Tyson Foods

Grocery & Restaurants

Tyson Foods reported record profit margins thanks to price hikes it characterized as inflation driven

A Tyson Food executive said “we’re pleased with the market performance that we’re seeing despite the price increases” and “we believe we have the right building blocks in place on our path to deliver sustainable double-digit margin.” “Noelle O’Mara – Group President, Prepared Foods: I can give you a bit of context to what we’re currently seeing. So demand continues to be strong across both retail and foodservice driven by our strong equities in our diverse portfolio. And as you said, we’re pleased with the market performance that we’re seeing despite the price increases, which is really due to the strength of our brands and the strong partnership and relationships that we’ve built with our customers. Elasticity has been less than the historical models that Donnie has mentioned, but it’s clearly something that we’re watching closely. And so we’re constantly reviewing our pricing and revenue management strategies. As the landscape changes, we’ll continue to take thoughtful approaches on those critical levers. As you also heard in the comments, we’re taking significant actions to transform our cost base and we’re creating good momentum there. And so on the year, we continue to feel good about the 7% to 9% range that we’ve given, and we believe we have the right building blocks in place on our path to deliver sustainable double-digit margin. “(Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Thanks to price increases, Tyson Foods more than offset costs of inflation and reported a record operating profit margin for the company. “The average price charged per customer for beef was up 32 per cent year on year, pork 13 per cent and chicken 20 per cent. While wages, along with meat and logistics prices have risen substantially, Tyson’s pricing power more than made up for those higher production costs. The company recorded an operating profit margin of 11.3 per cent — only the fourth time since 1990 that this figure has been in the double digits, according to data from S&P Global.” (Financial Times, 2/7/2022)

Tyson Foods’ operating income was up 40% compared to the same quarter the previous year. “Stewart Glendinning – CFO: First quarter operating income of $1.4 billion was up 40% relative to the same quarter last year due to increased earnings in Beef, Pork and Chicken. Driven by the strength in operating income, first quarter earnings per share grew 48% to $2.87. Higher operating income led to higher adjusted earnings per share compared to the same period last year. And first quarter EPS also benefited from lower interest expense and taxes.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

The CEO of Tyson Foods: “We’re also making sure that our pricing incorporates inflationary cost pressures on our business.” “Donnie King – President and Chief Executive Officer: We’re also making sure that our pricing incorporates inflationary cost pressures on our business. In the quarter, our cost of goods sold was up 18% relative to the same period last year. We are seeing higher costs across our supply chain, including higher input costs, such as feed and ingredients. We’re also managing higher cost of labor, transportation due to strong demand and limited availability. With these higher costs, we work closely with our customers to achieve a fair value for our products.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Foods’ CFO said sales increasing 24% was “largely a function of our pricing initiatives to offset inflationary pressures.” “Stewart Glendinning – CFO: Thank you, Donnie. Let me turn first to a summary of our total company financial results. We’re pleased to report a strong overall start to the year. Our sales were up approximately 24% in the first quarter, largely a function of our pricing initiatives to offset inflationary pressures. Volumes were also up slightly, although impacted by continued labor challenges. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Foods executives repeatedly stressed that they saw no impact on demand from price hikes

The CEO of Tyson Foods said “customer demand continues to outpace our ability to supply products.” “Donnie King – President and Chief Executive Officer: Still, customer demand continues to outpace our ability to supply products. So we have targeted actions in each segment to improve volumes. This is key to delivering on our commitments. To realize our volume goals, we must be able to fully staff our plants across the company. We continue to take meaningful action toward becoming the most sought after place to work.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Foods CEO said it was “exciting” that price elasticity was “less or lower than what they have historically been.” Donnie King – CEO: Well, let me start off with and tell you that we really got off to a good start in Q1. And there are a number of factors with Q1 and what we saw in Q1 and our optimism as we look to the balance of the year. We’ve adjusted a number of pricing mechanisms to be more variable in nature. We’ve seen prior elasticities, for example, in Prepared Foods being less or lower than what they have historically been, which is exciting there. We’ve been able to maintain volume in this inflationary environment. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

A Tyson Food executive said “we’re pleased with the market performance that we’re seeing despite the price increases” and “we believe we have the right building blocks in place on our path to deliver sustainable double-digit margin.” “Noelle O’Mara – Group President, Prepared Foods: I can give you a bit of context to what we’re currently seeing. So demand continues to be strong across both retail and foodservice driven by our strong equities in our diverse portfolio. And as you said, we’re pleased with the market performance that we’re seeing despite the price increases, which is really due to the strength of our brands and the strong partnership and relationships that we’ve built with our customers. Elasticity has been less than the historical models that Donnie has mentioned, but it’s clearly something that we’re watching closely. And so we’re constantly reviewing our pricing and revenue management strategies. As the landscape changes, we’ll continue to take thoughtful approaches on those critical levers. As you also heard in the comments, we’re taking significant actions to transform our cost base and we’re creating good momentum there. And so on the year, we continue to feel good about the 7% to 9% range that we’ve given, and we believe we have the right building blocks in place on our path to deliver sustainable double-digit margin. “(Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Food’s CEO wouldn’t answer if they were expecting changes in elasticities due to price hikes. “Michael Lavery – Piper Sandler: The inflation headwinds are obviously clear and certainly a driver of the pricing. But just maybe expect to some of your assumptions on the elasticities. Maybe, at a very high level, do you assume they revert to more normal levels or that they can hold at sort of what we’re seeing currently? Donnie King – CEO: They are where they are right now. And I know that’s not a very good answer. I mean there is a price point where it could be impactful. But at Tyson, we play across the spectrum from the most value-added products to the most commodity of commodity products and we meet the consumer wherever they are on the value chain. And so we intend to continue to grow our business and serve those consumers wherever they are. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Despite record margins, Tyson executives characterized price hikes as asking customers to “pay for inflation”

