Tyson Foods Profits Rise Nearly $100 Million Higher

Tyson Foods is making good on its claim that the $8.5 billion acquisition of Hillshire Brands in August 2014 would boost top and bottom lines.

The Springdale-based company reported Monday (May 4) that fiscal second quarter earnings were up 45.5% and earnings in the first half of the fiscal year are up 32.5% compared to the same periods in 2014.

Second quarter net income of $310 million, up from $213 million a year ago, was better than what market watchers expected. The per share earnings of 75 cents was better than the consensus estimate of 72 cents per share.

Total revenue in the second quarter was $9.979 billion, better than that $9.032 billion in the same quarter of 2014, but slightly below the consensus estimate of $10.11 billion.

“This was another great quarter and better than we initially expected,” Donnie Smith, president and CEO of Tyson Foods, said in the earnings report. “Our fiscal second quarter is seasonally challenging, but we came in above our projections due to strong performances by our Prepared Foods and Chicken segments.”

Net income for the first six months of the fiscal year reached $619 million, well ahead of the $467 million during the same period in the previous fiscal year. Revenue for the six months was $20.796 billion, up compared to the $17.793 billion in the fiscal 2014 six months.

The chicken and prepared foods segment – where most of the Hillshire Brands business is now reported – have been the stars for Tyson Foods. For the first half of the fiscal year, operating income for poultry was $683 million compared to $487 million in the same period of the 2014 fiscal year. Prepared foods posted first half operating income of $268 million, a big increase compared to the $37 million in the same period in 2014.

Revenue in the prepared food segment also provided a clear example of the Hillshire impact. The prepared foods segment hit $4.004 billion in sales during the first six months of the fiscal year, more than 126% than the $1.768 billion during the comparable fiscal 2014 period.

Smith said the company is ahead of its goal to gain value out of the Hillshire deal.

“The acquisition of Hillshire Brands has played an important role in Tyson Foods’ transformation, and we are very pleased with the progress of the integration and synergy capture, achieving $77 million in synergies in the second quarter,” Smith noted in the earnings report. “Because we are ahead of pace in reaching our stated target of more than $225 million in fiscal 2015, we are raising our synergy target to more than $250 million for this year, $400 million in 2016 and $600 million in annual synergies by the end of fiscal 2017.”

As expected, Tyson Foods’ beef segment posted a $20 million operating loss during the second quarter, and has a $26 million operating loss for the first six months of the fiscal year. Operating income in the first half of fiscal 2014 was $93 million.

Operating income decreased as we were not fully able to pass along increased inputs from higher fed cattle costs, in part due to the seasonal reduction in beef demand as well as the relative value of competing proteins, in addition to increased operating costs.

REPORT HIGHLIGHTS
• Operating income in the chicken segment increased due to improved sales and lower feed costs which decreased $75 million and $185 million during the second quarter and first six months of fiscal 2015, respectively.

• Operating income in the prepared food segment improved due to an increase in sales volume and average sales price from Hillshire Brands products. Also, the company reported lower raw material costs of approximately $40 million and $30 million for the second quarter and first six months of fiscal 2015, respectively.

• Sales volume in the pork segment decreased because of the sale Heinold Hog Markets business in the first quarter of fiscal 2015. Excluding the impact of that sales, sales volume grew 3.2% and 2.4% for the second quarter and first six months of fiscal 2015, respectively, driven by better pork demand.

• Sales volume in the international segment declined because of the sale of the company’s Brazil operation during the first quarter of fiscal 2015, and weak demand in China. Average sales price decreased due to supply imbalances associated with weak demand in China and currency devaluation in Mexico.

• The company expects fiscal 2015 sales to reach $41 billion based on gains in the chicken and prepared food segments.

Shares of Tyson Foods (NYSE: TSN) closed Friday at $39.50. During the past 52 weeks the share price has ranged from a $44 high to a $34.90 low.