Challenges in Tyson Foods Inc.’s poultry processing and pork businesses were tempered by positive performance in other segments, especially in the Prepared Foods and Beef segments in its fiscal third quarter, ended June 29, 2019.
Sales for the quarter increased by 11.8 percent to $10.885 billion. Adjusted operating income for the quarter was $796 million compared to $811 million during the same period last year. For the first nine months of the 2019 fiscal year, sales totaled $31.52 billion versus $30.05 billion in the same period the prior year. Adjusted earnings per share of $1.47 was down 2 percent for the quarter compared to last year with adjusted operating margin reported at 7.3 percent.
Noel White, president and CEO, said earnings were what the company expected and its EPS guidance for the 2019 fiscal year is $5.75-$6.10.
“Our Prepared Foods and Beef segments produced strong results in the quarter,” he says, “while results in the Chicken segment were mixed, and the Pork segment was negatively affected by increased hog costs.”
Sales for fiscal 2019 are expected to reach approximately $43 billion with growth projections for 2020 of 6 percent to 7 percent, to about $45 billion to$46 billion in sales.
Beef segment sales during the quarter were $4.16 billion, a 1.8 percent increase over the same quarter. For the quarter, operating margins in the segment were 6.5 percent, down from 8 percent last year, but year-to-date margins are trending positively and the potential for growing international sales based on recent news is reason for optimism.
“So far this year our Beef segment has produced a record operating margin of 6.1 percent,” he said during a conference call with analysts. “We are pleased the European Union has agreed to new beef quota arrangements with the United States. It's an opportunity for Tyson's beef business to continue serving customers in Europe and potentially grow our business there.”
We also remain hopeful new trade deals will be returned with Japan and China and the Congress will approve the pending trade agreement with Canada and Mexico for the fiscal year,” White told analysts. “We expect beef segments operating margin to be approximately 7 percent with ample supplies of high-quality cattle.”
Pork sales of $1.32 billion for the quarter were up 3.1 percent from $1.20 billion in the same period last year. For the first nine months, however, Pork segment sales are lagging the previous year, at $3.67 billion versus $3.75 billion and operating margin in 2019 lagging the first nine months of 2018 by 6.5 percent at $237 million. However, the impact of African Swine Fever in China stands to bolster this business segment in the next quarter and for years to come.
“Given the magnitude of the losses in China’s hog and pork supplies, the impending impact on global protein supply and demand fundamentals is likely to be a multi-year event,” White said, adding that filling the void for protein created by ASF in that country will likely bolster not only pork, but other proteins.
In the Chicken segment, sales for the quarter were $3.33 billion, versus $2.97 billion during the same quarter last year. Operating margins for the segment during the quarter were $230 million compared to $189 million last year, however for the first nine months, margins were 5.4 percent, at $531 million versus $692 million in 2018, or 7.8 percent.
White said the company has work to do in its chicken business, specifying that a handful of plants are the focus of improvement efforts.
“We know specifically which plants are opportunities for us,” he told analysts. “We know what the causes are, and they are in the process of being addressed. We know the root cause and we have a team that is fully dedicated to get them corrected as quickly as possible.”
The Prepared Foods segment reported a 7.4 percent decline in sales during the quarter, to $2.09 billion, while for the first nine months of the fiscal year, sales were $6.27 billion versus $6.57 billion in 2018. The decreases were attributed primarily to Tyson’s business divestitures. Operating income increased for the first nine months to $739 million versus $613 billion during the same period in 2018. “Operating income increased for the first nine months of fiscal 2019 due to strong demand for our products and improved product mix, partially offset by increased operating costs,” according to the company.
Tyson’s Prepared Foods business during the quarter was highlighted by its introduction of its Raised & Rooted plant-based protein product line and its Aidells blended protein products, which are being rolled out to more than 4,000 retail stores.
“We expect the segment will continue performing well, with an operating margin of 12 percent in fiscal 2019. And we expect the same results or better next year, assuming current expectations for raw material costs,” White told analysts.