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Tyson leaders remain positive amid headwinds

TAGS: Business
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Impacts to continue as COVID-19 timeline unknown, but long-term outlook remains strong.

Despite impacts from COVID-19, Tyson Foods said its outlook remains positive, with its core business and financial strength expected to position it well for the long term. The company reported net income of $364 million for the second quarter of 2020, down from $426 million in the second quarter of 2019. Adjusted earnings per share were $2.43, down 13% from the prior year. Net income for the first six months was $921 million, down from $977 million in 2019.

“While we cannot anticipate how long the challenges presented by COVID-19 will persist, we remain focused on driving long-term growth,” Tyson chief executive officer Noel White said. “Our solid balance sheet, ample liquidity, scale and diversity continue to give us confidence in our long-term outlook.”

White said the health and well-being of team members remains the company's top priority, even as it works to ensure a secure food supply amid operational challenges, including absenteeism, reduced production speeds and selected idling of plants.

“The COVID-19 pandemic in the United States has had a significant impact on our channel mix, with increased retail and plummeting foodservice demand. From a supply chain perspective, where possible, our facilities have adapted to new product mixes, which has enabled us to ship millions of pounds per week between channels and has set us apart from many of our competitors.”

The company does expect current conditions to continue during its third quarter, with a gradual recovery expected to begin in the fourth quarter, but White said this all depends on the extent to which businesses and schools are able to reopen.

Despite the uncertainty, White said global population and income growth will continue to drive an increased need for protein. The company’s size, diversity of portfolio and broad geographic presence will give Tyson an advantage, he said. Further, he noted that changes due to the pandemic will undoubtedly remain after the crisis, including continued higher levels of e-commerce for both grocery and foodservice channels.

Retail up more than 20%

Tyson president Dean Banks reported that the company’s retail business posted gains of more than 20% during the last 13 weeks, outpacing total food and beverage as well as the top 10 food manufacturers. While panic buying has subsided from extreme levels, he said the company continues to see 15-40% volume increases versus last year, depending on the category.

“Historically, approximately 45% of our total company sales were retail, 40% foodservice and 15% international. During the early third quarter, we saw our retail sales move to approximately two-thirds of our total company sales,” Banks said.

Also, while Tyson has been successful in shifting some of its production from foodservice to retail, not all of its facilities are able to do so, Banks said. The volume increases in retail were not sufficient to offset the losses in foodservice. As a result, the company expects negative year-over-year volumes in the second half of fiscal 2020.

Regarding ecommerce, Tyson experienced a more than 140% month-to-month growth rate in product lines sold to a major e-commerce customer.

“We expect this trend to continue. Going forward, we expect sustained retail sales growth and a slow recovery in our foodservice channel,” White said.

Exports perform well

From a global perspective, exports to many parts of the world performed well throughout the period, the company reported.

Tyson saw double-digit increases in its market share in Japan and Mexico, while China’s economy appears to be reopening.

Banks relayed that the company’s China operations were affected by COVID-19 more than any other region during the second quarter but said the China team still produced record sales and operating income as production was shifted to meet rising retail demand.

While China is recovering, Banks said other geographies are being negatively affected by the pandemic.

“We expect to see a slow recovery across each of our geographies as demand patterns normalize. The profitability will be impacted negatively in the short term,” he said.

Lower levels of supply caused by African swine fever will also continue to present opportunities, White noted.

The global fundamentals of 6-12 months ago haven’t changed, with global protein demand still continuing to grow at about a 2% rate, according to White. Production volume, on the other hand, is not increasing at the same level.

“The United States historically has been a low-cost supplier of protein, beef, pork and chicken to the global market. So, we don’t see that changing, and the demand that we’ve seen over the course of the last 30-60 days I think ... just reinforces that," he said.

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