Tyson Foods says its multi-year effort to transform its chicken business from a commodity processor into a branded, value-added protein business is paying off, with executives arguing the segment now follows the same customer- and brand-driven playbook that has made Prepared Foods one of the company’s most resilient businesses.
For the seventh consecutive quarter, Tyson Foods reported yesterday year-over-year volume and sales gains in its chicken business, including a 1% increase in volume and a 0.8% increase in sales in its third quarter, which ended June 27. The uptick helped buoy the segment’s operating income 11.2% or 60 basis points to $488 million.
The gains, which may seem slim in isolation, are notable when compared to headwinds challenging the commodity chicken market and the companion protein categories in which Tyson plays.
For example, beef continues to face cattle shortages in the US that drove up costs by $575 million, or about 12%, for the company in the third quarter compared to a year ago and contributed to a $142 million loss in the division the period, executives told analysts during an earnings call Aug. 3.
At the same time, commodity chicken values were down 45% during the quarter compared to a year ago thanks in part to industry-wide excess in recent months that have depressed chicken processors’ profits.
Tyson is no longer a commodity chicken company, according to CEO
Tyson’s chicken segment was spared the same fate of its competitors and the beef segment because of the company’s multi-year strategic efforts to rebalance the business away from commodity and towards value-added retail-ready processed products, said CEO Donnie King.
The company began overhauling its chicken business in late 2021 with a four-prong plan, including closing underperforming plants, laying off employees and investing in automation at other facilities, which allowed it to steadily rebuild its poultry performance.
As a result, the chicken segment’s operating income of $488 million came in $40 million higher year-over-year with a margin of 11.2%. In addition, the segment’s net price realization increased over the prior year even as input markets softened, which King said was “further evidence that our results are driven by mix, innovation and execution rather than commodity pricing.”
King added he no longer considers Tyson a commodity chicken company.
“About three-quarters of our chicken segment’s operating income now runs on the same model as Prepared Foods – a pull business built against committed strategic customer demand, our investment in the No. 1 brand in chicken and direct digital engagement with our consumers,” he said.
“This is not a push business exposed to the open cutout market. Industry-wide chicken oversupply is a commodity market dynamic. It pressures processors selling into that spot market. This is not us, because most of our chicken volume is already spoken for before we place the baby chick,” he added.
He explained that the chicken segment is now run with the same playbook that has made Tyson’s Prepared Foods “so resilient,” including “growing through mix, brand investment, customer partnership and consumer-centric discipline – not by chasing commodity price.”
Prepared Foods’ playbook offers winning strategy
To support his point, he noted that Tyson’s Prepared Foods segment continued to outpace broader category performance in both retail and food service with sales up 1.7% or $42 million year-over-year to $2.6 billion. This bolstered the segment’s operating income of $321 million with a margin of 12.6%. This is down slightly year-over-year as roughly $30 million of higher commodity costs in the quarter outpaced pricing, which continues to catch up, he added.
Both businesses also benefit from greater integration, which King said allows Tyson to “optimize product mix and direct raw materials toward their highest value uses.”
In light of these gains, the company raised its guidance for Prepared Foods and reaffirmed it for the Chicken segment.
“In Prepared Foods, we are raising the midpoint of our full-year segment operating income outlook with a revised range of $1.3 billion-$1.35 billion. We expect continued growth in top line and bottom line in the fourth quarter and for the full-year,” said incoming CFO Curt Calaway.
“In Chicken,” he said, “we are reaffirming our full-year segment operating income outlook at a range of $1.9 billion-$2.05 billion. This is broadly comparable with 2025 and supported by our commercial model, operational execution, and the impact of our live operations, along with continued volume growth.”
Beef drags Tyson’s performance down
Beef is a different story.
The beef industry’s conditions are “challenged” with insufficient supply to meet demand, causing volumes to fall 15.9% while pricing rose 12.1% in the quarter, King said.
He acknowledged that a recent USDA announcement to allow cattle in from Mexico, which historically has supplied 5% of the US market, “shows potential improvements to long-term cattle availability,” he also noted it won’t have a material impact on the remainder of this fiscal year.
“To be clear, the reopening of the Mexican border will not solve the entire gap of beef losses we are currently seeing. We are not waiting passively for the cattle cycle to turn, and we continue to focus on improving the variables within our control. Simply stated, our mission in beef is to be the best operators in the areas in which we compete,” he said.
Tyson revised its outlook
Taken together, the segments’ performance balanced each other out and total company sales for the quarter were essentially flat at $13.9 billion compared to the previous year. It also saw a 3.4% increase in average sales price, which was offset by a 2.8% decline in volume – again driven primarily by tighter cattle supply and beef, said Calaway.
He added: “Total company adjusted operating income was $547 million, a margin of 3.9%. Adjusted earnings per share for the quarter were $0.99, up 9% compared to last year.”
For the full company, Tyson narrowed its full-year sales growth guidance to 2.5% to 3.5% year-over-year and the adjusted operating income is now forecast to be $2.1 billion to $2.3 billion, again primarily due to “challenges in our beef segment relating to cattle availability,” Calaway said.
