Tyson's chicken segment fuels third quarter earnings

by Kimberlie Clyma
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 Tyson Foods
Prepared foods and value-added chicken helped Tyson Foods have another positive quarter. 
 

SPRINGDALE, Ark. – The chicken segment of Tyson Foods Inc. delivered a record 13.9 percent return on sales in the third quarter thanks in part to the company’s emphasis on continued growth in prepared foods and value-added chicken, according to company reports. For the third quarter ended July 2, 2016, the chicken segment reported an operating income of $380 million, up from $313 million in Q3 2015.

Tyson reported net income of $485 million, or $1.25 per share, for the quarter ended July 2, compared with $343 million, or 83 cents per share in the year-ago quarter. The company’s operating income was up 36 percent to $767 million, up from $563 million the year prior. 

Donnie Smith, Tyson Foods
Donnie Smith, president and CEO of Tyson Foods 

“We again demonstrated our ability to deliver higher, more stable earnings through our differentiated business model that emphasizes growth in prepared foods and value-added chicken,” Donnie Smith, president and CEO, said in a statement. “We produced record third quarter earnings per share, operating income and return on sales. All operating segment results were in or above their normalized operating margin ranges, with the Chicken segment delivering a record 13.9 percent return on sales.

Sales for the quarter were down 6.6 percent to $9.4 billion from $10.1 billion. Sales for the first nine months ended July 2, 2016, declined 12 percent to $27.7 billion from $30.87 billion reported in the first nine months of 2015.

For the first nine months of fiscal 2016, net income was $1.38 billion, up from $965 million in the first nine months of fiscal 2015.

“At retail, our products are growing in sales volume, sales dollars and category share according to IRI, and Tyson is a leader in volume sales growth among the top 10 branded food companies,” Smith said in a statement.

In the chicken segment in Q3 and the first nine months of fiscal 2016, the company reported its sales volume declined and its average sales price increased. Average sales price for chicken decreased for the first nine months of fiscal 2016 as feed ingredient costs decreased $190 million. Feed costs decreased $50 million during the third quarter.

For beef, an increase in live cattle processed as a result of higher fed cattle supplies resulted in increased beef sales volume in the third quarter of fiscal 2016. Despite the closure of the company’s Denison, Iowa, facility in Q4 2015 resulting in a reduction in live cattle processing capacity, there was more demand for beef. As a result, sales volume for the nine months of fiscal 2016 increased.

“Sales volume [for pork] decreased in the third quarter of fiscal 2016, despite increased production, due to reduced inventory levels as well as the result of mix changes related to internally sourcing more hogs from our live operation,” according to the company. “Average sales price increased in the third quarter of fiscal 2016 as demand for our pork products outpaced the slight increase in live hog supplies, which drove up average sales price.”

Improved demand for Tyson’s prepared food products resulted in increased sales volume in the prepared foods segment for the third quarter of fiscal 2016. However, lower sales volume in the first six months of fiscal 2016 resulting from changes in sales mix as well as residual effects from the turkey avian influenza in 2015 lead to decreased sales volume for the nine months of fiscal 2016, despite increased sales volume for Q3.

“Operating income remained strong in the third quarter of fiscal 2016 as a result of strong demand for our products partially offset with higher promotional spending,” according to the company. “Operating income increased due to mix changes as well as lower input costs of approximately $215 million for the nine months of fiscal 2016.”

The company expects domestic protein production (chicken, beef, pork and turkey) to increase approximately 2 to 3 percent in fiscal 2017 from fiscal 2016 levels. “As we continue with the integration of Hillshire Brands, we expect to realize synergies of approximately $700 million in fiscal 2017 from the acquisition as well as our profit improvement plan for our legacy Prepared Foods business,” according to the company.

“We expect our high-level performance to continue and are raising full year fiscal 2016 earnings guidance,” Smith said in a statement. “Following record earnings this year, we intend to build on our momentum to generate more growth in fiscal 2017.”

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