SPRINGDALE, Ark. – Tyson’ Foods’ fiscal year is off to a great start with its first full quarter as a combined company – including the Hillshire Brands acquisition – producing record sales and adjusted operating income, an exuberant Donnie Smith, president and CEO of Tyson Foods, told analysts during a teleconference focusing on the quarter’s record Q1FY15 performance. “We are proceeding with the integration of Hillshire Brands…We’ve set ourselves up for another record year, and we are building momentum that will take us into fiscal 2016.”
First-quarter FY15 highlights include record sales of $10.8 billion, up 23 percent over first-quarter FY14; record adjusted operating income up 37 percent to $564 million, and adjusted EPS up 7 percent to $0.77 vs. $0.72 in first quarter FY14. The company also reduced total debt by $650 million during the first quarter. Chicken segment operating margins were 12.6 percent in for the quarter while the company captured $60 million in synergies.
Smith iterated the company’s segment results to the analysts and press attendees:
• Chicken — Stronger demand for chicken products pushed sales volumes higher.
• Beef — Sales volume declined in the segment due to a reduction in live-cattle processed. Average sales prices climbed on lower domestic availability of beef products.
• Pork — Strong demand for Tyson pork products drove higher average sales prices and sales volume. The company’s average sales price increased on lower total hog supplies which resulted in higher input costs.
• Prepared Foods — Sales volume increased primarily due to incremental volumes from the Hillshire Brands acquisition as well as improved demand for Tyson’s prepared foods products. Average sales prices increased due to higher prices associated with better product mix, which was positively impacted by the acquisition of Hillshire Brands, as well as increased prices associated with higher input costs. Prepared Foods operating income was positively impacted by $55 million related to profit improvement initiatives and Hillshire Brands synergies.
• International — Sales volume declined due on the sale of Tyson's Brazil operation during the first quarter of fiscal 2015. Average sales prices retreated due to supply imbalances associated with weak demand in China. Operating loss improved on the sale of the Brazil operation and better market conditions in Mexico.
When asked about Tyson’s strategy regarding future pork sales to China, Smith told analysts the company will remain “on hold” and wait for pork demand to improve in China. But his primary concern regarding Tyson Foods’ exports rests with the continuing stall in product movement at West Coast ports in the US.
US exporters of beef, pork and poultry are under major shipping pressures due to massive, growing backlogs of containers containing such products in key West Coast ports — most importantly, the Port of Long Beach, said Barry Carpenter, North American Meat Institute (NAMI) president and CEO, during a Jan. 20 media teleconference. This is the result of an eight-month long, ongoing labor dispute between the Pacific Maritime Association (PMA) and the International Longshoreman and Warehouse Union regarding reaching an agreement on a new contract for longshore workers. (Read “Stalled West Coast ports sinking industry’s business” in the Jan. 21 edition of MEAT+POULTRY.com for more details.)
“The West Coast slowdown is starting to back up [meat product exports] a little bit,” Smith agreed. “But there was encouraging news in the start of this week on a possible resolution.”
Despite expecting an “adjustment upheaval” in coming weeks should an agreement soon be reached, Smith doesn’t expect this issue to impact Tyson margins.
Looking ahead in FY15, Smith told analysts current US Department of Agriculture data shows an increase in chicken production of 3 percent. More recent data indicates a greater increase in supply; however, Tyson believes demand will more than keep pace with the supply change.
Tyson also anticipates a reduction of industry fed-cattle supplies of 4 percent to 5 percent in fiscal 2015 compared with totals in fiscal 2014. There may be periods of imbalance of fed-cattle supply and demand. “For fiscal 2015, we believe our Beef segment's profitability will be slightly below fiscal 2014,” Smith said.
Smith went on to say industry hog supplies are expected to increase around 2 percent to 3 percent. The company also expects its pork segment operating margin to be in its normalized range of 6 percent to 8 percent.
In addressing its prepared foods segment, Smith said Tyson Foods is making good progress with the integration of Hillshire Brands. In fiscal 2015, the company expects to realize more than $225 million of synergies from the acquisition as well as a profit improvement plan for its legacy Prepared Foods business, with the majority to be realized in Tyson’s Prepared Foods segment.
Smith told analysts Tyson expects to complete the sale of its Mexico chicken production operation in the second-quarter of fiscal 2015, which may result in its international revenues to decrease by approximately $600-650 million compared to a year ago.
Fiscal 2015 capital expenditures are expected to total approximately $900 million.
“We have a lot of momentum going forward in fiscal 2015, especially with Hillshire Brands on the company team,” Smith said. “We expect the FY3 and FY4 quarters to be really strong.”