Tyson Foods has indicated it is intensifying its focus on prepared foods as the US-based meat giant continues to build a portfolio of “value-added” products.
The beef, chicken and pork processor announced its annual results on Monday (18 November), which included record underlying earnings and sales. The numbers, as well as an upbeat outlook for the new financial year, boosted Tyson’s shares, which continued to rise today.
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Higher profits from chicken and beef, Tyson’s two largest businesses, were key to its results. Tyson said it expects profits from chicken to grow again in the new financial year. In beef, the company sees earnings being roughly level with the year just reported but it said it focus on driving revenue.
However, perhaps Tyson’s most interesting comments came on its plans for its prepared foods business. The unit is Tyson’s smallest – accounting for just 10% of sales in 2012/13 – and profits from the division fell during the year as, the company insisted, it ran up costs investing in the unit.
Nevertheless, Tyson clearly has big ideas for prepared foods: alongside its results, the company announced a shake-up of its management structure that will see it create a senior role for its prepared foods business. Tyson has effectively decided to split the role of Donnie King, senior group vice president of poultry and prepared foods, in two. King will lead prepared foods; Noel White, SVP for Tyson’s fresh meats division, will become president of poultry.
Donnie Smith, Tyson’s president and CEO, said: “Separating our poultry and prepared foods businesses will give us sharper focus in two critical, expanding areas.”
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By GlobalDataSpeaking to analysts after Tyson’s results were published, Smith said the company had “identified opportunities to grow retail value-added sales beyond centre-of-the-plate chicken”. The breakfast category, he said, was one deemed to have “high potential”. In January, the company plans to launch a breakfast brand, Day Starts, that will include “biscuit sandwiches, flatbreads and wrapped omelettes”. Smith also said Tyson’s work with its lunchmeat brands would leave the company “very well positioned” in that category.
That said, with profits from prepared foods down year-on-year, Tyson faced a question on whether it would look at M&A to grow the business. “I’m just curious about that sort of make or buy proposition in packaged meats,” JP Morgan analyst Ken Goldman said.
Smith said Tyson had its eye on M&A but would also look to grow its existing prepared foods businesses. “We absolutely have our eye on multiple ways to grow our prepared foods business. With our cash flow, it’s obvious that acquisitions are within our view,” he said. “We approach them fairly clinically. We want to make sure that an acquisition can be accretive to our ROIC within a fairly short and reasonable period of time.”
He added: “But we’re also committed with our current facilities to continue to improve.”
COO Jim Lochner, who is stepping down from the role at the end of this new financial year, added: “I think some people sometimes underestimate the startup cost and investment in G&A, putting the right organisational structures, the MAP spend. They don’t accrete earnings right away. You’ve got to bet on them going forward. So that’s part of what we saw on the dilution this year and particularly this quarter, as we look at multiple categories. We’ve got our eye on a lot of things, and this area has a lot of potential and we put a lot of manpower and good talent around it.”
When one looks at the broader Tyson portfolio, prepared foods is, at present, a small piece of the pie. However, meat processing can be volatile, especially with the vagaries of commodity prices, or, say, safety issues in emerging markets – as Tyson found in the last year with avian flu in China.
Tyson still sees opportunity in each of the proteins, not least in poultry, and is hoping returns from its international operations will improve.
However, has built a multi-protein model to diversify its business and to absorb commodity volatility or emerging market issues. Prepared foods is another way of Tyson broadening its business. It faces stiff competition from the likes of Hillshire Brands but has faith its moves will pay off.
