Tyson Foods net income up 74% in second quarter, revenue rises 16%

Tyson Foods reported net income of $829 million in the second fiscal quarter, up 74% from a year ago, and 22% more than the consensus estimate. For the first half of fiscal 2022, net income was $1.95 billion, more than double the $928 million earned a year ago.

“Our performance in the first half of the year reflects our improving operational execution and strong customer and consumer demand for our brands and products,” Tyson Foods CEO Donnie King said. “We continue to prioritize investment in our business in a number of ways, including increasing pay, expanding pilots of health and child care services, and providing skills and life services, such as free college education and legal services for immigration.”

He said inflation is real throughout the business with cost of goods rising between 20% to 30% that Tyson is mitigating with price increases. He also said the company is working to improve efficiency and add production capacity.

“We have never asked our customers to pay for our inefficiency but we do expect to sell our products at full market value that has been driven higher from inflationary pressures,” King said.

King said strong beef results and improving chicken business laid the ground for the better returns when coupled with $400 million in cost savings found within the business during the quarter ending March 31. The gains were offset by softness in the pork and prepared foods.

GAINING MOMENTUM
Tyson Foods said the company is gaining momentum in its chicken segment but there is still work to do. The company raised its margin guidance for the beef and prepared foods segment. Tyson also expects fiscal 2022 sales revenue to range between $52 billion and $54 billion, up 6% from the previous forecast.

Tyson expects annual sales volumes will be up between 1% and 2% which is lower than the 2% to 3% volume growth previously forecast. Tyson said its chicken capacity is back to full strength but beef, pork and prepared foods segments have yet to restore full capacity.

King said consumer demand for meat remains strong. He said there has been some shift from steaks to ground meats because of rising prices, but he said recessionary pressure is not like other historical times. King said quick-service restaurant and convenience stores are leading the foodservice recovery but the entire restaurant segment is seeing improvement after the two-year lag from COVID. Grocery store sales are high with no signs of slowing.

He said the biggest challenge Tyson has in meeting product demand involves the omicron COVID variant still having some impact in the pork and prepared foods segment. He said avian influenza (AI) impacts have been negligible to date, but the company remains vigilant with its U.S. and global biosecurity protocols.

Tyson’s balance sheet is also stronger coming out of the pandemic having paid down $3.8 billion in debt during the past two years. Also in the first half of this year, Tyson repurchased $523 million in shares and paid out $328 million in shareholder dividends in the second quarter.

Capital spending is expected to be $2 billion this fiscal year, with $1.4 billion already committed in the first half of 2022.

“Management is taking a tighter grip of the reins – we think results demonstrate the operational execution this team has been so focused on, and we think risk/reward remains attractive here at Tyson as a result. We reiterate our overweight rating for the stock. Fiscal 2022 earnings and the price target of $115 are under review at this time,” Ben Bienvenu, an analyst with Stephens Inc., noted on Monday. (Stephens does investment banking services for Tyson Foods and is compensated accordingly.)

SEGMENT RESULTS
The beef segment reported sales of $5.034 billion, up 23.8% from the second quarter a year ago. Nearly all of that increase was attributed to price increases with volumes mostly flat. The segment had operating income of $638 million, up 43% from a year ago. The operating margin rose to 12.7% in the quarter, up from 11% last year.

The pork segment had sales of $1.565 billion, up 5.95% with volumes down 4.8% and prices rising 10.8%. Operating income in the segment fell to $59 million, from $67 million a year ago. The segment’s operating margin was 3.8%, falling from 4.5% a year ago. Tyson said the pork segment is seeing tighter margins due to higher live hog costs and plants that are still not back at full capacity.

The chicken segment had sales of $4.086 billion, up 14% from a year ago. Nearly all of the gain was attributed to price increases. King said it has been some time since wholesale boneless, skinless breast meat sold at $3.60 per pound and that is where they are now. He said even at those prices demand is strong.

The chicken segment had operating income of $198 million, up sharply from the $6 million reported a year ago. Operating margins were between 4% and 6% in April, according to King. While he could not say how long it will take to return the segment to its highest performance metrics, the progress continues each month.

The diverse prepared foods segment had sales of $2.393 billion, up 15.9% on prices offset by a 5.3% volume decrease. Operating income rose to $263 million, up from $217 million, a year ago with the margin improving  to 11% in the second quarter. This segment continues to see higher pass-through prices from the raw protein ingredients used to make higher-valued foods like Jimmy Dean sausage scrambles and fully cooked Tyson chicken tenders. Prepared Foods also sold its pet treats business which offset sales and profits compared to the year-ago period. Tyson said its prepared foods facilities are returning to higher staffing levels following the COVID omicron hit felt in January and February.

King said Tyson continues to address its labor shortages with expanded benefits that include child care help, free college education, legal assistance for immigrants, and health care clinics near several plants. He said Tyson will continue to focus on being a preferred place to work and make investments to ensure it has the labor force needed to meet customer demand.

Tyson Foods shares (NYSE: TSN) were up 1.8% to around $92.47 in afternoon trading. For the past 52 weeks, the share price has ranged from $69.88 and $100.72.  The consensus one-year target price among analysts following the stock is $100.36. Year-to-date Tyson’s share price is up 5.25%, well above the 15% decline in the S&P index and a 10.67% drop in the Dow Jones Industrial Average over the same period.