NEW YORK — Hillshire Brands, Tyson Foods Inc. and Smithfield Foods Inc. will be fierce competitors in value-added, meat-based products, but market pressures will challenge growth in the segment, according to Fitch Ratings.
Fitch said Tyson and Hillshire are investing in branded packaged meats and value-added, meat-based products with the goal of growing those segments. Smithfield also is focused on expanding into packaged meats, but Fitch expects “volatile earnings in commodity operations to overshadow the firm's progress in higher-margin packaged meats”.
Fitch said Tyson has pegged sales growth of 6 percent to 8 percent in value-added poultry and prepared foods over the next three years. The company generated approximately $15 billion from value-added poultry and prepared foods products during fiscal 2012. The ratings agency added that Tyson also sells a “meaningful amount of value-added beef and pork”.
“Hillshire generated $4.1 billion of total revenue in fiscal 2012, with retail sales of packaged meats products, under national brands such as Hillshire Farm, Jimmy Dean, and Ball Park, representing the bulk of those sales,” according to Fitch. “The company's corporate top-line growth target is 4 percent-5 percent annually [including 2 percent-3 percent volume growth] by fiscal 2015.”
Smithfield’s packaged meats business has climbed 17 percent since 2010 to $6 billion of annual sales for fiscal 2012, or 46 percent of the company's $13.1 billion total, according to Fitch.
“Normalized operating margins for packaged meats range from 5 percent-8 percent, based on the 2.7 billion pounds of product sold in 2012, or $0.12-$0.17 per pound and can be twice as high as those in fresh pork," Fitch added. “We view margin pressure as a risk for the packaged meats firms in calendar 2013 given still-elevated corn prices and upward pressure on the cost of livestock.”
|Enhance your industry IQ
Sign up for our free newsletters to stay informed on each day’s news and trends