Meat&Poultry - June 2011 - 48

CORPORATE PROFILES

Balancing act
Tyson continues to juggle all aspects of its multi-protein business
BY STEVE KAY
meatpoultry@sosland.com

alance is a word Tyson Foods uses a lot when describing strategies for its multi-protein business. Since losing hundreds of millions of dollars in its beef business in 2006 and then in chicken in 2008, Tyson has strived to keep what it produces in balance with what its customers want. Another key strategy is continuous improveSmith ment in its operations, from hatcheries to plants to distribution. This has allowed the company to achieve nearly $800 million in operating efficiencies over the past several years, it says. Balance also applies to the fact that Tyson is one of the world’s largest producers of chicken, beef and pork. Its size and diversity have allowed it to weather the storms when margins in one business segment or another are squeezed. This business model means Tyson is well positioned to continue delivering profits in 2011 in line with last year’s levels, president and CEO Donnie Smith told analysts last month. Smith made his comment after Tyson reported net income of $159 million or 42 cents per share for its fiscal 2011 second quarter ended April 2. The results were fl at with the prior year’s quarter. Sales though, at $8 billion, were up 3 percent year– on-year because of a 12.3 percent increase in average selling prices. This mostly reflected a 19.6 percent increase in beef prices and an 18.4 percent increase in pork prices.

Challenges ahead
Like other meat and poultry processors, Tyson faces significant challenges the rest of its fiscal year. These include: sluggish spring demand for all proteins because of bad weather; rising gasoline prices and their impact on consumer food spending; the slow economic recovery in the US; rising input costs, notably of feed for its chicken

“We have a very diverse business model within each of the proteins and those business models each have a commodity and/ or value-added component.”

“Tyson is facing challenging markets and rising inputs, but it is important to put this in context of global protein markets,” Smith said. Stable demand, limited global meat and poultry supplies and lower imports into the US means Tyson will be able to continue to push through price increases. Smith was also keen to tout what he called Tyson’s competitive advantage because of its multi-protein model, plus its prepared foods model. “We also go to market in multiple channels,” he added. “We are multinational and, although our international businesses by and large are startups, that paints a picture of force in the future. We have a very diverse business model within each of the proteins and those business models each have a commodity and/ or value-added component. “No competitor has our product diversification,” Smith said. “We have unparalleled resources – our team and our Discovery Center – to create value for our customers through product innovation. We have had great cash flow over the past 24 months and that has allowed us to strengthen our balance sheet and invest in the business.”

business; and overall market volatility. “We have a wall of costs heading toward us,” Smith told analysts. Tyson expects feed costs to be $500 million higher during the second half of the fi scal year than they were in 2010. This would mean a 13 percent increase over the approximately $4 billion the company spent on grain last year, according to analyst Stephen Share, Morgan Joseph TriArtisan LLC, New York.

Optimistic for chicken
Regarding balance in chicken, Tyson’s focus is on keeping inventories at a reasonable level to be able to supply customers, Smith said in a media conference call. In addition, Tyson believes it presents a very good value proposition to its customers, from quality to on-time deliveries. All this helped Tyson Chicken achieve operating income of $37 million in the

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