story by Kim Souza
ksouza@thecitywire.com
This holiday season looks particularly bright for Tyson Foods’ execs who have earned fatter bonuses thanks to stellar fiscal 2013 results in a somewhat challenging operating climate. But more importantly, CEO Donnie Smith said they are just getting started with brighter expectations in 2014 and 2015.
Ahead of the market opening on Monday (Nov. 18) Tyson reported strong fourth quarter results pocketing $261 million in net income, up 41% from the year-ago period. On a per-share basis, the meat giant earned 70 cents a share, one penny better than Wall Street expected.
Revenue soared to $8.894 billion in the recent quarter, in line with the analysts’ consensus, and 6.96% higher than a year ago.
For the full year, Tyson earned $778 million, on revenue of $34.374 billion. Net income and sales rose 33.4% and 3.9%, respectively, when compared to the prior fiscal year.
Smith said momentum began to build in the back half of fiscal 2013, which ended Sept. 30 for Tyson Foods.
“We had a great fourth quarter, and 2013 was the best year in company history in terms of record sales and earnings per share,” Smith said.
The solid news help to rally shares early on Monday, the stock price rose more than 3% on the release to $30.22, but quickly lost those gains, settling back to $29.27, up 1.75% by the noon hour.
Last year, Smith outlined expectations to grow top line revenue by 3% to 4%. Tyson also outperformed its early 2013 goal of near-flat earnings per share, instead posting a 15% rise in adjusted earnings growth from its global operations during this full year.
One other area that Smith has been adamant about improving is value-add sales.
During fiscal 2013, Smith said value-added sales increased by nearly 6%, against an aggressive goal of 6% to 8% annually.
Also, Tyson’s efforts to grow sales from its international business were strong with a 20% increase in fiscal 2013, better than the 12% to 16% goal set last year.
“We achieved these results while buying back $550 million in stock, paying more than $100 million in dividends, continuing to build out operations in China and growing our prepared foods business through acquisitions and by entering new product categories,” he added.
Tyson also outlined several management changes for this coming year, including the pending retirements of Jim Lochner and Donald “ Buddy” Wray. Wray is the long-time Tyson exec who was brought back to Tyson Foods in 2008 by the late Don Tyson to “provide strategic counsel” for a company that was then in tough financial times.
"Buddy has invested more than 50 years of his life in Tyson Foods," Smith said. "He has been a trusted advisor to me during a phenomenal period in our company's history," Smith said. "His wisdom and guidance helped us deliver outstanding results and his nearly six decades of experience have been a wonderful gift."
Wray will step back in early 2014, Lochner's future retirement plans are discussed below with the beef segment results.
CHICKEN GROWTH
Chicken remains a strong category for Tyson Foods, generating net operating profits of $175 million in the recent quarter, up 26.8% from the prior-year period. For the full year chicken operations generated income of $646 million, up from $484 million in fiscal 2012.
Tyson achieved these results in spite of incremental feed expenditures of $30 million and $470 million, in the quarter and year, respectively.
Smith said lower grain costs with the recent bountiful harvest and lower market pricing won’t actually show up in production results until early second quarter of 2014.
Total chicken sales in the quarter reached $3.16 billion, up 2.4% on higher volume and 4.3% on higher prices. For the full year, chicken sales totaled $12.296 billion, helped by 1.9 increase in volume and a 6.1% hike in prices.
Smith said Tyson captured share as the No. 1 chicken brand in the U.S. during the quarter, according to Nielsen.
He said the company will continue its buy versus grow policy through 2014, as it works to keep excess supplies out of the freezer.
“We will continue to buy breast meat in the open market that goes into valued-added products, in order to keep dark meat surpluses from occurring. We will also work toward more product innovation with dark meat products,” Smith said during the earnings call with analysts.
As part of the management realignment, Smith said Tyson will divide up the executive duties of its poultry and prepared foods division.
