Monday, August 3, 2009

With Smaller Inventories, Tyson Foods Is Ready to Adjust

Today’s earnings report from Tyson Foods is a good demonstration of the advantages a business can get by keeping a smaller inventory. The company reported a respectable profit even though sales have declined. Most of Tyson Foods’ profit in the quarter came, directly and indirectly, from lower energy costs. Keeping production and inventory in line was important, though, because it gave the company the flexibility to take advantage of falling costs.

The biggest product category at Tyson Foods is chicken, and that could be tricky to manage. Many people are eating chicken instead of beef, which has come to be seen as more of a luxury item. But chicken prices are going up too, and people are cutting back on the amount of chicken they eat. So are people eating more chicken, or less? Based on the report, it is only slightly more. And by taking a cautious approach to production, Tyson Foods didn’t have to make any big adjustments as it went along. It may be a similar story in the next quarter, when meat demand is likely to fall off. That shouldn’t be much of a problem because inventories are already small, and the company is ready to adjust to whatever changes come their way. As CEO Leland Tollett put it, “I’m feeling much better about our position than I would be if we were sitting on a lot of inventory.”