Tyson Foods (NYSE:TSN) has been expanding its portfolio of value-added products as a strategy to counter the inherent volatility of the commodity meat market. The acquisition of Williams Sausage Company in May 2023 is the latest testament to this approach, following a broader trend within Tyson towards acquiring branded meat companies.
The company's primary business, which revolves around the sale of beef, chicken, and pork, accounts for approximately 70% of its revenue. However, Tyson's financial fortunes are largely dictated by external factors due to the commodity nature of its core business. In response to an 89% year-over-year earnings drop in the second quarter, reflecting challenges faced by its beef, chicken, and pork divisions, Tyson has been implementing measures such as reducing operational costs.
Contrasting its commodity meat business, Tyson's portfolio of value-added products has been gradually expanding. The acquisition of Williams Sausage Company, a producer of fresh sausage, cooked sausage, bacon, and sandwiches for retail and food service customers, complements Tyson's existing brands such as Jimmy Dean, Ball (NYSE:BALL) Park, and Hillshire Farm. These products fall under what Tyson refers to as prepared foods.
The prepared foods segment generally yields higher margins and accounted for approximately 18% of sales in the second quarter. Despite a volume decline of 0.4% in this division during the same period, it was able to implement price increases of 1.4%, resulting in a modest overall sales increase. As Tyson continues to acquire additional brands and expand this segment, it is expected that the proportion of sales from prepared foods will rise.
While investors are closely watching Tyson's struggling commodity meat market, the company's prepared foods segment has grown by 16% in terms of sales since 2020. As this segment continues to expand, it is anticipated to bolster Tyson's margins and provide stability amidst the typical fluctuations of its commodity meat operations.
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