CEO says "business performed well and delivered strong fourth-quarter and full-year results.”

November 16, 2020

9 Min Read
Tyson reports Q4, fiscal 2020 results
Tyson Foods

Tyson Foods Inc. -- one of the world’s largest food companies and a recognized leader in protein, with headquarters in Springdale, Ark., and leading brands that include Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp and State Fair -- reported sales of $11.460 billion in its fourth quarter of 2020, compared with $10.884 billion in the same quarter in 2019. For the 12 months ended in 2020, the company reported $43.185 billion in sales, compared with $42.405 billion the year before.

“Our business performed well and delivered strong fourth-quarter and full-year results,” Tyson president and chief executive officer Dean Banks said. “Our team members, agricultural partners and customers have shown resilience. This has enabled us to maintain and accelerate our efforts to provide global consumers with a safe and accessible food supply.

“While we will continue to face pandemic-related challenges in fiscal 2021, we’re settling the business down to be focused on executing our long-term strategy while generating strong returns for shareholders. I’m excited for the opportunities ahead for this great company and am certain we have the people, products and strategies in place to drive future growth,” Banks said.

Tyson reported having incurred direct incremental expenses associated with the impact of the COVID-19 pandemic totaling approximately $200 million and $540 million for the fourth quarter and 12 months of fiscal 2020, respectively. These direct incremental expenses primarily included team member costs associated with worker health and availability and production facility downtime, including direct costs for personal protection equipment, production facility sanitization, COVID-19 testing, donations, product downgrades and rendered product, partially offset by Coronavirus Aid, Relief & Economic Security (CARES) Act credits. Other indirect costs associated with COVID-19 are not reflected in this amount, including costs associated with raw materials, distribution and transportation, plant underutilization and reconfiguration, premiums paid to cattle producers and pricing discounts.

Segment results

•  Beef. Sales volume increased 11.8%, or increased 3.8% after removing the impact of an additional week, for the fourth quarter of fiscal 2020 primarily due to a fire that caused the temporary closure of a production facility during the fourth quarter of fiscal 2019. Sales volume decreased 4.5%, or decreased 6.5% after removing the impact of an additional week, for fiscal 2020 due to lower production throughput associated with the impact of COVID-19 during portions of fiscal 2020 and a reduction in live cattle harvest capacity as a result of a fire that caused the temporary closure of a production facility for the majority of the first quarter of fiscal 2020. Average sales price decreased in the fourth quarter of fiscal 2020 associated with increased availability of live cattle supply and lower livestock cost. Average sales price increased in fiscal 2020 as beef demand remained strong amid supply disruptions related to the impact of COVID-19. Operating income increased primarily due to market conditions, including COVID-19 disruptions, which increased the spread between preexisting contractual agreements and the cost of fed cattle, and the impact of an additional week in fiscal 2020, partially offset by price reductions offered to customers, as well as production inefficiencies and direct incremental expenses related to COVID-19. Additionally, the fourth quarter of fiscal 2019 was impacted by $31 million of net incremental costs from the production facility fire.

• Pork. Sales volume increased 15.2%, or increased 6.9% after removing the impact of an additional week, for the fourth quarter of fiscal 2020 due to strong demand for its pork products and increased domestic availability of live hogs. Sales volume increased 1.8%, or decreased slightly after removing the impact of an additional week, for fiscal 2020, due to strong demand for its pork products and increased domestic availability of live hogs, offset by lower production throughput associated with COVID-19 during portions of fiscal 2020. Average sales price in the fourth quarter of fiscal 2020 decreased associated with lower livestock costs. Average sales price in fiscal 2020 increased as pork demand remained strong amid supply disruptions related to the impact of COVID-19, partially offset by lower livestock costs. Operating income increased primarily due to market conditions, including COVID-19 disruptions, which increased the spread between preexisting contractual agreements and the cost of live hogs, and the impact of an additional week in fiscal 2020, partially offset by production inefficiencies and direct incremental expenses related to COVID-19.

• Chicken. Sales volume increased 1.9%, or decreased 5.4% after removing the impact of an additional week, for fourth quarter of fiscal 2020, and increased slightly, or decreased 1.7% after removing the impact of an additional week, for fiscal 2020 primarily due to lower production throughput associated with the impact of COVID-19 during portions of fiscal 2020 and lower foodservice demand, partially offset by increased retail demand. Average sales price decreased primarily due to weaker chicken pricing as a result of market conditions. Operating income decreased primarily from market conditions, unfavorable product mix, as well as production inefficiencies and direct incremental expenses related to COVID-19. Operating income was also impacted by approximately $45 million of net derivative gains in the fourth quarter of fiscal 2020 and approximately $70 million of net losses in the fourth quarter of 2019, in addition to approximately $50 million of decreased feed ingredient costs in the fourth quarter of fiscal 2020 as compared to the fourth quarter of fiscal 2019. For fiscal 2020, net derivative results and feed ingredient costs were relatively flat as compared to fiscal 2019. Operating income was further impacted by $34 million and $21 million in restructuring costs incurred in fiscal 2020 and fiscal 2019, respectively.

