|Thomas Hays, president and CEO of Tyson Foods|
“But even without it, EPS still would have been at an all-time high,” Thomas P. Hayes, president and CEO, said during a conference call with securities analysts on Feb. 8. “In addition, we grew volume 5 percent in the quarter, and notably, growing value-added volume by 9 percent, driven by organic sales and the recent acquisitions.”
Tyson’s Beef business unit sales rose 10 percent from the year prior.
“In Q1, the Beef segment generated operating income of $257 million with a 6.6 percent operating margin,” Hayes said. “While solid, these numbers are down compared to Q1 of last year, which was the segment’s best quarter ever. Volume was up 4.5 percent, and revenue was up over 10 percent, driven by strong domestic and international demand.”
Meanwhile, the company’s Chicken unit saw its sales rise despite challenges in the segment related to labor, freight and small bird pricing.
“Strong demand in our base business and some incremental volume from AdvancePierre helped drive volume up 7.3 percent, and revenue increased nearly 11 percent,” Hayes said. “Notably, the segment also benefited from about $14 million in financial fitness savings.”
The company is investing heavily to increase processing capacity. Further processing capacity has been added to a processing plant in Arkansas, and a new plant in Humboldt, Tennessee, is expected to start production in late 2019 or early 2020.
“In the Prepared Foods segment, we have aligned our strategy, people and actions to build on our advantage and unlock the top- and bottom-line potential of this business,” Hayes said. “As we continue integrating AdvancePierre and achieving financial fitness cost savings, we expect the Prepared Foods segment to have a strong year. Due to the seasonality of our sales, there will be the usual quarter-to-quarter variability, but for the full year, we expect an operating margin of around 11 percent.”
Pork sales climbed slightly during the first quarter and delivered $152 million in operating income with an 11.8 percent margin, Hayes said.
“While those are very strong results, income and margins declined compared to the record results of Q1 last year,” he noted. “Volume was down 2.6 percent as we ran to manage our margin. Revenue was up 2.5 percent on increased hog costs.
Headwinds facing the company during the rest of the year will be freight and labor costs, said Hayes.
“Across all segments, freight costs have escalated as trucking capacity has tightened nationwide,” he said. “We expect these costs to continue to rise as carriers compete for drivers and new federal regulations come into play. We estimate this will add more than $200 million to our costs this year. At the same time, marketplace dynamics are driving wages higher, pushing up our labor costs. These additional costs are included in our outlook. However, we're assuming we’ll recover the majority through pricing.”