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Here's Why Tyson Foods Gained 17% in August

Maxx Chatsko, The Motley Fool

What happened

Shares of Tyson Foods (NYSE: TSN) jumped 17% last month, according to data from S&P Global Market Intelligence. The food company reported solid fiscal third-quarter 2019 operating results demonstrating that the business is performing well despite a number of headwinds, primarily the ongoing trade war between the United States and China.

The business generated both higher sales and net income in the most recent three-month period, although operating margins still reflect a tough margin environment. Management decided to maintain its fiscal full-year 2019 guidance for adjusted earnings per share of $5.75 to $6.10. That said, shares did slide in early September, giving up half of the gains from August.

Broiler chickens in a large facility.

Image source: Getty Images.

So what

Tyson Foods has performed relatively well despite the trade war between the United States and China. The company's pork and chicken segments have seen operating margins fall in the first nine months of fiscal 2019 compared to the year-ago period, while the beef and prepared-food segments have seen improvements in that span. The net effect is a deteriorating operating margin, but tailwinds could be emerging. 

Metric

First Nine Months of Fiscal 2019

First Nine Months of Fiscal 2018

Change (YoY)

Revenue

$31.5 billion

$30.0 billion

5%

Operating income

$2.22 billion

$2.21 billion

0%

Operating margin

7%

7.3%

(31 basis points)

Net income

$1.65 billion

$2.49 billion

(34%)

Data source: Press release. YoY = year over year.

Asia is currently reeling from a severe outbreak of African swine fever, which has led to a significant reduction in pork production. Tyson Foods hasn't seen any material benefit to its pork segment yet, although it believes the outbreak will impact the market for multiple years. That alone could be enough to reverse the company's overall margin decline.

Perhaps more important are the company's efforts to drive organic growth with new products, especially in its prepared foods segment. For example, Tyson Foods just launched its Raised & Rooted brand of animal-free protein products, a market that has launched Beyond Meat into one of the best growth stocks in investing. The brand's nuggets will be in 5,000 retail stores by the end of September.

Now what

As one of the largest food companies in the world, Tyson Foods will inevitably see its business ebb and flow with the health of the markets it serves. But the business is still generating healthy profits and using its size to carve out market share in new markets, such as animal-free protein products. That should help the stock to keep up its track record of beating the returns of the S&P 500 over the long run.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com