 
Tyson saw volume increases in Ball Park hot dogs, Hillshire Farms smoke sausage, and lunch meat. 
 

“As we look toward 2017, we expect Prepared Foods to remain at the lower end of the 10 percent to 12 percent operating margin range, as we continue to invest heavily in innovation, new product launches, and supporting the growth of our leading brands.”

Sales for the company’s Beef segment fell to $3,783 million from $4,305 million the year prior, but the business unit generated an operating income of $91 million versus a $7 million loss the year before.

“Volume was up 2.9 percent as more cattle were available to process, while the average selling price declined 14.6 percent,” Hayes said. “Although we expect fed cattle supplies to increase 2 percent to 3 percent in FY 2017, domestic availability should increase only slightly due to reduced imports and some export demand improvement.”

 Tyson Beef
Tyson's Beef segment generated an operating income of $91 million versus a $7 million loss the year before. 
 

While international demand for beef may pressure the domestic market for beef, Mr. Smith said a new regulatory initiative in the beef sector may improve the company’s Beef segment outlook.

“Coming up in, I believe it’s October, there is a new regulation on retailers around having to keep up with where the raw material comes from, as they grind ground beef back of house,” he said. “And I think that portends a bright future for our case-ready grinds business.”

Tyson Foods’ Pork unit also generated a strong operating income during the quarter, rising from $64 million during the third quarter in 2015 to $122 million in 2016. Sales for the quarter rose to $1,271 million from $1,207 million the year prior.

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