US meat giant Tyson Foods may consider further plant closures as it grapples with challenges in its chicken, beef, and pork operations.
Yesterday, Tyson announced the closure of four chicken plants in an effort to reduce costs amid slowing demand and declining profits.
In a call with analysts after reporting its 2023 third-quarter financial results, CEO Donnie King was asked about the possibility of additional closures.
He responded, “We’re continuing to evaluate everything as we automate and modernize these assets. And so, we’ll continue to explore potential closures.”
He further stated, “We’re executing a multi-point plan focused on efficiency and modernization, which includes a comprehensive review of our cost structure to drive operational excellence.”
Regarding the recent closures and those previously announced, King described them as “decisive actions” aimed at navigating the current market challenges successfully.
King indicated that the trading environment is expected to remain difficult across its core protein segments.
He stated, “Market conditions in the chicken industry are still challenging, with significantly lower commodity prices compared to last year.”
Additionally, he noted, “The beef industry will likely continue to face headwinds due to tight supply, higher cattle costs, and difficult export market conditions.”
Tyson has also struggled to pass on higher costs to consumers despite the inflationary pressures on labor, grain, and other inputs in the beef market.
Concerning pork, King said, “Pork remains under pressure, both in our internal live production and external sourced hog supply.”
He also highlighted increased feed costs as one of the headwinds impacting the industry.
While beef revenue remained stable compared to the previous year, pork revenue decreased by 18% and chicken sales declined by 3.5%.
CFO John Tyson stated, “We expect chicken to recover more quickly, while the dynamics of the beef cycle present different challenges.”
The company has not disclosed the exact number of job impacts resulting from the plant closures in Arkansas, Indiana, and Missouri. However, estimates suggest that approximately 3,000 employees are affected.
King provided some insight into the facilities being closed, stating, “The plants we’re closing are typically smaller and require significant capital investment to be viable.”
The closures are anticipated to occur in late 2023 or early 2024, with production being shifted to other facilities.
The four facilities account for approximately 10% of Tyson’s chicken-slaughter capacity, according to John Tyson.
Tyson estimates total charges of $300m to $400m resulting from the closures, which include the well-known Jimmy Dean and Hillshire Farm brands.
In its third-quarter report, Tyson reported sales of $13.14bn, a 3% decrease compared to the previous year. Adjusted operating income also fell by 82% to $179m, which included a goodwill impairment charge of $448m.
Analyst Alexia Howard of AllianceBernstein noted that the results fell below expectations.
Despite the challenges, John Tyson still expects fiscal 2023 revenue to range between $53bn and $54bn. King emphasized the company’s commitment to delivering sustainable top-line growth and margin improvement over the long run.
He concluded, “We have experienced market cycles before and I am confident that we have the right strategy, seasoned leadership, and team members to emerge stronger from this one.”
