Tyson Foods quarterly income of $484 million up 41%, year-to-date income up 43%

Fiscal third quarter earnings for Tyson Foods blew past market expectations and some of the company’s records with $484 million in net income and $9.403 billion in revenue. The company’s net income for the first nine months of its fiscal year is up 43%.

Earnings per share in the quarter for the Springdale-based global food company was $1.25, well above the 83 cents per share in the same quarter of 2015 and considerably higher than the consensus estimate from analysts of $1.06 per share. Total revenue of $9.403 billion was below the $10.071 billion in the same period of 2015, but beat the consensus estimate of $9.33 billion.

The company recorded $1.377 billion in net income for the first nine months of its fiscal year, up 43% compared to the $962 million in the same period of 2015. Revenue in the first nine months reached $27.725 billion, down from the $30.867 billion in the same period of 2015.

“We again demonstrated our ability to deliver higher, more stable earnings through our differentiated business model that emphasizes growth in prepared foods and value-added chicken,” Tyson Foods CEO Donnie Smith said in the earnings report released early Monday (Aug. 8). “We produced record third quarter earnings per share, operating income and return on sales. All operating segment results were in or above their normalized operating margin ranges, with the Chicken segment delivering a record 13.9% return on sales.”

Based on sales momentum and growth in market share, company officials boosted full year earnings guidance to $4.47-$4.57 per share. Guidance following the second quarter was $4.20-$4.30 per share.

CHICKEN SEGMENT GROWTH
The star of the quarter was the company’s chicken segment. Operating income in the segment was $380 million in the quarter, better than the $313 million in the same period of 2015. Thanks to an operating margin of 13.9%, operating income was up even with sales down in the segment. Third quarter sales in the segment was $2.743 billion, down from the $2.743 billion in the same period of 2015.

“Operating income increased due to improved operational execution and lower feed ingredient costs. Feed costs decreased $50 million and $190 million during the third quarter and nine months of fiscal 2016, respectively,” the company noted in the statement.

Operating income for the first nine months of the year in the chicken segment is $1.085 billion, better than the $996 million in the same period of 2015. Sales in the nine-month period of $8.116 billion are down from the $8.366 billion in the same period of 2015.

OTHER SEGMENT RESULTS
The beef segment, which has struggled in recent years to post income gains, had operating income of $91 million, better than the $7 million loss in the 2015 quarter. Operating income for the first nine months is $208 million, better than the $33 million loss in the same period of 2015. Quarterly beef sales reached $3.783 billion, below the $4.305 billion in the same period of 2015. Beef sales in the nine month stretch reached $11.036 billion, below the $12.826 billion in the same period of 2015.

Pork segment operating income in the third fiscal quarter was $122 million, almost double the $64 million in the 2015 quarter. Operating income in the first nine months was a healthy $420 million, well above the $285 million in the same period of 2015. Pork sales in the quarter totaled $1.271 billion, just above the $1.207 billion in the 2015 quarter. Nine-month sales were $3.674 billion, below the $3.951 billion in the same period of 2015.

The prepared food segment – which represents most of the gains from the $8.5 billion acquisition of Hillshire Brands in August 2014 – posted quarterly operating income of $197 million, down from $207 million in the same period of 2015. However, nine-month operating income was $601 million, above the $465 million in the same period of 2015. Quarterly sales in the segment reached $1.809 billion, slightly below the $1.81 billion in the 2015 quarter. Nine-month sales totaled $5.509 billion, down from the $5.814 billion in the same period of 2015.

“Sales volume decreased for the nine months of fiscal 2016, despite increased sales volume in the third quarter, as a result of lower sales volume in the first six months of fiscal 2016 due to changes in sales mix as well as the carryover effect of the 2015 turkey avian influenza occurrence into the first half of fiscal 2016,” the company noted.

Following are other key points of the earnings report.
• For the chicken segment, feed costs fell $50 million and $190 million during the third quarter and nine months of fiscal 2016, respectively. The company expects lower feed costs in fiscal 2016 compared to fiscal 2015 of approximately $175 million.

• From the continued integration of Hillshire Brands, the company expects synergies of approximately $700 million in fiscal 2017.

• In the prepared food segment, the company expects lower raw material costs of approximately $240 million in fiscal 2016 with raw material costs flat in fiscal 2017 compared to fiscal 2016.

• The company in the third quarter repurchased 6.6 million shares for $425 million.

Company shares (NYSE: TSN) were moving above $76 per share in pre-market activity, well above the 52-week high. During the past 52 weeks and prior to Monday, the share price has ranged from a $74.86 high to a $39.05 low.