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Tyson Foods (Hillshire Brands Company)

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Tyson Foods is one of the world's largest producers and processors of meat and poultry, but until recently its presence in the branded cold meats category was minimal. It solved that problem with the acquisition in 2014 of Hillshire Brands Company, primarily a specialist in ready-to-serve deli meats. Hillshire was all that remained of what had once been the diversified conglomerate Sara Lee Corporation. That group began breaking itself up in 2005, selling or demerging all of its apparel, household, bakery and bakery products over the next six years. (Hanesbrands and DE Master Blenders 1753 were two of the companies created in that process). Sara Lee Corporation's remaining operations in North America adopted the Hillshire name in 2012. Two years later, the business considered bulking up once again, with a proposal to acquire diversified groceries competitor Pinnacle Foods. That prompted rival meat processors JBS and Tyson Foods to launch their own bids for Hillshire. Tyson's offer ultimately triumphed, forcing the cancellation of the Pinnacle deal.

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Competitors

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Brands & Activities

Tyson Foods is one of the world's largest producers of beef, pork and chicken, and the overall leader in the US. It is the local leader in poultry production with around 21% share (ahead of JBS Pilgrim's Pride at 18%) and in beef packing at 23% (ahead of JBS and Cargill). It is the US #2 in pork production with 17% share (behind Smithfield's 26%). It manages the complete vertical process from processing of acquired livestock to distribution of fresh meat to retailers. The group also manages a small portfolio of branded ready-to-cook meal ideas under the Tyson brand, such as Tyson Any'Tizers. However until recently the one missing link in the Tyson chain was the ownership of finished ready-to-serve branded products.

Hillshire Brands Company was all that remained of the conglomerate that was previously Sara Lee Corporation. It was one of the top two companies in branded packaged meats (alongside Kraft's Oscar Mayer brand). In May 2014, Hillshire had announced plans to begin bulking up its food business with the acquisition of rival Pinnacle Foods for $6.6bn including debt. That deal would have added exposure to several new grocery segments, including shelf-stable groceries and frozen foods. Those plans were derailed by two rivals offers to acquire Hillshire and break the Pinnacle deal. Even prior to the demerger of DE Master Blenders in 2011, the old Sara Lee Corp had been involved in talks with Brazilian fresh and cold meats company JBS for the meat side of the business. In May 2014, JBS's US subsidiary Pilgrim's made an initial offer to acquire Hillshire, only to be topped by a higher offer from rival Tyson. After a brief bidding war, the latter secured the prize with an offer worth almost $8.6bn in cash.

The Hillshire portfolio is led by a stable of three major brands. Jimmy Dean is the best-selling breakfast sausage in the US, and the brand also encompasses a huge range of prepared frozen breakfast meals, side-dishes and meal kits. Hillshire Farm is the umbrella for a large selection of ready-to-cook sausage and chicken and ready-to-eat deli-style sausage and lunch meats. Ball Park is the #1 hot dog frankfurter brand in the US, and its range too is being expanded to cover other sorts of ready-to-cook grilled "guy food" including beef burger patties and chicken sliders.

Sales for Jimmy Dean and Hillshire Farm are each around $1bn; while Ball Park accounts for around $400m. These are supported by a collection of secondary brands including State Fair corn dogs (the top-seller in that sector at approx $200m), Bryan cooked and ready-to-cook meats, super-premium Aidells gourmet sausages (acquired in 2011 for $87m) and Gallo gourmet salami. The first new launch from the combined Hillshire/Tyson packaged meats team is Tyson Any'Tizers.

Despite its concentration on meat, the group still sells frozen Sara Lee desserts, including its trademark cheesecakes and poundcakes. In 2014 it acquired Van's Natural Foods, a range of frozen waffles and other breakfast products, for $165m. The private label refrigerated dough business was sold to Ralcorp for $545m in 2011. In addition to the consumer retail division, the company also has a foodservice business which still operates under the Sara Lee name. It is responsible for marketing meats (and until recently bread and coffee) to restaurant and hotel clients.

Financials

For the year to June 2014, Hillshire's last as an independent company prior to absorption into Tyson, it reported revenues of $4.09bn, up 4%. That figure included $2.99bn from retail products and $1.09bn from foodservice. Meat or "meat-centric" products accounted for sales of around $2.8bn and bakery goods for most of the rest. Net income gained 15% to $212m.

For the year to Sept 2015, with a full year's contribution from Hillshire, Tyson reported revenues of $41.37bn, up 10%, and net income which soared by 43% to $1.22bn. A small proportion of revenues are generated internationally, but the vast majority - almost 85% - come from the US. Tyson continues to have a presence in China and India, but agreed to sell the bulk of its operations in Brazil and Mexico to rival JBS in 2014.

For the year to 2016, revenues slumped 11% to $36.7bn as a result of pricing pressures, divestures and a slightly shorter year. Nevertheless, net income hit a new high, up 44% to $1.8bn. However profit forecasts for the year to 2017 were well below analysts' expectations, causing a sharp decline in Tyson's share price.

Beef accounted for 39% of group revenues in ye 2016, chicken for 30% and pork for 13%. Prior to the absorption of Hillshire, prepared foods contributed only $3.3bn in revenues; that figure more than doubled, reaching $7.35bn in ye 2016. It is the group's second most profitable unit after chicken, which contributes almost half of group operating income. The group is still controlled by the Tyson family, who hold around 70% of the company's voting shares.

Background

See Sara Lee Corporation profile for background of Hillshire Brands.

Tyson's Foods was founded in the 1930s by John W Tyson, a smalltime chicken farmer in Springdale, Arizona. Initially he took his own poultry for sale in cities such as Chicago and St Louis, but gradually adopted a new strategy of out-sourcing the farming of the birds to others in order to focus on processing the finished bird and selling the resulting products. He took that business public in 1963 as Tyson's Foods. Four years later, John and his wife were killed in an automobile accident, and control of the business passed to their son Don Tyson, who expanded the business dramatically over the next three decades. In the 1980s the group added pork production to its offering as well as extensive seafood operations (later sold). In 2001 the group acquired beef and pork producer IBP, and also established operations in markets such as China and India.

Last full revision 13th January 2017

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