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Strong protein market boosts Tyson’s Q3

Tyson Foods Tyson Foods blue logo horizontal
Company generates increased sales, volume growth and strong operating results.

Tyson Foods Inc. reported net income during Q3 2021 was $749 million, up from $526 million during the same quarter in 2020. Net income per share was $2.05 up 42% from the prior year. The company also reported result for the first nine months. Net income was $1.692 million, up from $1.407 million in the first nine months of 2020.

“We delivered a strong performance in a strong protein market,” said Tyson Foods President & CEO Donnie King. “With trusted brands that met strong consumer demand, we have delivered 12 consecutive quarters of share gains in core business lines at retail. Our foodservice volume improved as the restaurant industry began to reopen and recover. Our beef business increased production to meet strong U.S. and international demand for higher-quality products. And we continued to build financial strength, reducing our debt and investing in future growth by laying out plans to expand our business, both to address capacity constraints and meet growing demand.”

COVID-19 expenses

The company said team member safety remains top priority, noting that it incurred direct incremental expenses associated with the impact of COVID-19 totaling approximately $55 million and $270 million for the third quarter and first nine months of fiscal 2021, respectively. These direct incremental expenses primarily included team member costs associated with worker health and availability including direct costs for personal protection equipment, production facility sanitization, COVID-19 testing, donations, product downgrades, rendered product and certain professional fees, partially offset by CARES Act credits. Other indirect costs associated with COVID-19 that were not reflected in this amount were costs associated with raw materials, distribution and transportation, plant underutilization and reconfiguration, premiums paid to cattle producers and pricing discounts.

Segment results

In the Beef segment, sales volume for the company increased during the third quarter of fiscal 2021 due to strong global demand and reduced production inefficiencies associated with COVID-19 compared to the third quarter of fiscal 2020. Sales volume increased for the first nine months of fiscal 2021 due to strong global demand and increased cattle processed in the third quarter of fiscal 2021 as compared to fiscal 2020, partially offset by the impacts associated with severe weather in the second quarter of fiscal 2021 and a challenging labor environment. Additionally, sales volume for the first nine months of fiscal 2021 was impacted by a fire, which caused the temporary closure of a production facility for the majority of the first quarter of fiscal 2020. Average sales price increased in the third quarter and first nine months of fiscal 2021 as demand for our beef products remained strong. Operating income increased in the third quarter and first nine months of fiscal 2021 due to strong demand as we continued to optimize revenues relative to live cattle supply, partially offset by production inefficiencies and a net increase in direct incremental expenses related to COVID-19 in the first nine months of fiscal 2021.

Tyson reported that its operating income in the first nine months of fiscal 2021 was impacted by a cattle supplier's misappropriation of company funds, which resulted in a $55 million gain related to the recovery of cattle inventory as compared to a $56 million loss recognized in the first nine months of fiscal 2020.

On the Pork side, sales volume increased during the third quarter of fiscal 2021 due to strong global demand and reduced production inefficiencies associated with COVID-19 compared to the third quarter of fiscal 2020. Sales volume increased for the first nine months of fiscal 2021 due to strong global demand and increased live hogs processed in the third quarter of fiscal 2021 as compared to fiscal 2020, partially offset by the impacts of a challenging labor environment. Average sales price increased in the third quarter and first nine months of fiscal 2021 due to strong demand. Operating income decreased in the third quarter and first nine months of fiscal 2021 primarily due to lower hog supplies relative to industry capacity as well as production inefficiencies related to COVID-19 and a challenging labor environment, partially offset by a reduction in direct incremental expenses related to COVID-19 in the third quarter of fiscal 2021 as compared to fiscal 2020. Additionally, operating income in the third quarter and first nine months of fiscal 2021 was impacted by approximately $45 million and $115 million, respectively, of incremental net derivative losses as compared to the third quarter and first nine months of fiscal 2020.

