Tyson Foods Inc. has announced plans to discontinue operations at three facilities. The closings will enable the company to use more of the available production capacity at some of its other prepared foods plants, the company said in a statement.

Tyson Foods’ Cherokee, Iowa, plant will close effective September 27, while the company’s Buffalo, N.Y., and Santa Teresa, N.M., plants are expected to cease operations during the first half of calendar 2015. The decision will affect approximately 950 people, including 450 at Cherokee, 300 at Buffalo and 200 at Santa Teresa. 

“This is a very difficult decision since it affects the lives of our team members and their families,” said Donnie King, president, prepared foods, customer and consumer solutions for Tyson Foods. “However, these plants have been struggling financially. After long and careful consideration, we’ve concluded it no longer makes business sense to keep them open.”

The planned closures are due to a combination of factors including changing product needs, the age of the Cherokee facility and prohibitive cost of its renovation and the distance of the Buffalo and Santa Teresa plants from their raw material supply base in the Midwest. In addition, the closings will allow the company to shift some of the production and equipment to other, more cost-efficient Tyson Foods locations. 

Affected workers will be encouraged to apply for openings within the company and also will be invited to job fairs Tyson Foods plans to host.  In addition, the company intends to work with state officials to ensure the employees are informed about unemployment benefits and any potential re-training opportunities.

All three plants have been part of Tyson Foods since 2001, when the company acquired IBP, inc. The Cherokee plant, which Tyson Foods leases, has been producing processed meats since 1965. It currently makes deli meats, hams, Canadian bacon and hot dogs. The Buffalo facility produces hot dogs, sausage  and hams. It first opened in 1969 and operated as Russer Foods until 1999, when it was acquired by IBP.  Santa Teresa makes a variety of cooked products including dinner meats, diced ham and roast beef. The facility was built by John’s Brothers and opened in the spring of 1982. It became part of IBP in 1994.

Tyson Foods also announced its results for the third quarter. The company reported sales of $9.682 billion, an increase from last year’s results of $8.731 billion. For the first three-quarters of the fiscal year, Tyson has reported sales of $27.475, which puts it more than $2 billion ahead of last year’s pace.

“With $0.75 adjusted EPS, this was a record third quarter,” said Donnie Smith, Tyson Foods’ president and chief executive officer. “Overall, our results were in line with our expectations. The Chicken segment could have performed better had it not been for isolated issues at a couple of plants. The Beef segment finished the quarter remarkably well after a difficult start. The Pork segment had a record third quarter despite tight hog supplies due to the PED virus. The Prepared Foods segment had a disappointing quarter primarily due to the continued run up in pork raw material inputs. As part of our prepared foods strategy, on Friday we announced that we are closing three plants to improve capacity utilization and streamline our cost structure. In addition to these plant closures, today we’re announcing the sale of our operations in Brazil and Mexico for $575 million. Although these are good businesses with great team members, we haven’t had the necessary scale to gain leading share positions in these markets. In the short term, we’ll use the sale proceeds to pay down debt associated with our acquisition of Hillshire Brands. Longer term, we remain committed to our international business and will continue to explore opportunities to extend our international presence.

“We are nearing the end of what looks to be the best year in our company’s history,” Smith said. “We’re looking forward to closing on the Hillshire acquisition before the end of our fourth quarter, and we’re excited about combining the protein industry’s best marketing and operations talent into one team. We’ll be ready to start the new fiscal year together and anticipate delivering Tyson’s sixth year in a row of strong earnings and operating income and also achieving our goal of at least 10% EPS growth in 2015.”

Chicken segment sales volumes for the third quarter and nine months of fiscal 2014 grew as a result of stronger demand for chicken products and mix of rendered product sales. Average sales price decreased as feed ingredient costs declined, partially offset by mix changes. Operating income for the third quarter of fiscal 2014 was negatively impacted by rapidly rising costs of outside meat purchases as well as operational disruptions at two of our facilities. For the nine months of fiscal 2014, operating income increased due to higher sales volume and lower feed ingredient costs, partially offset by decreased average sales price. Feed costs decreased $120 million and $460 million for the third quarter and nine months of fiscal 2014, respectively.

Beef segment sales volumes decreased for the third quarter of fiscal 2014 due to a reduction in live cattle processed. However, sales volumes were up for the nine months of fiscal 2014 due to better domestic demand for beef products, partially offset by reduced exports. Average sales price increased due to lower domestic availability of fed cattle supplies, which additionally drove up livestock costs. Operating income decreased for the third quarter of fiscal 2014 due to higher fed cattle costs and periods of reduced demand for beef products, which made it difficult to pass along increased input costs, as well as lower sales volumes and increased operating costs. For the nine months of fiscal 2014, operating income increased due to improved operational execution and maximizing revenues relative to the rising live cattle markets, partially offset by increased operating costs.

Pork segment sales volumes increased as a result of better domestic demand for pork products. Average sales price increased due to lower total hog supplies, which additionally resulted in higher input costs. Operating income increased as Tyson maximized our revenues relative to live hog markets, partially attributable to operational and mix performance.

Sales volumes for prepared foods increased as a result of improved demand for products and incremental volumes from the purchase of three businesses. Average sales price increased due to better product mix and price increases associated with higher input costs. Operating income decreased as a result of higher raw material and other input costs of approximately $95 million and $160 million for the third quarter and nine months of fiscal 2014, respectively, and additional costs incurred as we invested in our growth platforms. Because many of Tyson’s sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through pricing. However, there is a lag time for price increases to take effect.

In fiscal 2015, Tyson said it expects overall domestic protein production (chicken, beef, pork and turkey) to increase approximately 1% from fiscal 2014 levels. Grain supplies are expected to increase in fiscal 2015, which should result in lower input costs as well as decreased costs for cattle and hog producers.

Source: Tyson Foods Inc.