Tyson Foods is bullish on opportunities to grow revenue and record net income of $8 per share through 2024. The Springdale-based meat giant held its annual investor conference on Thursday (Dec. 9) where top executives unveiled growth plans and discussed challenges.
Company leaders said they plan to invest more than $1.3 billion on new automation in the next three years to grow market share and tap increased global demand. More than 100 of the deboning lines in the U.S. chicken segment are being automated. The deboning line jobs are the hardest to fill and retain.
The labor issues were discussed at length with CEO Donnie King saying plants operated near 80% capacity which made it tough to best serve customers. He said the vaccine mandate is paying off, as are flexible work schedules and higher wages, wellness benefits and newly piloted childcare help in select facilities.
“Our plan is working and capacity is improving and employee satisfaction is also better today,” King said. “Our labor situation today is better than it has been in two years.”
King also said 12 new plants will open in the next two years, seven of them abroad. The plants will increase capacity by 1.3 billion pounds. The seven overseas plants include new fully-cooked chicken plants in Europe, Malaysia, Thailand and four in China. New plants include Humboldt, Tenn., which opened in July and continues to ramp up production, Case-ready beef and pork plants that serve retail customers also opened this year in Utah and South Carolina. There is another fully-cooked chicken plant coming online in Danville, Va., in 2023 and a new bacon plant to open in the summer of 2023. Tyson is also adding new lines to existing chicken and prepared foods around the country.
Tyson’s chicken segment has lagged in recent quarters. David Bray, the new group president overseeing the poultry segment, said in the past the company over-extended its grow-versus-buy strategy, and widely-publicized hatch issues with a new male exacerbated the company’s ability to serve its customers last year. He said the fix and return to profitability are underway and ahead of target.
He said in fiscal 2021 ended Oct. 31, Tyson harvested 37 million birds a week and that is up to 40 million to start fiscal 2022 with plants running at 85% capacity. Coupled with the automation of the deboning lines, Bray said rollout of the new hatchment male will be complete by March creating margin improvement between 5%-7% by May.
Tyson expects its chicken operating margin to range between 7-9% with a three-year compounded annual return target of 4-5% volume growth. It was 2018 since Tyson’s chicken segment operating margin was above 7%. The segment’s performance continued to deteriorate through 2021 to end at 0.2%, despite record sales of $13.7 billion.
Tyson said 45% of its chicken revenue comes from fully or partially cooked products that are sold in retail and food service and 20% is fresh chicken sold in tray packs at retail. That business continues to see rapid demand growth prompting the faster ramp up at the Humboldt facility. The company is also repositioning its lower-margin small bird business which is about 10% of the segment revenue and working to upgrade leg-quarter exports domestic dark meat for higher margins. Exports comprise about 15% of Tyson’s chicken sales. The company sees higher margins in skinless, boneless thighs than it does for whole leg-quarters. About 10% of the segment’s sales come from chicken being used as ingredient solutions for other products like hot dogs and premium dog food.
SUSTAINING GROWTH, MARGIN WORK
Tyson also expects its prepared foods segment to see 4%-5% volume growth annualized over the next three years with an operating margin between 10%-12%. The diversified segment has grown sales at 4% compounded annually since 2016 to end 2021 at $8.9 billion. Earnings in this segment have tapered in recent years behind rising input costs and declining operating margins.
Tyson said the segment has returned 13 consecutive quarters of market share growth and has seen a turnaround in foodservice demand from the convenience stores and fast-food customers it serves. Omnichannel sales are up a staggering 500% but the company said commodity inflation, packaging costs, freight and labor issues persist.
Tyson’s beef segment will see operating margins decline from the record 18% record in fiscal 2021 to a more sustainable range of 5%-7% with a compounded annual volume growth rate of 1%-2%. In fiscal 2021, Tyson’s beef segment had sales of $18 billion, up 4% compounded annually since 2016 with earnings of $3.354 billion.
Pork consumption in the U.S. and abroad is expected to increase over the next decade and Tyson said it will be ready. The pork segment grew sales volume at a 5% annual compared rate since 2015 to $6.3 billion at fiscal 2021 year-end. At year-end earnings were $328 million with operating margin of 5.2%, down from the previous year.
Tyson said it will continue to grow its case-ready beef and pork business which has higher margins. Since 2015 the company grew its case-ready business by 140 million pounds resulting in a 2% annual compounded growth rate for the period. Moving products up the value chain continues to be a top priority for Tyson’s beef and pork businesses. The company opened two new case-ready plants for beef and pork in 2021 that will raise case-ready volumes by 40% over the next three years. Growing beef and pork exports is also important to the company’s mid-term goals. The company expects pork margins between 5%-7% for the next three years with volume growth between 1%-2% compounded annually.
Tyson said it will continue to grow its international business through a bigger footprint in select high-demand markets. Investments in expanded capacity are underway in Asia. World protein consumption is expected to increase 94.8 billion pounds by 2030 and 64% of that growth is coming from Asia and most of the growth will be in chicken, which is why the company has six new plants in Asia coming online in the near-term.
Tyson’s new international president, Chris Langholz, is based in Singapore and said the annual compounded target growth rate for the international segment is between 18%-20% over the next three years with an operating margin of around 5%.
King said having boots on the ground in Asia is key to helping Tyson grow its customer base well beyond foodservice and begin to leverage the brand affection Tyson has generated with Chinese consumers in the past year or so.
The company’s aggressive growth strategy and focus on margin improvement has implied earnings power of at least $8 per share over the next three years, according to Ben Bienvenu, an analyst with Stephens Inc. Stephens maintains its overweight (BUY) position of Tyson Foods with a target price of $100.
Tyson Foods shares (NYSE: TSN) closed Thursday at $83.75, up 22 cents. For the past 52 weeks, Tyson shares have traded between $62.47 and $85.61.