Tyson Foods’ future is hampered by rising feed and freight costs.
The impact of increased feed and freight costs on Tyson Foods’ potential influence on the company’s projection later in the year overshadowed the company’s first quarter fiscal 2021 results.
In a presentation to securities analysts on February 11, 2020, management emphasized the inflationary pressures it faces, given the 28% and 26% increases in corn and soybean market prices, respectively, between October 2020 and December 2020. For the year, the cost of refrigerated freight increased by 9%.
The March futures contracts for soybeans and corn have increased by 34% and 40%, respectively, since October. According to Tyson Foods, this year’s refrigerated freight contract rates will increase by 10% over 2020.
During a conference call with analysts, Chief Financial Officer Stewart F. Glendinning stated, “Clearly, an important headline this quarter is the sharp rise in grain costs.” “Due to reduced stocks to use expectations for corn and soybeans as well as strong export demand, especially from China, grain futures for 2021 have continued to strengthen.” We anticipate that our team will be able to lessen the future effects of grain costs through pricing and hedging strategies. However, it is currently challenging to determine the precise amount that can be minimized by such steps.
“Remember that a change of 10¢ per bu in maize prices or $10 per ton in soybean meal prices equates into an approximate change in cost of goods sold of $25 million.”
The two business divisions of the corporation, Prepared Foods and Chicken, might be the most impacted. According to Mr. Glendinning, cattle and hog futures have both increased since October, and the company is attempting to lessen the effect that growing raw material costs will have on the prepared food industry. It is anticipated that the operating margins of the Chicken unit will be lower this year than they were in fiscal 2020 given the current grain prices.
In comparison to the same period last year, when the company made $505 million, or $1.42 per share, net income for the quarter that ended on January 2 was $467 million, or $1.31 per share on the common stock.
From $10.8 billion in the first quarter of fiscal 2020 to $10.5 billion this quarter, sales decreased little.
The Beef business section of Tyson Foods had an exceptional quarter, with sales up from $3.8 billion to $4 billion compared to the previous year. Operating income from beef increased to $528 million in 2020 from $342 million.
Strong domestic and international demand for beef, according to Mr. Glendinning, drove up sales. The company’s improved operational profitability was the result of higher volumes as it overcame the production-damaging effects of a fire at a cattle plant the year before.
The sales of the chicken business unit decreased to $2.8 billion from $3.3 billion in the previous year. Additionally, the unit reported an operational loss of $216 million in 2020, as opposed to an operating profit of $57 million. The corporation attributed the loss to both manufacturing inefficiencies and “the recognition of legal contingency accrual.”
The corporation identified three measures it is taking to improve unit performance: raising pay to draw in employees and lower turnover; streamlining processes in some facilities; and raising order fulfillment rates.
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Sales of pork units increased to $1.44 billion from $1.38 billion in the previous year. From $191 million to $116 million, operating income decreased.
According to Mr. Glendinning, “first-quarter results show a softening relative to the same period last year.”
The reduction in operational profits was ascribed to inefficiencies in production, the temporary shutdown of a factory, and running expenses associated with COVID-19.
During the quarter, sales of prepared foods decreased slightly from $2.14 million to $2.11 million. Operating income per unit increased from $158 million to $266 million.
According to Mr. Glendinning, “strong retail performance, lower commercial spending as a result of continued strength in retail demand, and lapping of issues experienced as a result of our ERP rollout last year were the main drivers of this substantial improvement in profitability.” “These gains were countered by increased expenses associated with rising commodity prices and other inflationary input costs, as well as covering related costs and effects on our manufacturing efficiency. We anticipate increased levels of commercial spending to match our category growth objectives as demand gradually returns to pre-COVID levels, as well as unfavorable mix consequences from increasing foodservice volumes.