Expect margins to slightly improve in each of the segments. Chicken GA dock price remains high while the USDA reported prices have declined fairly significantly. Grain prices are now lower … but the birds going to market now still have higher priced feed in them. Beef packer margins remained very good this Q and pork packer margins improved. Prepared foods still has ramp up costs in their COGS. China sales after bird flu have not totally recovered and now we have salmonella problems in the U.S.
But all that said the out-look for china looks great a year or two out … Prepared foods margins should improve about 2% a year out … beef margins will likely remain tight due to lack of supply and pork have no idea. Chicken margins should be very good in 2014 with much lower grain prices and lower but good chicken prices.
O.K. Q report … chicken missed my expectation … beef exceeded and pork and prepared foods were o.k. … going forward … TSN is investing in china chicken operations and prepared foods / lunch meat … and expects to start to see more payoff on those investment in 2014 … management expects the chicken segment to perform well in 2014 … input costs will be way down with lower grain prices and china should start to rebound from last year’s bird flu scares … beef segment will be below normalized ranges because of tight supply and pork and prepared foods should improve … IMO TSN should improve EPS by 10% in 2014. Longer term is also very positive … TSN’s buy v. grow strategy for chicken should protect segment downside risks. TSN sales volume is so significant and they have done so much to limit downside EPS risks that even small improvements in margins will have significant impact on the bottom line. TSN is good to go.