Tyson Foods first-quarter profit drops, two shareholder proposals voted down

Tyson Foods reported net profits of $551 million for the first quarter ending Dec. 31. This compared to record results of $1.631 billion reported in the year-ago period. On an adjusted per-share basis, net income for the quarter was $1.58, down 12.7% from the $1.81 reported a year ago, when factoring out a $2.68 benefit from one-time tax credits.

The $1.58 per share earnings included 6 cents attributed to Keystone Foods acquisition costs and 2 cents charged to restructuring costs.

Wall Street sold off shares of Tyson Foods in an overall bearish day tied to trade concerns. Tyson shares (NYSE: TSN) were down more than 3.3% to $58.85 in active trading in the morning session on Thursday. Analysts had predicted Tyson Foods would see lower profits and the meat giant was close to the consensus estimate of $1.57, but missed on the top line with lower-than-expected revenue.

Tyson Foods said its first-quarter profits were decent overall, compared to the record performance in 2018, which was buoyed by a tax windfall and better results in chicken and pork. Tyson reported operating income from its various businesses totaling $807 million, down 12.4% from the $922 million reported a year ago.

Tyson said it’s overall operating income was reduced by $5 million from a year ago because of a new defined benefit and other post-retirement accounting standard that required adjustment of prior periods. Also, the $5 million includes the reduced income from the sale of Sara Lee, Kettle and Van’s that operated within the prepared foods segment.

OPERATING INCOME BY SEGMENT
• Beef: $305 million, up 19.14%
• Pork: $95 million, down 37%
• Chicken: $160 million, down 41%
• Prepared Foods: $265 million, up 3.5%
• Other (international): $18 million loss, down 44%

“Our diversified business model continues to set Tyson Foods apart,” said Noel White, Tyson’s president and chief executive officer. “The Prepared Foods and Beef segments delivered strong results in our fiscal first quarter, while the Pork and Chicken segments performed well-given market conditions. We’re proud of the growth Prepared Foods has achieved in the past five years and the role it has played in stabilizing volatility while growing earnings. Moving forward, we will remain focused on growing Prepared Foods as well as our value-added and international businesses.”

Tyson reported sales revenue of $10.193 billion in the quarter, flat with a year ago, but below the $10.35 billion consensus forecast by Wall Street. Overall sales volume rose 3.3%, while the average price fell 3.7%. Chicken saw the biggest price declines at 13.1%. Pork prices were down 4.6%. This was offset by a 1.9% uptick beef prices and a 6.7% improvement in prepared foods.

“In the first quarter, we completed the acquisition of Keystone Foods. I’m pleased with the progress of the integration and remain confident Keystone will play an important role as we execute our growth strategy, particularly with strategic customers and in key international markets,” White said in his prepared remarks.

White said the company has strong cash flow and a sound balance sheet to support its capital commitments and growth strategy. The company gave earnings guidance for fiscal 2019 ranging from $5.75 to $6.10 per share, noting there could be some cyclical challenges in the second quarter with the back of the year looking more favorable, according to Stewart Glendinning, Tyson’s chief financial officer.

Tyson said it expects revenue of $43 billion this year that will include the Keystone sales. White said he’s optimistic for another strong year in beef with the anticipated 2% increase in fed cattle supplies projected for 2019. He expects the beef segment’s operating margin to be 7% for the year. White expects the pork operating margin to be around 6% this year. He said the chicken segment is improving the operating margin should exceed 6% this year. The prepared foods segment is poised to see operating margins between 11% and 12% this year. White said the international business will also play a larger role in the company results with the Keystone and now BRF acquisitions.

Tyson plans to invest $1.5 billion in capital expenditures this year and scale back to $1.1 billion in 2020. Tyson said it will go to the bond market to finance the Keystone and BRF deals on a longer-term arrangement. This year Tyson expects interest expense to be $450 million. The company reported cash liquidity of $1.4 billion at year-end and said it will look to retain at least a $1 billion minimum, regardless of future acquisitions.

SHAREHOLDER MEETING
Also Thursday, Tyson Foods held its 56th annual shareholder meeting in downtown Springdale, where the company began its operations more than 80 years ago. Tyson Chairman John Tyson greeted the small crowd saying it reminded him of something his father told him years ago.

He said “when you hold your shareholder meeting in early February in Northwest Arkansas you will know your true friends are” because the weather is always unpredictable. He thanked the small crowd of around 50 who braved the cold temps and snow flurries to gather in the company’s technology center located on Emma Street in downtown Springdale.

“We began as a family business and we care about families, and while we have grown we still consider ourselves a family business,” Tyson said. “We have thrived for more than 80 years because we take care of our customers.”

During the business portion of the meeting, shareholders elected a slate of directors to a one year term with 91.3% of voters approving the slate. The directors for this year are: John Tyson, chairman, Gaurdie E. Banister Jr., Dean Banks, former Arkansas Gov. Mike Beebe, Mikel Durham, Kevin McNamara, Cheryl Miller, Jeffrey Schomberger, Robert Thurber, Barbara Tyson, and Noel White.

Shareholders also heard from two groups presenting proposals at the meeting. Proposal No. 1 asked the company to be more transparent with its lobbying efforts through trade associations and otherwise. The proposal was brought by the Teamsters and Mercy Investments who said since 2010 Tyson Foods has spent $14 million on federal lobby efforts. The group wants more transparency with regard to how much money is given to lobbying efforts by supporting trade organizations such as the U.S. Chamber of Commerce, the American Meat Institute and National Chicken Council.

Tyson Foods board did not support the proposal and it was voted down by shareholders with 88.82% of votes being cast against the proposal.

Proposal No. 2 suffered a similar fate garnering just 5.54% of the voter support for the resolution to require human rights due diligence. Another group, known as Mighty Earth, stood outside the meeting handing out flyers asking Tyson Foods to adopt an environmental stewardship policy. The group did not speak at the meeting.

Shareholders also heard a brief message from CEO Noel White who said sustainability would continue to be a priority for the company as it seeks to continue providing food for growing demand around the globe.

While Tyson shareholders had a rocky ride in 2018 with respect to price volatility, the company did spend $83 million on share buybacks and the dividend was recently increased to $1.50 for the year, up 25% from 2018.

In closing, Tyson said he’s grateful to his grandfather, the late John W. Tyson, who is being inducted posthumously into Arkansas Business Hall of Fame in Little Rock on Friday, (Feb. 8). He said the company has come a long way since his grandfather began selling chickens out of his truck. He said the vision his grandfather had for serving communities is still present at the Fortune 500 company.

Without that vision, Tyson said, “we might have a job today, but it’s real nice to have a family business.”