Tyson Foods Inc. had started building its presence in sausage and frozen breakfast against Hillshire Brands before deciding to acquire the company, Donnie Smith, chief executive of Tyson, said Thursday in Boston.
A week after Tyson acquired Hillshire, Smith and Dennis Leatherby, Tyson chief financial officer, spoke at the Barclays Back-to-School Consumer Conference about the acquisition. The pair provided new insights into what the $8.55 billion acquisition means for the company.
A key insight had to do with the success of Tyson's Day Starts, a line of protein-rich breakfast sandwiches that compete with Hillshire's Jimmy Dean sandwiches. Smith said it would have taken about $2.5 billion over the course of several years to get into the No. 3-to-5 spot in that category, which Hillshire leads.
"So, when you look at what we were going to have to spend to be able to grow organically against these iconic brands, it really brought into focus the fact that it would be so much better ... to buy that No. 1 share and then link it to the raw materials and then grow both together," Smith said.
He also fired back against analysts who had questioned Tyson's excitement about becoming more competitive in the frozen foods market in general.
"We're No. 2 in the frozen category, and we all hear so much about how frozen is flat," Smith said. "So ... why are we bragging about being No. 2 in that category?"
He said frozen breakfast foods and fully cooked chicken had enormous potential for growth, and Tyson was now the top company in both categories.
"We're No. 1 in the categories where it's important to be No. 1 for our growth in the future," he said.
Over the course of a 52-week period that ended June 25, frozen hand-held breakfast food sales grew nearly 9 percent in sales, according to IRI, a Chicago-based market research firm. The firm did not break out frozen fully cooked chicken sales.
Leatherby followed Smith with comments about Tyson's financial position following the acquisition. He also affirmed earnings expectations for the company's fiscal year.
"We're staying focused on our strategy and we won't forget what got us here in terms of strong execution," he said. "We're going to leverage our iconic brands and No. 1 market share positions to grow the prepared foods segment, and we've hit the ground running to capture [cost savings]. If we do all these things well, the result will be reduced volatility and expanded operating margins."
Leatherby said he felt confident that Tyson would hit its earnings per share target and said he expects revenue to increase 10 percent from a year ago.
The pair talked about Tyson's plans to pay down its debt. Leatherby said the company will do it as quickly as possible to keep the company's investment grade rating. Smith and Leatherby also said that selling the company's Mexico and Brazil operations to raise cash for the acquisition was a good move in more ways than one.
"Market share and category leadership is important wherever you are. Being in Brazil, being in Mexico was not necessarily the magic," Smith said. "It just really didn't make sense to keep pouring money into that many growth vehicles at the same time, especially when we had this great opportunity with Hillshire domestically."
Business on 09/06/2014