Tyson Foods (TSN) Gains on Growth Pillars & Brand Strength
Tyson Foods Inc. TSN appears well-positioned, courtesy of strength in growth pillars. Tyson Foods is undertaking several operational and supply chain efficiency programs to improve itself in the long run. Strength in the company’s brand portfolio bodes well. However, weakness in the Pork segment continues to hurt.
Let’s discuss this in detail.
Growth Pillars Solid
Tyson Foods’ growth strategy is based on three main pillars, which include driving growth across the core protein platform. The company expects global demand for protein to continue rising and remains well-placed to cater to it. Management intends to stay focused on merchandising and advertising to support its brands. While Tyson Foods is pleased with its brand strength, it is constantly building innovations to expand the appeal and market opportunities for its products.
The company is benefiting from operational enhancements while making incremental improvements in yield and live operations. The company’s ongoing productivity initiatives based on procurement, logistics and digitalization are likely to solidify the company’s fundamentals.
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Measures to Boost Efficiency
Tyson Foods is investing in capacity expansion and automation technology investments. In this regard, the company continues to accelerate digitalization via supply chain planning and execution processes to enhance customer service. Management is optimizing its plant network by adding fully-cooked capacity, converting plants for value-added production, executing plant flexibility and strengthening the portfolio mix. For the fiscal 2024, management projects capital expenditures to be $1-$1.5 billion. These include spending related to capacity expansion, automation and product and brand innovation.
The company continues to evaluate its production footprint and network to fuel efficiencies. In this regard, management shut down six less efficient chicken plants. Tyson Foods also decided to shut down two smaller fresh meat case-ready value-added facilities.
TSN is focused on efforts to expand into the international markets as part of its strategic growth plan. Recently, management inaugurated a new fully-cooked food production facility in Danville, VA, worth $300 million. This move is in sync with Tyson Foods’ strategy to fuel sustained growth, enhance operational efficiency and invest in its poultry space.
Brand Strength: Key Driver
Tyson Foods’ core business lines boast a portfolio of iconic retail brands, including Tyson, Jimmy Dean, Hillshire Farm and Ball Park. In the fourth quarter of fiscal 2023, such brands witnessed volume growth of 3.2% year over year, way ahead of other competitors. Management continues to see market share leadership across most retail categories in terms of pound and dollar share gains. The company intends to stay focused on merchandising and advertising to support its brands.
Hurdles on the Way
Tyson Foods is facing weakness in the Pork segment stemming from supply-and-demand imbalances, which is affecting spreads. Although management is witnessing some improvement in spreads and reduced grain costs, it is still bearing the brunt of the imbalance between the supply and demand of pork. In the fourth quarter of fiscal 2023, sales in the Pork segment fell 7% on reduced pricing amid soft global demand. Segmental volumes dropped 0.2%, while the average price tumbled 6.7%.
In its last earnings call, management highlighted that it expects to see higher start-up costs and increased cattle costs, which is likely to impact the first half of fiscal 2024 adversely. Also, rising interest rates and inflationary headwinds remain a concern for the company’s margin performance.
Nevertheless, the upsides mentioned above are likely to keep narrating the company’s growth story. The Zacks Rank #3 (Hold) stock has gained 3.7% in the past three months against the industry’s decline of 4.4%.
Top 3 Staple Bets
MGP Ingredients, Inc. MGPI produces and markets ingredients and distillery products to the packaged goods industry. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and earnings suggests growth of almost 6% and 14.2%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of 16.2% on average.
Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145% on average.
The Zacks Consensus Estimate for Vital Farms’ current financial year sales suggests growth of 29.4% from the year-ago reported figure.
The Kraft Heinz Company KHC, a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current financial year sales and earnings suggests growth of 1% and 6.5%, respectively, from the year-ago reported numbers.
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