Tyson Foods posts ugly $417 million net income loss in third fiscal quarter 

Tyson Foods on Monday (Aug. 7) reported a quarterly net income loss of $417 million, a wide swing from net income of $720 million in the year-ago quarter. The company cited one-time charges of more than $448 million in the chicken and prepared foods segments for most of the loss.

Revenue came in at $13.14 billion, down 3% from a year ago and 2.8% shy of analysts’ estimates for the quarter ending July 1. On an adjusted basis, earnings per share totaled 15 cents, down 92% from the year-ago period. Analysts predicted adjusted earnings per share of 26 cents.

Tyson Foods CEO Donnie King said market dynamics remain challenging for the company and the industry. He assured analysts that Tyson was turning things around in its chicken segment and is setting itself up to be a stronger, more sustainable and efficiently run company. King announced closures of chicken plants in North Little Rock, Noel and Dexter, Mo., and Corydon, Ind. He said the two previous closures in Van Buren, Ark., and Glen Falls, Va., helped increase efficiency in the chicken segment.

“Tyson Foods has been around since 1935, and I have been here since the early 1980s. We always come out of trying times stronger and better, and this time is no different,” King said in his closing remarks. “We are controlling the controllable and taking bold actions to improve performance.”

King said even with improvement in the chicken segment over the past two years, declining overall prices hurt results this quarter. Lower prices resulted from an oversupply of chicken after demand fell when Tyson and other competitors raised prices.

Wall Street investors didn’t like the report. Shares plunged in premarket trading to open 7% lower. Shares of Tyson Foods (NYSE: TSN) traded down about 6% at $53.11 in the late morning session.

Not all analysts were pessimistic about the stock. Ben Bienvenu, an analyst with Stephens Inc., said Tyson’s earnings were about what he expected but were certainly weak. Despite the sizable goodwill impairment charges, he looks at the pending plant closures as a positive for the chicken segment’s performance in the long run. Stephens remains overweight on Tyson Foods with a long-term “buy” rating.

“We continue to believe earnings are clearly approaching a trough, and we think the stock should continue to be on the radar screen for long-term investors who can be patient,” Bienvenu said.

SEGMENT NUMBERS
Chicken
Tyson’s chicken sales totaled $4.212 billion, down 3.5% from a year ago. The segment posted an operating loss of $314 million, compared to an operating income of $277 million a year ago. Chicken prices fell 5.5% in the quarter as supplies built up in cold storage. Tyson said it continues to make strides to improve the segment’s profitability. However, estimated losses between $300 million and $400 million from pending plant closures will reduce earnings in the next two quarters.

Pork
Pork sales of $1.324 billion tumbled 18.2% from a year ago. The pork segment had an operating loss of $74 million, compared to operating income of $25 million in the year-ago period. Pork production is expected to be flat, and Tyson expects negative operating margins for the balance of this year.

Beef
Beef sales totaled $4.956 billion, flat from a year ago as prices rose 5.2% and demand fell 5.3%. Beef had operating income of $66 million, down from $533 million record a year ago. The beef segment challenges are expected to continue with herd liquidations amid widespread drought conditions. The industry expects production will decrease 3% next year. Tyson expects margins to decrease through the end of the year.

Prepared Foods
The prepared foods segment was the shining star but nothing was mentioned about this segment in the earnings call that focused mostly on the declining segments’ results. Prepared Foods posted sales were $2.383 billion, down from $2.447 billion a year ago. However, the segment reported operating income of $206 million in the quarter, up more than 8% from a year ago. Tyson said the prepared foods segment is a major growth engine for the company as margins are expected to range from 8% to 10% this year, driven by volume growth, productivity and revenue management.

International
Tyson’s international segment continues to struggle. Sales for the segment rose 4% to $633 million, but the segment also reported an operating loss of $234 million, in the quarter, compared to a small gain of $12 million a year ago. Tyson said it expects better results in the international segment for the balance of the year on an adjusted basis.