The need for a strong balance sheet is a reflection of the volatility that has plagued global commodity markets since 2008. Whether it is due to increased global demand for commodities or a limited supply due to drought, Tyson Foods is focused on liquidity.
Speaking this past May at the BMO Capital Markets Farm to Market Conference, Donnie Smith, president and chief executive officer, said the Springdale, Ark.-based company must maintain a lot of liquidity to work through the volatile commodity markets. He added that the company needed to remain flexible in order to invest in capital expenditures on the current business in order to improve efficiencies. He added that a strong balance sheet also opens the door to acquisitions, but noted that Tyson Foods is “not at a point to where we have to acquire to grow.”
Debt reduction has been a goal and Tyson Foods has reduced its debt from a net debt ratio of about 55% at the beginning of 2002 to 20.5% at the end of fiscal 2011. Mr. Smith said the situation puts the company in a better position to respond to changing fundamentals in the animal protein sector, even in times of challenging market dynamics.
Product innovation is also a key to company growth. Management has made it a priority to create new products for new channels and new product categories. Areas of interest include convenience stores, where Mr. Smith said in May that there is less than a 5% chance a customer will walk out of a convenience store with a Tyson product.
“That’s a huge opportunity for us,” he said, and added that the company is eager to penetrate alternative retail channels such as drug stores, dollar stores and even small, regional grocery chains.
With regards to international growth, Tyson Foods is cultivating new markets taking the long view by establishing production. By 2014, the company anticipates having three million birds under its control in China; two million birds in Brazil; and 500,000 birds in India. The company is currently processing approximately 2.7 million birds per week in Mexico.
In early August, Tyson Foods announced its financial results for the first nine months of fiscal 2012. Net income during the period equaled $398 million, equal to $1.07 per share on the common stock, and a decline compared with the same period during fiscal 2011 when the company earned $635 million, or $1.71 per share. The 2012 results were affected by a pre-tax charge of $167 million related to an early extinguishment of debt charge.
Sales for the first nine months of fiscal 2012 were $24,905 million, which compared with $23,862 million for 2011.
“Grain costs have been increasing significantly and rapidly, largely the result of the on-going U.S. drought,” Mr. Smith said on Aug. 6. “While we ultimately expect to pass along rising input costs, these costs, coupled with continued soft demand are likely to pressure earnings in 2013.”