Tyson Mexican Buys Don Julio

Zacks

The world’s leading meat processor, Tyson Foods Inc.’s (TSN) subsidiary, Tyson Mexican Original Inc. has purchased Don Julio Foods of Clearfield, Utah. The financial terms have not been disclosed. The acquisition includes all brands marketed by Don Julio, including equipment and related assets.

Don Julio produces and sells flour and corn tortillas, and salty snacks such as potato chips, tortilla chips and pretzels through retailers across the U.S. under the brand names Don Julio Authentic and Clover Club.

Tyson Mexican, earlier known as Mexican Original was bought by Tyson in 1983 to diversify its product offerings. Prior to the Don Julio acquisition, the company operated three dedicated tortilla operations in Fayetteville, AR, Portland, IN and Sanford, NC. Tyson Mexican Original tortillas and chips are sold to foodservice and restaurant customers. About 1,300 team members work for the company.

The team of fifty management personnel of Don Julio, will however, continue to manage the operation as Tyson team members.

The acquisition will benefit Tyson Mexican by adding the two popular brands of Don Julio and Clover Club. It will also boost sales by the addition of Don Julio customers.

Moreover, the acquisition will put the Tyson Mexican Original’s products on grocery store shelves throughout the U.S., which till now supplied products only to restaurants and foodservice customers.

Tyson Foods’ focus on Mexican food comes at a time when Mexican food is becoming increasingly popular in the U.S., with more and more Mexican-inspired cuisines being offered by fast-casual and quick-service operators. Companies like Taco Bell, Chuy’s Holdings Inc. (CHUY) and Yum! Brands Inc. (YUM) offering Mexican delicacies delivered robust earnings in 2012

Springdale, Arkansas-based Tyson Foods recently reported its first quarter 2013 adjusted earnings of 48 cents per share, which surpassed the Zacks Consensus Estimate of 39 cents by 23.1%. Quarterly earnings also increased an impressive 14.3% year over year backed by strong sales in chicken coupled with operational efficiencies.

Net sales went up marginally by 0.1% year over year to $8.4 billion in the quarter, but missed the Zacks Consensus Estimate of $8.5 billion. Sales growth in the Chicken and Beef segment was offset by declines in the other two segments − Pork and Prepared Foods.

Guidance

Tyson believes that overall domestic protein (chicken, beef, pork and turkey) production will decrease by 1% in fiscal 2013 from 2012 levels due to increased costs for cattle and hog producers owing to the drought conditions of the summer of 2012 in the U.S.

For fiscal 2013, the company expects sales to increase to approximately $35 billion, driven by anticipated price increases as the domestic availability of protein goes down and raw material costs increase.

The company projects capital expenditure of $550 million in fiscal 2013. Tyson also expects interest expense of $140 million for fiscal 2013.

Other Stocks to Consider

Tyson currently carries a Zacks Rank #1 (Strong Buy). Peer companies like Smithfield Foods Inc. (SFD) and Hillshire Brand (HSH) carrying Zacks Rank #1 (Strong Buy) and Hormel Foods (HRL) carrying a Zacks Rank #2 (Buy) and are also worth considering.

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