Tyson Foods, Inc. (NYSE:TSN) Q2 2017 Earnings Conference Call Transcript
May 08, 2017 • 09:00 am ET
has remained strong and we're seeing especially strong pull for our Open Prairie Natural and Chairman's Reserve premium Beef and Pork programs which are showing double-digit growth.
With continued robust exports, strong US demand from consumers, increased cattle supplies, we're expecting Beef segment's operating margins to come in around 5% for fiscal 2017 and we believe the operating environment for 2018 will be just as strong. We intend to capitalize on the favorable market conditions and invest the considerable cash generated to fund the growth of our value-added Chicken and Prepared Foods businesses. The Pork segment's operating income in the second quarter was $141 million with a 10.8% operating margin.
Volume was down 1.3% while average price was up nearly 11% due to tighter domestic availability resulting from heavy export demand. With hog supplies increasing 3% to 4% and continued strong export demand, we think the Pork segment's operating margin for the full year will come in around 12% and looks to stay strong into fiscal 2018. Like Beef, Pork is performing well above its normalized range of 6% to 8%. These commodity businesses are great contributors because of the cash they generate, the raw materials they supply for our Prepared Foods businesses, and the total protein portfolio we're able to offer our customers.
So, now let's turn to our value-added businesses, beginning with Chicken. In the Chicken segment, Q2 operating income was $233 million with an 8.3% operating margin. Average price was up 4.3% on 2% lower volume due to operational disruptions as well as ongoing mix changes away from commodities towards higher-margin products. Value-added Chicken volume was up more than 4%. While the Chicken segment fell below its normalized operating margin range of 9% to 11%, it would have been within the normalized range had it not been for the fires we experienced in two of our plants.
These unforeseen events cost about $0.04 in EPS and reduced volumes. Operating margin for the Chicken segment was 9% in the first half of the year, and we expect it to be in the 9% to 11% range for the full year and similar to that again next year. Demand for chicken looks strong enough to absorb the 1% to 2% additional supply projected by the USDA. However, we'll continue to balance our supply with our demand. In the Prepared Foods segment, adjusted operating income was $139 million in the second quarter, with a 7.9% adjusted operating margin.
Operating income was adjusted by $52 million for an impairment related to our operation in San Diego. Average price was down less than 1%, while volume decreased 2.1%, mostly due to lower volume in the foodservice channel. Synergies for the Prepared Foods segment were $139 million for the second quarter, with $28 million incremental to Q2 2016. Within Prepared Foods, we continued to see strong growth in some areas and others that need work. We'll accelerate profitable growth with a very-focused, fix-and-grow approach.
We're investing and improving our foodservice Prepared Foods business,