Tyson Foods first fiscal quarter net income down 66.5%

Tyson Foods outperformed expectations during the fiscal first quarter that ended Dec. 31. According to Monday’s (Feb. 5) earnings report, net income was $107 million, well below the $320 million in the year-ago period. Earnings per share after one-time charges was 30 cents, below the 88 cents reported last year.

On an adjusted basis, Tyson’s 69-cent earnings per share was down 19% from a year ago and better than the consensus estimate of 40 cents. The 69-cent adjusted earnings per share include 21 cents for the closure of eight production plants and restructuring charges, 30 cents from expenses related to a facility fire and 16 cents attributed to legal contingencies.

First quarter revenue was $13.319 billion, up 0.4% with strength from high sales volume in pork and prepared foods, with higher prices in beef compared to a year ago. Tyson said overall revenue was constrained by lower prices in all the proteins except for beef.

“Although we still have work to do, I am pleased with our first quarter results and am confident we are on the right path to deliver long-term shareholder value,” Tyson Foods CEO Donnie King noted in a statement. “Going forward, we will continue to prioritize our liquidity and financial health, our focus on operational excellence, and our relentless pursuit to win with customers and consumers.”

Operating income totaled $231 million in the quarter, down from $467 million a year ago. The company posted a $205 million loss in beef, and total beef sales for the quarter were $5.023 billion, down 4.1% on volume, with prices up 10.5%. Tyson said live cattle supplies remain tight and they expect industry production to fall 2% this year. The company expects an operating loss for the year with a slight chance to break even. Tyson execs said there is no sign of ranchers beginning to retain heifers to start rebuilding their herds.

On a positive note, Tyson’s pork segment outperformed expectations with sales of $1.517 billion, up 7.7% on volume and down 8.5% on average price. Operating income improved to $39 million, reversing a loss of $21 million a year ago. Tyson said its management over the pork business is finding efficiencies and improving margins into the positive territory ahead of schedule.

The chicken business was the biggest improvement at Tyson Foods during the quarter. Operating income improved to $177 million, up from $69 million a year ago partly because of lower grain costs but also because of better internal operations with live birds, the company said.

Chicken sales totaled $4.033 billion, down 1.5% on volume and down 3.9% on average price compared to a year ago. Tyson expects operating income between $500 million and $700 million for the year with chicken production industrywide to be flat. Tyson closed six chicken plants, and the impacts of those closures are also having a positive impact on a leaner, more agile, and disciplined business, King said.

The prepared foods business also performed well in the quarter with sales of $582 million, up 2.2% on volume and down 7.1% on average price. Operating income totaled $243 million, down from $258 million a year ago. Tyson said the segment benefited from lower raw material costs but there are pricing pressures in the segment with private brands and other low-price competitors that appeal to consumers.

Tyson said it continues to maintain its market shares among its core brands like Jimmy Dean, Ball Park, Tyson Foods and Hillshire Brands. Tyson also said the ongoing recovery in the food service business is beneficial at a time when retail sales are stalling. For the full year, Tyson said expects the prepared foods business to achieve an operating income of between $800 million and $1 billion.

The international business is poised to improve this year given that newer plants will ramp up production. International sales totaled $582 million, up 2.2% on sales volume and down 7.1% on average price. The segment reported an operating loss of $22 million, compared to a loss of $5 million a year ago.

Stephens Inc. analyst Ben Bienvenu said the results were particularly solid in chicken, pork and prepared foods with all showing solid margin expansion.

“Given the improvements in chicken and pork in the ongoing quarter, we should see the momentum continue as the year progresses. We have an overweight (buy) rating on Tyson shares with a one-year target price of $70,” he noted.

Ken Goodman, an analyst with JP Morgan, said while the beef segment margin was disappointing, it was not enough to offset healthy results elsewhere.

Shares of Tyson Foods (NYSE: TSN) traded slightly higher in the morning session on Monday following the report. At $56.47, shares were up 13 cents with heavy volume. In pre-market trading, the shares rallied higher and opened at $60.51, but pulled back later in the session. Over the past 52 weeks, the share price has traded between $44.94 and $63.49.