Tyson Foods, the largest American-owned processor and marketer of protein-centric brands, reported financial results for the third quarter on Monday, August 6th.
The company revealed that it had beat profit estimates due to cattle prices falling, which helped offset the impact of decreased beef and pork prices in the U.S.
The No. 1 U.S. meat processor reported a record operating income for its beef business, citing increased exports and cattle supplies.
Earnings for the third quarter jumped 21% to $541 million, or $1.47 a share. This is compared to the year ago quarter which saw $447 million, or $1.21 a share.
On an adjusted basis, earnings per share was $1.50, coming in significantly higher than the $1.28 reported a year ago. It also beat what analysts had been expecting at $1.40.
The company behind Ball Park hotdogs and Jimmy Dean sausages had recently cut its full-year profit forecast due to uncertainty in trade policies and tariffs from importers.
The decline in cattle prices had prompted some casual U.S. restaurants to promote beef products instead of chicken, said Chief Executive Tom Hayes.
He explained, “Intertwined with uncertainty in trade policies and tariffs are increasing supplies of relatively low-priced beef and pork that are competing with chicken.”
In Tyson’s chicken business during the quarter, operating income fell 35 percent to $189 million, with margins dropping to 6.4 percent from 10.2 percent.
“Chicken margins came in well below forecast on a sharp decline in demand given the surge in competing red meat supplies,” remarked Jeremy Scott, vice president of research for Mizuho Securities.
Hayes also said, “Typically, in Q3 and Q4, we expect strong chicken demand, driven by the growing season and normal summer future activity. Instead, cool Memorial Day weekend weather curved demand, while competing proteins displaced chicken in retail and foodservice promotions. To recover, we are aggressively addressing costs and capturing new future activity. And by keeping our inventories low, we can quickly react to market changes.”
He added, “Rising freight costs have been a challenge for all of our businesses. We now expect freight to be about $270 million more this year compared to last year, with a net effect for FY 2018 estimated to be around $0.33 per share. On a run rate basis, we recovered about 85%, and we plan to reach 100% once our longer-term contracts expire and new pricing terms take effect.”
Tyson also revealed that sales rose 2 percent to $10.05 billion. Analysts were looking for revenue of $10.28 billion, according to Thomson Reuters I/B/E/S.