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Tyson Foods (TSN) Gains on Solid Brands & Capacity Expansion

Tyson Foods, Inc. TSN benefits from strategic growth efforts, including focus on protein-packed brands and capacity expansion endeavors. The company’s retail core business lines are delivering solid performance. Continued recovery in the foodservice channel is also a driver. Yet, the well-known leader in protein is not immune to inflationary pressure.

Let’s delve deeper.

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What’s Working Well for Tyson Foods?

Tyson Foods is undertaking several operational and supply-chain efficiency programs to position itself for the long run. The company is investing in capacity expansion and automation technology investments. Tyson Foods recently announced its strategic partnership with Tanmiah Food Company (Tanmiah) — a leading Middle East provider of fresh and processed poultry, other processed meat products, animal feed and health products. Per the agreement, Tyson Foods will acquire a 15% equity stake in Tanmiah subsidiary Agriculture Development Company (ADC) and a 60% equity stake in Supreme Foods Processing Company. These acquisitions will enable Tyson Foods to access poultry supplies across Saudi Arabia to cater to the rising protein demand in the Middle East and other markets. In its last earnings call, management highlighted that it is on track with the construction of the new plants. Adding new capacity will help the company address constraints and meet the growing protein demand in all segments. Apart from the new sites, the company has been upgrading capacity when required.

Tyson Foods boasts a rich portfolio of protein-packed brands, growing rapidly across the globe. The company’s diverse protein portfolio, omnichannel capabilities, solid brands and value-added products contributed to the upside in the second quarter of fiscal 2022. Tyson Foods’ retail core business lines, including well-known brands like Tyson, Jimmy Dean, Hillshire Farm and Ball Park, delivered solid share performance. Management has undertaken divestiture of non-protein businesses to focus on the growing protein-packed food arena.

TSN has been steadily expanding its fresh prepared foods offerings, owing to consumers’ rising demand for natural fresh meat offerings without added hormones or antibiotics. Another area of focus for Tyson Foods has been its e-commerce business, as consumers are shifting to online shopping. It benefits from brand strength, innovations, robust geographical reach and the ability to leverage manufacturing capabilities and cater to evolving global demand.

Will Cost Hurdles be Countered?

Tyson Foods has been battling escalated cost inflation for a while. In its last earnings call, management highlighted that every part of its business had borne the brunt of inflation. It saw increased costs across the supply chain for all inputs, including feed ingredients, live animals and other raw materials like cooking oils and basic supplies. The company is also grappling with increased labor and transportation costs owing to increased demand, fuel costs and limited availability. Apart from this, Tyson Foods has been grappling with rising selling, general and administrative expenses for a while now.

That said, management is constantly trying to improve cost structure and achieve operational improvements and customer service. Management launched a new productivity program to drive a better, faster and more agile organization from fiscal 2022. The company anticipates achieving $1 billion in productivity savings by the end of fiscal 2024 and more than $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline.

Shares of the Zacks Rank #3 (Hold) company have increased 16.2% in the past year against the industry’s 3.1% decline.

Looking for Better-Ranked Food Bets? Check These

Some better-ranked stocks are Sysco Corporation SYY, Medifast MED and Campbell Soup CPB.

Sysco, which engages in marketing and distributing various food and related products, carries a Zacks Rank #2 (Buy). SYY has a trailing four-quarter earnings surprise of 9.1%, on average. You can see the complete list of today’s Zacks #1 Rank(Strong Buy) stocks here.

The Zacks Consensus Estimate for Sysco’s current financial year sales and earnings per share (EPS) suggests growth of 32.5% and 124.3%, respectively, from the year-ago reported number

Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2. MED has a trailing four-quarter earnings surprise of 12.9%, on average.

The Zacks Consensus Estimate for Medifast’s current financial year sales and EPS suggests growth of almost 19% and 13.4%, respectively, from the year-ago reported figure.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2. Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for CPB’s current financial year sales suggests growth of 0.5% from the year-ago reported figure.

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