Tyson Foods Profits Double In Quarter, Slide For Year

Meat giant Tyson Foods saw its profits double in the fourth quarter despite a small slip in overall sales.

The Springdale-based chicken, pork and beef processor reported quarterly net income of $185 million, up from $97 million one year ago. Revenues were down for the quarter to $8.37 billion compared to $8.40 billion in the previous year.

For its full fiscal year, which ended on Sept. 29, 2012, Tyson Foods profits cleared $583 million on revenues of $33.28 billion. One year ago, Tyson Foods reported net income of $750 million on sales of $32.27 billion.

Donnie Smith, Tyson's president and CEO said:

Our earnings for the fourth quarter and fiscal year indicate that Tyson Foods is rising above the noise of commodity markets to produce solid, more consistent results. It has taken us several years and a lot of work to get to this point, and although there is much more to be done, I believe we have reached a new level of sustainable performance.

While fiscal 2012 wasn't a record EPS year, I think it was our best year – certainly our best effort to date. Our team members didn't make excuses; they made a difference, and they made money. This allowed us to buy back stock throughout the year, including $50 million in the fourth quarter, and to reinvest in our business at a record level while strengthening our balance sheet. Our strong balance sheet, liquidity position and a desire to return cash to shareholders led the Board of Directors to declare a special dividend and to increase the regular dividend by 25%. The Board's action is reflective of our increased profitability and the investments we've made in the company.

Our accomplishments, reinvestment in our business and record sales in fiscal 2012 were achieved in difficult market conditions. Fiscal 2013 is likely to be equally if not more difficult, but there will always be challenging circumstances in this business. It's our job to accelerate growth by focusing on innovation, serving our customers and developing our team members, whatever the market conditions may be. While we're proud of what we've accomplished, we now have higher expectations, and maintaining the status quo is not an option. We will adapt, we will evolve and we will grow.

SEGMENT INSIGHT
Sales were up across all major segments in the fourth quarter: chicken (3.5%); beef (12.5%); pork (12.2%); and prepared foods (2.6%). CEO Smith offered commentary on all 4 segments.

Chicken: Current USDA data shows U.S. chicken production will be down slightly in fiscal 2013. Due to the reduced crop supply, we expect higher grain costs in fiscal 2013 compared to fiscal 2012 of approximately $600 million. However, the capital investment and significant operational, mix and pricing improvements we have made in our Chicken segment have better positioned us to adapt to rising grain prices. For fiscal 2013, we anticipate our Chicken segment will remain profitable, but could be below our normalized range of 5.0%-7.0%.

Beef: We expect to see a reduction of industry fed cattle supplies of 2-3% in fiscal 2013 as compared to fiscal 2012. Although we generally expect adequate supplies in regions we operate our plants, there may be periods of imbalance of fed cattle supply and demand. We anticipate beef exports will remain strong. For fiscal 2013, we believe our Beef segment will remain profitable, but could be below our normalized range of 2.5%-4.5%.

Pork: We expect industry hog supplies in fiscal 2013 to be flat compared to fiscal 2012 and pork exports to remain strong. For fiscal 2013, we believe our Pork segment will be in or above our normalized range of 6.0%-8.0%.

Prepared Foods: We expect operational improvements and increased pricing to offset increased raw material costs. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through increased pricing. For fiscal 2013, we believe our Prepared Foods segment will remain in its normalized range of 4.0%-6.0%.

FUTURE ACTIONS
Tyson Foods leaders said they expect the next fiscal year sales to climb to $35 billion. A key driver will be “price increases related to decreases in domestic availability of protein and rising raw material costs,” the company said.

The company is also expecting to reduce its capital expenditures budget to around $550 million.

“The reduction in planned capital expenditures from fiscal 2012 is  primarily a result of an anticipated rise in working capital needs in fiscal 2013,” the company disclosed. “Once we gain more visibility into our working capital needs, or should forecasted conditions change, we may raise our capital expenditures target.”

During the last quarter, Tyson Foods repurchased $50 million shares of its company stock.

“We expect to continue repurchasing shares under our share repurchase plan. In fiscal 2012, we repurchased 12.5 million shares for approximately $230 million,” the company noted in a statement.

Tyson Foods shares (NYSE: TSN) closed trading on Friday at $16.88. The company's stock has traded in the range of $14.07 to $21.06 during the past year.