Record sales posted by Tyson Foods, but net income down 33%

Springdale-based Tyson Foods posted record sales of $42.405 billion in fiscal year 2019, up 5.87% from the prior year. But net income fell $1 billion short of last year at $2.022 billion for the 12 months ending Sept. 30.

Tyson Foods reported earnings per share of $5.46, well within the company’s guidance range given in September. The earnings report was posted Tuesday (Nov. 12) before the markets opened.

Tyson Foods missed Wall Street expectations for fourth-quarter earnings by 6 cents per share, reporting $1.21. That was down from $1.58 reported a year ago. The company posted fourth-quarter net income of $369 million on sales of $10.884 billion. Tyson Foods said a fire in the Finney County, Kan., beef packing facility resulted in a $31 million charge in the quarter. Other items hindering fourth-quarter results include higher pass through and raw material costs in the prepared foods segment totaling $60 million.

CEO Noel White said the company made significant progress in its strategy to grow the business through a diversified plan, serving customers more sustainably.

“We expanded our global footprint, launched innovation in our iconic brands and our new alternative protein brand, and prepared for future growth by investing in technology and infrastructure. We’re very optimistic about fiscal 2020, and we currently expect to meet or exceed our long-term earnings algorithm of high single-digit adjusted earnings per share growth as we’re well-positioned to take advantage of opportunities in the global marketplace,” White stated in a news release.

He told the media Tyson Foods continues to strive toward the diversified plan because it’s the way to stabilize earnings. He said the focus on the higher-margin prepared foods segment and expanded international footprint is a way to grow earnings.

Tyson Foods shares (NYSE: TSN) were up more than 6% to $87.77 in the morning session. Bank of America said it would keep a “buy” rating on Tyson Foods despite the earnings miss because of the optimistic guidance. Bank of America has a one-year target price of $97 for Tyson Foods. For the past 52 weeks, the share price has ranged from $49.77 to $94.07.

“We note that TSN’s FY20 segment outlook for our Beef, Pork and Chicken segments does not include potential benefits from African Swine Fever which could provide meaningful upside to estimates,” noted the Bank of America report.

White told the media Tyson Foods is beginning to see rising demand in the U.S. from the global Asian swine flu impact. He said the demand for beef is strong at retail heading into the holidays and poultry is another value play by foodservice with promotions on chicken items. He said pork prices are trending higher because of the ASF impact on global supplies and there will be more trade-off to chicken and beef in the coming months as the supply gap widens.

Tyson Foods expects beef margins between 6.5%-7.5% and another solid year with ample fed cattle supplies. White said the plant in Kansas is expected to be fully restored within 60 days. Tyson’s beef segment had a record year despite the plant fire. Operating income for the beef segment topped $1.107 billion this past year, up 8% from 2018.

The company’s chicken segment is taking a bit longer to fully recover, but White said a new plant in Tennessee would come online next year to give the company some much-needed added capacity. White said Tyson Foods expects the chicken segment’s operating margin will improve to 6%-8% next year, absent impacts from ASF. The chicken segment’s operating income totaled $621 million for 2019, down from $866 million in the prior year. Operating margin was 4.7%, well below the 7.2% from 2018.

Tyson Foods said its prepared foods business will continue to grow with an operating margin between 10% and 12%. White said there will be higher raw material costs but Tyson will recover those costs through shorter sales contracts that allow for price adjustments. In fiscal 2019 Tyson reported operating income of $843 million in this segment, down $2 million from a year ago.

The smaller pork segment is expected to have an operating margin between 6% and 8%, absent any impacts from ASF. In fiscal 2019, Tyson Foods’ pork segment had operating income of $263 million, down from $361 million in the prior year. Operating margins fell to 5.3% from 7.4% in fiscal 2018.

Tyson Foods continues to lose money in its international business, though the segment did report an $8 million operating income in the fourth quarter. For the year, the segment lost $7 million, much better than the $53 million loss in the prior year. The company’s international segment includes the Keystone operation, facilities in Thailand and Europe and the legacy Tyson Foods business in China.

“We expect improved results in fiscal 2020 from improvement in our legacy foreign operations as well as the impact of a full year of Keystone International and our Thai and European operations,” the company noted in the release.

Tyson Foods said it plans for $1.3 billion in capital expenditures this next year for production growth, safety, animal well-being, infrastructure replacements and upgrades, and operational improvements that are expected to result in production and labor efficiencies, yield improvements and sales channel flexibility.

Tyson Foods said it plans to pay annual dividends to shareholders of $1.68 to the A-Class and $1.51 to the B-Class. That is a 12% increase from dividends paid in 2019.