Tyson Foods plans for continued financial fitness
Sept. 8, 2017
by Joel Crews
Executives share the company's vision for continued success and future innovations.
BOSTON – Outlining the strategy to topping one record year after another, executives with Springdale, Arkansas-based Tyson Foods Inc. recounted the factors that have led to its success through 2017 and reasons for optimism looking to 2018 and beyond. During a Sept. 6 presentation to analysts at the Barclays Global Consumer Staples Conference, Tom Hayes, Tyson’s president and CEO, spelled out the company’s three-pronged approach moving forward, including: growing the business; delivering results; and sustaining the Tyson enterprise.
|Tom Hayes, president and CEO of Tyson Foods
A cornerstone to the three factors is the company’s financial stability, Hayes said, adding that Tyson must “continually have a focus on being really financially fit,” which includes plans to reduce its cost structure. Tyson is benefiting from the $4.2 billion acquisition of AdvancePierre Foods Holdings Inc. earlier this year by realizing synergies of more than $200 million and, Hayes said, “from an operations perspective, we’re learning a lot.”
The hiring of Scott Spradley as chief technology officer was a key part to implementing Tyson’s soon-to-be-launched new cost structure. Spradley, who previously worked at Hewlett-Packard, brought his expertise to the Tyson team this past June. “We are going to leverage his technology experience to bring to bear a different cost structure through technology; not just information technology, but also automation,” Hayes said. Plans include implementing automation and robotics throughout the Tyson system incrementally, with the recently announced plant near Tonganoxie, Kansas, slated as a showcase for this technology. “We’re really, really excited about technology,” Hayes said.
As for the financial fitness of Tyson for the remainder of fiscal 2017, the company expects sales to top $38 billion with its adjusted earnings per share (EPS) range between $4.95 and $5.05, which represents a 20 percent compound annual growth rate (CAGR) EPS for five years in a row. For 2017, Tyson forecasts margins of 12 percent in its Pork business; 10 percent from its Chicken segment; and 5 percent in the Beef business. Capital expenditures for 2017 will be approximately $1 billion. The performance this year, Hayes said, “gives us a lot of scale and a lot of chance to push even harder for more growth.”
That growth in fiscal 2018 is expected to produce another record year, with sales forecast to top $41 billion, a 6 percent year-over-year increase with $1 billion earmarked for capital expenditures. According to Tyson’s outlook, operating margins for its Chicken, Pork and Beef segments are expected to be approximately 10 percent, 7 percent and 5 percent respectively.
On the horizon
Sally Grimes, Tyson’s president of Prepared Foods, covered the topic of growth plans in terms of recent and upcoming new product launches. She pointed out that while the overall food and beverage industry has experienced flat growth or losses, Tyson is bucking the trend as demand for its core products is on the rise. “Where you compete is just as important as how you compete,” she said and Tyson is well positioned in a growing space.
|Sally Grimes, Tyson's president of Prepared Foods
“Over half of us are actively trying to add more protein into our diets and protein has now risen to the top of all desired health attributes,” she said. “So this is a pretty powerful tailwind.”
With volume increases for high-protein products outperforming the general food category, Grimes said Tyson is well positioned for continued success. Part of that success is due to its focus on products targeting the retail perimeter, which she said is a part of the retail space where consumer trends and market trends collide.
“Channels are blurring. Grocery stores are becoming grocerants and convenience stores are becoming QSRs and fresh food destinations,” Grimes said. Meanwhile, products that are less processed and considered fresh are resulting in growth in retailers’ chilled, raw and prepared food categories. “The fresh perimeter is really retail’s growth frontier,” Grimes said, “far outpacing the center of the store.”
This bodes well for Tyson as about 62 percent of its sales volume is derived from the retail perimeter compared to 33 percent of its total grocery segment. Some of the company’s new Prepared Foods products highlighted by Grimes include its Jimmy Dean Simple Scrambles, a microwaveable cup that includes two eggs, sausage and cheese, which was launched in retailers’ refrigerated cases this past May.
“It’s a disruptive new product and it’s all about fresh convenience,” Grimes said. Hillshire Snacking is another new product that is proving to be another innovation success story as a higher-end, portioned, convenience based snack option offering combinations of meat, cheese, nuts, and crackers in a package designed for portable eating. The line has been extended to include a pairings line of wine-infused dried meat packaged with artisan cheese.
NatureRaised Farms line features poultry products that were vegetarian-fed.
In the fresh category, Grimes highlighted Tyson’s commitment to transitioning its entire consumer branded chicken line to being raised without antibiotics ever. It is also expanding its portfolio of NatureRaised Farms line of vegetarian-fed poultry. “That allows us to differentiate fresh chicken, create pricing tiers and offer consumer choice,” she said.
Upcoming product launches include products in the frozen and fresh categories. Capitalizing on the success of the Ball Park frozen burgers several years ago, Tyson plans to introduce a line of Ball Park fresh burgers in the coming months. Another line coming down the pike is Tyson’s premium meats and vegetables, a prepped protein, vegetable and sauce combination designed to be cooked in a skillet or oven. Frozen meal kits will also become available at retail within six months to appeal to consumers wanting to be more involved with meal preparation, and will include raw chicken, vegetables, a starch and sauce.
Jimmy Dean's frozen frittata breakfast sandwich line.
Also coming soon is Jimmy Dean’s frozen frittata breakfast sandwich line, which utilizes eggs in place of bread. A new line of frozen sausage with no nitrites, nitrates or preservatives is also part of future product innovations from Tyson.
“We will do the work and make the choices to continuously create the mix and the performance advantage I just discussed,” Grimes said. “And that advantaged position will allow us to grow demand with a new and aggressive focus on expanding our margins.”