OREANDA-NEWS. Tyson Foods, Inc., one of the world's largest food companies with leading brands including Tyson®, Jimmy Dean®, Hillshire Farm®, Sara Lee®, Ball Park®, Wright®, Aidells® and State Fair®, today reported the following results:

(in millions, except per share data) Third Quarter   Nine Months Ended
  2016   2015   2016   2015
Sales $ 9,403     $ 10,071     $ 27,725     $ 30,867  
Operating Income 767     563     2,247     1,619  
               
Net Income 485     344     1,380     965  
Less: Net Income (Loss) Attributable to Noncontrolling Interests 1     1     3     3  
Net Income Attributable to Tyson $ 484     $ 343     $ 1,377     $ 962  
               
Net Income Per Share Attributable to Tyson $ 1.25     $ 0.83     $ 3.50     $ 2.32  
               
Adjusted? Operating Income $ 767     $ 568     $ 2,247     $ 1,685  
               
Adjusted? Net Income Per Share Attributable to Tyson $ 1.21     $ 0.80     $ 3.43     $ 2.32  
                               

?Adjusted operating income, adjusted net income per share attributable to Tyson and adjusted net income per share attributable to Tyson guidance are non-GAAP financial measures and are explained and reconciled to a comparable GAAP measure at the end of this release.

Third Quarter Highlights

  • Record EPS of $1.25, up 51% from Q3'15; Record Adjusted EPS of $1.21, up 51% from Q3'15
  • Operating income up 36% to $767 million; Adjusted operating income up 35% compared to Q3'15 
  • Record third quarter total company operating margin of 8.2%
    • Record Chicken segment operating margin of 13.9%
    • Prepared Foods segment operating margin of 10.9%
    • Pork segment operating margin of 9.6%
  • Captured $150 million in total synergies; $63 million incremental synergies over Q3'15
  • Repurchased 6.6 million shares for $425 million, excluding shares repurchased to offset dilution from our equity compensation plan
  • Raised full year fiscal 2016 GAAP EPS guidance to $4.47-$4.57; Adjusted? EPS guidance raised to $4.40-$4.50

“We again demonstrated our ability to deliver higher, more stable earnings through our differentiated business model that emphasizes growth in prepared foods and value-added chicken,” Donnie Smith, chief executive officer of Tyson Foods, said. “We produced record third quarter earnings per share, operating income and return on sales. All operating segment results were in or above their normalized operating margin ranges, with the Chicken segment delivering a record 13.9% return on sales.

“At retail, our products are growing in sales volume, sales dollars and category share according to IRI, and Tyson is a leader in volume sales growth among the top 10 branded food companies.

“From the strong cash flows generated by our operations, we used $425 million to repurchase 6.6 million shares during the third quarter. We’re continuing our share repurchases and have bought back an additional $380 million worth of shares to date in the fiscal fourth quarter.

“We expect our high-level performance to continue and are raising full year fiscal 2016 earnings guidance. Following record earnings this year, we intend to build on our momentum to generate more growth in fiscal 2017.”

Summary of Segment Results
  • Chicken - Sales volume decreased in the third quarter and nine months of fiscal 2016 as a result of optimizing our mix and our buy versus grow strategy. Average sales price increased slightly in the third quarter of fiscal 2016 as a result of sales mix changes. Average sales price decreased for the nine months of fiscal 2016 as feed ingredient costs declined, partially offset by mix changes. Operating income increased due to improved operational execution and lower feed ingredient costs. Feed costs decreased $50 million and $190 million during the third quarter and nine months of fiscal 2016, respectively.
  • Beef - Sales volume increased in the third quarter of fiscal 2016 due to an increase in live cattle processed as a result of higher fed cattle supplies. Sales volume increased for the nine months of fiscal 2016 due to better demand for beef products despite a reduction in live cattle processing capacity due to the closure of our Denison, Iowa, facility in the fourth quarter of fiscal 2015. Average sales price decreased due to higher domestic availability of beef supplies, which drove down livestock costs. Operating income increased due to more favorable market conditions associated with an increase in cattle supply which resulted in lower fed cattle costs.
  • Pork - Sales volume decreased in the third quarter of fiscal 2016, despite increased production, due to reduced inventory levels as well as the result of mix changes related to internally sourcing more hogs from our live operation. Sales volume decreased for the nine months of fiscal 2016 due to the divestiture of our Heinold Hog Markets business in the first quarter of fiscal 2015. Excluding the impact of the divestiture, our sales volume grew 1.5% driven by better demand for pork products. Average sales price increased in the third quarter of fiscal 2016 as demand for our pork products outpaced the slight increase in live hog supplies, which drove up average sales price. For the nine months of fiscal 2016, live hog supplies increased, which drove down livestock cost and average sales price. Operating income increased for the third quarter and nine months of fiscal 2016 due to better plant utilization associated with higher volumes.
  • Prepared Foods - Sales volume increased in the third quarter of fiscal 2016 as a result of improved demand for our prepared foods products. Sales volume decreased for the nine months of fiscal 2016, despite increased sales volume in the third quarter, as a result of lower sales volume in the first six months of fiscal 2016 due to changes in sales mix as well as the carryover effect of the 2015 turkey avian influenza occurrence into the first half of fiscal 2016. Average sales price decreased primarily due to a decline in input costs, partially offset by a change in product mix. Operating income remained strong in the third quarter of fiscal 2016 as a result of strong demand for our products partially offset with higher promotional spending. Operating income increased due to mix changes as well as lower input costs of approximately $215 million for the nine months of fiscal 2016. Additionally, Prepared Foods operating income was positively impacted by $116 million in synergies, of which $37 million was incremental synergies in the third quarter of fiscal 2016 above the $79 million of synergies realized in the third quarter of fiscal 2015. For the nine months of fiscal 2016, Prepared Foods was positively impacted by $322 million in synergies, of which $118 million was incremental synergies in fiscal 2016 above the $204 million of synergies realized in the nine months of fiscal 2015. The positive impact of these synergies to operating income was partially offset with heavy investments in innovation, new product launches and supporting the growth of our brands.

