Tyson Foods rebounds with ‘focus on fundamentals,’ operational improvements & innovation in prepared food

06-Aug-2024 - Last updated on 06-Aug-2024 at 11:28 GMT

Source: Getty/ Nadiia Borovenko

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Tyson Foods’ focus on fundamentals and “operational improvements,” including previously shuttering six US plants and laying off employees to improve margins, is paying off as the meat-packer reports its most profitable quarter in nearly two years.

“Solid momentum” and market tailwinds, including lower feed costs, helped the company’s third quarter net sales increase 1.6% to $13.35 billion and adjusted earnings reach 87 cents per share – outpacing expectations of $13.24 billion in net sales and 65 cents per share, executives reported Aug. 5.

“The operational improvements we have been driving are enabling us to benefit from the market tailwinds, invest in our value-added portfolio, but also enhancing our results. In fact, all of our businesses are more agile, collaborative and disciplined than they have been in some time,” President and CEO Donnie King said during the company’s quarterly sales and earnings call yesterday.

Improvements in chicken lift overall business performance

While the company reported improvements across its businesses, the standout segment in Q3 is its long-beleaguered chicken division, which King said had its “best third quarter profit result in eight years,” despite a dip in sales, prompting the company to raise its guidance in chicken for the third consecutive quarter for a midpoint outlook that is $350 million “better than our initial expectations coming into the fiscal year.”

King attributed the gains in part to better market conditions for chicken, including lower grain costs, but also the company’s “focus on the fundamentals across all aspects of the value chain.”

This includes continued improvements in its hatch rate, which dropped sharply in the summer of 2021 when the company introduced a new male line, which the company thought had enhanced broiler characteristics but resulted in persistent hatch issues before the company could revert to its previous male line in the summer of 2022.

“Our hatch rate is up 360 basis points. I do believe it is sustainable. I think we have got the right programs in place. We are seeing intense focus on the execution. Our grower partners are buying into the performance and our livability is up 50 points even in a tough grow-out environment. So we are obviously outperforming in live. And yes, I believe that to be not only sustainable when we hit the fall cooler weather, I expect it to improve,” said Wes Morris, group president for poultry.

Tyson also generated efficiencies and improved utilization in its plants by “optimizing our network,” said King, referencing the company’s decision to shutter six chicken facilities in 2023 and close its corporate offices in Chicago and South Dakota in 2022, which included massive layoffs.

At the same time, King said, Tyson has “accelerated the ramp up our Danville Fully Cooked facility and launched new products, like honey bites and restaurant quality wings.” The facility opened in late 2023 and marked a significant milestone in the company’s multi-prong plan to improve its struggling performance amid falling prices, higher costs and volatile supply and demand.

Finally, the company was able to better align chicken supply with demand, which was up approximately 2% in the quarter year-over-year, executives said.

Despite strategic gains, chicken sales were down 3.2%, “primarily due to the pass-through of lower input costs and pricing,” CFO Curt Calaway added.

Overall though, King said, Tyson’s “focus on the fundamentals” delivered strong results within chicken, which “had the best adjusted operating income since fiscal year 2016, it was eight years ago. Best capacity utilization since Q4 of 2018, six years ago. The best livability since fiscal year 2020. Supply chain and S&OP processes is allowing us to improve order fill rate while simultaneously lowering our inventory and working capital.”

Innovations drive retail, food services sales

Beyond chicken, Tyson’s prepared foods division was in line with expectations as the company continued to leverage innovation to broaden its consumer base, gain in margin accretive channels and expand distribution, King said.

“We are continually focused on new innovations to expand the appeal and market opportunities for our products,” he said. “For instance, the Jimmy Dean Griddle Cakes platform is an innovation we are very proud of,” and in which the company has launched two flavors and is “seeing exceptionally strong repeat rate and customer adoption – making it one of the most successful Prepared Foods innovations over the past five years.”

Tyson reinforced gains from innovation with investments in improved capacity and production capabilities, which ate into profit but helped food service volume grow, said Melanie Boulden, group president for prepared food and chief growth officer.

She added the company is “focused on ensuring that our items are in the right package and I the right channel to meet consumer needs,” which reduces the need for price promotions – further helping Tyson’s retail volume grow in the quarter.

Positive outlook

Looking forward, Boulden said she is confident in the path forward for Tyson’s prepared foods business.

CFO Calaway echoed this sentiment for the full company, reiterating previous predictions for overall sales guidance at roughly flat year-over-year and raising the adjusted operating income to between $1.6 billion and $1.8 billion, “based primarily on our improved outlook for chicken.”