Chickens, cows and pigs don’t take themselves to market. And with fewer trucks, trailers and drivers, the trip to market for the aforementioned agri products has resulted in rising costs for Tyson Foods.
Tyson Foods President and CEO Tom Hayes, speaking to the investment community at the Consumer Analyst Group of New York (CAGNY) conference in Boca Raton, Fla., on Tuesday (Feb. 20), said the driver shortage is problematic and Tyson Foods has been working with its carriers to negotiate rates in a very tough environment.
“The second quarter is usually a little choppy for us and with transportation costs rising we’ll see some negative impact on earnings growth,” he said.
The transportation issue is out of the realm of the company’s control, and Hayes and his management team took nearly an hour of their allotted time to talk in detail about the company’s growth plan and its unmatched overall results, despite higher transport costs. In fact, he said, Tyson Foods stands out among other food companies having a compound annual growth rate of earnings and income of 25% over the past three years, a claim no other food manufacturer can make.
“Our heritage might be chicken but today we are a modern food company — the largest in the U.S and we are resetting the table for what protein looks like,” said Hayes.
He said Tyson Foods is a leader in the protein market, but the company is disrupting itself to be able to grow better for investors and consumers as the company raises the world’s expectation for how much good food can do. He said manufacturing food in a sustainable manner is as important to consumers as price.
Hayes introduced his restructured management team, which he said has helped the company to become more streamlined with three main businesses with three leaders who run those businesses from top to bottom.
“We are getting rid of resources we do not need,” Hayes said.
Chief Financial Officer Stewart Glendinning, who just took the reins from retiring Dennis Leatherby, told the investor group the company continues to grow its higher margin, value-added sales by more than 3% annually which it committed to doing over the past several years.
He said Tyson Foods will benefit in 2018 and 2019 from roughly $700 million in added cash flow from the new lower federal tax rate, and $400 million of that is earmarked for investments into the higher-margin businesses, with $300 million committed to one-time bonuses and training opportunities.
Glendinning said Tyson Foods continues to have consistent earnings growth which is the most powerful lever it has to generate cash flow to fuel more investment. Tyson Foods expects $41 billion in sales revenue, and earnings between $6.55 and $6.70 per share for the full year, of which about 80 cents comes from tax reform, he said.
The company said it will continue to use mergers and acquisitions to diversify and expand, and Hayes said the company is committed to protein focus when it comes to M&A. He shrugged off a question regarding its interest in Pinnacle Foods, who owns such brands as Aunt Jemima and Birds Eye, saying there were many great brands available but Tyson Focus will continue to focus on sustainable protein.
PREPARED FOOD GROWTH
Sally Grimes, president of Tyson Foods’ prepared foods division, reiterated the company’s focus on protein by saying 60% of consumers are trying to get more protein into their daily diets. Grimes said Tyson Foods’ prepared foods business had some initial hiccups after the Hillshire Brands acquisition but those issues have been identified and fixed.
Grimes said the prepared foods business is growing faster than other food categories and represents an $8 billion valued-added business, up from $3.3 billion just three years ago. She also said the company partnered with Mexican spice brand Tajin to launch a new line of exclusive ready-to-eat products such as deli items. She said the company’s prepared deli items such as Philly cheese steaks and egg salads generated $34 billion in sales last year, which represented twice the growth of food and beverage in that space.
The company also plans to expand its Tyson Tastemakers meal kits sold at retail into 14 new markets beginning in April, though the company did not disclose where those market are located. The items are now being sold in the Dallas market.
Justin Whitmore, chief sustainability officer at Tyson Foods, said the company is fostering innovation while also delivering on its financial fitness goals. He said Tyson is on track to deliver $200 million in cost savings this year while also growing sales revenue and earnings.
He said recent investments made in Memphis Meats and Beyond Protein should give Tyson Foods a front seat view of innovative protein models and the company will continue to look for new opportunities as well an innovate from within.
Last week Tyson Foods announced an agreement with two business incubators to help connect it to the entrepreneurial ventures in Silicon Valley with Plug and Play and in Chicago with 1871.
“Our collaboration with Plug and Play and 1871 are examples of how we are adopting new growth models to innovate faster than consumers and markets are changing,” Grimes said. “By partnering with these organizations and combining Tyson Foods’ resources, capabilities and team members with the energy and innovation coming out of Silicon Valley and Chicago, we can have a positive impact on the industry and the food system.”
Grimes also said the company created an internal innovation team in its Chicago headquarters that has six months to create a concept and bring it a to market-ready product. It’s an example, she said, the company is leaving no stone unturned when it comes to innovation.
Shares of Tyson Foods (NYSE: TSN) closed Tuesday at $76.13, up 12 cents with lower than average volume. For the past 52 weeks, Tyson shares have traded between $84.65 and $57.20.