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Forbes  Nov 26  Comment 
At Holdings Channel, we have reviewed 3,600 13F filings for the 09/30/2014 reporting period, and looked at the various S&P 500 components held by each of these reporting hedge funds and other 13F filers. For each component, we totaled the number...
The Hindu Business Line  Nov 26  Comment 
Godrej Tyson Foods Ltd (GTFL), a 49:51 joint venture between Godrej Agrovet and the US-based Tyson Inc, is looking to enter the breakfast segment with an array of cold cuts, primarily sausage and...
Wall Street Journal  Nov 17  Comment 
Tyson Foods expects strong consumer demand for chicken to help overall U.S. meat consumption keep up with rising production next year, supporting prices for the largest U.S. meatpacker.
Benzinga  Nov 17  Comment 
Tyson Foods, Inc. (NYSE: TSN) reported its fourth quarter earnings on Monday. Shares of the company are up 5 percent. Below are some key highlights from its conference call. • Q4 was a record third quarter with adjusted earnings of $0.87...
Forbes  Nov 17  Comment 
General Growth Properties (GGP) declared a fourth quarter common stock dividend of $0.17 per share payable on January 2, 2015, to stockholders of record on December 15, 2014. The dividend represents an increase of $0.03 per share, or approximately...
Forbes  Nov 17  Comment 
Chicken and beef producer Tyson Foods reported better-than-expected fourth quarter earnings results Monday morning, beating Wall Street's top and bottom line estimates thanks in part to its acquisition of Jimmy Dean maker Hillshire Brands.
Wall Street Journal  Nov 17  Comment 
Tyson Foods expects strong consumer demand for chicken to help overall U.S. meat consumption keep up with rising production next year, supporting prices for the largest U.S. meatpacker.




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Tyson Foods, Inc. is (NYSE:TSN) the world's largest processor and marketer of chicken, beef and pork products, exporting to over 90 countries. The firm generated $26.7 billion in 2009 revenue, operating five business segments: Chicken; Beef (its largest segment); Pork; Prepared Foods; and Other. Tyson sells to a variety of customers, including retail, food service and even pharmaceutical companies. Wal-Mart Stores (WMT) is the company's largest customer, accounting for 13.8% of overall sales in 2009. In 2007, Tyson got into the biodiesel business by striking a partnership with oil company ConocoPhillips (COP) to produce biodiesel from animal fat, which at its peak could reach 175 million gallons per year for Tyson. The production facility was completed in July 2010 and production is expected to follow shortly thereafter.[1]

In late September 2010, China announced new tariffs on chicken imports from the US of up to 105%. Tyson and other companies are lobbying Congress and China to remove the new tax, which went into effect on September 27. Tyson's imports will be charged a 50.3% duty.[2]

During the week of August 30 2010, Tyson resumed poultry exports to Russia for the first time since a ban on American poultry imports went into effect in January. Tyson has five plants that have been certified by the Russian and US governments, but the exact volume of poultry shipments has not been released.[3]

On August 24, 2010, Tyson recalled 380,000 pounds of roast beef and ham products from Wal-Mart delis due to fears of Listeria bacteria contamination. The majority of the meat was packaged in "Grab and Go" sandwiches. No illnesses have yet been reported and the company believes that the majority of the meat has already been consumed.[4]

Company Overview

Company History

Headquartered in Springdale, Arkansas, Tyson Foods entered the meat processing industry in 1935. Since then, the company has become the world's largest processor and marketer of chicken, beef and pork products mostly through a long history of acquisitions, its most recent being the acquisition of IBP, Inc.--now called Tyson Fresh Meats, Inc. (TFM)--in 2001. The company is also the second largest publicly traded food company in the Fortune 500, as measured by revenue, and employs 107,000 worldwide. In fiscal 2009, Tyson Foods exported to more than 90 countries, including Canada, Central America, China, the European Union, Japan, Mexico, Russia, South Korea and Taiwan. In 2009, Russia, the fifth-largest importer of US pork, banned most pork imports from the US (including two Tyson plants) after finding traces of a banned antibiotic in some of the exported meat. The ban was lifted in March 2010.[5] In 2010, China announced major anti-dumping tariffs on poultry imported from the US, including Tyson's products.[6]

