Tyson Foods first quarter net income up almost 47% (Updated)

Fiscal first quarter net income for Springdale-based Tyson Foods was $254 million, well ahead of the $173 million in the first quarter of 2013 and outpacing the consensus Wall Street estimate by $28 million.


Total revenue in the quarter was a record $8.761 billion, better than the $8.366 billion in the first quarter of 2013, the company announced in an earnings statement issued early Friday (Jan. 31).
 The per share earnings of 72 cents was much better than the consensus Wall Street estimate of 64 cents per share.


"I'm very pleased with our strong first quarter results, and I'm confident in my expectations for the full year," Donnie Smith, president and CEO of Tyson Foods, said in the earnings statement. "We're growing sales and earnings and executing our strategy – including making our third prepared foods acquisition in less than a year – while reinvesting in our existing businesses and buying back shares.”


Despite sales being higher in all four primary segments of the company, and sales volume up 4.1% in the beef segment and up 3.6% in the chicken segment, overall the company slightly missed top line revenue projections.


BIG CHICKEN

Chicken continues to be the protein of choice among more consumers helping Tyson Foods grow its sales and overall profits. Operating income for the chicken segment rose to $225 million, more than double the $111 million in the same quarter of fiscal year 2013.


The company’s chicken operating margin rose to 7.5%, returning to normalized ranges as lower grain costs helped Tyson save $170 million. Easing grain costs helped to offset some price volatility relating to excess supplies losses of some $28 million from Tyson’s international poultry operations.


China was the largest source of the negative international returns. There has been a change in the market dynamics in China over the past year, demand has not recovered there relating economic slowing and continued concerns of avian influenza.


“We have decided to slow our pace of expansion inside China for now to allow for demand to catch up with supplies,” Smith said. “We’ve taken our foot off of the gas in China, but we are still on the road.”

He said by the end of this year, the two plants in China will be running one shift with company controlled birds, but they will not be buying open market bird in the interim.
 Tyson said it is also handling shorter term challenges related to the "polar vortex" weather event and subsequent propane shortages.
 Smith said the company has made propane purchases from down in the Houston area and has transported that to growers that faced short supplies.

“I am not aware of any Tyson grower that is experiencing propane shortages for their houses. We will continue to work with our growers on pay issues related to these higher costs,” Smith said, during the call.


Tyson expects domestic chicken production to increase around 3% this fiscal year. The company said it expects to save $600 million on grain costs for feed ingredients, compared to last year’s spending. There will be some lag time in these savings being realized.


“We think chicken will be the winner going forward,” Smith said during the earnings call on Friday. “Chicken will see a halo effect because of the higher prices of beef.”


BETTER BEEF

Tyson’s beef segment continues to outperform the packer industry as a whole, reporting better-than-expected operating income of $58 million in the recent quarter, an improvement of $46 million reported a year ago.


Beef sales volumes rose thanks to better demand, despite higher sales prices. Tyson expects to see a reduction in fed cattle supplies between 2% to 3% from last year, but said it generally has adequate supplies in the regions where it operates. 


For the full year, Tyson expects to its operating margins challenged because of higher overall cattle costs. In the recent quarter Tyson beef operated with a 1.9% margin, well below the historical levels — 2.5% to 4.5%.


“Consumers will likely see higher beef prices and fewer grocer promotions this year,” said Jim Lochner, chief operating officer.


LEANER PORK
Tyson’s pork segment was a little leaner in the recent quarter generating $121 million in operating income, down from $125 million in the year-ago period.

Sales volumes in pork decreased as a result of balancing supply with customer demand and reduced exports. Pork sales totaled $1.424 billion, up 6.7% in price, but down 2.1% in total volume. Lochner said the metrics and margins in the pork business have recently improved. He expects industry hog supplies to decrease around 3% in fiscal 2014 compared to fiscal 2013, offset by increased average live weights.

For fiscal 2014, Lochner expects the pork segment will be in its normalized range of 6% to 8%.

Lochner said this will be his last earnings call as he will relocating back to Dakota Dunes, S.D., in anticipation of his retirement in September.

PREPARED FOODS
Tyson views its prepared foods segment as a growth vehicle and continues to invest and tweak these diverse operations to better serve changing consumer demands.

The prepared foods segment posted sales of $907 million, up 3.5% in volume and 4.2% in price, from a year ago.

Operating income fell to $16 million, as a result of $40 million in higher costs of raw materials and investments in the company’s lunch meat business and other growth platforms. Smith said the investments made in this segment, with three recent acquisitions will start to pay dividends toward the back half of this year. He said this category is one that will work to be nimble enough to give consumers the products they want.

He said the company will continue to look for other acquisitions that fit the company’s long term growth goals.

ROSY OUTLOOK
Company officials said they expect fiscal year 2014 revenue to reach $36 billion by “accelerating growth in domestic value-added chicken sales, prepared food sales and international chicken production.” Revenue in 2013 was $34.374 billion.

The rosy outlook provided by Tyson execs was welcome news to Wall Street investors looking for a safe haven play on Friday. Shares of Tyson Foods (NYSE:TSN) rallied more than 5% to $36.23 in heavy early trading, amid a broader market sell off with a 1.31% dip in the Dow Jones Industries and a 0.86% decline in the Nasdaq.

This uptick in Tyson shares set a new 52-week high, intraday. During the past 52 weeks the share price had ranged from a $35.74 high to a $21.79 low.