Tyson Foods 2008 Annual Report Download - page 14

12 Tyson Foods, Inc.
Management’s Discussion and Analysis (continued)
SUMMARY OF RESULTS – CONTINUING OPERATIONS
Sales
in millions 2008 2007 2006
Sales $26,862 $25,729 $24,589
Change in average sales price 5.1% 5.8%
Change in sales volume (0.7)% (1.1)%
Sales growth 4.4% 4.6%
2008 vs. 2007
• The improvement in sales was largely due to improved average
sales prices, which accounted for an increase of approximately
$1.5 billion. While all segments had improved average sales prices,
the majority of the increase was driven by increases in the Chicken
and Beef segments.
• Sales were negatively impacted by a decrease in sales volume,
which accounted for a decrease of approximately $318 million. This
was primarily due to a decrease in Beef volume and the sale of two
poultry production facilities in fi scal 2007, partially offset by an
increase in Pork volume.
2007 vs. 2006
• The improvement in sales was largely due to improved average sales
prices, which accounted for an increase of approximately $1.4 billion
in sales. The improvement was due to better market conditions in
all segments, with the majority of the increase attributable to the
Chicken and Beef segments.
• Sales were negatively impacted by a slight decrease in sales volume,
which accounted for a decrease of approximately $226 million. The
decrease was driven by decreases in the Chicken and Prepared Foods
segments, offset by improvements in the Beef and Pork segments.
The decrease included planned production cuts and the closure of
production facilities, offset by improvements in the beef and pork
export markets and improved domestic pork demand.
Cost of Sales
in millions 2008 2007 2006
Cost of sales $25,616 $24,300 $23,639
Gross margin $ 1,246 $ 1,429 $ 950
Cost of sales as a
percentage of sales 95.4% 94.4% 96.1%
2008 vs. 2007
• Cost of sales increased $1.3 billion. Cost per pound contributed to
a $1.6 billion increase, offset partially by a decrease in sales volume
reducing cost of sales $323 million.
• Increase of over $1.0 billion in costs in the Chicken segment,
which included increased input costs of approximately $900 mil-
lion, including grain costs, other feed ingredient costs and cooking
ingredients. Plant costs, including labor and logistics, increased by
approximately $200 million. These increases were partially offset
by increased net gains of $127 million from our commodity risk
management activities related to grain purchases, which exclude
the impact from related physical purchase transactions that will
impact future period operating results.
• Increase in average domestic live cattle costs of approximately
$271 million.
• Increase in operating costs in the Beef and Pork segments of
approximately $180 million.
• Decrease due to sales volume included lower Beef and Chicken
sales volume, partially offset by higher Pork sales volume.
• Decrease due to net gains of $173 million from our commodity
risk management activities related to forward futures contracts
for live cattle and hog purchases as compared to the same period
of fi scal 2007. These amounts exclude the impact from related
physical purchase transactions, which will impact future period
operating results.
• Decrease in average live hog costs of approximately $117 million.