With excess beef slaughter capacity weighing heavily against its finances, Tyson Foods Inc. on Jan. 28 reported another disappointing quarter of sales and earnings and announced a reallocation of beef resources that will eliminate 1,500 jobs.
Commodity costs, especially feed grain, also are weighing heavily on the animal protein company. "In November, we projected an additional $300 million in grain costs for fiscal 2008," said Dick Bond, Tyson president/CEO. "We now think this year-over-year increase will exceed half a billion dollars. Because of these unanticipated and extraordinarily high corn and soybean meal costs, we have no choice but to raise prices substantially.”
The Springdale, Ark., company said the discontinuation of slaughter operations at the Emporia, Kan., plant will result in the loss of approximately 1,500 of the 2,400 jobs there, primarily people employed in first and second shift slaughter and second shift processing.
However, the facility still will be used as a cold storage and distribution warehouse and will process ground beef. The Emporia facility also will help improve efficiencies at some other Tyson plants by taking over the processing of certain commodity and specialty cuts, which have typically slowed production at those other locations. While the company has no plans to use the slaughter area of the Emporia plant, the equipment there will be left intact.
“In light of the slaughter overcapacity and the outlook for fed cattle inventories, we have reviewed the operations of each of our facilities, their location relative to available cattle supplies, and have determined slaughter operations at the Emporia facility should be discontinued,” said Jim Lochner, senior group vice president of Tyson Fresh Meats.
“This is an extremely difficult decision, given the great team of people who work there and our investment in the plant,” said Bond. “However, we must make changes to our commodity business model to effectively manage through challenging market conditions.
"The continued escalation of grain prices, driven largely by government mandates for corn-based ethanol, has caused a domino effect for other inputs,” Bond continued.
“Cooking oil, flour and other feed ingredients are all on the rise. For the foreseeable future, consumers will pay more and more for food, especially protein, because grain represents a proportionally higher percentage of input costs compared to other foods.”
For the company’s first fiscal quarter ended Dec. 29, 2007, Tyson reported sales of $6.8 billion (versus $6.6 billion in the 1Q2006), operating income of $84 million (down from $145 million in 2006) and net income of $34 million (vs. $57 million). Tyson also recorded an $18 million non-operating gain on the sale of an investment in this most recent quarter.
That comes down to 10 cents per share compared to 16 cents per share last year.
"Given all we've faced, we delivered a solid first quarter," said Bond. "Sales were up $200 million. Our pork segment delivered its [second-best quarter] ever with strong volume and operating income nearly double.
"The commodity markets affecting our business are extremely volatile and fluctuating tremendously on a daily basis. For this reason, we have decided to temporarily withdraw our previously issued earnings guidance. In this erratic and unpredictable operating environment, it is virtually impossible to make meaningful earnings forecast assumptions.
"We are facing unparalleled market dynamics that make our work very challenging," the CEO continued. "We continue to believe our strategies are sound, and we'd like to acknowledge Tyson team members for their efforts in executing our business plans."