Tyson Q2 profit misses as plant fires weigh on production
May 8, 2017
by Erica Shaffer
Plant fires weighed on Tyson Foods' Q2 results.
SPRINGDALE, Ark. – Both net income and sales declined at Tyson Foods Inc. during the second quarter ended April 1, 2017. The company attributed the result to fires that hurt production at two of the company’s chicken processing plants.
Net income attributable to Tyson was $341 million, or $1.01 per share, down 21 percent from $434 million, or $1.07 per share, reported in the second quarter of 2016.
Sales for the second quarter were $9,083 million, down from $9,170 million reported a year ago.
|Tom Hayes, president and CEO, Tyson Foods Inc.
“Our Beef and Pork segments generated tremendous operating income in the second quarter, allowing us to invest in the long-term growth of our value-added businesses,” said Tom Hayes, president and CEO of Tyson Foods. “Our Prepared Foods segment results were negatively affected by the on-going challenges in our pizza toppings and ingredients meats businesses discussed last quarter.
“We expect our results to improve as we continue to address operational efficiency and capacity through fiscal year 2018,” he noted. “Unfortunately, we experienced fires in two chicken plants in our second quarter. Had it not been for the fires, our Chicken segment return on sales would have been within its normalized range.”
Net income attributable to Tyson for the six months ended April 1, 2017, was $1,553 million, up from $1,480 million reported in the six month period a year ago.
Sales during the first six months of fiscal 2017 were $18,265 million, down from $18,322 million reported in the comparable year-ago period.
In the Beef segment, sales volume decreased in the second quarter on a reduction in live cattle processed, while average sales price retreated due to increased availability of live cattle supply and lower livestock cost, according to Tyson. Operating income advanced on more favorable market conditions.
Sales volume in the Pork segment decreased in the second quarter as the company worked to balance supplies of pork with customer demand, which was partially offset by increased exports.
Average sales price increased as domestic availability of products decreased due to strong exports. “Operating income increased as we maximized our revenues relative to the live hog markets, partially attributable to stronger export markets and operational and mix performance, which were partially offset by higher operating costs,” the company said in a securities filing.
In the Chicken segment, average sales price increased during the second quarter as a result of sales mix changes, Tyson said. Higher operating costs — which included higher marketing, advertising and promotion spend; $23 million of incremental net costs and lower sales volume attributable to the two plant fires; and compensation and benefit integration expense of $30 million and $7 million for the six months and second quarter of fiscal 2017, respectively — negatively impacted operating income, the company said. Feed costs dropped $10 million and increased $10 million for the six months and second quarter of fiscal 2017, respectively.
Prepared Foods sales volume was up slightly for the first six months of fiscal 2017 due to improved demand for Tyson retail products, partially offset by declines in foodservice. In the second quarter, sales volume decreased primarily on declines in foodservice. Average sales price decreased for the six months primarily due to a decline in input costs of approximately $80 million for the six months of fiscal 2017, partially offset by product mix changes. Average sales price decreased in the second quarter of fiscal 2017 mostly due to declines in foodservice, partially offset by increased input costs of approximately $20 million.
Operating income decreased due to an impairment of $52 million related to the company’s San Diego, California, operation, in addition to higher operating costs at some Tyson facilities, increased marketing, advertising and promotion spend and $25 million and $3 million of compensation and benefit integration expense for the six months and second quarter of fiscal 2017, respectively, the company noted.
Additionally, Prepared Foods operating income was positively impacted by $139 million in synergies, of which $28 million was incremental synergies in the second quarter of fiscal 2016. “The positive impact of these synergies to operating income was partially offset with investments in innovation, new product launches and supporting the growth of our brands,” the company said in a securities filing.
“We are experiencing continued strong volume and share growth in our retail Core 9 product lines, which are some of our most profitable businesses,” Hayes said. “The Core 9 growth illustrates that we get results when we focus our efforts on doing what we do best - innovating, understanding what motivates consumers, building brands and helping our customers grow their businesses.
“We are concentrating on growing our protein-packed brands as demonstrated by our announcements two weeks ago of our intended merger with AdvancePierre Foods and the expected sale of some non-protein businesses,” he added. “We plan to grow Tyson Foods and fuel that growth with next generation manufacturing capabilities focused on fresh and convenient foods that consumers demand across both retail and foodservice channels.”