“Separating our poultry and prepared foods businesses will give us sharper focus in two critical, expanding areas,” Smith said. “I’m excited that Noel White, a proven leader in our fresh meats business, is moving to Arkansas to run our poultry business. And I’m equally excited that Donnie King will devote his considerable talents to our growing value added foods business and creating an integrated sales and marketing organization to deepen our relationships with customers.”
These management changes are expected to be in place by March 2014.
BETTER BEEF
Tyson’s beef segment is performing better than the market as a whole, as chief operating officer Jim Lochner told analysts his packing margins are not in the red, but they are somewhat compressed given tighter cattle supplies.
In the recent quarter, Tyson reported operating income of $162 million, up from $117 million a year ago. Sales rose to $3.745 billion, up 4% on stronger volumes and better pricing.
For the full year, the segment had an operating income of $296 million, up 35.7% from 2012. Sales rose to $14.4 billion, helped by price increases of 6.8% but somewhat tempered by a 1.8% decline in total sales volume.
Lochner said consumers traded down to chicken and lower priced proteins this past year, while tallow and outside trim purchases were also lighter.
He told analysts that he doesn’t expect to see any major packing plant closures this coming year despite the smaller herd numbers. He said Tyson has adequate supply of fed cattle and steers relative to the plant locations it operates.
Lochner, who took over as chief operating officer in 2009, announced he will be retiring in September 2014, but in the next few weeks he will be relocating back to the company’s fresh meats headquarters in Dakota Dunes, South Dakota, where he will support the fresh meats business that has been run by Noel White.
Following retirement, Lochner will serve the company in an advisory capacity through the end of 2017.
“My goal has always been to retire at 62, and thankfully I am able to do that,” Lochner said during the call.
He has spent 30 years in the meat packing industry with Tyson Foods and IBP Inc. prior to that. Tyson acquired IBP in 2001.
Lochner is revered in the meat packing industry and is credited with much of the turnaround Tyson Foods has achieved during the last four years.
Steve Stouffer, senior vice president of beef margin management, will be taking over as president of Tyson Fresh Meats as While makes his move to Springdale.
LEANER PORK
Tyson Foods reported flat pork results in the recent quarter, and a 20% drop in operating income during fiscal 2013. At $296 million, operating income for fiscal 2013 was hurt by reduced exports and tighter packer margins.
The company said margins were compromised by unpredictable domestic demand, which drove up average sales prices and livestock costs.
Pork sales totaled $1.4 billion in the recent quarter, aided by a 12.6% jump in pork prices despite a 5.6% dip in volumes sold. For the full year, Tyson posted pork sales of $5.4 billion, down slightly from the $5.5 billion recorded in 2012.
PREPARED FOODS
The prepared foods segment is comprised a diverse group of companies and operations from tortilla plants to lunch meat and soups.
Tyson said it views this segment as a growth vehicle and continues to invest heavily here. Donnie King, was tagged to lead this division in its aggressive strategy going forward.
In the recent quarter, this segment posted an operating income of $16 million, down from $38 million, a year ago. In fiscal 2013, the segment’s operating income declined from $181 million to $101 million, as the company incurred additional costs related to is expanding lunchmeat business with a major plant overhaul in Houston, Texas.
LOOK AHEAD
“We expect fiscal 2014 sales to approximate $36 billion as we continue to execute our strategy of accelerating growth in domestic value-added chicken sales, prepared food sales and international chicken production,” Smith said.
The company expects to spend $700 million in fiscal 2014, and continues to generate strong cash flows which has enabled it increase the dividend and still maintain $2.1 billion in total liquidity as of Sept. 30.
On Nov. 14, the board of directors increased the quarterly dividend previously declared on Aug 1, to 7.5 cents per share on Class A common stock and 6.75 cents per share on restricted Class B common stock.
The increased quarterly dividend is payable on Dec. 13, to shareholders of record at the close of business on Nov. 29.
Smith told analysts he was excited about the prospects for a very strong 2014, and he encouraged consumers to chose chicken, beef and pork over turkey during the upcoming holidays.