Tyson profit rises despite challenges
Tyson Foods on Monday reported a 2021 secondquarter profit of $476 million, up from a year ago, but operational issues and inflated costs are eating into earnings.
Sales volumes were down overall in the three months that ended April 3, brought on by issues related to the covid-19 pandemic such as high worker turnover and absenteeism, along with severe winter weather. Rising grain prices inflated costs, which Tyson passed on to customers on the retail side, and the use of a new type of male broiler chicken hurt operations.
“It’s unfortunate that we are experiencing these headwinds, but we are proud of where we are headed,” Tyson President and Chief Executive Officer Dean Banks said in a morning conference call. The company is focused on creating shareholder value and delivering strong results where it can, he said. It is also bracing for margin pressure in the coming quarters.
Despite challenges, the second-quarter results exceeded Wall Street expectations.
Sales climbed 4% to $11.3 billion compared with last year. Across beef, pork, chicken and prepared foods, price increases offset volume declines. Meanwhile, labor and weather challenges reduced production.
In the beef segment, sales were relatively flat from a year ago. Income nearly quadrupled on fatter margins to $445 million. Strong demand offset some costs and issues in the business. Income was also affected by a net derivative gain of $60 million and a cattle supplier’s misappropriation of company funds, which Tyson retrieved in the quarter, resulting in a $55 million gain.
In the pork segment, sales
climbed 2% year-over-year as volumes fell less than 1%. Income declined 28% to $67 million on tighter margins. This was a result of production inefficiencies and costs related to covid-19. A net derivative loss of $50 million also affected income.
In the chicken segment, sales rose 5% compared with last year. Higher prices offset volume declines. Income dropped to $6 million on razor-thin margins, compared with $99 million in the same quarter a year ago.
Donnie King, Tyson chief operating officer and president of poultry, was candid about the company’s chicken results, saying the fundamentals were good but higher grain, labor and freight costs, along with absenteeism and worker turnover, are eating into earnings. The company is also buying more meat from outside sources than King said he would like, citing limited chick availability and hatchery issues.
“We know where we are, and we’re not happy with where we are,” he said.
The hatchery issues stem from Tyson’s recent decision to switch to a new type of male broiler. King said the bird had improved growth characteristics, but the company didn’t expect a tradeoff when it came to hatchery numbers. As a result, the company is switching back to a more traditional type of male bird, but the problem won’t be fully fixed until the middle of 2022, he said. Meanwhile, growers dealt with power failures and other weather-related issues.
In the prepared foods segment, which includes breakfast sandwiches, plant-based foods and other products, sales increased 4% from last year on higher prices that offset a decline in volumes. Income rose 14% to $217 million on slightly higher margins. Along with production challenges, the business recorded a $105 million increase in raw material costs during the first six months of fiscal 2021. A net derivative gain of $35 million also affected income.
Looking ahead, Tyson executives expect prepared foods results to be in-line with fiscal 2020, while pork and chicken are expected to be lower. They also expect beef results to be higher than last year.
Tyson’s adjusted earnings per share were $1.34, surpassing analyst estimates from FactSet of $1.15, and a Stephens Inc. estimate of $1.08.
Analyst Ben Bienvenu of Stephens said in a research brief that Tyson’s outlook was expected.
“We think results are inflecting out of a trough and the company is squarely positioned to benefit from post-covid reopening demand,” he wrote.
Tyson has been investing in automation and technology to counter recent labor challenges. Some workers have refused to report because of child care and health concerns related to the coronavirus, King said.
“It takes about six days to get five days of work done,” he said.
Banks said government stimulus checks have also contributed to worker shortages.
During the second quarter, Tyson recorded spending $95 million on covid-19 costs such as personal protection equipment, donations and viral testing. It has vaccinated more than 42,000 workers through vaccination clinics in more than 30 states, Banks said. For fiscal 2021, the company anticipates incurring $365 million in total covid-19 costs.
Regarding finances, Tyson paid off $1 billion of debt and had liquidity of $2.6 billion at the end of the quarter.
Coming out of what has been a difficult quarter for Tyson, coupled with a pandemic, inflationary costs and more, King said there is upside in the long term for investors, customers and consumers.
“The future looks a lot brighter,” King said.
Tyson shares climbed 2 cents Monday to close at $78.82 on the New York Stock Exchange.