Demand for meat protein strong despite price hikes

Consumer demand for protein is having a positive effect on Tyson Foods, Inc. The company’s earnings…

Consumer demand for protein is having a positive effect on Tyson Foods, Inc. The company’s earnings shot up during the second quarter of fiscal 2014, partially due to consumers shifting away from carbohydrates.

“Increasing protein prices have indicated continued strong demand for protein often at the expense of carbohydrates,” said Donnie Smith, president and chief executive officer, during a conference call with financial analysts on May 5. “We’re seeing a noticeable shift among the proteins as well.

“Looking at Nielsen 52-week data, pounds of fresh meat sold at retail were up a little over 1% on nearly 3% higher prices. However, if you look at the most recent four-week data for the period ending March 29, total pounds sold were about flat while dollars sales rose a little over 4%, driven by a 4.6% increase in pricing. Fresh beef volume is down nearly 7% on a 7% price increase, pork volume is down nearly 1% while prices have gone up 5.5%, and as expected chicken pounds were up 3.5% even though chicken pricing was up 3%, indicating a definite shift towards the relative value of chicken.”

The emergence of porcine epidemic diarrhea (PED) virus is a concern for the company, which forecast pork production will decline 4% during the year due to its spread.

“The impact of PED is expected to further affect our hog supplies beginning around the first of June, peaking in August and then beginning to ease in October,” Mr. Smith said. “Hog weights are expected to be higher and offset some of the head reduction, so we anticipate industry pork production to be down as much as 4% for the year. We’ll need to adjust our operating hours accordingly but we think the Pork segment will still perform well this year despite these challenges.”

For the quarter ended March 29, Tyson Foods earned $213 million, equal to 60c per share on the common stock, and an increase compared to the previous year when the company recorded net income of $95 million, equal to 43c per share.

Revenues for the quarter $9,032 million, an increase compared with the previous year when sales were $8,383 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,” Mr. Smith said. “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% to 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.”

For the first six months of the fiscal year, Tyson Foods earned $467 million, equal to $1.32 per share. The company earned $268 million, equal to 92c per share, during the same period of fiscal 2013.

Sales for the first half of the year were $17,793 million, an increase compared with 2013 when revenues equaled $16,749 million.