Quarterly Earnings

Q1 2010

In the first quarter of 2010,Tyson generated revenues of $6.64 billion, an increase of 1.7%; net income grew to $159 million from a loss of $104 million in Q1 2009. Operating income increased to $314 million from a loss of $198 in the previous year.[7] Sales volume for the quarter increased 4.6% as chicken and beef sales increased; the volume increase accounted for approximately $318 million. The increase in volume however was offset by a 2.7% decrease in average sales price, which decreased revenues by $204 million. [8] Chicken's strong performance was due primarily to a recent international acquisition that increased overall sales and to lower production costs, such as a decrease in the price of grain worth $84 million.[9] Beef sales prices dropped 6.1% during the quarter, but this decrease was more than offset by a 7.2% increase in volume. Both Pork and Processed Foods saw decreased revenues in the quarter as a result of both lower volume and sales prices for the former, and lower average sales price for the latter.[10] On the same day as the earnings report, China announced anti-dumping measures on US chicken producers after finding that American firms are hurting China's domestic chicken producers. Duties charged range up to 105.4% but Tyson is subject to the lowest duty of 43.1%.[11]

Q2 2010

In the second quarter of 2010, Tyson generated revenues of $6.92 billion, an increase of 9.7% from Q2 2009; net income grew to $159 million, up from a $119 million loss in the previous year. Operating income for the quarter was $344 million.[12] Overall volume for the quarter decreased by 0.5%, however the average sales price increased by 10.2%. The company successfully improved its efficiency during the quarter to save an estimated $400 million.[13] Chicken sales volume decreased 4.3% as a result of lower export sales, but operating income increased as a result improved efficiency, relatively low grain prices (although slightly higher than Q1) and an increase in the average sales price.[14] The Beef segment increased its operating income to $126 million from $28 million the previous year, but more importantly, the operating margin improved from 1.2% in 2009 to 4.6% in 2010.[15] The improvement was the result of increased export sales, but also significantly improved operation efficiency as a result of closing smaller non-competitve regional plants between 2006-2008.[16] On a smaller scale, the Pork sgement also saw positive results for the quarter with operating income rising from $29 million to $69 million and operating margin improvement form 3.4% to 7.4%. The company attributes the positive results to improved operational efficiency and appropriately gauging the public demand for pork.[17] The Prepared Foods segment also had a very strong quarter with both operaitng income and operating margin for the quarter increasing nearly 100% from Q2 2009.[18]

Q3 2010

In the third quarter of 2010, Tyson generated revenues of $7.44 billion, an increase of 11.6% from the previous year; net income increased 89% from Q3 2009 to $248 million. Operating income for the quarter was $507 million.[19] Sales volume for the quarter increased 1.2% but the average sales price increased by more than 10%. The higher sales price was a result of higher material costs for beef, pork, and prepared foods; the cost of live cattle and hogs increased $357 million from last year. Chicken sales volume for the quarter increased 8.1% on higher demand in the US, a recent international acquisition, and Russia's repeal of its ban on US poultry imports. The segment's revenue increased more than 4.5% despite a 3.2% decrease in the average sales price.[20] Beef volume fell more than 5% but a nearly 20% increase in average sales price more than offset the decline in volume. The company is also expecting its beef exports to grow in the coming years, but the major growth this quarter was a result of improved operational efficiency. Revenue from beef increased nearly 13.4%[21] For Pork, volume remained flat but the average sales price increased 31.6% in conjunction with a proportional rise in the cost of live hogs. The segment's revenue increased 31.8%.[22] Sales volume for Prepared Foods increased 1.4% with a 10.3% increase in the average sales price. Revenue for Prepared Foods increased nearly 12%, however the segment's operating income still decreased by $18 million (including a $15 million charge related to the closing of one of the company's plants).[23]

