Tyson Foods Remains Cautiously Optimistic Despite Mixed Q1 Results

Tyson Foods, the largest meat producer in the US, has reported mixed results for its first quarter of fiscal 2024, which ended on December 30, 2023. The company has maintained its flat sales outlook for the full year, but has improved its guidance for its chicken segment. The company has also expressed cautious optimism for the rest of the year, as it faces various challenges and opportunities in the protein market.

Q1 Highlights: Revenue Up Slightly, Profit Down Significantly

Tyson Foods has posted a slight increase in revenue, but a significant decrease in profit for its first quarter of fiscal 2024. The company’s revenue rose by 0.4% to $13.3 billion, compared to $13.2 billion in the same quarter of the previous year. However, the company’s adjusted operating income (non-GAAP) fell by 9% to $411 million, compared to $452 million in the same quarter of the previous year. The company’s adjusted earnings per share (non-GAAP) also dropped by 11% to $0.81, compared to $0.91 in the same quarter of the previous year.

The company attributed the decline in profit to higher costs of raw materials, labor, and transportation, as well as lower volumes and prices in some segments. The company also faced unfavorable impacts from the Covid-19 pandemic, the African swine fever, and the winter storm Uri, which affected its operations and supply chain.

However, the company also highlighted some positive aspects of its performance, such as the sequential improvement in its adjusted operating income, margin, and earnings per share, compared to the fourth quarter of fiscal 2023. The company also noted the strong demand for its products, both domestically and internationally, as well as the progress in its factory optimization and innovation initiatives.

Segment Performance: Beef Up, Pork Down, Chicken Down, Prepared Foods Up

Tyson Foods’ performance across its four business segments varied, with beef sales rising, pork sales dipping, chicken sales declining, and prepared foods sales edging up.

• Beef: The beef segment reported a 6.5% increase in sales, reaching $4.6 billion, compared to $4.3 billion in the same quarter of the previous year. The segment’s adjusted operating income also rose by 10.8% to $207 million, compared to $187 million in the same quarter of the previous year. The segment’s adjusted operating margin also improved to 4.5%, compared to 4.3% in the same quarter of the previous year. The segment benefited from higher domestic and export demand, as well as higher prices and volumes. However, the segment also faced higher costs of cattle, labor, and transportation, as well as lower yields and operational disruptions due to the winter storm Uri.
• Pork: The pork segment reported a 4.7% decrease in sales, reaching $1.4 billion, compared to $1.5 billion in the same quarter of the previous year. The segment’s adjusted operating income also plunged by 46.7% to $51 million, compared to $96 million in the same quarter of the previous year. The segment’s adjusted operating margin also deteriorated to 3.6%, compared to 6.4% in the same quarter of the previous year. The segment suffered from lower prices and volumes, as well as higher costs of hogs, labor, and transportation. The segment also faced unfavorable impacts from the Covid-19 pandemic, the African swine fever, and the winter storm Uri.
• Chicken: The chicken segment reported a 7.4% decrease in sales, reaching $3.4 billion, compared to $3.7 billion in the same quarter of the previous year. The segment’s adjusted operating income also tumbled by 41.9% to $48 million, compared to $83 million in the same quarter of the previous year. The segment’s adjusted operating margin also worsened to 1.4%, compared to 2.2% in the same quarter of the previous year. The segment struggled with lower prices and volumes, as well as higher costs of feed, labor, and transportation. The segment also faced unfavorable impacts from the Covid-19 pandemic, the winter storm Uri, and the plant closures as part of the factory optimization program.
• Prepared Foods: The prepared foods segment reported a 1.8% increase in sales, reaching $2.3 billion, compared to $2.2 billion in the same quarter of the previous year. The segment’s adjusted operating income also grew by 5.6% to $205 million, compared to $194 million in the same quarter of the previous year. The segment’s adjusted operating margin also improved to 8.9%, compared to 8.8% in the same quarter of the previous year. The segment benefited from higher demand and prices for its branded products, such as Tyson, Jimmy Dean, and Hillshire Farm, as well as lower costs of raw materials and operating expenses. However, the segment also faced higher costs of labor and transportation, as well as lower volumes and prices for some of its private label and foodservice products.

Outlook: Flat Sales, Improved Chicken Guidance, Cautious Optimism

Tyson Foods has reiterated its outlook for fiscal 2024, which it provided in November 2023. The company expects its total sales to be flat year-over-year, ranging from $44 billion to $46 billion. The company also expects its adjusted operating income to be in the range of $1 billion to $1.5 billion, and its adjusted earnings per share to be in the range of $3.30 to $4.30.

However, the company has improved its guidance for its chicken segment, which it previously expected to incur a loss for the full year. The company now expects the chicken segment to generate an adjusted operating income of $500 million to $700 million, reflecting a strong start in the first quarter and positive macro factors.

The company has also expressed cautious optimism for the rest of the year, as it faces various challenges and opportunities in the protein market. The company said that it will continue to focus on profit management and cash flow generation, as well as on innovation and growth. The company also said that it will continue to monitor and respond to the uncertainties and complexities in the market, such as the total protein availability, the consumer sentiment, the inflation and cost pressures, the Covid-19 pandemic, and the African swine fever.

Donnie King, the president and CEO of Tyson Foods, said: “The momentum we established in the back half of last year continued in Q1, highlighted by a $175 million improvement in adjusted operating income, 130 basis points of AOI margin expansion, and near doubling of adjusted EPS, all on a sequential basis. While I’m pleased by the performance in Q1, we still have more work ahead of us and we’re cautiously optimistic and laser-focused on achieving what we set out to do this year.”