Tyson Foods CEO: “We’re not asking customers or the consumer ultimately to pay for our inefficiencies. We’re asking them to pay for inflation.” “Donnie King- CEO: Yes. I would add this to what Noelle said, we have seen a lot of inflation. But I would remind you that cost of food in the U.S., while it is higher, is relative to the balance of the world. Labor costs have been up 20%, cattle costs are up — have been — they’re up 22%. Grain has been up 29% this year and freight, I mentioned earlier, is up 32%. We’re not asking customers or the consumer ultimately to pay for our inefficiencies. We’re asking them to pay for inflation. And the rest of what we do is we try to find ways to be more productive, to lower cost and increase throughputs and so forth. And we feel good about our ability to do a lot of that while serving our customers. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Food’s CEO noted that freight costs had increased but “we have been successful in being able to get the transportation and we’ve asked our customers to pay us for that and pay us for freight, and we’ve been successful in doing so.’ Donnie King- CEO: Let me start with that one. Let me start with simply saying that freight costs are up 32% for us. I talked about some of the technology we use to — in my opening remarks, where we would intersect between our private fleet contract fleet outside carriers and try to optimize how we do that. And we’ve seen a lot — we’ve had a lot of success. It took like a lot of the inflation happened so rapidly. It took a bit to get on top of that. But thus far, we have been successful in being able to get the transportation and we’ve asked our customers to pay us for that and pay us for freight, and we’ve been successful in doing so. (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Foods CEO: “this freight being up 32%, that’s what it cost to get the product moved and delivered to a customer, and we’re asking our customers to pay for that.” Donnie King – CEO: Not — as I look around the room and from all those leading the businesses, I don’t think if you’re a branded portfolio versus a more commodity-oriented business, I don’t think that really matters. What we tried to do with our customers is say, freight is freight and the price of the product and the price of the product, and we don’t — we try not to blend the 2. And so I don’t — I wouldn’t say one is any easier than the other. But I think the fact of the matter is what — this freight being up 32%, that’s what it cost to get the product moved and delivered to a customer, and we’re asking our customers to pay for that. Anything to add? (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson executives committed to ongoing stock buybacks

Tyson Foods’ CEO boasted the company paid out over $500 million through in dividends and share buybacks in the previous quarter. “Donnie King – President and Chief Executive Officer: And we continue to return cash to shareholders. During the quarter, we returned over $500 million in dividends and share repurchases.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

Tyson Food’s CFO: “we are committed to returning cash to shareholders through both dividends and share buybacks.” “Stewart Glendinning – CFO: Finally, as our track record has demonstrated, we are committed to returning cash to shareholders through both dividends and share buybacks. We finished the quarter with a powerful balance sheet and continued capital allocation optionality.” (Tyson Foods Q1 2022 Earnings Call, 2/7/2022)

In 2021 Tyson executives noted their price hikes more than offset cost inflation they were experiencing

Tyson CEO: “we have relationships with customers that allow us to be able to take to them part of our inflation that we see in the marketplace and be able to pass that on ultimately to the consumer. “ “Donnie King – President and Chief Executive Officer: Around pricing and responsiveness and we don’t expect customers to pay for inefficiencies. But we’d like to think that we have relationships with customers that allow us to be able to take to them part of our inflation that we see in the marketplace and be able to pass that on ultimately to the consumer. And so that’s the way we thought about our model. That’s how we’ve adjusted our model and it’s been a year-long really a year-long we’ve doing that and we are in a pretty good place right now.” (Tyson Foods Inc  Q4 2021 Earnings Call, 11/15/2021)

Tyson CEO: “Our sales gains were largely driven by higher average sales price. Average sales price trends reflect successful pricing strategies during the ongoing inflationary environment…” “Donnie King – President and Chief Executive Officer: Now turning to financial results, let me give you some highlights overall. I was pleased with both a strong quarter and full year. Sales improved 20% in the fourth quarter and 11% during the full year. Our sales gains were largely driven by higher average sales price. Average sales price trends reflect successful pricing strategies during the ongoing inflationary environment, but we still have opportunities specifically in prepared foods where we delivered softer results than anticipated. Like many other companies, we were faced with a range of higher levels of inflation notably higher grains, labor, meat and transportation cost.” (Tyson Foods Inc  Q4 2021 Earnings Call, 11/15/2021)

Tyson CEO: “Our teams have worked together with our customers to pass along that inflation through price increases. “ “Donnie King – President and Chief Executive Officer: Our teams have worked together with our customers to pass along that inflation through price increases. On volume, we saw improvement in the second half relative to the same period last year. Volumes were up 3% for the second half or nearly 350 million pounds. Although we are working diligently to achieve optimal throughput across our segments, labor challenges are still impacting our volumes and ability to achieve optimal mix across our processing footprint.” (Tyson Foods Inc  Q4 2021 Earnings Call, 11/15/2021)

Tyson CFO: “Our pricing actions and strength in the beef segment led to approximately $5.6 billion of sales price mix benefit, which more than offset the higher COGS price-mix of $4.6 billion.” “Stewart F. Glendinning — Executive Vice President and Chief Financial Officer: Slide 12, bridges year-to-date operating income which was about $1.3 billion higher than fiscal 2020. As I mentioned previously, volumes were down slightly during the year primarily result of a challenging labor environment. Our pricing actions and strength in the beef segment led to approximately $5.6 billion of sales price mix benefit, which more than offset the higher COGS price-mix of $4.6 billion. We saw inflation across the business, notable areas where in wages, grain cost, live animal costs and pork, meat cost and prepared foods and freight costs across the enterprise.” (Tyson Foods Inc  Q4 2021 Earnings Call, 11/15/2021)