Tyson Foods Released 2nd Quarter Financial Results.
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Tyson Foods second fiscal quarter revenue hit $9.032 billion, a more than 7.7% increase over the same quarter in 2013, with net income of $213 million up more than 124%. The improved financial results came primarily from sales and margin gains in the chicken business along with higher beef and pork prices.
The quarterly per share earnings were 60 cents, just below the consensus of analysts’ estimate of 63 cents per share. Investors began selling off Tyson Foods shares at the market opening as analysts belief the recent run-up in stock price was a little premature. In the first hour and half of trading 2.5 million shares had traded hands and the share price was off 8% to $39.24 down $3.41.
Tyson management gave an optimistic outlook for the back half of 2014 and 2015 saying it will be as good or slightly better than the past six months. But that was not enough to keep investors pacified given the stock price has surged 72% this year.
For the first six months of the year, Springdale-based Tyson Foods has posted $467 million in net income, well ahead of the $268 million in the same period of the previous year. Total sales for the six-month period was $17.793 billion, up 6.23% compared to the same period in the previous year.
The second quarter marked the first time the company posted quarterly sales of more than $9 billion.
"We had a record second quarter, which is a testament to our great team and our balanced multi-protein, multi-channel, multi-national business model," Donnie Smith, Tyson Foods' president and CEO, said in the earnings statement released early Monday (May 5). "Our second quarter is usually our most challenging. We had a lot to overcome, including a harsher than normal winter, but I'm satisfied with the results. I'm still confident in my expectations for the year that we will achieve our goal of 6-8% sales growth in value-added products while generating at least $2.78 earnings per share.”
Smith estimates a $15 million ding from cold weather impact. He said there is always a weather impact but this year the severity began earlier and lasted longer, noting that institutional sales were down because of school closures but those were mitigated by higher retail sales as moms cooked more meals at home.
Tyson said the recent tornadoes in Arkansas and other areas of the south did not hit company facilities though a few grower houses were destroyed. Tyson has had more than 200 workers help with the clean up efforts in four states and cook 63,000 meals for relief workers and storm victims. Tyson Foods is matching its employee contributions to the storm clean up efforts up to $100,000.
POULTRY PLUS
Quarterly sales in the chicken segment were $2.842 billion, up almost 4% over the second quarter in the 2013 fiscal year. Operating income in the segment during the quarter was $234 million, much better than the $143 million in the 2013 quarter.
Smith expects industry chicken production to rise between 2% and 3% on heavier weights with no meaningful uptick in birds slaughtered until the back half of 2015. The industry is somewhat restricted by older breeding flocks and processing capacity constraints.
Tyson said its domestic chicken business is strong, but Smith reminded analysts that it doesn’t have to grow the birds it processes in order to to expand because of its buy versus grow capabilities. He did say Tyson is tapped out on further processing capacity and the company plans to expand two lines in order to meet the demand it’s seeing in case-ready retail.
In the recent quarter, chicken prices reported by Tyson Foods were down 0.3%, from the prior year on the domestic side of the business. Tyson’s operating margin improved to 8.2% amid lower grain costs of $175 million in the quarter.
LEAN BEEF
Beef sales in the quarter totaled $3.825 billion, better than the $3.447 billion in the same quarter of 2013. Operating income in the segment was just $35 million, but that was a wide swing from the $26 million loss in the same quarter of 2013.
Smith said high live cattle prices kept Tyson on the sidelines through much of the second quarter, which allowed the company to better manage the margin spreads. The net operating margin for the quarter was 0.9%, well below the normalized range. Smith expects the back half of this year to mirror the first two quarters, which while positive is far from the company’s normal earnings potential in beef.
Steve Kay, publisher of Cattle Buyers Weekly, told The City Wire that high beef prices will likely keep consumer demand at bay through much of the summer grilling season. Smith said beef prices are up about 4% at retail, but they are up 13% at the wholesale level and consumers have not yet felt the brunt of record beef prices.
PORK PED
The pork segment posted operating income of $107 million on total sales of $1.487 billion, compared to operating income of $72 million on sales on segment sales of $1.311 billion during the same period of 2013.
“We expect industry hog supplies to decrease around 4% to 5% in fiscal 2014 compared to fiscal 2013, partially offset by increased average live weights,” Smith said.
Tyson will adjust its pork operational hours downward because of the negative impact the PED virus has had in hog supplies, according to Smith. He said pork prices are up at retail, but the cutout wholesale value has come down off of a record high which should allow for some promotional activity at the retail level by Memorial Day.
For fiscal 2014, Tyson expects its pork segment will be in its normalized margin range of 6% to 8%.
PREPARED FOODS GROWTH
Tyson’s prepared foods segment generated second quarter sales of $861 million, up 7.2% from the year-ago period. Operating income totaled $21 million, down fractionally the same period in 2013. The dip in operating income was attributed to higher raw material costs of $25 million, increased investments in the company’s lunchmeat business capacity and recent acquisitions.
Smith has said the prepared foods segment is a growth engine for the meat giant. The company continues to invest in this segment for longer term results. Much of the company’s capital expenditures this year— $650 million to $700 million — is earmarked for the prepared foods segment.
Tyson expects operational improvements and pricing to offset increased raw material costs in the coming months because Tyson uses a formula-based contract, but there is a slight lag time involved.
“As we continue to invest heavily in our growth platforms, we expect our prepared foods segment to be below its normalized range of 4.0% to 6.0% for fiscal 2014,” Smith noted in the release.