On the money: Tyson maintains emphasis on value-added
Tyson is looking to add value to its products and has new lines in the pipeline
US meat group Tyson Foods has revealed it will remain focused on adding value to its products in order to improve margins across its chicken, pork and beef businesses.
The company yesterday (7 May) booked an improved performance in the second quarter, as it reversed negative profit trends and reported a 6.4% rise in net profit in the three-month period to end March. Tyson's second quarter earnings beat market expectations with EPS coming in at $0.44, above consensus estimates of $0.38.
The company said it was able to improve its profitability thanks to a robust performance from its chicken and prepared foods units. Margins from the two businesses increased in the second quarter, which offset the lower margins from its beef and pork divisions.
However, over the first six months of Tyson's financial year, margins from its chicken division were down year-on-year, which contributed to fall in group-wide operating margins.
Tyson's management said it intends to continue to identify areas that it can add value to its offering in order to further protect margins.
"We're looking at how to really value up the mix, and in fresh meat you really have to say that the bulk of those price quotes are on commodity or second-value added raw products. Our whole thrust has always been to try to understand where we can add value to the customers," COO Jim Lochner said.
Tyson CEO Donnie Smith added the company has a number of new products in the pipeline, including Tyson Whole Grain Chicken Chunks and Tyson Stuffed Mini-Bread Bowls in the grocery channel, along with Tyson Grilled Chicken Tenderloins, which will be sold to club stores.
"Our case-ready beef and pork group has valued up proteins by pairing beef, pork, and chicken with fresh vegetables, seasonings, and sauces to create healthy, convenient meal solutions. This product line has seen double-digit growth this year," he added.
During the second quarter, Tyson's chicken sales edged up to $2.9bn, compared with $2.7bn in the year-ago quarter, despite a 1.6% dip in volume. However, the group was able to significantly improve its operating margin, which rose to 5% from 1.4% last year as Tyson more than compensated for increased grain and feed costs with operational efficiencies and improved mix and pricing.
Meanwhile, prepared foods sales increased to $807m, up from $778m, and the operating margin expanded from 4% to 5.5%, fuelled by mix changes and an increase in average sales prices.
"Results in its chicken segment were particularly robust, with revenues and margins outpacing our forecasts," BB&T analyst Heather Jones said.
However, Tyson's beef sales were hit by the widespread consumer backlash in the US against so-called 'pink slime' or - as the industry terms it - lean finely textured beef, an additive frequently used in ground beef.
While Tyson was able to maintain stable beef value sales, which remained flat at $3.4bn, sales volume contracted 10.7% in the quarter.
Commenting on the impact of the pink slime outcry, Lochner said the "unwarranted controversy... temporarily destroyed demand for ground beef, and beef in general, virtually overnight".
"This caused a rapid decline of over $120 per head over a four-week period. Personally I don't recall a revenue decline that steep," he said during a conference call with analysts.
Beef profits also felt the impact of moves to cut back production in order to balance supply with demand forecasts, management added.
However, Jones said the company's profile as a broad-based protein provider placed it in good stead to weather any negative developments in the categories in which it operates.
"Tyson's ability to consistently and significantly outpace the industry, as well as its spread business model, helps mitigate the current challenges in the pork and beef segment, while significantly improved chicken fundamentals are a very nice offset. For perspective, last year this time, it was very strong pork and beef fundamentals that helped offset chicken weakness. The model works," she insisted.
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