“I’m very pleased with our strong first quarter results, and I’m confident in my expectations for the full year,” said Donnie Smith, president and CEO of Tyson. “We’re growing sales and earnings and executing our strategy - including making our third prepared foods acquisition in less than a year — while reinvesting in our existing businesses and buying back shares.
“We’re in a position any company wants to be in, which is being able to make deliberate, long-term decisions to create shareholder value” Smith added. “But we’re maintaining our sense of urgency, our flexibility and our opportunistic mindset. We're generating momentum that will take us into 2015, 2016 and beyond.”
Tyson was able to report strong results despite losses in its international segment and ongoing concerns about the impact of porcine epidemic diarrhea virus (PEDv) on the US swine herd. PEDv is a highly contagious virus that kills 80 percent of the piglets that contract it. In its earnings report, Tyson said it expects to cut its domestic pork production 2 percent to 4 percent because of the PEDv virus.
“It's certainly devastating for the producers whom it affects,” Smith said. “From what we can tell through the data we get, probably around 30 percent or so of the sow herd in the United States has been affected, and normally what we see is about a 10 percent reduction in pig count from infected sows. So, that takes about 3 percent, in round numbers, of the pig supply off the market.”
Smith added that the outbreak has created a fluid situation, and the company is monitoring events closely.
“We have a game plan around what we feel will happen, and we try our best to stay out in front of it as far as we can,” he said. “I think we’re doing everything we can do to properly navigate the hog supply.”
Disease (an outbreak of avian flu) and widespread food-safety concerns among Chinese consumers have prompted Tyson to slow its expansion in China. The company has been building company owned chicken houses in China. But company officials decided to change the pace of its build-out plans when market dynamics in China became unfavorable. Smith said demand for chicken among Chinese consumers is down, and the market is over supplied with chicken.
“At the end of this fiscal year, our plan all along was to have one shift at each of our big processing plants that was full of company controlled birds, and then we would continue to add production with market birds,” Smith said. “We will continue build-out plan with houses currently under construction until we get to one shift each but we’re not going to be double-shifting our China plants until we see the demand situation change.”
However, the company will continue to acquire land-use rights the company needs continue its build-out strategy, Smith noted.
On a segment basis, Chicken and Beef recorded increases, while the pork and Prepared Foods segments had declines in operating income.
Tyson reported record operating income of $225 million for its Chicken segment. Increased international production and a mix of rendered product sales drove growth in sales volumes for the segment. Additionally, operational improvements and lower feed ingredient costs of $170 million also supported sales volume growth. Increases were partially offset by $28 million in losses in international operations and declining average sales prices.
Operating income for the Beef segment increased to $58 million for the quarter compared to $46 million in the comparable year-ago period. Sales volumes advanced on improved demand for the company’s beef. Average sales prices climbed on lower domestic availability of fed cattle supplies, which fueled rising livestock costs. Export markets also improved along with the company’s operational execution.
Sales volumes decreased in the Pork segment on weak customer demand for pork, the company noted. Operating income for the pork segment declined to $121 million for the quarter due to higher input costs. Tyson said in its earnings report, “We were able to maintain strong operating margins by maximizing our revenues relative to live hog markets, partially due to operational and mix performance.”
Operating income for the Prepared Foods segment declined despite an increase in sales volume spurred by improved demand for Tyson prepared foods products and incremental volumes from two acquisitions later in fiscal 2013, the company said. The company also cited higher raw material and other input costs of approximately $40 million and additional costs incurred through investments in Tyson’s lunchmeat business and growth platforms.