SPRINGDALE, ARK. – Evidence that “the current protein market is challenging,” was clear in Tyson Foods Inc.’s 2023 fiscal second-quarter results, as the meat and poultry processing giant reported a loss of $97 million, equal to 28¢ per share on the common stock for the period ended April 1, significantly less than net income of $829 million or $2.34 per share in the same quarter last year. The share price of Tyson Foods’ stock fell 16% to $50.73 per share at the close of markets on May 8, down from $60.69 at the close of markets on May 5.
During a May 8 conference call to discuss the company’s results Tyson’s leadership team noted that a challenging Q2 was not a surprise. Donnie King, president and chief executive officer said the company has grown accustomed to dealing with challenges created by market volatility over its almost 90-year history, and it has a track record of “accelerating out of the curve.”
“We knew Q2 was going to be challenging and it was,” King said. “I’ve never seen this highly unusual situation for beef, pork and chicken,” he added, noting that all three business segments are experiencing challenges at the same time, which is not the norm.
Operating margin for the quarter reflected a loss of 0.4% with an operating loss of $49 million compared to last year’s $1.12 billion operating income and 8.8% operating margin. Total sales of $13.13 billion were lower than most analysts’ expectations compared to sales of $13.12 billion last year, as volume increased by 3.3% and average price declined 3.2%.
“Cutout values across protein complex are much lower than a year ago,” King said. “Inflation has also remained elevated and persistent, which has dramatically impacted our cost.”
Tyson’s Prepared Foods business unit’s sales increased in the quarter by 1.2%, to $2.42 billion compared to $2.39 billion last year, due in part to average prices increasing by 1.6%. Foodservice demand softened, as volume declined by 0.4% compared to the previous year. The foodservice slump was somewhat offset by Tyson’s retail brands, which include Jimmy Dean, Hillshire Farm and State Fair. Bolstering its retail folio, the company acquired Williams Sausage, a family-owned processor of fresh and fully cooked sausage, bacon, sandwiches and other foods for the retail segment, earlier this year and officials are expecting the addition to enhance its retail dominance.
The Chicken business unit performance was hindered by low commodity market prices and higher commodity input costs.
"Commodity prices for most fresh chicken cuts are much lower than last year, with boneless breast meat, tenders and wings down more than 50%,” King said. “While we're not fully exposed to commodity markets, we are not immune to their dynamics."
Meanwhile, the impact of highly pathogenic avian influenza put downward pressure on exports of chicken products, due to bans in some markets while Tyson’s live operations reported negligible impacts. Production during the quarter resulted in Tyson selling all the poultry products it produced as the company continues to optimize its capacity and cost structure, invest in automation and digitalizing operations, and working with customers and consumers to improve fill rates.
Sales of chicken products increased to $4.43 billion for the quarter, ticking up 8.1% over $4.09 billion in the same period of 2022. Volume increased 6.4% in the segment with average prices up by 2%. Operating income reflected a loss of $166 million in the quarter compared to an income of $203 million in the same period last year. The company said this was largely due to higher feed ingredient costs that totaled $145 million in 2023 in addition to $135 million in unfavorable derivative impact year over year.
Beef segment sales dipped by 8.6% in the quarter to $4.62 billion compared to $5.03 billion during the same time frame last year. Volume and average prices declined by 2.9% and 5.4% respectively. Sales volume decreases were the result of fewer cattle being processed this year while lower prices resulted from lower domestic demand for beef and lower export volume.
King said the beef market is cycling out of historically strong margins that positively affected the business in fiscal year 2021 and 2022.
Adjusted operating margin for the quarter was 0.2% in the beef segment compared to 12.7% during the same period last year. Officials anticipated this decrease after a historically high operating margin last year that was the result of higher live cattle costs and reduced sales.
“Cutout values across protein complex are much lower than a year ago,” King said. “Inflation has also remained elevated and persistent, which has dramatically impacted our cost.”
The company’s Pork business results reflected the volatility in the market that saw volume increase due to more hog availability while Q2 average sales prices slipped 10.3%. Sales for the quarter decreased 9.6% to $1.42 billion due to lower demand for exports compared to last year’s sales of $1.57 billion. The segment lost $33 million for the quarter compared to last year’s Q2 operating income of $59 billion as a result of lower pork margins and rising operating costs.
International sales for the quarter increased 11.5% to $634 million compared to last year’s $565 million, with sales volume increasing 8% and average sales prices increasing 4.2%.
The lackluster quarterly results prompted Tyson's management team to slash its outlook for fiscal 2023.
“We are lowering our total company sales guidance to $53 billion to $54 billion or flat to 1% growth for the year,” said John R. Tyson, chief financial officer. “In our Beef segment, based on the deterioration in current market dynamics, we now expect margins to be between a loss of 1% and a gain of 1% for the fiscal year. Also, due to challenging market dynamics this time in our Pork segment, we are lowering margin guidance for the year to be between a loss of 2% and breakeven.
“In Chicken, we now expect full-year margins to be between a loss of 1% and a gain of 1%, based on our results so far in April, we anticipate Q3 margins to be roughly breakeven as we gain momentum and exit the fourth quarter at or above the high end of the full year range.”
Tyson maintained, however, that the industrywide operational headwinds will not change change the company's approach.
“We expect to perform as an industry best-in-class operator while growing our internal production with our customer demand, enabling us to improve our fixed cost leverage, grow volume and gain market share,” he said.
“This is a challenging moment but my optimism about the future has not changed,” King said. “Our customers and consumers are behind us; we’re winning with both.”