Q4 2010

In the fourth quarter of 2010, Tyson generated revenues of $7.44 billion, an increase of 3% from the previous year; net income for the quarter was $215 million, up from a loss of $457 million in Q4 2009. Operating income for the quarter more than doubled to $391 million.[24] Large pricing increases in nearly all segments offset simultaneous declines in volume during the quarter. Overall, volume decreased 6.9% while prices increased 10.8%.[25] For chicken, volume and pricing decreased 0.5% and 0.7%, respectively. Increased consumer demand, an international acquisition, and savings of $78 million from lower grain costs boosted operating income more than triple what it had been in Q4 2009.[26] An 11.8% decrease in volume for Beef was more than offset by net pricing gains of 14.4%. Increased export demand sustained beef sales, which were essentially flat from the previous year - $121 million in 2010 vs. $120 million in 2009 - discounting the one-time charge of $560 million incurred in 2009.[27] Continued export demand for pork allowed net pricing to increase 41.9% in conjunction with an 8.7% decrease in volume. The company expects demand for beef and pork to remain constant in the coming year; since the supply for these markets is relatively inflexible due to the animal's life cycles, the company expects demand to continue to outstrip the supply for the coming year, allowing them to sustain their price increases.[28] Higher raw material prices drove down operating income for the Prepared Foods segment despite a nearly 17% increase in pricing and a 6.7% decrease in volume.[29]

Q1 2011

In the first quarter of 2011, Tyson generated revenues of $7.615 billion, an increase of nearly 15% from the previous year; net income for the quarter increased 86% to $298 million. Operating income for the quarter grew 59% to $498 million.[30] A 23% increase in pork pricing was the main driver for the increased sales, however similar pricing increases were seen in Beef and Prepared Foods. Increased demand for Pork and Beef from international buyers led to higher pricing. Pork sales volume increased 6% while the average sales price increased 23%. Beef sales volume was essentially flat, increasing less than 1%, however prices increased 16.4%. Higher operating costs offset this improvement however, and the segment's operating income decreased 2.5% from Q1 2010. Chicken volume grew 8.4% during the quarter but pricing decreased by 0.4%; the segment more than doubled its operating income from the previous year.[31] The company expects beef supplies to decrease by 1-2% during the year, which should maintain the company's higher prices. While the company doesn't expect Pork to be as high as it was this quarter throughout the year, they are predicting that 2011 will be better than normal for this segment. The company's Chicken segment has seen major gains in operating efficiency, however higher corn prices and some oversupply are expected to affect the segment's revenues.[32]

Segments

Chicken

In fiscal 2009, the chicken segment generated $9.6 billion in sales. This business focuses primarily around the processing of live chickens into fresh, frozen and value-added chicken products. Unlike it does with its other segments, Tyson does not purchase live chickens for its chicken segment, instead raising animals itself. This is because there does not exist an active market for live chicken; the animals are not traded on commodities exchanges as do cattle or hogs. Corn and soybean meal are major production costs in the poultry industry, representing roughly 37% of the cost of growing a live chicken. The chicken segment’s operating results are affected negatively by higher energy costs and lower prices caused by cycles of oversupply in the world chicken market. Tyson actively manages its breeding stock to respond to cycles in the world chicken market.[33]

Beef

Tyson's beef operations are the company's largest accounting for slightly less than half of revenues. In fiscal 2009, the beef segment contributed the largest portion of Tyson's revenue, generating $10.8 billion in sales (40% of overall sales). This segment focuses primarily on processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. Tyson differentiates itself from other beef producers in Brazil and China by feeding its cattle grain, as opposed to grass. Grass is the natural diet of cattle, and has no undue effect on their gastrointestinal systems. However, grain feeding allows them to grow larger and at an accelerated rate, resulting in greater profits. It also involves deriving value from allied products such as hides and variety meats for sale to further processors and others. In addition to selling to food-providers, Tyson also sells its allied beef products to pharmaceutical and technical products manufacturers.

