Tyson Foods third-quarter net income down 22%; COVID-19 costs total $340 million

Tyson Foods said costs related to COVID-19 totaled $340 million, and that did not include direct costs related to absenteeism. The expense hurt the meat giant’s bottom line in the third quarter ending June 30, the company noted in its earnings report posted Monday (Aug. 3).

Net income in the quarter totaled $527 million, or $1.44 per share, and better than the consensus estimate of 94 cents per share. That was down 22% from the $676 million in the same quarter of 2019. Revenue for the quarter totaled $10.022 billion, down 8% from the $10.885 billion in the same quarter a year ago. All four of the main operating segments experienced volume declines, partially offset by higher prices.

For the first three quarters of the fiscal year, net income is $1.448 billion, down from $1.653 billion in the same period of 2019. Revenue in the first three quarters was $31.725 billion, up from $31.521 billion in the same period in 2019.

Tyson Foods CEO Noel White said it was the most challenging dynamics he’s experienced in his nearly 40-year career. He said the volatility was unprecedented and he was pleased overall with how well Tyson is weathering this storm.

“Our commitment to team member health and safety and investments in operations and portfolio strategy effectively positioned us to weather unprecedented COVID-19 marketplace volatility while allowing us to support our farmers, ranchers and producers and meet our customers’ needs,” White said.

He said the health and safety of employees, their families, and our communities remain a high priority and he’s grateful for their work going above and beyond to help supply food for the nation.

“Within each of our segments, we absorbed higher-than-normal operating costs related to COVID-19. Nonetheless, Tyson delivered strong results during the third quarter led by strength in our beef and pork segments. Despite short-term challenges, we’re maintaining a clear focus on the long term. Our fourth quarter is off to a solid start, and while COVID-19 has been disruptive, we have a strong long-term outlook for Tyson Foods,” White said.

SEGMENT FINANCIALS
Tyson’s chicken segment continued to struggle in the third quarter, but White said improvements have begun to emerge in the fourth quarter. Tyson’s chicken segment lost $120 million in the quarter with a negative operating margin of 3.9%. High absenteeism in chicken plants, as well as declines in foodservice orders, weighed down profits. One year ago, Tyson’s operating income in chicken totaled $236 million. Average chicken prices decreased 2.4% and volumes were down 4.2% in the third quarter. The segment also has $110 million of net derivative losses and increased feed costs of $50 million.

The beef segment had stellar results with operating income of $636 million, compared to $271 million a year ago. But Tyson said sales volume decreased because of lower production associated with COVID-19 which temporarily closed plants and with fewer shifts after open reopening.

Tyson said demand for beef remained high as did pricing. This segment also benefited from about $45 million in net derivative gains and $15 million of net insurance proceeds from a packing plant fire last year.

The pork segment had an operating income of $107 million, up from $42 million a year ago. The operating margin was a healthy 9.6% in the quarter despite disruptions in several packing plants. The segment has lower sales compared to the prior year-period with volumes down 16% and flat pricing.

The Prepared Foods segment reported an operating income of $145 million, down from $229 million a year ago. The operating margin was 7.1% and off from the 11% margin reported last year. The segment reported sales of $2.035 billion, down from $2.089 billion a year ago. Volume fell 6%, but prices rose 3.4% in the quarter.

Tyson’s smaller international segment had sales of $402 million in the quarter with an operating loss of $8 million. That compared to operating income of $10 million a year ago.

White said in the third quarter Tyson experienced $340 million in incremental costs related to COVID-19. The bulk of that was $114 million in “thank you” bonuses paid to employees in the quarter. The company also paid benefits for those who chose to stay home amid COVID-19 and during plant closures. The $340 million in direct costs did not include $50 million paid by Tyson to hog and cattle producers.

FUTURE HEADWINDS
Tyson execs gave no forward guidance but said business metrics appear to be improving in chicken. For the first nine months of 2020, Tyson reported sales revenue of $31.725 billion, up from $ 31.521 billion a year ago. Net income profits totaled $1.455 billion, down from $1.663 billion last year. On an adjusted basis, net earnings per share for the nine months of this year totaled $3.83, down 10% from $4.25 in the prior year.

Tyson said it managed to generate $2.7 billion of operating cash flow in the past nine-month period.

“We continue to proactively manage the company and its operations through this global pandemic. Given the nature of our business, demand for food and protein may shift amongst sales channels and experience disruptions, but over time we expect worldwide demand to continue to increase. We are experiencing multiple challenges related to the pandemic. These challenges are anticipated to increase our operating costs and negatively impact our volumes for the remainder of fiscal 2020 and into fiscal 2021,” White noted in a release.

Dean Banks, president of Tyson Foods, told Talk Business & Politics there is no set date for Tyson home office employees to return to the corporate offices. He also said there are no plans to lay off any home office employees. Banks will assume the role of CEO Oct. 3, as Noel White will take a newly created executive vice-chairman role of Tyson’s board of directors.

Ben Bienvenu, an analyst with Stephens Inc., said the quarter represented a solid beat, “which was in line with our original expectations; however, we feel the company faces headwinds throughout 2021 as livestock supply tailwinds wane. We have a neutral rating, while our future earnings estimates and target price are under review.”

Shares of Tyson Foods (NYSE: TSN) opened Monday at $62.90 For the past 52-weeks shares have traded between $42.57 and $94.24.