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Tyson Sales Grow

29 July 2014

US – US meat and poultry processing giant Tyson has seen sales rise by nearly $2 billion in the first nine months of the financial year and by nearly $1 billion in the third quarter of the year.

For the nine month period sales rose from $25.48 billion in 2013 to $27. 475 billion and in the third quarter they rose from $8.731 billion to $9.682 billion.

Operating income for the nine months went up from $959 million to $1.124 billion but for the quarter operating income fell from $419 million to $351 million.

However, net income for the nine months rose from $517 million to $727 million and for the quarter net income rose to $260 million from $249 million in 2013.

Tyson said that the fall in operating income by $49 million in the Prepared Foods segment was for impairments related to the closure of three plants and operating income was reduced by $7 million in the Other sector for third party transaction fees incurred as part of the Hillshire Brands acquisition.

Chicken sales volumes for the third quarter and nine months of fiscal 2014 grew as a result of stronger demand for chicken products and mix of rendered product sales.
Average sales price decreased as feed ingredient costs declined, partially offset by mix changes.

Operating income for the third quarter of fiscal 2014 was negatively impacted by rapidly rising costs of outside meat purchases as well as operational disruptions at two of our facilities.

For the nine months of fiscal 2014, operating income increased due to higher sales volume and lower feed ingredient costs, partially offset by decreased average sales price. Feed costs decreased $120 million and $460 million for the third quarter and nine months of fiscal 2014, respectively.

Beef sales volumes decreased for the third quarter of fiscal 2014 due to a reduction in live cattle processed.

However, sales volumes were up for the nine months of fiscal 2014 due to better domestic demand for our beef products, partially offset by reduced exports.

Average sales price increased due to lower domestic availability of fed cattle supplies, which additionally drove up livestock costs.

Operating income decreased for the third quarter of fiscal 2014 due to higher fed cattle costs and periods of reduced demand for beef products, which made it difficult to pass along increased input costs, as well as lower sales volumes and increased operating costs. For the nine months of fiscal 2014, operating income increased due to improved operational execution and maximizing our revenues relative to the rising live cattle markets, partially offset by increased operating costs.

Pork sales volumes increased as a result of better domestic demand for our pork products. Average sales price increased due to lower total hog supplies, which additionally resulted in higher input costs.

Operating income increased as we maximised our revenues relative to live hog markets, partially attributable to operational and mix performance.

Prepared Foods sales volumes increased as a result of improved demand for our prepared foods products and incremental volumes from the purchase of three businesses.

Average sales price increased due to better product mix and price increases associated with higher input costs.

Operating income decreased as a result of higher raw material and other input costs of approximately $95 million and $160 million for the third quarter and nine months of fiscal 2014, respectively, and additional costs incurred as we invested in our growth platforms. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through pricing.

However, there is a lag time for price increases to take effect. Additionally, in the third quarter of fiscal 2014, we incurred a $49 million impairment charge related to the planned closure of three plants, which are expected to cease operation by mid-fiscal 2015.

"With $0.75 adjusted EPS, this was a record third quarter," said Donnie Smith, Tyson Foods' president and chief executive officer, (pictured).

"Overall, our results were in line with our expectations. The Chicken segment could have performed better had it not been for isolated issues at a couple of plants. The Beef segment finished the quarter remarkably well after a difficult start.

“The Pork segment had a record third quarter despite tight hog supplies due to the PED virus.

“The Prepared Foods segment had a disappointing quarter primarily due to the continued run up in pork raw material inputs.

“As part of our prepared foods strategy, on Friday we announced that we are closing three plants to improve capacity utilisation and streamline our cost structure. In addition to these plant closures, today we're announcing the sale of our operations in Brazil and Mexico for $575 million.

“Although these are good businesses with great team members, we haven't had the necessary scale to gain leading share positions in these markets. In the short term, we'll use the sale proceeds to pay down debt associated with our acquisition of Hillshire Brands.

“Longer term, we remain committed to our international business and will continue to explore opportunities to extend our international presence.

"We are nearing the end of what looks to be the best year in our company's history," Mr Smith said.

"We're looking forward to closing on the Hillshire acquisition before the end of our fourth quarter, and we're excited about combining the protein industry's best marketing and operations talent into one team.

“We'll be ready to start the new fiscal year together and anticipate delivering Tyson's sixth year in a row of strong earnings and operating income and also achieving our goal of at least 10 per cent EPS growth in 2015."

 

Chris Harris

Chris Harris



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