Tyson sees "great" Q1 following Hillshire acquisition

Tyson sees "great" Q1 following Hillshire acquisition

Tyson Foods said it made a "great" start to the year, as sales and earnings rose in the wake of its acquisition of Hillshire Brands.

"Tyson's fiscal year is off to a great start with our first full quarter as a combined company producing record sales and adjusted operating income," said president and CEO Donnie Smith.

The company said sales were up 23.5%, climbing to US$10.82bn. Gains were driven by a one-fifth increase in beef sales. Tyson's prepared foods arm, a division augmented by Hillshire, saw revenue rise by almost one-quarter.

Operating profit growth mirrored the group's top line expansion, rising 23.5% to $509m. On an adjusted basis, stripping out one-time costs associated with Hillshire, operating income was up 37% to $564m. Net income increased 21.7% to $309m as higher finance expenses were partially offset by lower tax costs.

During the period, Tyson suggested it made strides in integrating the Hillshire business. "We achieved $60m in synergies in the first quarter, and we are confident we will exceed the $225m synergy target for this fiscal year," Smith predicted. The group was also able to use its "strong" cash flow generation to pay down debt by $650m in the period.

Shares in the meat group rose almost 2% in pre-market trading in New York today. 

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TYSON FIRST QUARTER ADJUSTED OPERATING INCOME UP 37%

01/30/15

Strong Cash Flows Used to Reduce Debt $650 Million

SPRINGDALE, Ark., Jan. 30, 2015 (GLOBE NEWSWIRE) -- Tyson Foods, Inc. (NYSE:TSN), today reported the following results:

(in millions, except per share data) First Quarter
  2015 2014
Sales  $ 10,817  $ 8,761
Operating Income 509 412
     
Net Income 310 252
Less: Net Income (Loss) Attributable to Noncontrolling Interests 1 (2)
Net Income Attributable to Tyson  $ 309  $ 254
     
Adjusted1 Operating Income  $ 564  $ 412
     
Net Income Per Share Attributable to Tyson  $ 0.74  $ 0.72
Adjusted1 Net Income Per Share Attributable to Tyson  $ 0.77  $ 0.72
1Adjusted Operating Income and Adjusted Net Income Per Share Attributable to Tyson are explained and reconciled to comparable GAAP measure at the end of this release

First Quarter Highlights

  • Record sales of $10.8 billion, an increase of 23% over first quarter of prior year
  • Record adjusted operating income up 37% to $564 million
  • Adjusted EPS up 7% to $0.77 compared to $0.72 in first quarter of prior year
  • Reduced total debt by $650 million during the first quarter
  • Overall adjusted operating margin was 5.2%
  • Chicken segment operating margins of 12.6% in first quarter
  • Captured $60 million in synergies during the first quarter

"Tyson's fiscal year is off to a great start with our first full quarter as a combined company producing record sales and adjusted operating income," said Donnie Smith , president and chief executive officer of Tyson Foods. "We used our strong cash flows to pay down debt by$650 million in the quarter.

"We achieved $60 million in synergies in the first quarter, and we are confident we will exceed the $225 million synergy target for this fiscal year. We also reiterate our guidance of adjusted earnings in the range of $3.30-3.40 per share based on the strength of our diversified and balanced business model.

"We are proceeding with the integration of Hillshire Brands. I want to thank our team members for their ability to quickly focus on the business as we brought the two companies together. The first quarter was a crucial time, and the team handled it well. Their efforts will be vital to our success going forward, and I don't think Tyson Foods could be in a better position. We've set ourselves up for another record year, and we are building momentum that will take us into fiscal 2016."

SEGMENT RESULTS (in millions)

 
Sales
(for the first quarter ended December 27, 2014, and December 28, 2013)
  First Quarter
      Volume Avg. Price
  2015 2014 Change Change
Chicken  $ 2,780  $ 2,656 3.1% 1.5%
Beef 4,391 3,734 (2.7)% 20.9%
Pork 1,540 1,424 1.1% 7.0%
Prepared Foods 2,133 907 89.5% 24.1%
International 305 327 (3.8)% (2.9)%
Other n/a n/a
Intersegment Sales (332) (287) n/a n/a
Total  $ 10,817  $ 8,761 7.7% 14.7%
 
Operating Income (Loss)
(for the first quarter ended December 27, 2014, and December 28, 2013)
  First Quarter
      Operating Margin
  2015 2014 2015 2014
Chicken  $ 351  $ 253 12.6% 9.5%
Beef (6) 58 (0.1)% 1.6%
Pork 122 121 7.9% 8.5%
Prepared Foods 71 16 3.3% 1.8%
International (14) (28) (4.6)% (8.6)%
Other (15) (8) n/a n/a
Total  $ 509  $ 412 4.7% 4.7%

Note: During the second quarter of fiscal 2014, we began reporting our International operation as a separate segment, which was previously included in our Chicken segment. All periods presented have been reclassified to reflect this change.

Adjusted Segment Results (in millions)

 
Adjusted Operating Income (Loss)
(for the first quarter ended December 27, 2014, and December 28, 2013)
  First Quarter
      Adjusted Operating Margin
  2015 2014 2015 2014
Chicken  $ 351  $ 253 12.6% 9.5%
Beef (6) 58 (0.1)% 1.6%
Pork 122 121 7.9% 8.5%
Prepared Foods 111 16 5.2% 1.8%
International (14) (28) (4.6)% (8.6)%
Other (8) n/a n/a
Total  $ 564  $ 412 5.2% 4.7%

Adjustments to Segments for the first quarter of fiscal 2015

  • Prepared Foods operating income was adjusted for the following:
    • Increase of $36 million of ongoing costs related to a legacy Hillshire Brands plant fire.   
    • Increase of $4 million related to merger and acquisition costs.
  • Other adjusted operating income increased by $15 million related to merger and integration costs.

