Net income went from $298m in Q1 2011 to $156m in Q1 2012, and the company explained the fall was mainly caused by a lower operating margin in the beef sector. “Our beef segment is experiencing a rough patch, as a result of challenging market fundamentals. Although we are still outperforming industry indexes, if current conditions continue, our beef results will be pressured in our second quarter,” said Tyson’s president and CEO Donnie Smith.
The chicken segment is suffering from high feed costs, but returned to profitability with a $32m operating income, after an $82m loss in Q4 2011. “The chicken segment is improving, with a 1.2% return on sales. And although that’s still well below the normalised operating margin range, we’re pleased with the progress from Q4, as lower supplies have supported pricing. Supply and demand appear to be in balance (...) but we need to keep a careful eye on the impact that price increases may have on demand, and remain flexible so as not to overproduce consumer demand for our products,” Smith added.
Pork performed strongly, with a $165m operating income, or 11.2% of sales, and Smith said the company expected the segment to continue to do “exceptionally well” in the future.
Tyson forecast further recovery in 2012 for the chicken segment, helped by a decline in domestic production that will improve pricing conditions. The beef segment is also expected to recover in the second half of fiscal 2012. James V Lochner, Tyson’s chief operating officer, said: “We originally expected to see fiscal 2012 fed steer and heifer slaughter decrease by 1% to 2%, based on the 2010 calf crop trend and the trend line in heifer retention.
“Since the industry processed 3.6% fewer animals in our first quarter and the cattle on feed report implies they are still in the pipeline, we anticipate availability of fed steers and heifers to be adequate or even greater for the balance of fiscal 2012. As a result, we expect our beef margins to improve through the quarter and throughout the year.”
The company predicted overall sales to exceed $34bn in 2012, mostly due to price increases. “Our Q1 results demonstrate that we are competitive and that our multi-protein, multi-channel, multinational business puts us in a position to deliver sustainable earnings over time,” Smith added.