Rev - $8.6 b
Operating Inc. - $283 m
NI - $161 m
EPS 43 cents
Analysts predict 39 cent EPS
This should be an ok Q, just not great. All three main segments will likely be under management’s definition of “normalized” gross profit. Guessing, chicken at about 4.4%; Beef at about 1.3%; and pork at about 4.5%. Just think how much TSN could make if they just met the lower end of “normalized” margins.
In the chicken segment feed prices declined while chicken prices rose. However, bird and feed inventories were high per unit at the beginning of Q1 and those higher costs got dumped into Q1. Also, grains closed near a low so any inventory on hand at Q1 end, likely was marked down to market.
USDA spreads on dressed beef were not favorable in Q1, however, they appeared to be an improvement over last Q1 2012. TSN likely bid away a good chunk of their margin buying cattle for processing. With the reduction in feeders in 2012, most of the beef money was made by the cow / calf operations. Feedlots bid up feeders killing their profits and then some, and processors bid up a lower supply of fat cattle reducing their margins. The Cargill plant closure should give packers a bit more bargaining leverage in the future. This year should be interesting. More plant closures are needed maybe even by TSN.
Pork margins were likely strained as well, as lean hogs dropped more than live. Management says they will meet or exceed “normalized” margins for their pork segment in 2013, don’t think they made it this Q.
What could derail TSN? Risk management trading losses, too much fixed pricing selling into rising chicken and beef pricing, worse performance against USDA spread than expected for beef. Probably a bunch of other bad stuff too. TSN said they are trying to reduce exposure to fixed pricing and that they are doing a better job of passing along higher prices to the customer. I guess we will see.
Good Q … was low on my EPS guess by 5 cents. I liked the share buy backs, while TSN is near book value…. Was a bit high on my chicken margin … right on my beef margin guess… and way low on my pork margin guess. Near the end of conference questioner asks why TSN highlighted the trailing 12 mo. Adj. EPS of $1.97 and noted all the segments are underperforming “normalized” ranges as expected by management, except the pork segment … into 2014 TSN must be expecting a segment(s) to underperform if the expectation is the same or lower trailing EPS at Q4 2013 … interesting answer.
TSN highlighted improvements in prepared foods and chicken contracts that should strengthen back half of 2013.