Tyson Foods reports fiscal Q2 net earnings of US$213M, compared to year-ago earnings of US$95M, as sales rise 7.8% to US$9.03B

SPRINGDALE, Arkansas , May 5, 2014 (press release) –

Tyson Foods, Inc. (NYSE:TSN), today reported the following results:

Second Quarter Highlights

EPS up 58% to $0.60 compared to adjusted EPS from continuing operations of $0.38 in second quarter of prior year

Quarterly sales surpass the $9.0 billion mark for the first time; increase of 7.7% over second quarter of prior year

Operating income increased 53% to $361 million

Overall operating margin was 4.0%

Chicken segment operating income of $234 million

8.2% operating margin

Pork segment operating income of $107 million

7.2% operating margin

Repurchased 2.5 million shares for $100 million

"We had a record second quarter, which is a testament to our great team and our balanced multi-protein, multi-channel, multi-national business model," said Donnie Smith , Tyson Foods' president and chief executive officer. "Our second quarter is usually our most challenging. We had a lot to overcome, including a harsher than normal winter, but I'm satisfied with the results. I'm still confident in my expectations for the year that we will achieve our goal of 6-8% sales growth in value-added products while generating at least $2.78 earnings per share.

"We're pleased with the performance of our Chicken segment as sales volume grew on strong demand. Our Beef and Pork segments did a great job of managing tight supplies and maintaining margins through record high input costs. In our Prepared Foods segment in the second quarter, we integrated recent acquisitions, invested in marketing and advertising and had several new successful product launches. While these efforts take time to bear fruit, we believe Prepared Foods presents one of the best opportunities for earnings growth in the future.

"The International segment is another area where we think some short-term sacrifices are worth the long-term earnings potential. We've chosen to slow down our growth this year, primarily due to weak demand in China. We are committed to our China operations, and we believe we now have the right pace for developing that business as we wait for demand to return. We think it will get sequentially better from here, and we like the long-term opportunity."

Segment Performance Review (in millions)

Sales

(for the second quarter and six months ended March 29, 2014, and March 30, 2013)

Chicken - Sales volumes grew due to stronger demand for chicken products and mix of rendered product sales. The slight decrease in average sales price was primarily due to lower feed ingredient costs, partially offset by mix changes. Operating income was positively impacted by increased sales volume, operational improvements and lower feed ingredient costs, partially offset by decreased average sales price. Feed costs decreased $175 million and $340 million for the second quarter and six months of fiscal 2014, respectively.

Beef - Sales volumes decreased for the second quarter of fiscal 2014 due to a reduction in live cattle processed as a result of reduced export sales. However, sales volumes increased for the six months of fiscal 2014 due to better demand for our beef products. Average sales price increased due to lower domestic availability of fed cattle supplies, which drove up livestock costs. Operating income increased due to improved operational execution and maximizing our revenues relative to the rising live cattle markets, partially offset by increased operating costs.

Pork - Sales volumes increased for the second quarter of fiscal 2014 as a result of better domestic demand for our pork products. However, sales volumes decreased for the six months of fiscal 2014 as a result of reduced export sales during our first quarter of fiscal 2014. Average sales price increased primarily due to mix changes and lower total hog supplies, which resulted in higher input costs. Operating income increased due to maximizing our revenues relative to live hog markets, partially attributable to operational and mix performance.

Prepared Foods - Sales volumes increased as a result of improved demand for our prepared foods products and incremental volumes from the purchase of three businesses. Average sales price decreased slightly for the second quarter of fiscal 2014 due to mix changes. However, average sales price increased for the six months of fiscal 2014 due to better product mix and price increases associated with higher input costs. Operating income decreased, despite increases in sales volumes, as a result of higher raw material and other input costs of approximately $25 million and $65 million for the second quarter and six months of fiscal 2014, respectively, and additional costs incurred as we invested in our growth platforms.
Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through pricing. However, there is a lag time for price increases to take effect.

International - Sales volumes increased as we continue to grow our businesses in Brazil and China. Average sales price decreased due to poor export market conditions in Brazil, supply imbalances associated with weak demand in China and a less favorable pricing environment in Mexico. Operating income decreased due to poor operational execution in Brazil, challenging market conditions in Brazil and China and additional costs incurred as we continue to grow our International operation.

Outlook

In fiscal 2014, we expect overall domestic protein production (chicken, beef, pork and turkey) to decrease approximately 1% from fiscal 2013 levels, mainly due to further reductions in forecasted hog supplies. Grain supplies are expected to increase in fiscal 2014, which should result in lower input costs. The following is a summary of the fiscal 2014 outlook for each of our segments, as well as an outlook on sales, capital expenditures, net interest expense, debt and liquidity and share repurchases:

Chicken – We expect domestic chicken production to increase around 2-3% in fiscal 2014 compared to fiscal 2013. Based on current futures prices, we expect lower feed costs in fiscal 2014 compared to fiscal 2013 of approximately $500 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. Due to the relative value of chicken compared to other proteins, we believe demand will remain strong in fiscal 2014. We believe our Chicken segment should be above its normalized range of 5.0%-7.0% for fiscal 2014.

Beef – We expect to see a reduction of industry fed cattle supplies of 3-4% in fiscal 2014 as compared to fiscal 2013. Although we generally expect adequate supplies in regions we operate our plants, there may be periods of imbalance of fed cattle supply and demand. For fiscal 2014, we believe our Beef segment's profitability will be similar to fiscal 2013, which was below its normalized range of 2.5%-4.5%.

Pork – We expect industry hog supplies to decrease around 4-5% in fiscal 2014 compared to fiscal 2013, partially offset by increased average live weights. For fiscal 2014, we believe our Pork segment will be in its normalized range of 6.0%-8.0%.

Prepared Foods – We expect operational improvements and pricing to offset increased raw material costs. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through increased pricing. As we continue to invest heavily in our growth platforms, we expect our Prepared Foods segment to be below its normalized range of 4.0%-6.0% for fiscal 2014.

International – We expect our International chicken production to increase around 15% in fiscal 2014 compared to fiscal 2013. Based on current futures prices, we expect lower feed costs in fiscal 2014 compared to fiscal 2013 of approximately $40 million. Unless market conditions improve, we will incur losses for the remainder of the year; however the losses in the third and fourth quarters of fiscal 2014 should be lower than the losses sustained in the first two quarters of fiscal 2014.

Sales – We expect fiscal 2014 sales to approximate $37 billion as we continue to execute our strategy of accelerating growth in domestic value-added chicken sales, prepared food sales and international chicken production, as well as price increases associated with rising cattle and hog costs.

Capital Expenditures – We expect fiscal 2014 capital expenditures to be approximately $650 to $700 million.

Net Interest Expense – We expect net interest expense will approximate $95 million for fiscal 2014.

Debt and Liquidity – We expect total liquidity, which was $1.4 billion at March 29, 2014, to be above our goal to maintain liquidity in excess of $1.2 billion.

Share Repurchases – We expect to continue repurchasing shares under our share repurchase program. As of March 29, 2014, 32.1 million shares remained authorized for repurchases under this program. 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.

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