Pork

In fiscal 2009, the pork segment generated $3.4 billion in sales (12.8% of total revenues). This segment processes live market hogs and fabricates pork carcasses into primal and sub-primal meat cuts and case-ready products. Like its beef segment, Tyson also sells its allied pork products to pharmaceutical and technical products manufacturers, as well as live swine to pork producers. After the swine flu outbreak of early 2009, the pork segment ran into trouble as several countries banned pork imports from the United States. This led to a mismatch of supply and demand, lowering profit margins and resulting in a decision to reduce the company's breeding stock by 28% by the end of 2009.[34]

Prepared Foods

In fiscal 2009, the prepared foods segment was the company's smallest sales contributor, generating $2.8 billion in sales. This segment manufactures and markets frozen and refrigerated food products, including pepperoni, beef and pork pizza toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes and processed meats.

Biofuel

In 2007, Tyson created a partnership with oil company ConocoPhillips (COP) to produce biodiesel from animal fat. ConocoPhillips, the third-largest U.S. oil company, said it plans to spend about $100 million over a 3 to 5 year period to prepare several refineries to process the fuel. At full production--estimated at 175 million gallons per year of biodiesel--Tyson expects annual earnings of 4 cents to 16 cents a share from the project. The production facility was completed in July 2010 and production is expected to follow shortly thereafter.[35]

Customers

The company's products are marketed and sold to national and regional grocery retailers, regional grocery wholesalers, meat distributors, clubs and warehouse stores, military commissaries, industrial food processing companies, national and regional chain restaurants or their distributors, international export companies and domestic distributors who service restaurants, food service operations such as plant and school cafeterias, convenience stores, hospitals and other vendors.

Tyson Foods' #1 customer is Wal-Mart Stores (WMT), which accounted for approximately 13.8% of the Company’s fiscal 2009 consolidated sales. No other single customer or customer group represented greater than 10% of fiscal 2009 consolidated sales.[36]

Trends & Forces

Availability & Price of Raw Materials

Tyson Foods' operating costs are dramatically affected by the price of raw materials, such as seed grains, live cattle, live swine and ingredients. Corn and soybean meal are major production costs in the poultry industry, representing roughly 37% of the cost of growing a chicken. Commodity cost inflation continues to weigh on Tyson's earnings; in fiscal 2008, the company's grain costs for its chicken segment increased by $600 million dollars[37], however lower grain prices in 2009 increased revenues by $28 million.[38] Moving into the company's FY 2011, grain prices have continued to rise and the company expects that prices for the year will be higher than they were in 2010.[39] Most of the cattle and swine Tyson processes are purchased from independent producers. A rise in the price of grain, swine, or cattle will cause a drop in earnings, and vice versa. The production of feed ingredients is affected by, among other things, weather patterns throughout the world (including hurricanes, the global level of supply inventories and demand for grains and other feed ingredients, as well as the agricultural policies of the U.S. and foreign governments.

Product Pricing

With each of its products, Tyson Foods must use supply and demand analysis to find the appropriate price that will optimize sales. A variety of other factors can shift the price of the company's products, including product safety and quality, brand identification (marketing), breadth and depth of product offering, customer service and credit terms. Tyson's beef and pork segments must price their products in line with the movements of cattle and pork spot and futures prices on commodities exchanges. Any divergence between Tyson's pricing and spot and futures prices would result in competitors such as Sanderson Farms (SAFM) or Cargill undercutting Tyson. Prepared Foods' prices are therefore much less volatile as competitors cannot quickly begin producing similar value-added products. As this segment represents only a small fraction of Tyson's overall sales, the company is dependent on high cattle and pork prices to grow revenues.

