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Tyson Operating Income Soars

05 February 2015

US - In its first-quarter report, Tyson Foods has recorded sales of $10.8 billion, an increase of 23 per cent over the same period of the previous year.

Among the other results highlighted in its first-quarter 2015 report are record adjusted operating income up 37 per cent to $564 million and adjusted earnings per share (EPS) up seven per cent to $0.77 compared to $0.72 in first quarter of prior year

Total debt has been reduced by $650 million during the first quarter.

Overall adjusted operating margin was 5.2 per cent for the quarter, with the chicken segment operating margin at 12.6 per cent.

$60 million in synergies has been captured during the first quarter.

Donnie Smith , president and chief executive officer of Tyson Foods, (pictured) commented on these results: "Tyson's fiscal year is off to a great start with our first full quarter as a combined company producing record sales and adjusted operating income. We used our strong cash flows to pay down debt by $650 million in the quarter.

"We achieved $60 million in synergies in the first quarter, and we are confident we will exceed the $225 million synergy target for this fiscal year. We also reiterate our guidance of adjusted earnings in the range of $3.30 to 3.40 per share based on the strength of our diversified and balanced business model.

"We are proceeding with the integration of Hillshire Brands. I want to thank our team members for their ability to quickly focus on the business as we brought the two companies together. The first quarter was a crucial time, and the team handled it well. Their efforts will be vital to our success going forward, and I don't think Tyson Foods could be in a better position. We've set ourselves up for another record year, and we are building momentum that will take us into fiscal 2016."

Summary of Segment Results

Chicken - Sales volume grew as a result of stronger demand for chicken products. Average sales price increased as a result of market conditions and sales mix changes. Operating income increased due to higher average sales price and volumes in addition to lower feed ingredient costs which decreased $110 million during the first quarter of fiscal 2015.

Beef - Sales volume decreased due to a reduction in live cattle processed. Average sales price increased due to lower domestic availability of beef products. Operating income decreased due to higher fed cattle costs and periods of reduced consumption of beef products, which made it difficult to pass along increased input costs, as well as lower sales volumes and increased operating costs.

Pork - Increased demand for the company's pork products drove higher average sales price and sales volume. Additionally, average sales price increased due to lower total hog supplies which resulted in higher input costs. Operating income remained strong as revenues were maximised relative to live hog markets, partially attributable to operational and mix performance.

Prepared Foods - Sales volume increased primarily due to incremental volumes from the acquisition of Hillshire Brands as well as improved demand for our prepared foods products. Average sales price increased due to price increases associated with better product mix which was positively impacted by the acquisition of Hillshire Brands, as well as increased prices associated with higher input costs. Despite incurring $10 million of higher raw material costs related to Tyson's legacy Prepared Foods business, along with $40 million of ongoing costs related to a legacy Hillshire Brands plant fire and merger and acquisition costs, operating income improved due to an increase in sales volume and average sales price mainly attributed to Hillshire Brands. Additionally, Prepared Foods operating income was positively impacted by $55 million related to profit improvement initiatives and Hillshire Brands synergies.

International - Sales volume decreased due to the sale of the Brazil operation during the first quarter of fiscal 2015. Average sales price decreased due to supply imbalances associated with weak demand in China. Operating loss improved due to the sale of the Brazil operation and better market conditions in Mexico.


In fiscal 2015, Tyson Foods expects overall domestic protein production (chicken, beef, pork and turkey) to increase approximately one per cent from fiscal 2014 levels. Grain supplies are expected to increase in fiscal 2015, which should result in lower input costs as well as decreased costs for cattle and hog producers.

The following is a summary outlook for each of our segments, as well as an outlook on sales, capital expenditures, net interest expense, liquidity and share repurchases.

The company's accounting cycle results in a 53-week year in fiscal 2015 as compared to a 52-week year in fiscal 2014. Accordingly, the outlook is based on a 52-week year.

Chicken – Current USDA data shows an increase in chicken production of three per cent in fiscal 2015. More recent data indicates a greater increase in supply; however, the company believes demand will more than keep pace with the supply change. Based on current futures prices, it expects lower feed costs in fiscal 2015 compared to fiscal 2014 of approximately $400 million. Many sales contracts are formula-based or shorter-term in nature but there may be a lag time for price changes to take effect. Based on the strong demand forecast and anticipated favourable pricing environment, Tyson Foods now believes its Chicken segment's operating margin will be above 11 per cent for the remainder of fiscal 2015.

Beef – The company expects to see a reduction of industry fed cattle supplies of four to five per cent in fiscal 2015 as compared to fiscal 2014. Although adequate supplies are foreseen in the regions of operation, there may be periods of imbalance of fed cattle supply and demand. For fiscal 2015, the Beef segment's profitability is forecast to be slightly below fiscal 2014.

Pork – Industry hog supplies are expected to increase around two to three per cent in fiscal 2015 compared to fiscal 2014. For fiscal 2015, the company's Pork segment's operating margin will be in its normalized range of six to eight per cent.

Prepared Foods – Tyson Foods is proceeding with the integration of Hillshire Brands. In fiscal 2015, it expects to realise in excess of $225 million of synergies from the acquisition as well as profit improvement plan for its legacy Prepared Foods business, with the majority to be realised in the Prepared Foods segment. Improved brand portfolio and innovation pipeline are expected to offset partially expected input cost inflation. Fiscal 2015 operating margin is expected to be in excess of six per cent, and the long-term operating margin for this business should be between 10 and 12 per cent.

International – The sale of the Mexico chicken production operation is expected to be completed in the second quarter of fiscal 2015. As a result, International revenues in fiscal 2015 are forecast to decrease by approximately $600 to $650 million as compared to fiscal 2014. Excluding any gain associated with the sale of the Mexico operations, Tyson Foods expects the International segment's adjusted operating loss to improve by approximately $35 million in fiscal 2015.

Sales – Fiscal 2015 sales are expected to approximate $42 billion as the company integrates Hillshire Brands and continues to accelerate growth in domestic value-added chicken sales and Prepared Food sales.

Capital Expenditures – Fiscal 2015 capital expenditures is forecast to be approximately $900 million.

Net Interest Expense – Fiscal 2015 net interest expense is expected to be approximately $280 million.

Liquidity – Total liquidity, which was $1.6 billion on 27 December 2014, is likely to be above the goal to maintain liquidity in excess of $1.2 billion.

Share Repurchases – The company plans to re-purchase a number of shares equivalent to the dilution expected to be realised from the current fiscal year grant under its stock-based compensation programmes.

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