Tyson Foods CEO to step down, 2017 forecast not so bright

By Aerin Einstein-Curtis

- Last updated on GMT

© iStock/Melpomenem
© iStock/Melpomenem

Related tags Tyson foods Meat

The announcement of the pending departure of Tyson Foods CEO Donnie Smith coupled with the company's forecast that profits for FY 2017 would be lower that previously stated, sent the meat processor's shares downward on Monday.  

The company released its results for both its Q4 and the 12-month period on Monday, as it also said that Tom Hayes, president of Tyson Foods, would take over as CEO from Smith at the end of the year.

Tyson pointed to chicken feed prices, lower prices for beef and pork for the decrease in its Q4 sector results.

The fiscal year marked gains for operating income, operating margin, pork segment margins and adjusted EPS, said Donnie Smith, outgoing-CEO on an earnings call. “Fourth quarter results were slightly below our internal expectations impacted largely by a $35m or $0.06 a share and mark-to-market and lower cost of market accounting treatments primarily in beef and pork, a production issue in prepared foods, and one-time factors in chicken,”​ he added.

In the fourth quarter the Arkansas-based company reported overall sales of $9.15bn, down from the $10.5bn seen for the same period in 2015. For the 12-month period the sales were $36.88bn, down from the $41.4bn total of the previous year.

However, Tyson Foods reported an increase in operating income for both the quarter and the 12-month period. Operating income for the quarter rose to $586m and for the year moved from about $2.1bn in 2015 to $2.8bn for 2016.

Net income for the quarter was $392m and for the 12-month period was 1.77bn, both of which outperformed last year’s results, the company reported.   

Tyson Foods' Outlook

  • Chicken - As the US Department of Agriculture (USDA) shows an increase in chicken production of around 2% in fiscal year (FY) 2017 as compared to FY 2016, based on current futures prices, the company expects similar feed costs next year as compared to FY 2016. And it estimates its chicken segment's operating margin in FY 2017 should be at or above the upper end of its normalized range of 9-11%.
  • Beef – Tyson said it expects industry fed cattle supplies to increase approximately 2-3% in FY 2017 as compared to FY 2016. "We generally expect adequate supplies in regions we operate our plants." For FY 2017, it predicts that segment's operating margin should be at the upper end or above its normalized range of 1.5-3.0%.
  • Pork – The US meat processor said industry hog supplies should increase around 3% in FY 2017 as compared to FY 2016, and that segment's operating margin to be at least 10%.

But Tyson Foods noted the US Department of Agriculture (USDA) prediction that in FY 2017 US chicken, beef, pork and turkey production will increase around 2 to 3% from FY 2016 levels and that there will be moderate export growth, and reported: "The amount expected to be realized in fiscal 2017 is reduced from our previous estimate of $700m as some of the incremental synergies are now expected to be realized in fiscal 2018."

Animal protein divisional results 

Company segments that focused on animal production offered some mixed results for the fourth quarter, said Tyson.

The chicken segment saw sales of about $2.8bn for the fourth quarter, a decrease from the $3.02bn seen the year before, the company said. Sales for the 12-month were $10.9bn, a reduction from the $11.39bn the past year.  

Operating income for the chicken sector fell from $370m in 2015 to $220 for 2016, the company said.

“In the chicken segment for the fourth quarter, operating income was $220m with a 7.8% operating margin,”​ said Tom Hayes. “Adjusted volume was down 3.2% due to our planned temporary decrease in production and average price was up 3.5% as we focused on selling higher margin products.”

Factors that reduced results in that sector included lower consumer demand and feed costs, he said. “We absorbed a sharp spike in soybean meal input cost within the quarter that affected margins in the short-term,” ​he added.

Feed costs in that segment increased $20m and decreased $170m during Q4 and 12 months of fiscal 2016, respectively, reported Tyson.

Beef and pork  

Beef sales also fell from $4.4bn in 2015 to $3.47bn in 2016 for the fourth quarter, the company said. The operating income was $139m.

“Following a rocky start to the year, the beef segment finished strong with favorable pricing environment continuing into our Q1,” ​said Hayes. “We are expecting our beef margins to be at the upper end of its normalized range of 1.5% to 3% in fiscal 2017, reflecting the favorable environment that we expect to continue for some time.”

In the fourth quarter, pork sales dropped from $1.3bn to $1.2bn, said Tyson. But operating income for the quarter grew from $95m in 2015 to $108m.

Animal proteins are expected to be up 2-3% and see moderate export growth based on information from the US department of Agriculture, said Hayes. “Domestic demand for protein has been strong and we expect it will continue in a deflationary environment and we are very well positioned across all proteins and customer channels to respond to the changing demands of consumers,”​ he added.

Related news

Show more

Related product

Animal AgTech San Francisco, March 18-19, 2024

Animal AgTech San Francisco, March 18-19, 2024

Content provided by Animal AgTech Innovation Summit | 15-Aug-2023 | White Paper

Animal AgTech is the go-to meeting place for the meat and dairy supply chain to accelerate action for animal health and environmental stewardship.

Follow us

Products

View more

Webinars