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Can Tyson Foods' Expansion in Protein-Rich Space Spur Growth?

Zacks Equity Research

Tyson Foods, Inc. TSN has been in the green for a while, courtesy of efforts to keep up with the shift in consumer preference toward protein-packed products. Backed by these initiatives, this leading chicken, meat and prepared foods producer has delivered sturdy year-on-year top-line growth in the trailing four quarters. Notably, strong volumes and solid performance across all segments, primarily Beef and Chicken benefitted the company in fourth-quarter fiscal 2017.

Driven by such upsides, shares of the company have gained 32.4% in the past six months compared with the industry’s rally of 25.7%.

In fact, Tyson Foods has also been focusing on tapping into alternative sources of protein, other than meat and chicken products.  Per media sources, the company recently raised its stake in the California-based company, Beyond Meat. The investment is part of Beyond Meat’s latest fundraising round. We note that Tyson Foods already owns a 5% stake in this plant-based protein manufacturing company.

 


 

Let’s take a look into how Tyson Foods can reap benefits from this latest deal as well as other factors that have been driving the company’s performance.

Beyond Meat to Drive Growth in Meat Substitute Market

Alongside the widening demography of protein-savvy consumers, traditional meat sales face intense pressure due to increasing environmental concerns about intensive animal farming and animal welfare. Moreover, rising health consciousness amongst consumers have led to a general perception that plant-based products are healthier than meat and chicken.

Such market trends have urged companies like Beyond Meat and MorningStar Farms, owned by the leading cereal producer Kellogg K, to foray into the animal-free market and develop substitutes for meat and chicken products. Beyond Meat manufactures plant-based burger patties, non-GMO soy, heat-and-eat meals and pea protein frozen foods. The company sells products through grocery chains such as Amazon.com AMZN, Kroger KR, Whole Foods and Albertsons. The products are also served at leading restaurant chains and hotels.

Beyond Meat’s wide-spread market reach in the meat substitute market is undoubtedly a significant value-addition for Tyson Foods. Further, sources revealed that annual sales of meat substitute products, including frozen and shelf-stable products, are expected to reach $863 million in the United States by 2021. Considering the rapid growth of the meat substitutes market, Tyson Foods’ strategy to strengthen presence of this segment bodes well.

Strength in the Meat & Chicken Segment

Apart from expanding in the meat-substitutes space, Tyson Foods is also progressing well with traditional meat categories. Notably, Tyson Foods’ chicken and beef segments have been depicting strong volume growth since the past few quarters owing to surging consumer demand. Further, in order to expand protein-packed portfolio, the company has been focusing on acquisitions. In this regard, the company’s AdvancePierre buyout favorably impacted the Prepared Foods segment’s performance in the last two quarters. To further enrich the Prepared Foods category, the company announced the buyout of Original Philly Holdings in November 2017. Going forward, management continues to expect positive synergies from acquisitions.

In addition to such efforts, Tyson Foods has been expanding poultry production capacity in Tennessee. The company has been proactively catering to consumer’s preference for natural and fresh meat offerings without any added hormones or antibiotics.

We believe that such efforts to strengthen foothold in the meat and meat substitute markets, is likely to spur further growth for this Zacks Rank #3 (Hold) company.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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