Tyson Foods Inc. told investors at the Goldman Sachs 17th Annual Agribusiness Conference that its second fiscal quarter has been more challenging than anticipated due to margin compression in its Beef and Pork segments; however, the company remains optimistic about its results for the full year.
James Lochner, Tyson's chief operating officer, said, "Margins have been compressed throughout the past month as the value of beef has fallen more than the price of cattle. Historically, adjustments occur that allow for a spread between the revenue and the cattle cost. We run our plants for margin, not market share."
Tyson's pork business also experienced some margin compression in the current quarter, although there have been signs of improvement recently, Lochner said. "We expect to continue our strong performance in the back half of the year," he said.
Meanwhile, Tyson's Chicken segment has continued to do well. The company has said it expects a strong performance, particularly in the second half of the fiscal year, leading to continued optimism that the company's full-year results will be better than fiscal 2012.
"Demand is strong, and we're seeing signs of consumers trading from beef to chicken," Lochner said. "Even with pricing up substantially year over year, chicken is a good value for consumers, and food service continues to promote chicken heavily."
Lochner announced that Tyson is launching a new line of all natural chicken under the new NatureRaised Farms brand. The product line will include a variety of fresh products produced from cage-free chickens raised without the use of antibiotics or added hormones and fed a 100% vegetarian diet. NatureRaised Farms brand fresh chicken will be available for sale to retailers in April, and is just one example of how the company is growing offerings in higher margin, value-added products.
Dennis Leatherby, Tyson's executive vice president and chief financial officer, told investors at the conference there is value in the diversity of Tyson's multi-protein, multi-channel, multi-national business.
"We're going to grow sales of domestic value-added chicken and prepared foods," Leatherby said. "We're not a commodity protein company. That's not our goal, nor our destiny. Value added is currently about a third of our sales, which includes food service as well as branded retail products. Looking ahead to 2014 and beyond, we expect total company top-line sales to grow 3-4% annually, and value-added sales should grow 6-8% a year. We expect sales from international production to grow at an annual rate of 12-16%. International growth is focused on production and further processing in Brazil, China and India, in addition to our long-standing poultry business in Mexico. We're able to execute this growth strategy because we have a strong capital structure, and that creates opportunities for us."
Source: Tyson Foods Inc.