Springdale / AR. (tsn) Tyson Foods Inc. one of the world’s largest food companies with leading brands including Hillshire Farm and Sara Lee, reported the following results for the first quarter 2017. The company announced a very good start into the financial year with record results as earnings increased 38 percent in the first quarter of the current financial year.
| (USD in millions, except per share data) | Q1/2017 | Q1/2016 | |||||
| Sales | USD | 9’182 | USD | 9’152 | |||
| Operating Income | 982 | 776 | |||||
| Net Income | 594 | 461 | |||||
| Less: Net Income (Loss) Attributable to Noncontrolling Interests | 1 | — | |||||
| Net Income Attributable to Tyson | USD | 593 | USD | 461 | |||
| Net Income Per Share Attributable to Tyson | USD | 1.59 | USD | 1.15 | |||
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First Quarter Highlights
- Record EPS of 1.59 USD, up 38 percent from Q1’16
- Record Operating income up 27 percent to 982 million USD
- Total Company sales volume increased 2.4 percent from Q1’16; all segments sales volume up from prior year
- Record total company operating margin at 10.7 percent
- Record Pork segment operating margin at 19.7 percent
- Record Beef segment operating margin at 8.5 percent
- Chicken and Prepared Foods segment operating margin within normalized range
- Captured 161 million USD in total synergies; 40 million USD incremental synergies over Q1’16
- Record operating cash flows of over 1.1 billion USD
- Repurchased 8.1 million shares for 520 million USD, excluding shares repurchased to offset dilution from our equity compensation plan
Fiscal 2017 Guidance
- Steps up EPS guidance to 4.90 USD to 5.05 USD, representing a 12 percent increase from adjusted EPS of fiscal 2016
«The year is off to the best start in company history with record earnings, record operating income and record cash flows», said Tom Hayes, president and chief executive officer of Tyson Foods. «Return on sales for each operating segment was in or above the normalized range. The tremendous returns generated in the Beef and Pork segments are providing fuel for growth in our value-added Chicken and Prepared Foods segments.
«Tyson Foods again led retail food manufacturers in both sales volume and sales dollars for the 13-week period corresponding with our fiscal first quarter. Not only did we lead in sales volume, according to IRI, we were the only company to show volume growth among the top 10 branded food companies.
«Due to our outstanding performance in Beef and Pork and strong market conditions in the first quarter, we are raising our annual earnings guidance to 4.90 USD to 5.05 USD per share. We expect the earnings cadence for the remainder of the fiscal year to follow more normal patterns, including the seasonality typical of our second quarter.
«We’re on a path toward what we expect to be our fifth straight year of record results. Our path won’t be linear, but our team is focused on delivering long-term growth and creating shareholder value».
Segment Results (in millions)
Sales
Sales for the first quarter ended December 31, 2016, and January 02, 2016
| Volume | Avg. Price | |||||||||
| Q1/2017 | Q1/2016 | Change | Change | |||||||
| Chicken | USD | 2,706 | USD | 2,636 | 1.3 | percent | 1.4 | percent | ||
| Beef | 3,528 | 3,614 | 4.5 | percent | (6.6 | ) percent | ||||
| Pork | 1,252 | 1,213 | 4.3 | percent | (1.0 | ) percent | ||||
| Prepared Foods | 1,895 | 1,896 | 2.9 | percent | (2.9 | ) percent | ||||
| Other | 90 | 99 | (6.7 | ) percent | (2.7 | ) percent | ||||
| Intersegment Sales | (289 | ) | (306 | ) | n/a | n/a | ||||
| Total | USD | 9,182 | USD | 9,152 | 2.4 | percent | (2.0 | ) percent | ||
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Operating Income (Loss)
Operating Income for the first quarter ended December 31, 2016, and January 02, 2016.
| Operating Margin | ||||||||||
| Q1/2017 | Q1/2016 | 2017 | 2016 | |||||||
| Chicken | USD | 263 | USD | 358 | 9.7 | percent | 13.6 | percent | ||
| Beef | 299 | 71 | 8.5 | percent | 2.0 | percent | ||||
| Pork | 247 | 158 | 19.7 | percent | 13.0 | percent | ||||
| Prepared Foods | 190 | 207 | 10.0 | percent | 10.9 | percent | ||||
| Other | (17 | ) | (18 | ) | n/a | n/a | ||||
| Total | USD | 982 | USD | 776 | 10.7 | percent | 8.5 | percent | ||
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Summary of Segment Results
- Chicken – Sales volume increased as a result of better demand for our chicken products, partially offset by a decrease in rendered product sales. Average sales price increased as a result of sales mix changes which offset general market price declines. Operating income decreased due to increased marketing, advertising and promotion spend and higher operating costs which included 23 million USD of compensation and benefit integration expense. Feed costs decreased 20 million USD during the first quarter of fiscal 2017.
