Finance

Tyson Foods hit by rising production costs

By Aidan Fortune contact

- Last updated on GMT

Tyson Foods hit by rising production costs

Related tags: Us, Beef, Poultry, Pork, Tyson foods

A double whammy of fire damage and rising overheads have cost US processor Tyson Foods in the fourth quarter of the year.

Despite growing year-on-year sales volumes 8.9% during the quarter, its operating income dropped from $819m in 2018 to $604m in 2019. For the 12 months ending 28 September 2019, volume sales were up 8.8% but income dropped from $3.03bn in 2018 to $2.82bn in 2019.

The decline was largely seen in the beef category that saw a 4.2% volume drop in the fourth quarter.

Regardless of the results, Tyson management remained upbeat.

“Fiscal 2019 was highlighted by significant progress in our strategy to grow our business through differentiated capabilities, deliver service and value to our customers, and sustain our company and our world for future generations,”​ said Tyson Foods’ president and CEO Noel White. “We expanded our global footprint, launched innovation in our iconic brands and our new alternative protein brand, and prepared for future growth by investing in technology and infrastructure.

“We’re very optimistic about fiscal 2020, and we currently expect to meet or exceed our long-term earnings algorithm of high single-digit adjusted earnings per share growth as we’re well positioned to take advantage of opportunities in the global marketplace.”

Fire impact

Its beef sales volume decreased due to a reduction in live cattle processing capacity from the temporary closure of its Kansas production facility as a result of a fire​.

Although Tyson’s beef operating income increased as it continued to maximize to revenues relative to live fed cattle costs, this was partially offset by increased operating costs and $31m of net incremental costs from the production facility fire. Looking ahead, it said: “We expect industry fed cattle supplies to increase approximately 2% in fiscal 2020 as compared to fiscal 2019. We expect ample supplies in regions where we operate our plants. For fiscal 2020, we believe our Beef segment's adjusted operating margin will be 6.5% to 7.5%, absent impacts from ASF.”

Its pork and poultry volumes both increased, with the latter driven by business acquisitions. Operating income in both divisions was hurt due to feed ingredient and raw material costs.

In its pork outlook, the business stated: “We expect industry hog supplies to increase approximately 3% in fiscal 2020 as compared to fiscal 2019. We expect increased livestock costs in fiscal 2020 as compared to fiscal 2019. For fiscal 2020, we believe our Pork segment's adjusted operating margin will be 6% to 8%, absent impacts from ASF.”

On the poultry side: “USDA projects a 2-3% increase in chicken production in fiscal 2020 as compared to fiscal 2019. For fiscal 2020, we believe our Chicken segment's adjusted operating margin will be 6% to 8%, absent impacts from ASF.”

Related topics: Financial, United States, Beef, Poultry, Pork

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