Tyson Foods Inc. reported the results from its second quarter. Sales rose to $ 8.419 billion, up from 2012’s $ 8.268 billion. Operating income, however, dropped from $302 million to $174 million, and net income dropped from $166 million to $106 million.
"Our second quarter typically is our most challenging, and this quarter was no exception," said Donnie Smith, Tyson Foods' president and CEO. "However, our business is structured to withstand adverse conditions, and we worked through the issues while positioning ourselves for what we believe will be a strong performance in the second half of the year.
"In our Chicken segment, we continued to emphasize operational efficiencies, upgrading our product mix and pricing to offset $165 million in additional feed costs for the quarter. Our Beef segment suffered margin compression as consumers opted for the relative value of chicken. Our Pork segment faced periods of supply and demand imbalance after the loss of some export markets, while soft demand in food service impacted our Prepared Foods segment.
"Our EPS for the quarter wasn't at the level we'd like, but on an adjusted basis, we're about where we were at this point last year," Smith said. "I'm still confident our results for 2013 will be better than 2012."
Chicken Segment: Despite increased domestic and international production in the Chicken segment, total sales volumes decreased in the six months of fiscal 2013 due to reduced open-market meat purchases and mix of rendered product sales. The increase in average sales price in the second quarter and six months of fiscal 2013 was primarily due to mix changes and price increases associated with increased input costs.
“Since many of our sales contracts are formula based or shorter-term in nature, we were able to offset rising input costs through increased pricing and mix,” the company stated.
Operating income was positively impacted by increases in average sales price, improved live performance and operational improvements, as well as improved performance in our foreign-produced operations. These increases were partially offset by increased feed costs of $165 million and $335 million for the second quarter and six months of fiscal 2013, respectively.
Beef Segment: Fed cattle supplies decreased which drove up average sales price and livestock cost. Sales volumes decreased due to a reduction in outside trim and tallow purchases. Operating income decreased in the second quarter and six months of fiscal 2013 as the result of volatile market conditions, regional lower availability of live cattle supplies, reduced demand for premium beef products and increased operating costs.
Pork Segment: Live hog supplies increased which drove down average sales price and livestock cost. Sales volumes decreased as a result of balancing our supply with customer demand and reduced exports. While reduced compared to prior year, operating income remained strong in the six months of fiscal 2013 despite brief periods of imbalance in industry supply and customer demand.
Prepared Foods Segment: Although up slightly in the six months of fiscal 2013, total sales volumes decreased in the second quarter of fiscal 2013 due to reduced demand for certain foodservice products. The decrease in average sales price in the six months of fiscal 2013 was due to product mix and reduced raw material costs. Operating income decreased in the second quarter and six months of fiscal 2013 due to product mix changes related to reduced foodservice demand and additional costs incurred as we invested in our lunchmeat business.
Tyson said that capital investments will enable the company to maintain strong operating results.
“In fiscal 2013, we expect overall domestic protein production (chicken, beef, pork and turkey) to increase approximately 1% from fiscal 2012 levels. The drought conditions in 2012 reduced grain supplies, which is resulting in higher input costs as well as increased costs for cattle and hog producers,” the company said. Following are its projections for the rest of the year:
Chicken – Current USDA data shows U.S. chicken production to increase 2-3% in fiscal 2013 compared to fiscal 2012. Based on current futures prices, we expect higher feed costs in fiscal 2013 compared to fiscal 2012 of approximately $450 million. The capital investment and significant operational improvements we have made in our Chicken segment have better positioned us to adjust to rising feed costs. Additionally, many of our sales contracts are formula based or shorter-term in nature, which allows us to offset rising input costs through pricing. However, there may be a lag time for price changes to take effect. We anticipate our Chicken segment will return to its normalized range of 5.0%-7.0% for the second-half of fiscal 2013.
Beef – We expect to see a reduction of industry fed cattle supplies of 2-3% and beef exports to decrease in fiscal 2013 as compared to fiscal 2012. Although we generally expect adequate supplies in regions we operate our plants, there may be periods of imbalance of fed cattle supply and demand. For fiscal 2013, we believe our Beef segment will remain profitable, but will be below its normalized range of 2.5%-4.5%.
Pork – We expect industry hog supplies to be flat and pork exports to decrease compared to fiscal 2012. For fiscal 2013, we believe our Pork segment will be in its normalized range of 6.0%-8.0%.
Prepared Foods – We expect operational improvements and increased pricing to offset increased raw material costs. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through increased pricing. For fiscal 2013, we believe our Prepared Foods segment may be below its normalized range of 4.0%-6.0%.
Sales – We expect fiscal 2013 sales to approximate $34.5 billion mostly resulting from price increases related to expected decreases in domestic availability of certain protein and increased raw material costs.
Capital Expenditures – We expect fiscal 2013 capital expenditures will approximate $550-$600 million.
Source: Tyson Foods Inc.