- Beef – Sales volume increased due to improved availability of cattle supply and stronger domestic and export demand for our beef products. Average sales price decreased due to higher domestic availability of beef supplies and lower livestock cost. Operating income increased due to more favorable market conditions as we maximized our revenues relative to the decline in live fed cattle costs, partially offset by higher operating costs.
- Pork – Sales volume increased due to strong demand for our pork products and increased exports. Live hog supplies increased, which drove down livestock cost and average sales price. Operating income increased as we maximized our revenues relative to the live hog markets, partially attributable to stronger export markets and operational and mix performance, which were partially offset by higher operating costs.
- Prepared Foods – Sales volume increased due to improved demand for our prepared foods products. Average sales price decreased primarily due to a decline in input costs of approximately 100 million USD, partially offset by product mix changes. Operating income decreased due to higher operating costs at some of our facilities, increased marketing, advertising and promotion spend and 22 million USD of compensation and benefit integration expense. Additionally, Prepared Foods operating income was positively impacted by 127 million USD in synergies, of which 32 million USD was incremental synergies in the first quarter of fiscal 2017 above the 95 million USD of synergies realized in the first quarter of fiscal 2016. The positive impact of these synergies to operating income was partially offset with investments in innovation, new product launches and supporting the growth of our brands.
Outlook
In fiscal 2017, USDA indicates domestic protein production (chicken, beef, pork and turkey) should increase approximately 2-3 percent from fiscal 2016 levels and moderate export growth. As we continue with the integration of Hillshire Brands, we expect to realize synergies of around 675 million USD in fiscal 2017 from the acquisition as well as our profit improvement plan for our legacy Prepared Foods business with some incremental synergies expected to be realized in fiscal 2018. The majority of these benefits will be realized in our Prepared Foods segment. The following is a summary of the outlook for each of our segments, as well as an outlook on sales, capital expenditures, net interest expense, liquidity and share repurchases for fiscal 2017.
- Chicken – USDA shows an increase in chicken production of approximately 2 percent in fiscal 2017 as compared to fiscal 2016. Based on current futures prices, we expect similar feed costs in fiscal 2017 as compared to fiscal 2016. For fiscal 2017, our Chicken segment’s operating margin should be at the upper end of its normalized range of 9-11 percent.
- Beef – We expect industry fed cattle supplies to increase approximately 3-4 percent in fiscal 2017 as compared to fiscal 2016. We generally expect adequate supplies in regions we operate our plants. For fiscal 2017, our Beef segment’s operating margin should be around 5 percent.
- Pork – We expect industry hog supplies to increase approximately 3-4 percent in fiscal 2017 as compared to fiscal 2016. For fiscal 2017, our Pork segment’s operating margin should be around 12 percent.
- Prepared Foods – We currently expect input costs to be flat for the remainder of fiscal 2017 as compared to fiscal 2016. For fiscal 2017, we now expect operating margins to be a little below fiscal 2016 as we invest in innovation and growth of our brands as well as invest in some of our facilities to enable operational improvements and cost efficiencies.
- Other – Other includes our foreign operations related to raising and processing live chickens in China and India, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC. We expect Other operating loss should be approximately 70 million USD in fiscal 2017.
- Sales – For fiscal 2017, we expect sales to be flat compared to fiscal 2016 as we grow sales volume across each segment, offset by the impact of lower beef prices.
- Capital Expenditures – We expect capital expenditures to approximate 1.0 billion USD for fiscal 2017 and will include spending for production growth, safety, animal well-being, infrastructure replacements and upgrades, and operational improvements that will result in production and labor efficiencies, yield improvements and sales channel flexibility.
- Net Interest Expense – We expect net interest expense to approximate 230 million USD for fiscal 2017.
- Liquidity – We expect total liquidity, which was 1.6 billion USD at December 31, 2016, to remain in line with our minimum liquidity target of 1.0 billion USD.
- Share Repurchases – In fiscal 2017, we expect to continue our share repurchases under our share repurchase program. As of December 31, 2016, 31.7 million shares remain authorized for repurchases. The timing and extent to which we repurchase shares will depend upon, among other things, our working capital needs, market conditions, liquidity targets, our debt obligations and regulatory requirements.
