Tyson NPD to drive growth

Tyson NPD to drive growth

Tyson Foods has insisted its multi-protein approach leaves it well-placed to benefit in the remainder of the year as consumers opt for cheaper protein options over beef, with NPD set to drive future revenues.

In its second-quarter update, released yesterday (6 May), Tyson said its margins had been dented by lower beef sales. The high-margin beef segment suffered from lower demand as US consumers increasingly looking to cut household expenditure, opted for "value" protein options, such as chicken.

Tyson also cut its forecast for annual sales from US$35bn to $34.5bn. The company's shares fell in the wake of the results, closing down yesterday 3.33%. 

However, addressing analysts during a conference call, CEO Donnie Smith emphasised that, while the group's beef business had seen a soft quarter, its chicken business had benefited. "Total beef dollars sales increased nearly 2% but pounds declined nearly 4%. Chicken benefited from customers who move away from beef. Pounds sold were up 2%, while dollar sales were up 7.6%. Tyson, the number one brand of chicken in the US, drove category growth."

Smith added: "Our multi-protein, multichannel, multinational model provides for a balanced approach that enables us to take care of our customers and grow over time."

Of the group's protein businesses, beef has the highest margin. However, Tyson is working to increase its exposure to value-added - and therefore higher margin - sales across all of its categories, from beef to chicken and pork. Smith revealed this will be achieved through product development.

"Year-to-date, we've grown value-added sales by 3.3% as we started filling up the innovation pipeline," Smith said.

The chief executive reiterated the company's goal of growing value-added sales by 6-8% annually and said that the group is on-track to achieve this.

Tyson is pursuing an "aggressive" product launch schedule, with around 90 new items due to hit the shelves this year. For example: in hand-held Smith said Tyson is focused on "whole-grain items and bold flavours"; it is planning a line of gluten-free chicken nuggets and other gluten-free breaded products; and, in the no antibiotics ever category, the group is looking to build on the NatureRaised Farms brand of fresh chicken, which was launched in February.

The company, which generates the majority of its business in the US, is also looking to expand internationally and was upbeat on its performance in Brazil and Mexico. An outbreak of avian influenza in China has hit demand for poultry in the country, even though it has not "directly affected" Tyson's production, Smith said.

Tyson incurred an unrelated impairment charge in China after deciding to spend money lined up for investment in a poultry complex elsewhere. The company had expected for its Chinese operations to reach break-even point in the fourth quarter of the current financial year but the combination of lower demand in China for poultry and the impairment charge means that position is more likey to be reached in its new financial year.

Nevertheless, Smith was optimistic about Tyson's prospects for China and said the flu outbreak underlined the importance of the company's business model in the country.

"I think long term, this validates our business model in China, which emphasises biosecurity, supply-chain integrity and food safety," Smith insisted.

BB&T Capital Markets analyst Heather Jones said the loss from Tyson's beef division meant the company posted a "surprisingly weak Q2".

However, Jones was upbeat about the rest of the year for the company. "Management highlighted company specific issues that impacted Q2 performance. Those, however, have been or are close to being resolved. Further, overall industry fundamentals have improved. This, combined with exceedingly positive current trends/outlook in chicken, give us confidence that H2'13 should be much better than H1 and last year. In fact, we have raised our H2'13 estimate and believe that investors should buy on weakness," she wrote.

She also agreed with Smith's assessment that the avian flu outbreak in China "should benefit Tyson's business model there". She added increased international trade should also benefit the struggling beef business.

"Business to Japan has picked up, following its adoption of more relaxed import rules," she observed in an investor note. This, coupled with an improved margin outlook, boded well for Tyson's beef operations, Jones suggested.