SPRINGDALE, Ark. – In a Feb. 6 conference call with financial analysts, Noel White, Tyson Foods Inc.’s CEO, detailed how the company’s red meat segments have fared in a somewhat volatile global marketplace where animal disease, the threat of an epidemic and looming trade agreements are creating conditions that are swirling with challenges, but also opportunities. For the first quarter ended Dec. 28, 2019, Tyson earned $557 million, equal to $1.56 per share on the common stock, up from $551 million, or $1.54 per share, in the same period a year ago.

While recent trade agreements between the United States and China are allowing for more shipments of US protein to the country, remaining tariffs are preventing an even playing field with China’s other trading partners. 

“If tariffs are lifted or reduced, we would likely see an acceleration of already increased global demand for US pork, beef, and chicken,” White said. 

Another potential factor that could have an impact on international trade is the coronavirus outbreak. While the financial impact of the epidemic has not been determined, “We're closely monitoring news of the coronavirus,” White said. “We're actively assessing what this outbreak may mean for us.”  

While Beef segment sales declined to $3.83 billion in the 2020 first quarter from $3.93 billion during the same period last year, White pointed out some bright spots in the company’s red meat sector.

“Our Beef segment produced a record adjusted operating margin of 11.2 percent in the first quarter,” he said, adding that the quality of domestic fed cattle has been excellent, which serves to add value throughout the supply chain, from producers to retailers. The higher quality benefits Tyson Fresh Meats business and especially its high-end brands, such as the Chairman’s Reserve line of beef.

“The premium programs continue to grow as a percentage of sales. Our customers and consumers are seeing the value in our quality and it's translating into increased revenue,” White said.

He added: “Our fresh meats premium programs have nearly doubled over the last five years to approximately 1 billion lbs.”

During his comments regarding the company’s outlook for the remainder of the year, White reiterated that in terms of its beef business, the company’s second quarter is traditionally lackluster. In addition to the challenges caused by winter weather in the Midwest, the drought in Australia has resulted in unexpected liquidation of herds and pushing more beef into global trade.

Looking ahead, exports from Australia are expected to decline as the country’s drought and wildfires are expected to hinder herd rebuilding there and could benefit Tyson. Meanwhile, “Our export sales continue to equal or exceed the industry growth rates,” White said, adding that for the fiscal 2020 Tyson expects its beef segment’s adjusted operating margin to be as high as 7.5 percent.

As for the other white meat, White said an ample supply of hogs and solid pork demand resulted in a 14 percent adjusted operating margin for the segment in Q1. Pork sales rose to $1.38 billion from $1.18 billion, and operating income spiked to $191 million from $95 million the year prior. Operating income for the segment is expected to be in the range of six percent to 8 percent.

While pork exports to China, where African Swine Fever has had devastating consequences, are fueling exponential growth in the company’s Pork segment, Tyson hopes to broaden its product appeal in other markets by implementing new production requirements beginning this month.

“We progress towards a ractopamine-free hog supply,” White said. “This will open up more markets to us as the need to move product globally increases. In fact, global demand for all proteins is increasing as ASF continues to reduce port supplies in Asia.”  

After a fiscal Q4 that included operational challenges that the company said were linked to poultry product recalls earlier in the year, White said corrective measures, including some management changes, have resulted in getting those plants back to full production.

“We're pleased that our execution is better and operations are on track to deliver $200 million year-over-year run rate improvement,” he said.

Chicken segment sales were $3.92 billion million during the quarter, up from $3.12 billion the year prior. Operating income fell from $160 million during the first quarter of 2019 to $57 million in 2020. Operating income was negatively impacted by $21 million in restructuring costs.

White said pricing in the segment has hindered performance and that softer pricing has continued into the second quarter. With the US Dept. of Agriculture projecting a 4 percent increase in chicken production, the ASF factor is playing a prominent role in the supply-demand dynamics in the months and years ahead.

“In light of ASF we anticipate global demand will keep pace with US supply growth as Chinese imports of US chicken are expected to double,” he said.