US meat giant Tyson Foods has said it will look to accelerate growth in value-added poultry, prepared foods and in its international business to drive sales over the next three years.
Tyson yesterday (19 November) booked higher annual sales but a drop in full-year profits as it battled increasing grain and feed ingredients costs.
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CEO Donnie Smith told analysts Tyson’s “destiny” was not to become a “low-cost commodity protein company”.
He said: “Thinking about what we’ve accomplished over the last three years in a sluggish economy with unfavourable market dynamics and staggering input cost increases, it really is impressive.”
However, he added: “Our customers and our stakeholders need us to grow into a solution-providing food company. We’ve laid the foundation, and we can never forget what got us to this point. But what got us here, won’t get us there.”
Smith said Tyson expects to see its sales grow 3-4% annually over the next three years as a result of a focus on accelerating growth in domestic value-added poultry and prepared foods divisions and in its international business.
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By GlobalDataDomestic value-added sales are expected to grow at twice that rate, Smith said, or at 6% to 8%, with sales from international production predicted to grow at 12% to 16% per year.
“We will grow our existing domestic businesses as our customers’ go-to supplier by providing quality, service and innovation. We’ll make headway into other channels like convenience stores. We’ll focus on developing new value-added products. And of course, we’ll grow our international business. Our intention is to grow that business aggressively.”
Smith said Tyson will look to grow its divisions in Brazil and China – countries where the company’s foreign start-up businesses incurred operating losses of around $105m in fiscal 2012.
“In China, as we bring on more company-owned housing in 2013, allowing us to move more of our mix away from wholesale and into more desirable channels, we will reduce our losses substantially,” Smith said. “We’re also executing better in Brazil, and we’ll benefit from the progress we’re making there in moving our mix to include more value-added offerings.”
He added Tyson is also planning to gain $100m in operating efficiencies in its poultry and prepared foods businesses this year through an “upgrade” of its product mix with more value-added items throughout all segments.
In particular, Smith said the company would look to grow value-added products in its Donnie King poultry and prepared foods business.
“Our task over time is to have more and more of the sales in this business as being value-added. Now let me hasten on to say that we also have value-added categories in beef and pork as well, and then our international business will continue to grow.”
Smith said the company’s focus on value-added, along with its buy-versus-grow strategy may help reduce its exposure to rising commodity costs. Tyson saw its operating profit slide 3.1% in 2012, which it blamed on increased grain and feed ingredients costs of $320m for the year.
The company said it is anticipating an incremental $600m in feed ingredient cost in fiscal 2013, which it says it will need to offset through pricing and “other measures”.
“Our buy-versus-grow strategy really does reduce our exposure to the volatility in the commodity pricing, the commodity pieces of this business. When you take that and you combine that with our mix changes and our ability to take price increases … we’re not going to be dependent on the market necessarily for our future. It really is about reducing our exposure to the commodity side with our buy-versus-grow strategy and improving our value-added mix.”
Smith said the company is “comfortable” with the foundation it has laid and with its balance sheet.
“We’re going to be able to not just overcome the hills and the challenges that come, but also be able to grow our business and grow our EPS with all the levers we have to pull, and with the innovation that we can bring to the market.”
BB&T Capital Markets analyst Heather Jones said Tyson delivered a “robust” set of results, which she said bolstered the company’s “long-standing assertion” that its business model is “fundamentally different than just five years ago”.
“It put meat on the argument that not only should it be able to generate relatively stable earnings given the multiple levers it has to pull, but should also be able to post meaningful secular growth on the back of its forays into international, as well as its further push into value-added,” Jones said.
“In our view, the reduced likelihood of dramatic swings in earnings and a secular earnings growth should yield multiple expansion. Consequently, we still foresee meaningful potential upside to the shares over the next 12 months.”
For more information on Tyson’s earnings call, visit Seeking Alpha.