• Prepared foods. Sales volume increased 1.6%, or decreased 5.6% after removing the impact of an additional week, for fourth quarter of fiscal 2020, and decreased 1.9%, or decreased 3.7% after removing the impact of an additional week, for fiscal 2020 as growth in volume across the retail channel was offset by a reduction in the foodservice channel related to reduced demand and lower production throughput due to the impact of COVID-19 during portions of fiscal 2020. Average sales price increased in the fourth quarter and for fiscal 2020 due to favorable product mix associated with the surge in retail demand, and for fiscal 2020, the pass through of increased raw material costs. Operating income increased in the fourth quarter of fiscal 2020 due to favorable product mix associated with strong demand for retail products and the impact of an additional week, partially offset by the impacts of reduced foodservice sales. Operating income decreased in fiscal 2020 primarily due to increased operating costs, including a $105 million increase in net raw material costs and derivative losses, as well as production inefficiencies and direct incremental expenses related to COVID-19, partially offset by reduced promotional spend. Operating income was also impacted by $28 million and $18 million in restructuring costs incurred in fiscal 2020 and fiscal 2019, respectively. Additionally, operating income in the fourth quarter of fiscal 2019 was further impacted by a $41 million impairment from a planned divestiture of a business.

Outlook

For fiscal 2021, the U.S. Department of Agriculture indicates domestic protein production (beef, pork, chicken and turkey) should increase approximately 1% from fiscal 2020 levels. On an adjusted basis, Tyson anticipates the beef and pork segments will remain strong, although not at fiscal 2020 levels, and it believes the chicken and prepared foods segments will likely strengthen in fiscal 2021 as compared to fiscal 2020.

The company said it will continue to proactively manage its operations through the global pandemic. Given the nature of its business, demand for food and protein may shift amongst sales channels and experience disruptions, but over time, Tyson said it expects worldwide demand to continue to increase. “We are experiencing multiple challenges related to the pandemic. These challenges are anticipated to increase our operating costs and negatively impact our volumes into fiscal 2021. We cannot currently predict the ultimate impact that COVID-19 will have on our short- and long-term demand, as it will depend on, among other things, the severity and duration of the COVID-19 crisis. Our liquidity is expected to be adequate to continue to run our operations and meet our obligations as they become due,” reported Tyson in announcing its results.

•            Beef – USDA projects domestic production will increase approximately 2% in fiscal 2021 as compared to a COVID-19 impacted fiscal 2020. For fiscal 2021, Tyson also expect sufficient supplies in regions where it operate plants.

•            Pork – USDA projects relatively flat to slightly increased domestic production in fiscal 2021 as compared to a COVID-19 impacted fiscal 2020.

•            Chicken – USDA projects a relatively flat to slightly increased outlook for chicken production in fiscal 2021 as compared to fiscal 2020.

•            Prepared foods – Tyson said it will continue to be responsive to changes in consumer behavior as a result of the impacts of COVID-19 as it moves into fiscal 2021.

•            International/Other – Tyson expects improved results from its foreign operations in fiscal 2021.

•            Revenue – Tyson expect sales to be $42 billion to $44 billion for fiscal 2021.

•            Capital expenditures – For fiscal 2021, Tyson expects capital expenditures to be approximately $1.2 billion to $1.4 billion. Capital expenditures include spending for capacity expansion, growth, safety, animal well-being, infrastructure replacements and upgrades, and operational improvements that are expected to result in production and labor efficiencies, yield improvements and sales channel flexibility.

•            Net interest expense – Tyson expects net interest expense to approximate $440 million for fiscal 2021.

•            Liquidity – Tyson expects total liquidity, which was approximately $3.2 billion at Oct. 3, 2020, to remain above its minimum liquidity target of $1.0 billion.

•            Tax Rate – The company currently expects its adjusted effective tax rate to be around 23% in fiscal 2021.

•            Dividends – Effective Nov. 13, Tyson’s board increased the quarterly dividend previously declared on Aug. 6, to $0.445 per share on its Class A common stock and $0.4005 per share on its Class B common stock. The increased quarterly dividend is payable on Dec. 15, to shareholders of record at the close of business on Dec. 1. The board also declared a quarterly dividend of $0.445 per share on its Class A common stock and $0.4005 per share on its Class B common stock, payable March 15, 2021, to shareholders of record at the close of business on March 1, 2021. The company said it anticipates the remaining quarterly dividends in fiscal 2021 will be $0.445 and $0.4005 per share of its Class A and Class B stock, respectively. This results in an annual dividend rate in fiscal 2021 of $1.78 for Class A shares and $1.602 for Class B shares, or a 6% increase compared to the fiscal 2020 annual dividend rate.

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