Tyson Foods, Inc. (NYSE:TSN) Q2 2019 Earnings Conference Call - Final Transcript
May 06, 2019 • 09:00 am ET
European poultry operations is expected to close in our fiscal third quarter, and we're looking forward to this addition to our growing international business.
Moving to our segments. In the second quarter, Prepared Foods continued to perform very well with the $249 million in operating income and 12.3% return on sales, which is yet another record. Prepared Foods was up 16% in operating income and relatively flat on volume and average price when excluding the divestitures of several non-core businesses last year. Our year-over-year increase in MAP spending and innovation investments have resulted in volume growth and net share gains. Our core nine categories are up an impressive 5.3% in volume over the last 13 weeks and all categories are showing year-over-year increases.
An example of this growth is Jimmy Dean frozen breakfast foods, which continues to grow at impressive rates with volume and dollars up over 6%. We expect our Prepared Foods input costs to increase in the third and fourth quarters as beef and pork prices rise on concerns of the African Swine Fever outbreak in China. Our plan is to recover these additional costs through pricing, but it will take some time. As a result, we are adjusting our annual outlook for this segment to be between 10% and 12% return on sales. A key advantage of our end-to-end supply chain is that we can supply raw materials for value-added divisions and our customers when supplies are tight.
As we previously announced, we are launching our full-scale initiative to enter the alternative protein space. We'll be introducing products this summer and early in the next fiscal year, and we're well-positioned to capture growth in this space. We have a deep understanding of how to develop new products, brands, and categories, and our distribution reach will allow us to move quickly into the marketplace.
I'll move on to the Beef segment which is performing well having operating income of $156 million and a 4% margin in what is typically our most volatile quarter. Average price was up 2.3% and volume increased 3.2% compared to the second quarter last year on improved cattle availability and strong demand.
The herd rebuilding continues, and we see ample cattle supplies into 2021. The quality of cattle has improved with record choice and certified Angus grading indicating improved genetics, which aligns with our growing premium beef programs.
We recently announced that we would be using DNA technology to trace beef back to the individual animal of origin for Open Prairie Natural brand of Angus beef. The process will assure customers that their open prairie beef was sourced from ranches where cattle were raised to specific requirements such as no antibiotics ever and no added hormones.
Global demand for high quality beef continues to be strong, and we expect our international beef sales to grow in the second half of the fiscal year contributing to the Beef segment's margins of approximately 7% for the year.
Turning to the Pork segment. Operating income was $100