Tyson Foods records 47% gain in fiscal year net income

Tyson Foods delivered better-than-expected earnings for its fiscal fourth-quarter. The Springdale-based meat giant reported net income of $1.355 billion in the quarter ending Oct 2, up from $654 million reported a year ago. Earnings per share rose to $3.71, up 11.7% year-over-year.

For the full-year, Tyson saw net income of $3.047 billion, up 47% from the prior year. Net earnings per share rose to $8.34 compared to $5.64 in fiscal 2020. Total revenue for fiscal 2021 increased to $47.049 billion, up 8.9% from a year ago thanks in part to the company raising prices to help defray 30% hikes in logistics costs and 20% rise in cattle prices in the fourth-quarter.

“Our performance was supported by our diverse portfolio and continued strength in consumer demand for protein,” Tyson Foods CEO Donnie King said in the report posted Monday (Nov. 15) before the markets opened. “We delivered a record performance in our beef segment and experienced share gains in our retail core business lines, which include our Tyson, Jimmy Dean, Hillshire Farm and Ball Park iconic brands, while supporting the continued recovery in foodservice.”

Tyson also reported COVID-related costs of $65 million in the quarter and $335 million for the full year.

Tyson blew past the consensus estimate of $2.30 earnings per share for the quarter in part because another record year in beef operating income. Tyson’s beef segment reported operating income of $1.147 billion in the fourth quarter with an operating margin of 22.9%, well above the $466 million reported a year ago.

King said the company is still seeing robust beef demand and the company has been able to pass along price increases to its customers to offset higher input and logistics costs. He said Tyson’s plants ran at about 80% capacity through most of the year and that was challenging because of labor shortages.

Tyson’s beef sales totaled $5.012 billion in the quarter, up 32.7% on price with 15.4% less volume. Beef sales in fiscal 2021 were a record $17.99 billion, up 14% on price with flat volume. Pork sales in the fourth quarter rose to $1.646 billion, up 38% on price with volumes down 17.7%. Chicken segment revenue increased to $3,873 billion, up 18.7% on price and down 5.9% on volume in the quarter. Prepared Foods sales rose to $546 million for the quarter, up 8% on prices and up 3.2% on volume. The company’s international sales losses expanded to $519 million in the quarter. Overall for the quarter, Tyson saw sales prices rise 22.5% from the same price last year.

Tyson’s pork and chicken segments did not perform as well in the fourth quarter compared to a year ago. The pork segment had operating income of $78 million, down from $174 million a year ago with the operating margin tumbling to 4.7% from 12.7% last year. The chicken segment reported operating losses of $136 million in the fourth quarter with negative operating margins of 3.5%. This was worse than the $86 million reported a year ago.

King said during Monday’s call with analysts that foodservice volume continues to improve and the additional calendar week in the quarter of fiscal 2021 did skew the numbers. King said Tyson is making progress on improved hatch rates since replacing the male used for breeding earlier this year. He said the segment’s annual operating loss of $625 million also included legal contingencies from the price-fixing settlement, $735 million in higher grain costs and $23 million of expenses related to a fire in a production facility.

King said returning Tyson’s chicken segment to profitability remains a top priority and the company is pleased with the progress. He said by mid-2022 the chicken segment’s operating margin should be back between 5% and 7%. He said demand remains strong and the company continues to invest in added capacity. He said increasing production volume will be the building blocks for getting the chicken segment back to profitability. He said the company is fully staffed in its poultry plants and overall plants are running at their highest capacity in two years.

He admitted that the labor shortage overall is a huge hurdle for the manufacturing, hospitality and service industries.

“There are more jobs chasing fewer people today,” he said.

Tyson plans to use technology to help with labor issues. He told Talk Business & Politics a big chunk of the company’s $2 billion in capital expenditures for fiscal 2022 will be on automation, robotics and analytics technology to increase efficiencies and raise production capacity. He said Tyson is using robotics and other automation to fill repetitive and labor intensive jobs like the deboning lines of white and dark meat chicken. He said in prepared foods plants it is being used to put together sandwiches like the Jimmy Dean breakfast frozen products. He said during the next two years automation will go into 12 new lines to increase capacity.

King also unveiled a new productivity plan to deliver more than $1 billion savings by 2024. He said $300 million will come from operational and functional agility improvements that improve business processes in plants and other operations. Another $250 million is expected to come from artificial intelligence applications to improve efficiency in warehouses, logistics and supply chain planning. Robotics and automation are predicted to generate $450 million in savings in worker safety, labor shortages, and training and retention.

“We have tremendous opportunities ahead as we work to fulfill growing global demand for safe and nutritious protein products. We’re entering fiscal 2022 with great momentum and are committed to delivering strong returns for shareholders into the future,” King said.

Tyson Foods remains flush with cash while reducing its total debt by approximately $3 billion in fiscal 2021. Tyson said it will continue to pay down debt with its free cash in 2022 and invest $2 billion back into the business while also raising the dividend and share buybacks. Tyson’s board of directors on Monday raised the annual stock dividend to $1.84 per share for fiscal 2022, up 3% over last year.

Ben Bienvenu, an analyst with Stephens Inc., said Tyson’s results and 2022 guidance affirm his bullish long-term views for the company. He expects improvement in chicken and prepared foods margins to continue with sustained success in beef. Bienvenu also likes the company’s work to lower its interest expense and grow the top line into the new year. Bienvenu said he will keep his “buy” rating on Tyson Foods.  (On occasion Stephens provides investment banking services for Tyson Foods and is compensated accordingly.)

Tyson Foods shares (NYSE: TSN) rallied on the better-than-expected results Monday. At midday shares were trading up more than 3% to $83.90. Over the past 52 week shares have traded between $60.52 and $84.78.