Second Quarter Was Better for Tysons

US - Tyson Foods has reported its second quarter (Q2) and six-month results. Operating margins for its Pork, Beef and Prepared Foods businesses were positive, and there was an improvement in the performance of its Chicken activities compared to the previous quarter.

5 May 2009

7 minute read

North America

Highlights

Tyson Foods has reported its Q2 and six-month results. Q2 2009 earnings per share was $(0.28) as compared to $(0.02) last year. Income tax expense includes $62 million, or $(0.17) per diluted share, from changing the method of recognizing interim income taxes.

Chicken operating loss was $46 million, an improvement of $240 million versus first quarter 2009. Pork operating margin was $29 million, or 3.4 per cent, while Beef operating margin was $28 million, or 1.2 per cent. Prepared Foods operating margin was $19 million, or 2.8 per cent; excluding the impact of plant closing charges of $15 million, operating margin was $34 million, or 5.0 per cent. The company ended the quarter with over $1.1 billion of cash at the end of the quarter, including restricted cash.

CEO's Comments

"Our loss of $0.24 per share from continuing operations in the second quarter includes $0.17 from a change in the method we used to recognize interim income taxes and $0.02 from a one-time charge for a prepared foods plant closure," said Leland Tollett, interim president and CEO of Tyson Foods.

"Our Chicken segment has been profitable since the end of February, and I am pleased with the consistent progress we are making. We have improved our operational efficiencies, our product mix, and we are benefiting from lower grain costs and more favorable chicken prices. Our Beef, Pork and Prepared Foods segments generated financial returns at or near normalized ranges in the second quarter, excluding one-time charges in Prepared Foods. Our tax rate for the remainder of the fiscal year should be closer to normal, and we believe the operational recovery we are experiencing will be reflected in our results for the third and fourth quarters.

"It is too soon to predict the impact of the H1N1 outbreak. At this point, none of our pork plants are impacted by export bans. Our multi-protein, multi-sales channel business model puts us in a good position should consumers change which proteins they buy or where they buy them. Protein demand usually picks up as we move into the summer grilling season, and we are cautiously optimistic despite current conditions."

Business Summary

The following is a summary of the operating earnings impact (in millions) of selected derivative activities. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.

Chicken sector

The Chicken business accounted for 37.4 per cent of Net Sales in Q2 2009, and 35.8 per cent of Net Sales in the first six months of 2009.

Chicken segment sales were $2.4 billion and $4.6 billion, respectively, in the second quarter and six months of fiscal 2009. Operating loss was $46 million and $332 million, respectively, in the second quarter and six months of fiscal 2009.

Sales and operating results were impacted positively by increased sales volume, partially offset by lower average sales prices. The increase in sales volume for both the second quarter and six months of fiscal 2009 was due to inventory reductions and sales volume related to recent acquisitions.

The inventory reductions and recent acquisitions led to an overall decrease in average sales prices, as most of the inventory reduction related to commodity products shipped internationally and sales volume from recent acquisitions are on average lower priced products.

Operating results were adversely impacted in the second quarter and six months of fiscal 2009, as compared to the same periods of fiscal 2008, by a decline of $106 million and $321 million, respectively, from our commodity risk management activities related to grain and energy purchases. These amounts exclude the impact from related physical purchase transactions, which impact current and future period operating results. As compared to the same periods of fiscal 2008, operating results were also adversely impacted in the six months of fiscal 2009 by an increase in grain costs of $172 million, while the company had a slight benefit from a reduction in grain costs during the second quarter of fiscal 2009.

Operating results for the second quarter and six months of fiscal 2008 included charges of $13 million related to closing the Wilkesboro, North Carolina, cooked products plant.

Beef sector

The Beef business accounted for 38.4 per cent of Net Sales in Q2 2009, and 39.6 per cent of Net Sales in the first six months of 2009.

Beef segment sales were $2.4 billion and $5.1 billion, respectively, in the second quarter and six months of fiscal 2009. Operating income was $28 million in both the second quarter and six months of fiscal 2009.

Operating results as compared to the same periods in 2008 were impacted positively by lower average live prices, offset by lower average sales prices and decreased sales volume. Operating results were impacted in the second quarter and six months of fiscal 2009 by a decline of $6 million and an improvement of $35 million, respectively, from our commodity risk management activities related to forward futures contracts for live cattle as compared to the same periods of fiscal 2008. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.

Operating results for the second quarter and six months of fiscal 2008 included charges of $25 million related to restructuring operations at the Emporia, Kansas, plant and an impairment of packaging equipment.

Pork sector

The Pork business accounted for 13.4 per cent of Net Sales in Q2 2009, and the same percentage of Net Sales in the first six months of 2009.

Pork segment sales were $844 million and $1.7 billion, respectively, in the second quarter and six months of fiscal 2009. Operating income was $29 million and $84 million, respectively, in the second quarter and six months of fiscal 2009.

Operating results as compared to the same periods in fiscal 2008 were impacted positively by increased average sales prices, offset by higher average live prices and decreased sales volume. Operating results were impacted in the second quarter and six months of fiscal 2009 by a decline of $17 million and $37 million, respectively, from our commodity risk management activities related to forward futures contracts for live hogs as compared to the same periods of fiscal 2008. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.

Operating results were negatively impacted by higher operating costs as compared to the same periods of fiscal 2008.

Prepared Foods sector

The Prepared Foods business accounted for 10.8 per cent of Net Sales in Q2 2009, and 11.1 per cent of Net Sales in the first six months of 2009.

Prepared Foods segment sales were $684 million and $1.4 billion, respectively, in the second quarter and six months of fiscal 2009. Operating income was $19 million and $54 million, respectively, in the second quarter and six months of fiscal 2009.

Operating results were impacted positively by higher average sales prices and increased sales volumes, offset in the six months of fiscal 2009 by higher raw material costs. Operating results for the second quarter and six months of fiscal 2009 included charges of $15 million related to closing its processed meats plant in Ponca City, Oklahoma.