Third quarter results of Tyson Foods have put the meat giant on the trajectory for another record year of earnings. The quarter wasn’t without its challenges, but the results did exceed Wall Street expectations which helped to push Tyson shares up nearly 5% to $66.46, up $3.16 in the heavy morning trading.
Tyson Foods President and CEO Tom Hayes told Talk Business & Politics during Monday’s media call that recent leadership restructuring is not something the company takes lightly. He said putting leadership over the segments which are externally reported allows for a flattening of the structure and gives the company the opportunity to have an aggressive look at costs and controlling them while also satisfying their customers.
He said Tyson can do a better job managing costs as the company expands capacity in its chicken segment which is behind the curve. Hayes said the company will expand capacity in fresh chicken for retail and fully cooked chicken. The expansion of the Green Forest, Ark., plant is expected to be complete late this fall and Hayes said added capacity in the plant is already dedicated to fill contracts.
“We will be pulling forward cap ex (capital expenditure) projects to help us get more supply in fully cooked and tray pack (chicken) to try and meet the increased demand are retail and foodservice,” Hayes said.
He said Tyson’s chicken supply is now below demand which did have a negative impact on the chicken margins in the recent quarter. He said the company spent more on the chicken it had to buy to meet demand given the robust spot pricing which benefited commodity chicken providers. Hayes said Tyson still is a believer in buy-versus-growth strategy and the company will continue to grow whole birds and buy the pieces it needs to fill certain orders. But the company also will expand its own chicken processing capacity.
As Tyson continues to integrate AdvancePierre into its business, Hayes estimates $200 million of synergies from this deal will reach Tyson’s bottom line in the next two years. He said AdvancePierre’s pricing model for private brands is being rolled out across Tyson’s entire business.
He said AdvancePierre has managed to maintain high margins in private brands that are about equal to branded business and that’s a model Tyson is eager to adopt. Hayes said AdvancePierre will add about $1.5 billion in sales next year to Tyson’s revenue.
Tyson also said the sale of Sara Lee, Kettle and Van’s non-protein business will be completed by the end of this year adding roughly $838 million to the year-end results.
Hayes was also asked about labor shortages being at some Tyson Foods plants, which lead to higher operating costs from double-digit wage increases. He said the higher wages were necessary to reduce turnover and the strategy has worked but it’s a tight labor market in some areas of the country given low unemployment rates.
He said Tyson may expand its use of robotics inside plants for functions like weighing and sorting. Tyson has used automatization for years in some chicken plants, but Hayes said robotics are being tested in some pork plants and automation is being implemented in other facilities.
“Automation can help plants achieve better efficiencies as labor costs run higher,” he said. “Scott Spradley our new chief technology officer, will help to amplify the role of technology innovation being used at Tyson Foods.”
NAFTA AND EXPORTS
Exports are a crucial part of Tyson’s continued success, particularly in pork and beef where exports typically garner higher prices compared to domestic sales. Hayes said Tyson was the first U.S. beef packer to export beef to China recently and the company works to try and get chicken also approved for Chinese exports.
“It’s too soon to know what China being open for beef will mean for overall exports,” Hayes said. “Beef exports overall have been strong for beef and that’s profitable for our long-term growth.”
Hayes said he personally spoke in Washington, D.C. on the need to get China open to U.S. beef and chicken.
“We continue to keep the dialogue open,” Hayes said.
When asked about NAFTA (North American Free Trade Agreement) modernization efforts, Hayes said Tyson’s comment was “Do No Harm.” He said North American experts are important to Tyson Foods and the company continues to talk with federal officials to make sure they understand the need to keep borders open.
With more pork processing capacity coming online this year in the U.S., Hayes said strong pork exports would be needed to keep supplies in check and prices stable.