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story.lead_photo.caption Tyson Foods Inc. executives Stewart Glendinning (from left), John Tyson and Noel White attend Tyson Food’s 56th annual shareholders meeting Thursday in Springdale. Glendinning said of the company’s strong first quarter “we were up against last year’s strong comparisons.” - Photo by David Gottschalk

Tyson Foods Inc. on Thursday reported "solid" results for its fiscal 2019 first quarter despite lower chicken and pork prices.

Before posting its quarterly results, Tyson Foods announced plans to acquire poultry operations in Thailand and Europe for $340 million from BRF S.A., a Brazilian food company.

"We're off to a solid start," said Noel White, Tyson's president and chief executive officer, in an analyst call Thursday morning. After the call Tyson held its annual shareholders meeting in Springdale.

Tyson reported a first-quarter net income of $551 million, or $1.50 a share, down from $1.63 billion, or $4.40 a share, a year ago when the company enjoyed the effects of a corporate tax cut. Sales were $10.2 billion in the three months that ended Dec. 31.

Stewart Glendinning, Tyson's vice president and chief financial officer, echoed White's sentiments about the company's performance in the call, but acknowledged "we were up against last year's strong comparisons."

Looking at adjusted numbers, earnings topped analyst expectations, but missed sales estimates. Tyson's adjusted $1.58 per share profit was higher than a $1.55 estimate by analysts at Zacks Investment Research. Tyson's sales of $10.2 billion fell short of Zacks' estimate of $10.36 billion.

"From a company like Tyson, that's got a lot of moving parts and exposed to market volatilities, that's about as close as what you're going to get with this thing," said Ken Shea, a senior food and beverage analyst at Bloomberg Intelligence.

Shares of Tyson fell 78 cents to close Thursday at $60.12. Shares have traded as high as $77.62 and as low as $49.77 over the past 52 weeks.

Tyson's beef and prepared-foods segments buoyed sales for the quarter, while softer chicken and pork prices brought sales down. Average volumes rose 3.3 percent compared with the same period last year. Average prices fell 3.7 percent.

Overall "it's not really a big change over 2018, but really you've got to dig into those numbers to see what's really in or out," said Alan Ellstrand, associate dean of the Walton College of Business at the University of Arkansas.

According to the company's report, increased exports and beef demand squeezed prices up almost 2 percent from the period last year. As a result, beef accounted for almost 40 percent of Tyson's quarterly sales, or $3.9 billion.

The prepared-foods unit, which accounts for further processed products like on-the-go breakfast sandwiches and meat and cheese pairings, posted a 13 percent volume decline, the largest change of Tyson's segments. The company attributed the change to the divestiture of nonprotein assets it acquired from the Hillshire merger in 2014. Without that, the company said the segment's sales volume increased slightly. Its operating margin also increased to 12.3 percent, up from 11.2 percent posted a year ago.

"We've grown the business from $4 billion in sales with basically a 1 percent return in 2014 to a business that in fiscal 2019 is projected to produce over $8 billion in sales and an 11 to 12 percent return," White said in the analyst call.

Prepared foods accounted for 21 percent of sales, or $2.15 billion. The segment's operating income is worth about $1 billion.

Tyson's pork and chicken segments were the weakest. Pork prices fell 4.6 percent as volumes fell 3.6 percent compared with year-ago figures. Chicken prices fell more than 13 percent as volumes rose 17 percent for the same period. The sales volume increase is attributable to the 2018 acquisitions of rendering business American Proteins Inc. and organic chicken producer Tecumseh Poultry.

Chicken accounted for 30 percent of sales, or $3.1 billion. Pork accounted for nearly 12 percent of sales, or $1.2 billion.

Looking ahead, White said in the call that Tyson plans to continue investing in its traditional meat protein businesses while growing in the alternative protein sector.

Just months after Tyson acquired McDonald's chicken supplier Keystone Foods for $2.16 billion, the company has entered a definitive agreement to buy chicken operations from BRF S.A. The deal includes four poultry-processing plants in Thailand and processing sites in the Netherlands and the United Kingdom.

Donnie King, group president of Tyson's international business, said in remarks to reporters that the deal will help the company capture new markets and grow its footprint overseas.

"It's estimated that approximately 90 percent of global protein consumption growth will occur outside the United States, with 60 percent of the volume growth coming from Asia over the next five years," King said.

The other growth area for Tyson is in the alternative protein space. The company already has investments in plant-based protein company Beyond Meat and cell-based protein company Memphis Meats. However, plans are in motion for Tyson's own products.

"We are combining our creativity, our scale and our resources to make great tasting protein alternatives that are more accessible to everyone," White said. "We'll be leveraging all the resources we have at our disposal ... and in the weeks ahead, you'll be hearing more from us as we announce new products in the alternative protein space."

After the conference call with analysts, the company held its annual shareholder meeting for fiscal 2019 at the Tyson Emma building in Springdale. Led by John H. Tyson, board chairman and company heir, shareholders voted on four proposals. Under the board's recommendations in a proxy statement filed in November, a majority of shareholders voted in favor of the same slate of directors as last year -- except for Tom Hayes, who was replaced by Noel White -- and in favor of PricewaterhouseCoopers serving again as Tyson's independent registered public accounting firm.

A majority of shareholders voted against a proposal that requested Tyson disclose its corporate lobbying activity and against a human-rights proposal that requested Tyson prepare an annual report that detailed the company's efforts to assess, identify, prevent and mitigate potential human-rights impacts.

Graphs showing Tyson Foods first quarter information.

Business on 02/08/2019

Print Headline: Net off, results 'solid,' Tyson says

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