Dive Brief:
- Tyson reported Friday first quarter profits that leaped 49% to $461 million over last year's first quarter, in spite of revenue falling 15.4% to $9.15 billion.
- That profit bump is due in large part to lower feed and livestock costs, and with those lower costs expected to continue, Tyson raised its full-year profit guidance (and lowered its full-year revenue forecast).
- Tyson broke several operating margin records in the quarter, including chicken, prepared foods, and overall.
Dive Insight:
Feed prices are low and should stay low, with price declines of 3.9% for corn and 10% for soybeans over the past year as crops have been plentiful. Livestock production has also increased and will maintain that level into 2016, which is contributing to lower U.S. prices, according to a USDA report released last month. The prepared foods segment has also benefited from lower raw materials costs, and new product innovations are supporting the company's ability to keep these margins high. Overall, costs of goods sold plunged nearly 20%.
Tyson has also been cutting back on operating costs by closing two of its U.S. prepared foods plants, announced in November, which will lead to about 880 job cuts. The company raised its cost-savings estimates to $500 million for fiscal 2016 and $700 million in 2017 from $400 million in 2016 and $600 million in 2017 thanks to savings generated by packaging and purchasing changes. Cost-cutting initiatives have swept through the industry as manufacturers work to improve margins despite declining sales of processed foods.
Reducing expenses and capitalizing on lower ingredients costs are crucial to Tyson's margins right now as sales fell across all categories. After last year's bird flu outbreak, several countries banned or limited U.S. chicken imports, meaning those supplies were redirected to domestic processors and in turn put pressure on chicken prices.
Tyson's subsidiary Hillshire Brands recently announced a $28 million capital improvement project for its Sara Lee plant in Tarboro, NC, where the company will produce more in-demand gluten-free and non-GMO waffles. Since Tyson acquired Hillshire Brands in 2014, the business has done well for Tyson, helping the company expand beyond meat processing.