An improved environment for consumer spending, increased meat supplies and lower animal feed and care costs also helped the largest US meat processor’s operating income climb 38% to $776 million in the first quarter compared to the same time last year, executives said Feb. 5.
“Fiscal 2015 is off to a great start with record EPS of $1.15, up 49% over Q1 of 2015’s adjusted results. All of our segments performed very well with prepared foods and chicken producing record operating income for the quarter, pork had its second best quarter ever, while beef showed significant improvement over Q4 of 2015,” Donald Smith, president and CEO, told analysts Feb. 5.
He attributed the strong results in part to growing US cattle herds and diversification in chicken products. In addition, the company corrected for price realization of packaged foods on the shelf, which boosted volume sales.
“Macro fundamentals” help sales
Tyson Foods also attributed its strong profit to improving “macro fundamentals” that are empowering consumers to spend more.
“We’ve got the lowest unemployment we’ve had since 2008, we got really cheap gas prices and that is returning disposable income to the consumer, and we are seeing traffic up a little bit at food service” as a result, Smith said.
Also, he added, “we are seeing a movement to the perimeter of the store, which is where we have great strength,” especially with the “Core 9” packaged retail brands, including Jimmy Dean, Tyson, Hillshire Farm, Ball Park and Aidells.
Americans’ shift toward more snacking and their ongoing love affair with breakfast all day also are fueling growth, he said.
He explained: “Not all snacking is created equal, right? What continues to grow in the snacking category is protein snacking … and as you know that is a major focus for us in our innovation this year.”
Likewise, in the frozen section, “breakfast and value-added poultry are two areas that are growing faster than total frozen and total food and beverage, and that’s our key focus,” Smith said.
More broadly speaking, he added: “84% of the refrigerated categories in which we compete are growing and then 87% of the fresh categories in which we compete are growing and it really reinforces our statement around having advantaged brands,” meaning the Core 9, “in advantaged categories.”
Q1 is just the foundation
Smith predicts Tyson will hold on to its edge in the categories in which the Core 9 compete now that price declines related to commodities are reflected at retail.
“We were a little bit slow in seeing the price declines reflected at retail, and now, through the last four weeks or so, we’ve pretty much seen the pricing get reflected on the retail shelf and volume is responding,” he said.
In particular, volume of smoked sausage is up 4% in the last four weeks versus 2% for the 52 weeks. Jimmy Dean breakfast sausage also is up 11% in the last four weeks versus 2% for the year, he said.
With all these factors favoring the firm, Smith said he is confident the company will continue to grow in 2016.
“With each of our segments demonstrating tremendous overall performance, we view Q1 not as an exception, but as a new foundation, which provides momentum for our continued growth,” he said.
So much so, the firm raised its guidance to $3.83-$3.95 per share.