SPRINGDALE, Ark. — Tyson Foods Inc., one of the world’s largest food companies with brands including Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp and State Fair, has reported the following results for third quarter of 2020: GAAP (generally accepted accounting principles) EPS (earnings per share) of $1.44, down 22 percent from prior year; adjusted EPS of $1.40, down 5 percent from prior year; GAAP operating income of $775 million and adjusted operating income of $760 million; a total company GAAP operating margin of 7.7 percent and adjusted operating margin of 7.6 percent; liquidity of $3.1 billion at June 27, 2020; and results negatively impacted by approximately $340 million of direct incremental expenses related to COVID-19.
“Without a doubt, our third fiscal quarter was one of the most volatile and uncertain periods I’ve seen during my time in the industry,” said Noel White, Tyson Foods’ CEO. “However, our commitment to team member health and safety and investments in operations and portfolio strategy effectively positioned us to weather unprecedented COVID-19 marketplace volatility while allowing us to support our farmers, ranchers and producers and meet our customers’ needs.”
“I want to thank our team members for their dedication and diligence as we continue to navigate the COVID-19 pandemic. At Tyson Foods, our focus remains on ensuring the health and safety of our team members, their families and our communities. We take this responsibility very seriously, and we’re proud that our team members have gone above and beyond to help us supply food for the nation,” White added. “Within each of our segments, we absorbed higher-than-normal operating costs related to COVID-19. Nonetheless, Tyson delivered strong results during the third quarter led by strength in our Beef and Pork segments. Despite short-term challenges, we’re maintaining a clear focus on the long term. Our fourth quarter is off to a solid start, and while COVID-19 has been disruptive, we have a strong long-term outlook for Tyson Foods.”
- COVID-19 expenses —
During the third quarter of fiscal 2020, Tyson incurred direct incremental expenses related to COVID-19 totaling approximately $340 million. These COVID-19 direct incremental expenses primarily included team member costs associated with worker health and availability and production facility downtime, including direct costs for personal protection equipment, production facility sanitization, COVID-19 testing, donations, product downgrades, rendered product, certain professional fees and $114 million of thank you bonuses to frontline employees, partially offset by CARES Act credits.
Other indirect costs associated with COVID-19 are not reflected in this amount, including costs associated with raw materials, distribution and transportation, plant underutilization and reconfiguration, premiums paid to cattle producers and pricing discounts.
- Chicken segment —
Chicken sales volume decreased in the third quarter and first nine months of fiscal 2020 primarily due to lower production throughput associated with the impact of COVID-19 in the third quarter of fiscal 2020 and lower foodservice demand, partially offset by increased volumes in consumer products.
Average sales price decreased in the third quarter of fiscal 2020 primarily due to weaker chicken pricing as a result of market conditions. Average sales price was relatively flat in the first nine months of fiscal 2020 as reduced sales volumes of lower priced rendering and blending products had the effect of increasing average sales price, which was largely offset by weaker chicken pricing as a result of market conditions.
Operating income decreased in the third quarter and first nine months of fiscal 2020 primarily from market conditions, unfavorable product mix, as well as production inefficiencies and direct incremental expenses related to COVID-19. Operating income was further impacted by $110 million of net derivatives losses in each of the third quarter and first nine months of fiscal 2020, and by approximately $50 million in increased feed ingredient costs in first nine months of fiscal 2020, as compared to the same periods in fiscal 2019. Additionally, operating income was impacted by $21 million in restructuring costs incurred in the first nine months of fiscal 2020.
- Prepared foods segment —
Sales volume decreased in the third quarter and first nine months of fiscal 2020 as growth in volume across the consumer products channel was offset by a reduction in the foodservice channel related to reduced demand and lower production throughput due to the impact of COVID-19 in the third quarter of fiscal 2020m the company noted.
Average sales price increased in the third quarter and first nine months of fiscal 2020 due to favorable product mix associated with the surge in consumer product demand, as well as the pass through of increased raw material costs. Operating income decreased in the third quarter and first nine months of fiscal 2020 primarily due to increased operating costs, including a $135 million increase in net raw material costs and derivative losses in the first nine months of fiscal 2020, as well as production inefficiencies and direct incremental expenses related to COVID-19 in the third quarter of fiscal 2020. Additionally, operating income was impacted by $22 million restructuring costs incurred in the first nine months of fiscal 2020.
- Outlook —
For fiscal 2021, USDA indicates domestic protein production (beef, pork, chicken and turkey) should increase approximately 1 percent from fiscal 2020 levels.
“We continue to proactively manage the company and its operations through this global pandemic,” White said. “Given the nature of our business, demand for food and protein may shift amongst sales channels and experience disruptions, but over time we expect worldwide demand to continue to increase. We are experiencing multiple challenges related to the pandemic. These challenges are anticipated to increase our operating costs and negatively impact our volumes for the remainder of fiscal 2020 and into fiscal 2021. Operationally, we have faced and expect to continue to face capacity utilization slowdowns in production facilities from team member absenteeism and choices we make to ensure team member health and safety.”
“The lower levels of productivity and higher costs of production we have experienced will likely continue until COVID-19 is better understood and its impacts diminish. Each of our segments has also experienced a shift in demand from foodservice to retail; however, the volume increases in retail have not been sufficient to offset the losses in foodservice and as a result, we expect decreases in volumes in the last quarter of fiscal 2020 in our Chicken and Prepared Foods segments. We cannot currently predict the ultimate impact that COVID-19 will have on our short- and long-term demand, as it will depend on, among other things, the severity and duration of the COVID-19 crisis. Our liquidity is expected to be adequate to continue to run our operations and meet our obligations as they become due. Due to the inability to reasonably quantify the total impact of COVID-19 to our operations, we are not currently providing segment adjusted operating margin guidance.”
The company added that the USDA projects a relatively flat to slightly increased outlook for chicken production in fiscal 2021 as compared to fiscal 2020.
More information can be obtained at www.tysonfoods.com.
