Tyson Foods, Inc. (NYSE:TSN) Q2 2017 Earnings Conference Call Transcript
May 08, 2017 • 09:00 am ET
Certainly. Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) David Palmer, RBC Capital Markets.
Good morning, guys. The Prepared Foods profit was lighter than we had expected. You cite the foodservice sales declines in that segment. Could you talk a little bit more about the nature of those declines and the outlook for potential improvement? And I have a follow-up.
Yes. The sales were certainly not what we expected for sure, as foodservice channel has been a little bit lighter than retail, particularly for us I would say. And so we do have some challenges also -- that's predominantly the legacy Tyson Prepared Foods of foodservice business. In order to get our portfolio back to where it needs to be, profitable growth and the ROS we expect, we are doing a number of things: shifting channel mix and customers to a certain degree to capture growth; leaning out SG&A, doing some manufacturing work on costs.
And we feel good about where we're headed, but we do still have some challenges, and certainty, in Q2, the volume didn't help the situation as we had some under-absorbed overhead at some of those plants.
And from the guidance or in that specific guidance, you say 9% margin, which I guess implies a similar margin for the second half. Is this going to be a multi-quarter turn in the business?
It is. Like I said, the retail business continues to do very well. It's the foodservice prepared business, and we do see that's going to take some time to get that back to where it needs to be. I also said, in 2018, we believe it will be back within the range as Prepared Foods that we have set up.
And speaking of 2018, I know it's a little early, but what is your early thinking about the earnings outlook for that year?
Sure. Yes. We think 2018, at least this is the way that I see it right now that we are going to continue to grow, certainly, where we want to grow, value-added versus commodity, both on Chicken and Prepared Foods. The Core 9, as you see, continues to do really well. The perimeter of the grocery store is doing fantastic. We benefit from that. And certainly, the products that we're focused on in foodservice, the focus five products, are doing very well in broadline distribution. So we just talked about prepared beef, looks to be good next year as it is this year just about as good.
5% is where we're saying we're going to wind up. Supply is looking very strong. Pork, I'd say, we'll benefit from livestock supply, very strong export markets, and we'll deal with more slaughter capacity which we talked about in the past coming on in the industry. Still above the normalized range is where we see it. So Pork feels good. Chicken will benefit from the move to NAE. Just announced today moving towards organic in July, and we'll have a better