The extreme volatility in corn and soybean prices beginning in 2006-2007 resulted in most livestock and poultry producers losing money in 2008 and 2009, which led to an overall reduction in the size of their herds and flocks. The result of this scale-back is a second consecutive year of reduced available protein; this is the first time in the past 40 years that the US protein supply has decreased for two consecutive years. Tyson expects that this overall reduction in protein supply will lead to higher prices and increased profits.[40] Corn and soybean prices continued to rise throughout 2010, leaving Tyson looking for ways to offset the higher commodity prices. High prices for pork, in part spurred by Russia's reopening to American exports, are expected to cover the majority of the cost increase but continued oversupply in the poultry market has depressed chicken prices.[41]

Tyson is Susceptible to Livestock Disease Outbreaks

Any disease outbreak in Tyson's chickens, cattle, or swine will decrease the demand for the company's products and detriment the company's earnings. Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of Tyson's fresh chicken, beef or other products to or from its suppliers, facilities or customers. This could also result in negative publicity that may have an adverse effect on the company's ability to market its products successfully. The company is trying to mitigate this risk by diversifying its livestock production base internationally. By expanding its production facilities to new markets like China, India, and South America, Tyson will be able to continue production during a major disease outbreak.[42]

Energy Costs

Rising oil prices increase distribution and processing costs and have a negative impact on overall financial performance. Tyson hopes to mitigate these concerns by developing biodiesel from leftover animal fats with petroleum company ConocoPhillips. The company hopes to begin production at its first ethanol plant in early 2010.[43]

Tyson Must Take Advantage of the Growing International Protein Market

With the 2008 acquisition of three vertical chicken processors in Brazil and the planned acquisition of protein processor Shandong Xinchangn in China, Tyson Foods is gaining world market share. The company is looking to further build its international holdings in pork and red meat, specifically in China, India, and South America. Tyson is well positioned to capitalize on the highly fragmented protein industries in these countries by consolidating smaller companies and increasing their economies of scale. However, with the falling prices of chicken and pork, the company must successfully integrate and any future acquisitions while posting lower revenues.[44][42]

International Trade Restrictions

  • In 2009, Russia, the fifth-largest importer of US pork, banned most pork imports from the US (including two Tyson plants) after finding traces of a banned antibiotic in some of the exported meat. The ban was lifted in March 2010.[45]
  • In early 2010, Russia banned chicken imports from the US, citing a chlorine rinse that it said violated its food safety regulations. The ban was lifted in late June 2010, however the volume of pounds of chicken increased nearly 40% from April to June as a result of the ban.[46] In an effort to reduce freezer supply stocks, the US government announced its intention to purchase $14 million of frozen leg quarters, which is the main portion typically exported to Russia.[47]
  • On August 30, 2010, Tyson was allowed to resume chicken exports to Russia for the first time since January. While the volume of chicken being sent overseas is unknown, the company has five plants that have been cleared by both the Russian and US government.[48]
  • In late September 2010, China announced a new tariff on chicken imported from the US of as much as 105.4%. While China is still a relatively small importer of US Chicken with $678 million in US exports in 2009, many poultry producers had been hoping for major growth in exports to China in the coming years.[49] Tyson and other companies are lobbying Congress and China to remove the new tax, which went into effect on September 27. Tyson imports will be charged a 50.3% duty.[50]

