Lower-than-expected chicken demand and declines in beef and pork sales contributed to a drop in Tyson Foods' operating income during the latest quarter, the meat processing giant said Monday in reporting results that fell well below analysts’ estimates.
Tyson's total sales were up 2.5% from the prior year, to $13.26 billion, but that was about $250 million less than Wall Street expected. Operating income for the quarter was $467 million, down 68% from the prior year. Shares of the meat giant were down more than $3 a share, about 4.8%, in midday trading.
Tyson CEO Donnie King said the company got “hit in the mouth” in the first quarter “because of all the protein on the market, and our … fresh chicken business didn't materialize as we had expected. And so we kind of created our own issue with that, because of what happened in the market.”
“We absolutely had the right number of chickens,” said Wes Morris, recently named the company’s president of poultry. “We simply had them in the wrong place based on the post-COVID changes. And so we had more than we needed in our fresh chicken business, and came up short in some others.”
Sales figures were lower for beef and pork and slightly higher for chicken, but operating income was down considerably. Beef sales declined to $4.7 billion from 2022’s first quarter of $5 billion, and operating income fell from $956 million to $156 million.
Pork sales were $1.53 billion, down about $100 million from 2022’s Q1, with an operating loss of $21 million compared to income of $164 million in 2022.
Chicken sales were up 10% to $4.26 billion, but operating income went from $140 million to $69 million.
“We’ve been expecting beef to come under pressure for some time,” King said. “With higher cattle prices, we expected overall harvest to slow down, but that hasn't happened yet. As such, we continue to draw on the herd, which continues to decline. This is putting pressure on the spread margins in the business.”
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In an answer to one analyst’s question, King said, “It's going to take a bit to rebuild the herd."
He cited certain prerequisites that have to be met before seeing heifer retention, including “better precipitation, getting past the drought. And for ranchers to have hay that's more affordable and forage land to be able to feed those animals, I don't think you're going to see heifer retention in a meaningful way until those things occur.”
The company expects adjusted operating margins to be 2% to 4% on beef and chicken during the current quarter and 2% or less on pork.
The company’s prepared foods segment delivered strong results, with an increase in sales from $2.33 billion to nearly $2.54 billion and a jump in operating income from $186 million to $258 million.
In the long term, King said he was optimistic. “We have the world’s greatest protein brands, an incredible team, and a sound strategy to serve our customers and delight consumers with high-quality, sustainable, affordable protein,” he said.
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