Tyson Foods kicked of 2013 with stronger-than-expected first quarter profits thanks to a boost in chicken prices from October through December, typically a weak season for poultry sales.
The Springdale-based meat giant posted net profits of $168 million, equal to 48 cents per share for the quarter ending Dec. 31. Profits jumped 7.6% from a year ago. Total sales revenue in the quarter topped $8.402 billion, up from $8.329 billion in the year-ago period.
Wall Street gave the meat company results a nod of approval sending Tyson Foods (NYSE: TSN) shares up nearly 3% at the opening bell. Shares were trading at $22.76 in the early market session, pushing toward a new 52-week high.
The average consensus of 14 brokerage firms pegged net earnings per share at 40 cents, some 14% below the actual profits announced today (Feb. 1). A year ago, Tyson earned 42 cents or $156 million.
Tyson Foods CEO Donnie Smith said the company is on its way to producing better 2013 earnings, something he promised investors last quarter.
“We knew we'd face headwinds, and that has certainly been the case; however, we're not simply holding our own. We're producing solid results while preparing for growth. We are being both methodical and innovative in our approach to managing the challenges that come in this business, and our approach is working,” Smith said. "This is an exciting time at Tyson, and while we're pleased with the progress we've made, we feel like we're just getting started."
Analysts expect Tyson will earn about $2 per share in fiscal 2013, helped by more value-added sales with higher profit margins in the chicken segment. Half of the analysts surveyed by Thomson Reuters see upside potential in Tyson shares during 2013. Seven firms rate the stock a (buy), two of those came onboard in the past two weeks citing positive signs in the beef and chicken segments, with respect to better pricing domestically and abroad.
Four analysts have Tyson as a (hold) position and three firms rate the stock underweight in a (sell) position.
Tyson’s balance sheet remains strong despite difficult operating climates across Tyson’s meat segments. Total liquidity at Dec. 29,, was $1.9 billion, well above Tyson’s goal in excess of $1.2 billion. Total debt was just under $1.2 billion.
Net interest expense was $36 million in the quarter, down 23% compared to last year.
The company continues to reinvest in its business with capital expenditures of $550 million this year.
Smith said Tyson is adding 470 jobs with plant expansions this year in four of its U.S. plants this year Those plants are located in Texas, Tennessee and Florida. These plants turn out value-added beef, pork and chicken products for the food service industry.
The company’s efforts to integrate its chicken operations in China is about 33% finished. Smith said the company will continue this transition throughout 2013.
The chicken segment returned $107 million in operating income in the quarter, up from $32 million a year ago. Sales totaled $2.956 billion, up 7% from a year earlier. The higher revenue related to better pricing and steady demand.
Breast meat prices climbed 6.8% in the quarter averaging $1.27 per pound in the quarter, but remain considerably lower than the $2 historical range, according to Farha Aslam, analyst with Stephens Inc. Leg quarter prices averaged 47 cents a pound, up 2.3% in the quarter on better demand from Mexico.
Aslam notes upside potential with prospects that Russia may increase poultry imports because efforts to boost domestic production have fallen short, and optimism that a favorable ruling by the WTO next year could cause China to eliminate its steep anti-dumping duties.
Smith said the company has renegotiated its food service contracts and has moved to just 9% fixed contracts, which allowed the see higher overall margins in its poultry segment.
Tyson’s beef segment returned $46 million in first quarter operating profits, up from $31 million in the year-ago period.
Operating income increased in the first quarter of fiscal 2013 as the result of balancing supply with customer demand. Tyson said this was partially offset by increased operating costs from reduced production.
Beef sales totaled $3.485 billion in the quarter versus $3.467 billion year ago. The revenue increase resulted from 12% higher prices with total volume down 10%. Tyson said its sales volumes decreased due to a reduction in live cattle processed as a result of soft domestic demand for beef products and outside tallow purchases.
Analysts say Tyson manages a very efficient beef business and is in position to benefit from the recently announced plant closure by Cargill in west Texas.
Tyson didn't rule out more industry consolidation between some regional players as the cattle herd continues to shrink.
PORK, PREPARED FOODS
Tyson’s pork operating profits totaled $125 million, down from $165 million. Total segment revenue was $1.363 million, down 7% thanks to lower wholesale pork prices and lighter demand compared to a year ago.
Live hog supplies increased which drove down average sales price and livestock cost.
While reduced compared to prior year, operating income remained strong in the first quarter of fiscal 2013 despite brief periods of imbalance in industry supply and customer demand, Tyson said.
Operating profits for the prepared foods segment totaled $33 million, down 35% from the prior-year. The segment sales revenue totaled $841 million, down 2% from a year ago.
Jim Lochner, chief operating officer, said there are ongoing expansions at several plants in the prepared foods segment, which has somewhat comprised productivity in the interim but will pay off in the near future.
1Q 2013: $8.402 billion
1Q 2012: $8.329 billion
1Q 2013: $168 million
1Q:2012: $156 million
Earnings Per Share
1Q 2013: 48 cents
1Q 2012: 42 cents