Adjusted operating income and adjusted operating margin are presented as supplementary financial measurements in the evaluation of our business. We believe the presentation of adjusted operating income and adjusted operating margin helps investors assess our financial performance from period to period and enhances understanding of our financial performance; however, adjusted operating income and adjusted operating margin may not be comparable to those of other companies in our industry, which limits the usefulness as comparative measures. Adjusted operating income and adjusted operating margin are not measures required by or calculated in accordance with GAAP and should not be considered as substitutes for any measures of financial performance reported in accordance with GAAP. Investors should rely primarily on our GAAP results, and use non-GAAP financial measures only supplementally in making investment decisions.

Summary of Segment Results

  • Chicken - Sales volume grew as a result of stronger demand for chicken products. Average sales price increased as a result of market conditions and sales mix changes. Operating income increased due to higher average sales price and volumes in addition to lower feed ingredient costs which decreased $110 million during the first quarter of fiscal 2015.
  • Beef - Sales volume decreased due to a reduction in live cattle processed. Average sales price increased due to lower domestic availability of beef products. Operating income decreased due to higher fed cattle costs and periods of reduced consumption of beef products, which made it difficult to pass along increased input costs, as well as lower sales volumes and increased operating costs.
  • Pork - Increased demand for our pork products drove higher average sales price and sales volume. Additionally, our average sales price increased due to lower total hog supplies which resulted in higher input costs. Operating income remained strong as we maximized our revenues relative to live hog markets, partially attributable to operational and mix performance.
  • Prepared Foods - Sales volume increased primarily due to incremental volumes from the acquisition of Hillshire Brands as well as improved demand for our prepared foods products. Average sales price increased due to price increases associated with better product mix which was positively impacted by the acquisition of Hillshire Brands, as well as increased prices associated with higher input costs. Despite incurring $10 million of higher raw material costs related to our legacy Prepared Foods business along with $40 million of ongoing costs related to a legacy Hillshire Brands plant fire and merger and acquisition costs, operating income improved due to an increase in sales volume and average sales price mainly attributed to Hillshire Brands. Additionally, Prepared Foods operating income was positively impacted by $55 million related to profit improvement initiatives and Hillshire Brands synergies.
  • International - Sales volume decreased due to the sale of the Brazil operation during the first quarter of fiscal 2015. Average sales price decreased due to supply imbalances associated with weak demand in China. Operating loss improved due to the sale of theBrazil operation and better market conditions in Mexico.

Outlook

In fiscal 2015, we expect overall domestic protein production (chicken, beef, pork and turkey) to increase approximately 1% from fiscal 2014 levels. Grain supplies are expected to increase in fiscal 2015, which should result in lower input costs as well as decreased costs for cattle and hog producers. The following is a summary outlook for each of our segments, as well as an outlook on sales, capital expenditures, net interest expense, liquidity and share repurchases. Our accounting cycle results in a 53-week year in fiscal 2015 as compared to a 52-week year in fiscal 2014. Accordingly, the outlook is based on a 52-week year.

  • Chicken – Current USDA data shows an increase in chicken production of 3% in fiscal 2015. More recent data indicates a greater increase in supply; however, we believe demand will more than keep pace with the supply change. Based on current futures prices, we expect lower feed costs in fiscal 2015 compared to fiscal 2014 of approximately $400 million. Many of our sales contracts are formula based or shorter-term in nature, but there may be a lag time for price changes to take effect. Based on the strong demand forecast and anticipated favorable pricing environment, we now believe our Chicken segment's operating margin will be above 11% for the remainder of fiscal 2015.
  • Beef – We expect to see a reduction of industry fed cattle supplies of 4-5% in fiscal 2015 as compared to fiscal 2014. Although we generally expect adequate supplies in regions we operate our plants, there may be periods of imbalance of fed cattle supply and demand. For fiscal 2015, we believe our Beef segment's profitability will be slightly below fiscal 2014.
  • Pork – We expect industry hog supplies to increase around 2-3% in fiscal 2015 compared to fiscal 2014. For fiscal 2015, we believe our Pork segment's operating margin will be in its normalized range of 6-8%.
  • Prepared Foods – We are proceeding with the integration of Hillshire Brands. In fiscal 2015, we expect to realize in excess of $225 million of synergies from the acquisition as well as our profit improvement plan for our legacy Prepared Foods business, with the majority to be realized in our Prepared Foods segment. Also, we believe our improved brand portfolio and innovation pipeline will partially offset expected input cost inflation. We expect our fiscal 2015 operating margin will be in excess of 6%, and the long-term operating margin for this business should be between 10-12%.
  • International – We expect to complete the sale of our Mexico chicken production operation in the second quarter of fiscal 2015. As a result, we expect our International revenues in fiscal 2015 to decrease by approximately $600-650 million as compared to fiscal 2014. Excluding any gain associated with the sale of our Mexico operations, we expect the International segment's adjusted operating loss to improve by approximately $35 million in fiscal 2015.
  • Sales – We expect fiscal 2015 sales to approximate $42 billion as we integrate Hillshire Brands and continue to accelerate growth in domestic value-added chicken sales and Prepared Food sales.
  • Capital Expenditures – We expect fiscal 2015 capital expenditures to be approximately$900 million.
  • Net Interest Expense – We expect fiscal 2015 net interest expense to be approximately$280 million.
  • Liquidity – We expect total liquidity, which was $1.6 billion at December 27, 2014, to be above our goal to maintain liquidity in excess of $1.2 billion.
  • Share Repurchases – We currently plan to repurchase a number of shares equivalent to the dilution expected to be realized from the current fiscal year grant under our stock-based compensation programs.

Original source: Tyson Foods