Tyson Foods this week released its latest financial results for the fourth quarter of 2019, revealing a lower net income than the year prior. Net income for the quarter was $369 million, down from $537 million in the fourth quarter of 2018. Generally accepted accounting principles (GAAP) earnings per share (EPS) were $1.01, down 31% from the prior year. Net income for fiscal 2019 was $2.02 billion, down from $3.04 million in 2018. GAAP EPS was $5.52, down 33% from a record the prior year.
“Fiscal 2019 was highlighted by significant progress in our strategy to grow our business through differentiated capabilities, deliver service and value to our customers and sustain our company and our world for future generations,” Tyson president and chief executive officer Noel White said. “We expanded our global footprint, launched innovation in our iconic brands and our new alternative protein brand and prepared for future growth by investing in technology and infrastructure.
He continued, “We’re very optimistic about fiscal 2020, and we currently expect to meet or exceed our long-term earnings algorithm of high-single-digit adjusted earnings per share growth as we’re well positioned to take advantage of opportunities in the global marketplace.”
Tyson reported that sales volume in its beef segment decreased due to a reduction in live cattle processing capacity from the temporary closure of its production facility in Holcomb, Kan., as a result of a fire there in August. However, the average sales price increased as demand for beef products remained strong.
“Operating income increased as we continued to maximize our revenues relative to live fed cattle costs, partially offset by increased operating costs and $31 million of net incremental costs from the production facility fire,” the company relayed.
In the pork segment, sales volume increased due to increased domestic availability of live hogs and strong demand for Tyson's pork products. The average sales price increased, associated with higher livestock costs, it noted. Operating income decreased due to periods of compressed pork margins caused primarily by the combination of increased livestock supplies, excess domestic availability of pork and export constraints, which Tyson said drove up livestock costs faster than sales prices.
Regarding the chicken segment, the company said its sales volume increased primarily due to incremental volume from business acquisitions. The average sales price decreased due to market conditions and sales mix primarily associated with the acquisition of a poultry rendering and blending business in the fourth quarter of fiscal 2018. Operating income decreased due to increased operating costs and challenging pricing conditions. Additionally, operating income was affected by approximately $40 million and $55 million for the 12 months and fourth quarter of fiscal 2019, respectively, of net feed ingredient costs and realized and market-to-market derivative losses. Operating income was affected by approximately $100 million and $60 million for the 12 months and fourth quarter of fiscal 2018, respectively, of net feed ingredient costs and realized and market-to-market derivative losses.
The company said its Prepared Foods sales volume decreased primarily from business divestitures. The average sales price increased due to product mix, which was positively affected by business divestitures as well as pricing increases in the ongoing business from the pass-through of raw material costs, it noted. Operating income decreased in the fourth quarter of fiscal 2019 and was relatively flat in fiscal 2019 compared to fiscal 2018 as strong demand for products and improved product mix was partially offset by increased operating costs, including a $60 million increase in raw material costs. Additionally, operating income in the 2019 fourth quarter was affected by a $41 million impairment from a planned divestiture of a business. Operating income in fiscal 2018 was affected by a $68 million impairment, net of realized gains, associated with the divestiture of non-protein businesses.
Regarding the outlook for fiscal 2020, Tyson said the U.S. Department of Agriculture has indicated that domestic protein production (beef, pork, chicken and turkey) should increase approximately 2-3% from fiscal 2019 levels, but the company expects export markets to absorb the increased production. Tyson provided the following 2020 outlook summary for each of its segments:
- Beef – Tyson expects industry fed cattle supplies to increase approximately 2% in fiscal 2020 compared to fiscal 2019 and expects ample supplies in regions where it operates plants. For fiscal 2020, the company believes the adjusted operating margin for its Beef segment will be 6.5-7.5%, absent impacts from African swine fever (ASF).
- Pork – Tyson expects industry hog supplies to increase approximately 3% in fiscal 2020 compared to fiscal 2019 and expects increased livestock costs in fiscal 2020 versus fiscal 2019. For fiscal 2020, it believes the Pork segment's adjusted operating margin will be 6-8%, absent impacts from ASF.
- Chicken – USDA projects a 2-3% increase in chicken production in fiscal 2020 compared to fiscal 2019. For fiscal 2020, Tyson believes the adjusted operating margin for its Chicken segment will be 6-8%, absent impacts from ASF.
- Prepared Foods – Tyson expects raw material costs to rise in fiscal 2020 compared to fiscal 2019 but expects to recover the increased raw material costs through pricing. Many of its sales contracts are formula based or shorter-term in nature, but there may be a lag time for price changes to take effect. For fiscal 2020, Tyson believes its Prepared Foods segment's adjusted operating margin will be 10-12%.
- International/Other – International/Other includes the Keystone International operations, Thai and European operations, foreign operations in China, third-party merger and integration costs and corporate overhead related to Tyson New Ventures LLC. The company expects improved results in fiscal 2020 due to improvements in its legacy foreign operations as well as the impact of a full year of Keystone International and Thai and European operations.