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References

  1. TSN Q3 2010 10-Q, p. 43
  2. Tyson Foods Seeks to Reverse Chinese Anti-Dumping Tariffs on US Chicken, Bloomberg, 9/27/10
  3. Tyson Plans to Ship Poultry to Russia This Week After Ban, Spokesman Says, Bloomberg, 8/30/10
  4. Tyson Food Unit Recalls Deli Meats, MarketWatch, 8/24/10
  5. Smithfield, Tyson Pork-Plant Bans Ended by Russia, Says USDA, Business Week, 3/11/10
  6. Tyson Foods Seeks to Reverse Chinese Anti-Dumping Tariffs on US Chicken, Bloomberg, 9/27/10
  7. TSN Q1 2010 10-Q, p. 3
  8. TSN Q1 2010 10-Q, p. 32
  9. TSN Q1 2010 10-Q, p. 34
  10. TSN Q1 2010 10-Q, p. 35-36
  11. China Slaps Anti-Dumping Measures on Chicken Goods, Fox Business, 2/4/2010
  12. TSN Q2 2010 10-Q, Wikinvest, 5/10/2010, p.3
  13. TSN Q2 2010 10-Q, Wikinvest, 5/10/2010, p.36
  14. TSN Q2 2010 10-Q, Wikinvest, 5/10/2010, p.39
  15. TSN Q2 2010 10-Q, Wikinvest, 5/10/2010, p.39
  16. TSN Q2 2010 Earnings Call Transcript, Seekingalpha.com, 5/10/2010
  17. TSN Q2 2010 10-Q, Wikinvest, 5/10/2010, p.40
  18. TSN Q2 2010 10-Q, Wikinvest, 5/10/2010, p.40
  19. TSN Q3 2010 10-Q, p. 3
  20. TSN Q3 2010 10-Q, p. 40
  21. TSN Q3 2010 Earnings Call Transcript Q&A, 8/9/10
  22. TSN Q3 2010 10-Q, p. 41
  23. TSN Q3 2010 10-Q, p. 42
  24. TSN 8-K, 11/22/10, p. 1
  25. TSN 8-K, 11/22/10, p. 1
  26. TSN 8-K, 11/22/10, p. 2
  27. TSN Q4 2010 Earnings Call Transcript, Seeking Alpha, 11/22/10
  28. TSN Q4 2010 Earnings Call Transcript, Seeking Alpha, 11/22/10
  29. TSN Q4 2010 Earnings Call Transcript, Seeking Alpha, 11/22/10
  30. TSN 2011 10-Q, Item 1: Financial Statements, p. 3
  31. TSN 8-K, 2/4/11, p. 3-4
  32. TSN Q1 2011 Earnings Call Transcript, Seekingalpha.com, 2/4/11
  33. TSN 2009 10-K, Note 20: Segment Reporting
  34. Chicken should lift profit at Tyson Foods.
  35. TSN Q3 2010 10-Q, p. 43
  36. TSN 2009 10-K, Item 1: Business, p. 5
  37. Higher Commodity Prices Take a Bite out of Tyson Foods' 2008 Earnings.
  38. TSN 2009 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
  39. TSN Q4 2010 Earnings Call Transcript, Seeking Alpha, 11/22/10
  40. Tyson Foods Sees Favorable Future, Perishablenews.com, 3/810
  41. Opinions on Smithfield Foods Inc. and Tysons Food Inc., Marketwire.com, 12/13/10
  42. 42.0 42.1 Tyson Foods could seek pork, red meat buys in China, India, Brazil, Argentina.
  43. Tyson Foods Inc. F4Q08 (Qtr End 9/27/08) Earnings Call Transcript 3.
  44. Tyson Foods Inc. F4Q08 (Qtr End 9/27/08) Earnings Call Transcript 3.
  45. Smithfield, Tyson Pork-Plant Bans Ended by Russia, Says USDA, Business Week, 3/11/10
  46. Russia Lifts Poultry Ban But For How Long?, Meat Trade News Daily, 6/29/10
  47. Purchase a Boost to Poultry Industry, NWA Online, 6/20/10
  48. Tyson Plans to Ship Poultry to Russia This Week After Ban, Spokesman Says, Bloomberg, 8/30/10
  49. China Imposes a Steep Tariff on US Poultry, NY Times, 9/26/10
  50. Tyson Foods Seeks to Reverse Chinese Anti-Dumping Tariffs on US Chicken, Bloomberg, 9/27/10
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