Tyson Foods outperformed Wall Street expectations for its fiscal third quarter with net income of $676 million, or $1.84 per share, up from $541 million, or $1.47 per share, in the year-ago period. On an adjusted basis, the company’s net income per share was $1.47, still better than analysts’ consensus of $1.41 per share.
Revenue came in at $10.9 billion, up 8.3% year-over-year, but slightly below what analysts expected at $11.05 billion. Despite the revenue miss, Wall Street cheered the overall results and the prospects for the rest of the year, sending Tyson Foods shares to a new 52-week high of $87.29 in the morning session.
Shares of Springdale-based Tyson Foods (NYSE: TSN) rose more than 8.5%, trading well above $86 per share with heavy volume in the morning session. For the previous 52 weeks, the share price has ranged from $49.77 to $87.29, which was reached Monday morning following the earnings announcement.
Stephens Inc. analyst Ben Bienvenue expected Tyson Foods stock “to outperform today following the solid beat on the quarter and reiteration of guidance in the face of investors bracing for a reduction in guidance.” Tyson Foods beat his adjusted earnings estimate of $1.42 per share, primarily because of better-than-expected gross margins, higher sales and lower taxes.
“Additionally, initial commentary on fiscal 2020 was positive. We continue to think Tyson Foods is well-positioned as we head into 2020 and we have an overweight rating, while our estimates and price target are under review,” Bienvenue noted.
For the full nine months of the fiscal year, Tyson Foods reported net sales of $31.521 billion, up 4.88% from the year-ago period. Net income for the nine months ended June 29 totaled $ 1.653 million, down from $2.487 million in the prior-year period. Total earnings per share for the period are $4.25, down from $4.58 in the same period of 2018.
For fiscal 2019 earnings per share (adjusted basis), the company reiterated the range between $5.75 and $6.10 per share.
“Overall, third-quarter earnings were in line with our expectations,” said Tyson Foods President and CEO Noel White. “Volume growth in our core retail lines continues to outpace other large food companies and the total food and beverage category, driven primarily by our new product innovation. Our Prepared Foods and Beef segments produced strong results in the quarter, while results in the Chicken segment were mixed, and the Pork segment was negatively affected by increased hog costs.”
White told analysts he was not happy with the company’s chicken segment, stating the business is not performing to company benchmarks and not keeping up with competitors. He said the company has implemented initiatives to correct the problems. He would not specify what the problems were when asked by the media.
Tyson Foods predicts higher grain costs of between $150 million and $200 million this fiscal year, noting the company already has secured enough grain to cover its needs for the rest of this fiscal year, which ends Sept. 30.
“With a strong export environment expected to continue into next year, we’re optimistic about the earnings potential for each of our segments in fiscal 2020,” White said.
Sales volume in the chicken segment increased for the third quarter and first nine months of fiscal 2019, primarily due to an incremental volume from business acquisitions. Chicken sales rose to $3.331 billion and $9.853 billion for the quarter and nine months, respectively. For the quarter, sales volume rose 23.4%, while prices fell 11.4% from a year ago.
The chicken segment had operating income of $230 million in the quarter, better than the $189 million reported a year ago. But for the nine months, operating income was lower at $531 million compared to $692 million in the prior-year period. The chicken segment’s operating margin improved to 6.9% in the third quarter with an average of 6.5% for the nine months.
Tyson Foods’ beef segment had sales of $4.157 billion in the quarter, up 1.8% in volume and 2.3% higher on prices. For the nine months, sales totaled $11.967 billion, up from $11.56 billion in the same period last year. Operating income was $270 million in the quarter, down from $319 million reported a year ago. For the nine months, beef operating income was $731 million, up from $666 million reported a year ago. In the quarter the beef operating margin slid to 6.5% compared to a record 8% reported a year ago.
White said the beef segment is performing well despite higher labor costs and higher fed cattle costs. He also said the company was pleased with recent news of expanded export quotas of beef into the European Union. He said he’s hopeful the U.S. government will continue to work on finalizing trade deals with important beef export customers like Canada, Mexico and Japan
Sales volume in the pork segment increased for the third quarter of fiscal 2019 due to increased domestic availability of live hogs. Tyson Foods’ pork sales totaled $1.323 billion, up 3.1% in volume and 7.4% on price inflation. The increases in pork prices in the quarter helped to offset lower prices for pork in the nine months associated with excess supply.
For the quarter, pork operating income slid to $42 million, as the operating margin fell to 3.2%, down from 5.6% a year ago. For the nine months, operating income was $237 million, down from $285 million reported in the prior year.
The prepared foods segment had sales of $2.089 billion, down 7.4% in volume and up 5.4% in price in the third quarter. For the nine months, sales of prepared foods totaled $6.265 billion, down from $6.571 billion a year ago. Volumes are down 10% year-over-year with prices up 5.4%.
Prepared foods operating income totaled $229 million in the quarter, down from $238 million a year ago. The operating margin was 11%, down from 11.2% a year ago. For the nine months, operating income totaled $739 million, up from $613 million a year ago. For the nine months, the operating margin in prepared foods is 11.8%
Tyson Foods’ international sales are embedded in the “other” segment which grew to $356 million in the quarter, up from $75 million a year ago. Through the first nine months, other/international sales grew to $776 million, up from $246 million a year ago. The June acquisition of the Thai and European operations of BFR.SA is the reason for the uptick in sales.
Operating income in the quarter was $10 million, compared to a loss of $15 million a year ago. For the nine months, operating losses in the other category total $15 million, down from losses of $43 million reported a year ago.
AFRICAN SWINE FLU
“The African Swine Fever [ASF] outbreak continues to take its toll on hog supplies in Asia; however, we have not yet experienced significant benefits to our Pork, Chicken or Beef segments. Given the magnitude of the losses in China’s hog and pork supplies, the impending impact on global protein supply and demand fundamentals is likely to be a multi-year event,” White said during Monday’s call with analysts.
He told the media afterward that Tyson Foods had not seen any major impact from ASF thus far in 2019. White said pork inventories in China were feeding the demand and working through the system. He expects that inventory could take another three to six months to exhaust. He said the company has been in contact with customers in China through the Tyson office in that country. He did not say what was discussed or which clients in China were interested in products.
When asked why Tyson Foods is so confident ASF will be a positive for the meat giant given the export woes with China, White said the product will find its way to markets where demand dictates. He said even if the U.S. does not ship directly to China, there will be opportunities to sell to countries that China no longer serves given the loss of the country’s pig supply, which is estimated at roughly 30% of the hog supply in China.
White said the industry estimates ASF will take between 150 million and 200 million hogs out of the market this year. The overall impact on global protein supply is expected to be between 5% and 7%, or roughly 10 million metric tons into early next year, according to Rabobank.