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Tyson Foods’ Beef Segment Contributed Most to Fiscal 1Q16 Revenue

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Segmental performance in fiscal 1Q16

Tyson Foods (TSN) operates through four main segments: Chicken, Beef, Pork, and Prepared Foods. The Beef and Chicken segments contributed the most to total net sales in fiscal 1Q16, and the Chicken segment contributed the most to total operating profit.

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Chicken, Beef, and Pork segments

In the Chicken segment, sales volume fell as a result of Tyson Foods optimizing mix and its buy versus grow strategy. However, its sales volume was supported by an increase in rendered product sales. The segment reported $2,636 million in net sales. The average sales price also fell as feed ingredient costs dropped. This was partially balanced by mix changes. The operating profit for this segment increased to $358 million due to better operational execution and lower feed ingredient costs. Feed costs dropped $60 million in fiscal 1Q16.

In the Beef segment, the livestock costs fell because of higher domestic availability of fed cattle supplies. This resulted in the drop in average sales price. The segment reported net sales of $3,614 million in fiscal 1Q16. A reduction in live cattle processed, mainly due to the closure of Tyson Foods’ Denison, Iowa, facility in fiscal 4Q15, drove the decline in sales volume. Favorable market conditions related to an increase in supply, which drove down fed cattle costs, resulted in the rise in operating profit to $71 million.

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In the Pork segment, the divestiture of the company’s Heinold Hog Markets business in fiscal 1Q15 resulted in a sales volume decline. Sales volume rose 5.5% for fiscal 1Q16 led by improved demand for pork products. This result excludes the divestiture effect. The net sales were $1,213 million. Average sales price fell because of lower livestock costs and an increase in live hog supplies. Better plant utilization, accompanied by higher volumes, led to a better operating profit of $158 million.

Prepared Foods segment

The sales volume of the Prepared Foods segment fell because of a change in sales mix along with the avian influenza effect on Tyson Foods’ turkey business. A drop in input prices reduced the average sales price. However, this was partially balanced by a change in product mix. Lower input costs of ~$125 million and mix changes helped to improve operating income. This segment also benefited from $95 million in synergies. The amount that was realized in fiscal 1Q16 was $40 million.

The company’s peers in the industry include The Campbell Soup Company (CPB), ConAgra Foods (CAG), and Mead Johnson Nutrition Company (MJN). They reported operating margins of 14.3%, 9.8%, and 20.2%, respectively, for their last reported quarters. The Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS) and the iShares Morningstar Mid-Cap Value ETF (JKI) invest 2.6% and 1.2%, respectively, of their portfolios in Tyson Foods’ stock, as of February 8.

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