Purchase aims to further shift company’s business toward higher-profit products, such as chicken nuggets and fish filets.
Tyson Foods Inc. TSN -1.17% agreed to acquire a top meat supplier to McDonald’s Corp. and other chains, in a bid to boost its sales to restaurants as rising supplies and tariffs squeeze U.S. meat companies.
Tyson said Monday it would pay $2.16 billion in cash for Keystone Foods, expanding the Springdale, Ark.-based company’s business selling meat to fast-food chains and adding processing plants to its network in the U.S. and Asia.
The purchase aims to further shift Tyson’s business toward higher-profit products, such as chicken nuggets and fish filets, and away from slabs of non-branded, commodity meat that tend to be less profitable and prone to market swings.
“Particularly internationally, we see this as a tremendous platform to continue to grow,” Tyson Chief Executive Tom Hayes said on a conference call. Tyson shares rose 1.6% to $63.40 on Monday, and have fallen 22% year to date.
Tyson, the largest U.S. meat supplier by sales, and competitors such as Pilgrim’s Pride Corp. and Sanderson Farms Inc. are struggling as new pork and chicken plants lift U.S. meat production to a record. Analysts expect poultry and red meat in storage to hit a record this year at the same time that major importers such as Mexico and China have raised tariffs on U.S.-produced meat products, driving down prices.
Over the past four years, Tyson has spent billions of dollars on deals for supermarket standbys such as Hillshire Farms lunch meat and Jimmy Dean sausages, as well as upstarts like the organic brand Smart Chicken. Those acquisitions were geared toward lifting the company’s profit margins and insulating its sales from the type of commodity-market downdraft now vexing the U.S. meat sector. Still, Tyson last month lowered its profit forecast for the year, citing the effects of tariffs and “an oversupply of protein.”
Keystone’s business is weighted toward the U.S., where about two-thirds of its overall sales are generated, primarily supplying products such as chicken nuggets and fish filets to restaurants. In Asia, Keystone sells a wider range of meat products.
Source: The Wall Street Journal
