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Sales drop and plant fires hit Tyson Foods

Post a commentBy Aidan Fortune , 09-May-2017
Last updated on 09-May-2017 at 11:58 GMT2017-05-09T11:58:58Z

Tyson Foods said fires in two chicken plants hit income for the second quarter
Tyson Foods said fires in two chicken plants hit income for the second quarter

A combination of plant fires and declining sales has led US processor Tyson Foods to another quarter of decline.

In the second quarter of the year (ending 1 April 2017), the processor posted a 1% drop in sales compared to the same quarter in 2016, while its net income dropped from US$704 million (m) in Q2 2016 to $571m in 2017.

Tom Hayes, president and chief executive officer of Tyson Foods, remained optimistic about the quarter and the first half of 2017.

We generated record adjusted earnings per share (EPS) in the first half of the fiscal year. Despite seasonal challenges typical of our second quarter and one-time events, adjusted EPS was up 17% over the first half of fiscal 2016.

The company’s beef and pork divisions experienced the best quarter, albeit still with volume drops. It dropped beef prices 1.1% over the quarter, while its pork prices were increased a hefty 10.9%, boosting value sales in that division.

On the chicken side, Hayes attributed underperformance in the poultry sector to fires that took place at two of its chicken plants.

Negative prepared foods results

Our beef and pork segments generated tremendous operating income in the second quarter, allowing us to invest in the long-term growth of our value-added businesses.

Our prepared foods segment results were negatively affected by the ongoing challenges in our pizza toppings and ingredients meats businesses, discussed last quarter. We expect our results to improve as we continue to address operational efficiency and capacity through fiscal year 2018. Unfortunately, we experienced fires in two chicken plants in our second quarter. Had it not been for the fires, our chicken segment return on sales would have been within its normalised range.

Earlier this year, Tyson Foods announced plans to sell non-protein businesses Sara Lee Frozen Bakery, Kettle and Van’s and focus on its protein-packed brands. It expects to close these transactions within the next 12 months.

Looking ahead, it expects beef and pork supplies to increase 6-7% and 3-4% respectively in 2017 compared to 2016, and operating margins to be 5% and 12%. The US Department of Agriculture estimates that chicken production will grow 1-2% while Tyson expects that its chicken division’s operating margin will be 9-11%. On the prepared foods side, it does expect the acquisition of AdvancePierre to add $1.7 billion of revenue in 2018, although there will be “cost synergies” of $200m over the next three years.

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