Tyson is working to offset higher input costs

Tyson is working to offset higher input costs

Tyson Foods said today (22 November) that it is working to limit the impact of higher input costs, particularly corn prices, through pricing, efficiency and product mix.

Speaking to analysts after Tyson booked its full-year results, president and CEO Donnie Smith said the company would continue to invest in its manufacturing network to improve efficiency.

"We began in 2009 and will continue in 2011 investing capital in the vast majority of our domestic chicken plants," Smith said. "In our fresh plants, the primary focus of our spend will be to increase yield, flavour and line efficiencies, while concurrently improving our flexibility to produce a more market relevant product mix. We're also investing in our further processing pants to improve line efficiencies to keep pace will customer demand for our value-added products."

With these improvements, the company is looking to see a return of 25-40% and he said the company is "confident" that it will be able to mitigate "at least some of the inputs" with lower conversion costs.

Chief operating officer Jim Lochner attributed Tyson's full-year results and record fourth-quarter performance to its "ongoing efforts to gain operational efficiencies and ongoing creation of a profitable product mix."

Tyson realised US$400m worth of operational efficiencies during 2010 and is planning to save $200m in the coming fiscal year. The company is also looking to raise a further $200m in "price and mix improvements" during the year, Lochner said. The Tyson COO said the moves should offset price and grain increases during the year.

However, the meat processor remains cautious about input price volatility. Lochner said that Tyson is working to move away from long-term fixed deals on price towards near-term agreements to "absorb rising input costs more effectively". Lochner said this would be an "important" move, with "inputs, especially pork and wheat are likely to increase again".

Smith would not be drawn in detail but he said that, in terms of grain supply for 2011, Tyson is in "good shape" for the first quarter and has extended "some coverage" into the second quarter.

He remained confident Tyson would be able to weather increasing input costs. "If Tyson was the same company as we were a few years ago, I'd be concerned," Smith said. "But Tyson isn't the same company it was two years ago. We're not a $28bn chicken company, we're a $28bn diversified protein company. Yes we'll be dealing with challenging market conditions, but it will still be a good year. We know what we're up against and we've planned accordingly."

Tyson, meanwhile, revealed plans to continue reducing chicken production into the second quarter. Lochner said the company will reduce inventories in chicken through the second quarter, "as perfect growing conditions resulted in heavier weight and excess pounds on the market" through October and November.

"Our goal is to match production to our sales forecast, while keeping inventory at appropriate levels. Therefore we are continuing our planned production cuts into the second quarter," said Lochner.

Shares in Tyson Foods were up 4.12% to $16.29 a share at 12:28ET.