Sales volume in the company’s Chicken segment increased during the third quarter of fiscal 2021 primarily due to increased demand in the foodservice channel and reduced production inefficiencies associated with COVID-19 compared to the third quarter of fiscal 2020. Sales volume decreased during the first nine months of fiscal 2021 from the impact of lower production throughput associated with COVID-19, disruptions due to severe weather in the second quarter of fiscal 2021, decline in hatch rate and a challenging labor environment, partially offset by increased demand. Average sales price increased in the third quarter and first nine months of fiscal 2021 due to favorable sales mix and inflationary market conditions. Operating loss increased during the third quarter of fiscal 2021 primarily due to a $306 million loss from the recognition of legal contingency accruals and $270 million of higher feed ingredient costs, partially offset by $125 million of incremental net derivative gains as compared to the third quarter of fiscal 2020. Operating income decreased during the first nine months of fiscal 2021 primarily due to a $626 million loss from the recognition of legal contingency accruals, $410 million of higher feed ingredient costs as compared to fiscal 2020, production inefficiencies related to COVID-19, decline in hatch rate and disruptions due to severe weather, partially offset by reduced direct incremental expense associated with COVID-19 and $235 million of incremental net derivative gains as compared to the first nine months of fiscal 2020.

The company’s Prepared Foods segment saw increased sales volume during the third quarter of fiscal 2021 primarily due to increased demand in the foodservice channel and sustained retail demand as well as reduced production throughput disruptions associated with COVID-19 compared to the third quarter of fiscal 2020. Sales volume decreased during the first nine months of fiscal 2021 driven by reduced foodservice demand in the first half of fiscal 2021, lower production throughput partially associated with a challenging labor and supply environment and the impact of severe weather in the second quarter of fiscal 2021, partially offset by strong demand in the retail sales channel. Average sales price increased in the third quarter and first nine months of fiscal 2021 due to favorable product mix and the passthrough of increased raw material costs. Operating income increased slightly in the third quarter of fiscal 2021 primarily due to favorable pricing and product mix and the reduction of direct incremental expenses related to COVID-19 compared to the third quarter of fiscal 2020, which was offset by $160 million of increased raw materials costs as compared to the third quarter of fiscal 2020. Operating income increased during the first nine months of fiscal 2021 due to lower commercial spend as well as favorable pricing and product mix partially offset by increased operating costs, including a $265 million increase in raw material costs during the first nine months of fiscal 2021, as well as production inefficiencies due in part to the impact of a challenging labor and supply environment along with the impact of severe weather in the second quarter of fiscal 2021. Additionally, operating income in the third quarter and first nine months of fiscal 2021 was impacted by $15 million and $60 million, respectively, of incremental net derivative gains as compared to the third quarter and first nine months of fiscal 2020.

Outlook

The company provided a summary of the outlook for each of its segments, as well as an outlook for revenues, capital expenditures, net interest expense, liquidity and tax rate for the remainder of fiscal 2021.

On an adjusted basis, Tyson anticipates Prepared Foods results in fiscal 2021 to be similar to fiscal 2020 while Pork results will likely be lower in fiscal 2021 as compared to fiscal 2020. At current grain prices, the company believes its Chicken results will likely be lower in fiscal 2021 as compared to fiscal 2020. However, because of stronger than expected performance in beef and current market conditions, the Beef segment is forecast to deliver improved fiscal 2021 results as compared to fiscal 2020.

As for the ongoing COVID-19 pandemic, Tyson said it continues to proactively manage the company and its operations through this global pandemic.

“Given the nature of our business, demand for food and protein may continue to shift amongst sales channels and experience disruptions, but over time we expect worldwide demand to continue to increase,” the company noted, adding, “We are experiencing multiple challenges related to the pandemic. These challenges are anticipated to continue to increase our operating costs in fiscal 2021.

The company said it cannot currently predict the ultimate impact of the pandemic on short- and long-term demand, as it will depend on, among other things, the severity and duration of the COVID-19 pandemic.

“Our liquidity is expected to be adequate to continue to run our operations and meet our obligations as they become due. For fiscal 2021, we estimate that we will incur approximately $325 million of direct incremental expenses associated with the impact of COVID-19; however, some of these incremental expenses may become permanent over time.”

 

 

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