Tyson profit falls 21% in 2Q

On track for year, CEO says; plant fires, late Easter noted

Graphs showing information about Tyson Foods' second quarter
Graphs showing information about Tyson Foods' second quarter

Tyson Foods on Monday reported a 21 percent drop in second-quarter profit, noting two plant fires hurt its chicken segment for the period and confirming it had received a request for information from the Florida attorney general in a price-fixing investigation.

Tyson reported net income of $340 million or 92 cents per share for its fiscal 2017 second quarter, down from $432 million or $1.10 per share for the year-ago quarter. The average estimate of eight analysts predicted second-quarter earnings of $1.02 a share.

Revenue was $9.08 billion for the period, down about 1 percent from $9.17 billion for the second quarter of fiscal 2016. An average estimate of seven analysts called for revenue of $9 billion.

Shares of Springdale-based Tyson Foods closed at $59.47, down $3.85 or a little more than 6 percent in trading Monday on the New York Stock Exchange. Shares have traded as low as $55.72 and as high as $77.05 over the past 12 months.

During a Monday morning conference call, company President and CEO Tom Hayes said the second quarter was challenging, noting it's typically a choppy period and included a late Easter holiday. He said two plant fires cost the company $23 million and resulted in a loss of chicken production. Operating income was also hit by a $53 million impairment charge against the company's prepared-foods segment.

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Hayes said that if the company's strong first quarter and its second quarter numbers are examined together, they result in record-breaking profits for the period -- up 17 percent when compared with the same six-month period in fiscal 2016. Overall, Hayes was upbeat, saying Tyson is on track for strong third and fourth quarters, noting the company's guidance for total earnings for 2017 remains, "Good to go."

Tyson reiterated its earnings per share guidance of between $4.90 to $5.05 for the year, a 12 percent jump when compared with fiscal 2016.

Hayes said the company's commitment to no longer sell chicken raised using antibiotics will be fully implemented by July and that Tyson's new organic chicken offerings will be on store shelves that month as well.

Ken Shea, a senior analyst of food and beverages at Bloomberg Intelligence, said that while Tyson's second quarter results were disappointing, the company eye is on the long-term goals of sustainable growth alongside solid profits. He said he expected long-term investors to take Monday's results in stride.

"This is just a bumpy quarter," Shea said.

The company's beef segment saw total sales of $3.49 billion for the second quarter, down 4 percent when compared with last year; the pork segment brought in $1.3 billion, up 10 percent from the year earlier; and chicken earned $2.8 billion, up 2 percent from the second quarter of 2016. The prepared-foods segment booked sales of $1.75 billion, down nearly 3 percent from last year on a decline in the company's food-service business.

Bob Williams, senior vice president and managing director of Simmons First Investment Group in Little Rock, said that while it wasn't the best quarter from the standpoint of sales volume, higher profit margins -- mostly in pork -- helped offset losses in other segments.

"They got some help on pricing," Williams said.

Price-fixing probe

In a call with the media later on Monday, Hayes and Tyson's General Counsel David Van Bebber, confirmed that the company received a civil investigative demand from the Florida attorney general's office. The request seeks information related to possible anti-competitive conduct in connection with the Georgia Dock, a chicken products pricing index formerly published by the Georgia Department of Agriculture.

Bebber declined to comment about the issue beyond a filing Tyson Foods made with the Security and Exchange Commission in which the company said it is cooperating with Florida attorney general's office.

Earlier this year, Tyson said it was served a subpoena in January from the SEC. Tyson and other large chicken companies, including Pilgrim's Pride Corp. and Sanderson Farms Inc., are facing lawsuits that contend they colluded to fix chicken prices. Tyson has denied any wrongdoing.

Bloomberg's Shea said the price-fixing issue could be drag on Tyson's stock price until it is resolved, saying such cases are tough to prove and can take a long time to litigate.

Also during the Monday conference call, Hayes said the recently announced acquisition of AdvancePierre Foods, a supplier of meat, sandwiches and snacks, should begin to help Tyson's earnings by the fourth quarter of fiscal 2017. In a filing late Monday with the SEC, Tyson indicated that it expected the acquisition of AdvancePierre to result in $1.7 billion in revenue for 2018.

In late April, Tyson Foods said it was buying the Cincinnati-based company in a deal valued at $4.2 billion -- including $3.2 billion in equity and about $1 billion in debt. Tyson expects the acquisition to result in $200 million in cost-saving within three years.

The move is Tyson's biggest deal since it acquired Hillshire Brands and its many well-known product brands, such as Jimmy Dean and Ball Park, in 2014 for $7.7 billion. Since then, Tyson has been positioning itself as a meat-based food producer with a stable of brands across the entire segment. Hayes, a former Hillshire executive, took over Tyson's top job at the first of the year.

Tyson is also considering the sale of three of its nonmeat subsidiaries to keep the company's portfolio focused on meat offerings. Sara Lee Frozen Bakery business, dips, sauces and side-dish brand Kettle, and waffle brand Van's could all be up for sale. In Monday's report, Tyson said it hopes find buyers for these brands over the next year and projects sales of these businesses to total about $650 million.

Last month, Tyson also said it was taking a step toward its sustainability goals, such as committing to initiatives to create a better work environment for its employees at production plants around the country. More than 95,000 of its 114,000 employees nationwide work in the company's chicken, pork, beef and prepared-food production plants.

Hayes said Monday that Tyson is committed to continuous improvement across the board.

Business on 05/09/2017

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