Outlook

In fiscal 2017, we expect domestic protein production (chicken, beef, pork and turkey) to increase approximately 2-3% from fiscal 2016 levels and moderate export growth. As we continue with the integration of Hillshire Brands, we expect to realize synergies of approximately $700 million in fiscal 2017 from the acquisition as well as our profit improvement plan for our legacy Prepared Foods business. The majority of these benefits will be realized in our Prepared Foods segment. The following is a summary of the outlook for each of our segments, as well as an outlook on sales, capital expenditures, net interest expense, liquidity and share repurchases for the remainder of fiscal 2016 and fiscal 2017.

  • Chicken – USDA data shows an increase in chicken production of approximately 2-3% in fiscal 2017 compared to fiscal 2016. Based on current futures prices, we expect lower feed costs in fiscal 2016 compared to fiscal 2015 of approximately $175 million. Many of our 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 2016, we believe our Chicken segment's operating margin should be more than 12%. Based on current futures prices, we expect similar feed costs in fiscal 2017 compared to fiscal 2016. For fiscal 2017, we believe our Chicken segment's operating margin should remain similar to fiscal 2016 results.
  • Beef – We expect industry fed cattle supplies to increase approximately 2-3% in fiscal 2017 compared to fiscal 2016. We generally expect adequate supplies in regions we operate our plants. For fiscal 2016 we believe our Beef segment's operating margin will be in its normalized range of 1.5-3.0% and toward the upper end of the range in fiscal 2017.
  • Pork – We expect industry hog supplies to increase approximately 2-3% in fiscal 2017 compared to fiscal 2016. We believe our Pork segment's operating margin will be above 10% in fiscal 2016 and above its normalized range of 6-8% in fiscal 2017.
  • Prepared Foods – We expect lower raw material costs of approximately $240 million in fiscal 2016 with raw material costs flat in fiscal 2017 compared to fiscal 2016. As we continue to invest heavily in innovation, new product launches and supporting the growth of our brands, we believe the operating margin of our Prepared Foods segment should be near the low end of its normalized range of 10-12% in fiscal 2016. For fiscal 2017, we expect overall Prepared Foods segment operating margins to remain similar to fiscal 2016 results as we continue to invest heavily in innovation, new product launches and the growth of our brands.
  • Other – Other includes our foreign operations related to raising and processing live chickens in China and India in addition to third-party merger and integration costs. We expect Other operating loss should be approximately $90 million in fiscal 2016 and expect similar results in fiscal 2017.
  • Sales – We believe sales will approximate $37 billion in fiscal 2016. For fiscal 2017, we expect sales to increase 1% as we grow sales volume, partially offset by the impact of lower beef, pork and chicken prices.
  • Capital Expenditures – We expect capital expenditures to approximate $725 million for fiscal 2016 and expect an increase in capital expenditures in fiscal 2017.
  • Net Interest Expense – We expect net interest expense to approximate $245 million for fiscal 2016 and $225 million for fiscal 2017.
  • Liquidity – We expect total liquidity, which was $1.3 billion at July 2, 2016, to remain in line with our minimum liquidity target of $1.2 billion. 
  • Share Repurchases – For the remainder of fiscal 2016 and for fiscal 2017, we expect to continue our share repurchases under our share repurchase program. As of July 2, 2016, 49.1 million shares remain authorized for repurchases. The timing and extent to which we repurchase shares will depend upon, among other things, our working capital needs, market conditions, liquidity targets, our debt obligations and regulatory requirements. During the fourth quarter of fiscal 2016 to date, we repurchased over 5 million shares for $380 million.