Tyson doubles down

By the time this gets published, Tyson’s announcement will be old news. Most important is the broader picture: Closure (Joslin, Ill., beef plant) and/or liquidation (Pasco, Wash., beef plant), in conjunction with the prior shuttering of the beef processing plant in Lexington, Neb., will result in total capacity reduction of approximately 10,000 head/day. Tyson’s remaining capacity (including a second shift in Amarillo, Texas) will stand at around 17,000 head/day.

As mentioned following the Lexington announcement, “None of this is surprising.” The cash burn continues to be challenging. For instance, this month Tyson reported another brutal quarter in the third quarter. Operating income (GAAP) was underwater by $142 million, bringing the nine-month total to $701 million in the red. The non-GAAP operating income was marked at negative $483 million, with the company expecting the loss to be “in the range of $650 million to $500 million” for total year performance (fiscal year ending Sept. 30) (see table).

With that, let’s zoom out and focus on the implications for the business (and industry).

ROIC

First, I noted back in February (Q1, see here) that Donnie King, Tyson president and CEO, responded to a question in the company’s earnings call stating that he needed “the organization to grow this [beef] business, … grow it in our branded and value-added [offerings]. … We’re employing an ROIC [return on invested capital] mentality.”