Tyson Foods beats estimates with solid quarter and annual profits

Tyson Foods outperformed expectations amid ongoing challenges from COVID-19, returning solid fourth-quarter earnings per share of $1.81 on an adjusted basis, compared to the $1.18 Wall Street had predicted. Revenue topped $10.641 billion, below the $10.8 billion forecast by analysts. Earnings rose 50% from the same period last year.

For the full-year, Tyson reported earnings per share of $5.64 on revenue of $42.365 billion. That compared to $5.52 per share and revenue of $42.405 billion. Tyson said the results include $540 million in direct incremental costs related to COVID-19. The company has also grown its e-commerce sales into a $1 billion business as a result of more online grocery orders in fiscal 2020, which ended Oct. 3.

Net income was $692 million in the fourth quarter compared to $369 million one year ago. For the full year, net income was $2.14 billion compared to $2.022 billion a year ago.

Tyson CEO Dean Banks said the company is settling down as the challenges from COVID-19 remain. He said the company continues to manage core expenditures and it expects added operational costs in fiscal 2021 related to the pandemic and likely higher grain costs and rising freight and labor costs.

He said resilience from within the company and by external partners has allowed Tyson to deliver strong results and execute on its long-term strategy while also generating solid results for shareholders.

“I’m excited for the opportunities ahead for this great company, and am certain we have the people, products, and strategies in place to drive future growth,” Banks said in prepared remarks.

CHICKEN LITTLE
He said the pandemic drove higher demand at retail and lower demand across foodservice which continues to impact parts of the business units that serve these segments. Banks said the company’s chicken segment is still a fairly long way from achieving the desired results and better efficiencies, which include $200 million in incremental savings across the segment.

Tyson reported annual chicken sales of $13.234 billion, down from $13.3 billion in the prior year. Volume sales were flat, but prices fell an average of 0.6% throughout the year, compared to 2019. The segment had an operating income of $148 million for the year, down from $655 million, a year ago. Tyson’s operating margin in the chicken segment was a dismal 1.1%, well below the 4.9% from 2019.

For fiscal 2020, feed ingredient costs were relatively flat as compared to fiscal 2019. Operating income was further impacted by $34 million in restructuring costs incurred in fiscal 2020.

Banks said the chicken segment is hurt by a number of factors, including higher absenteeism in certain markets and low pricing that has hindered Tyson’s ability to sell higher-margin products. He said when chicken prices were higher, the company worked to margin-up certain cuts in specific plants to drive higher results. He said the past focus on ramping up value-added production was a trade-off with lower plant efficiencies. Now that pricing is low and foodservice demand tepid, Banks said these plants are being returned to the basics.

BIG BEEF
Beef was a shining star in Tyson’s portfolio in fiscal 2020 with sales of $15.436 billion. While sales were down from $15.828 billion last year, operating income rose to $1.659 billion, up 45% from the prior year. The segment operating margin rose to 10.7% for the year, better than the 7.2% reported in fiscal 2019.

Tyson said COVID-19 did negatively impact production with a 6.5% lower volume compared to the same 52-week period last year. The company said average sales price increased in fiscal 2020 as beef demand remained strong amid supply disruptions related to the impact of COVID-19.

Banks said this segment also had its issues with COVID-19 forcing temporary plant shutdowns this past summer as the pandemic outbreak hit certain communities.

FAT PORK
Tyson reported annual pork sales of $5.030 billion, up from $4.932 billion a year ago. Operating income doubled to $555 million, up from $264 million in the year-ago period. Pork prices rose 2.2% for the year, but the company managed to improve its operating margin to 11%, up from 5.4% the prior year.

The company said demand was strong for pork and the increased availability of live hogs was offset by lower production overall associated with COVID-19 during portions of 2020. Banks said there continue to be opportunities for growth as the African Swine Fever uptick in Europe is now redistributing hog suppliers around the world. He said there will be more opportunities for pork exports and growth for this segment going forward.

PREPARED FOODS
This diverse segment had annual sales of $8.369 billion, down from $8.418 billion last year. Volume was 3.7% lower partially offset by 3.1% higher pricing. Operating income was $752 million, down from $902 million reported last year. This decrease related to $105 million in additional costs of raw materials and incremental expenses related to COVID-19. The segment also underwent restructuring with a cost of $28 million in 2020.

Tyson said growth in volume across the retail channel was offset by a reduction in the foodservice channel related to reduced demand and lower production throughput due to the impact of COVID-19 during portions of fiscal 2020. Average sales price increased in fiscal 2020 due to favorable product mix associated with the surge in retail demand, and for fiscal 2020, the pass-through of increased raw material costs.

INTERNATIONAL
Tyson reported international sales of $1.856 billion for the year, up from $1.289 billion in fiscal 2019. Much of the added sales resulted from the acquisition of the Thai and European operations of BRF S.A. in June of 2019.

This segment had an operating income of $2 billion, down sharply from the $17 billion reported a year ago, according to the release. Tyson did not provide any details about the international segment other than to say there are cost reduction initiatives underway that should result in better synergies and future growth behind more investment.

LOOK AHEAD
While Banks said there are some bright prospects for Tyson Foods, there is still work to be done. He said the company will be proactive on the COVID-19 front. Tyson roughly expects annual associated costs to be about $300 million based on what is known at this time.

Tyson expects annual revenue between $42 and $44 billion for fiscal 2021. Capital expenditures are forecast at approximately $1.2 billion to $1.4 billion. This includes spending for capacity expansion, 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.

Ben Bienvenu, an analyst with Stephens Inc., said Tyson’s results handsomely beat expectations for the fourth quarter and while there are still challenges in the chicken segment, the company expects the beef and pork segment growth to continue well into 2021.

“We are pleased to see the progress the company is making during this challenging environment and will continue to look for an entry point. We have an equal weight (neutral) rating, while our earnings estimates and price target are under review,” Bienvenu said on Monday. Stephens conducts investment banking services with Tyson Foods and is compensated accordingly.

Tyson Foods also raised its dividend to an annual rate of $1.78 in fiscal 2021, up 6% from the prior year.

Shares of Tyson Foods (NYSE: TSN) rose to $64.20 in the morning session, up nearly 3% in heavy volume. For the past 52 weeks, shares have traded between $45.57 and $94.24.