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Solid Protein Demand Helps Tyson Foods Gain 6% in 3 Months

Zacks Equity Research

Rising demand for protein products is favoring Tyson Foods, Inc. TSN. This has encouraged the company to undertake strategic acquisitions and bolster offerings. Such upsides along with efforts to boost financial efficiency have kept the stock in investors’ good books. Notably, Tyson Foods’ shares have gained 6.1% in the past three months compared with the industry’s rise of 1.5%. Let’s take a closer look at the factors aiding this renowned meat products company.

Efforts to Boost Protein Offerings

For fiscal 2019, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 3% year over year. Rising demand for protein-packed food products is a driving factor for higher protein production. In fact, Tyson Foods boasts a rich portfolio of protein packed brands that are growing rapidly across the globe. Incidentally, during the first quarter of fiscal 2019, the company delivered improved sales in the Chicken and Beef categories.

Additionally, the company has undertaken divesture of non-protein businesses to focus on the growing protein-packed food arena, primarily through acquisitions. Recently, it announced a deal to acquire the European and Thai operations of BRF S.A. The buyout is likely to strengthen Tyson Foods’ footing in the Thai poultry space as well as expand presence in the U.K. and Netherlands. Prior to this, the company completed the acquisition of Keystone Foods business, which supplies a broad array of meat and chicken products across the globe. Other noteworthy buyouts of the company include; AdvancePierre, Original Philly Holdings and Hillshire.

Apart from this, the company is steadily expanding fresh prepared foods offering, owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics. In this respect, the buyout of Tecumseh is quite noteworthy. The deal has added the popular air-chilled Smart Chicken brand along with a variety of chicken sausages, fresh and deli-style chicken to its portfolio. Tyson Foods has been venturing into alternative sources for meat and protein products, which is evident from the investments in Beyond Meat and Memphis Meats.

Can Efforts Pare Headwinds

We note that lower sales in the Pork and Prepared Foods categories have been weighing on Tyson Food’s top line for a while. Pork segment sales volumes have been dismal due to the company’s efforts to balance supply with consumers’ demand. Further, the Prepared Foods category is been bearing the brunt of business divestitures.

Apart from these, the company is witnessing rising input costs in categories like pork bellies, beef and pork trim and turkey breast. These costs are likely to continue rising in the forthcoming periods. Further, the company is experiencing cost pressures due to a tight labor market.

Nevertheless, we expect Tyson Foods to overcome these headwinds backed by robust endeavors to expand in the protein space and efforts to boost financial strength through savings plans. That said, we expect this Zacks Rank #3 (Hold) company to keep fueling investors optimism.

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