Dive Brief:
- Tyson Foods reported a 21.3% drop in profit for the second quarter, attributing the decline to a fire that disrupted chicken production at two plants and hurt sales volumes, according to a company release. The company raised the average selling price of its chickens by 4.3% to make up for reduced production, but overall sales volumes still fell 1.9%.
- Net income fell to $340 million, or 92 cents per share, from $432 million, or $1.10 per share, in the year-ago period. Sales also slipped about 1% to $9.08 billion, declining for the fifth time in six quarters. Still, these results came above Wall Street expectations of $9.05 billion.
- "Had it not been for the fires, our Chicken segment return on sales would have been within its normalized range," CEO Tom Hayes said in a company statement.
Dive Insight:
Despite a relatively rocky second quarter, Tyson maintains its fiscal 2017 forecast, and analysts agree that the company's Q2 results were stronger than expected given the fires.
This disruption dragged down operating income for the company's chicken unit by nearly a third, causing overall operating income to drop by about 19%. Still, Tyson's efforts to raise profits by focusing on value-added items like pre-seasoned meats and heat-and-serve meals should help sales bounce back quickly. The company has also committed to phasing out antibiotics from its branded chicken products in order to lure health-conscious consumers to its products.
These moves are part of Tyson's larger strategy to maximize the growth potential of protein-based brands. This plan makes sense given the company's record operating profits and margins in pork and beef in Q1 2017, and Tyson's new CEO Tom Hayes has already begun to move forward with company goals. For example, last month Tyson announced that it was exploring the sale of non-meat brands Sara Lee frozen bakery, Kettle frozen foods and Van's breakfast products.
Shortly after, the company reached an agreement to buy ready-to-eat food company AdvancePierre for $4.2 billion. Hayes said in a company statement that the acquisition should accelerate growth for the company by "delivering on-trend, high-quality products consumers love."
It will be interesting to see how greatly both the sale of its non-meat brands and the purchase of AdvancePierre benefit Tyson going forward, and if the company will also leverage in-house product innovation to diversify its portfolio offerings.