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Tyson Foods (TSN) Q1 Earnings Top Estimates, Revenues Down Y/Y

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Zacks Equity Research
·6 min read
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Tyson Foods, Inc. TSN posted first-quarter fiscal 2021 results, with the top line declining year over year and missing the Zacks Consensus Estimate. Nevertheless, the bottom line increased year on year and surpassed the consensus mark.

The company’s performance in the reported quarter was affected by lower revenues in the Chicken and Prepared Foods units. Also volumes were dismal across most segments. Going ahead, the company is cautious regarding the hurdles related to the pandemic. Nevertheless, it continues to focus on its long-term strategy and is well placed to fuel growth.

We note that shares of the company have gained 6.2% in the past three months compared with the industry’s rise of 9%.

Quarter in Detail

Adjusted earnings came in at $1.94 per share, which beat the Zacks Consensus Estimate of $1.58. Moreover, the bottom line surged 28% year over year.

Total sales declined 3.3% to $10,460 million. The top line missed the Zacks Consensus Estimate of $11,077 million. Gains from average price change were 4.2%, while total volume declined 4.4%.

Gross profit in the quarter came in at $1,177 million, down 18.3% from the prior-year quarter’s levels. Tyson Foods’ adjusted operating income soared 24% to $1,025 million. Moreover, adjusted operating margin expanded 190 basis points to 9.5%

During the quarter, the company incurred $120 million as direct incremental expenses associated with COVID-19, which put pressure on results to an extent. These include team member costs, production facility sanitization, testing for coronavirus, donations, product downgrades, rendered product and professional fees. Apart from these, indirect COVID-19 costs included expenses associated with raw materials, transportation, underutilization and reconfiguration of plant, premiums offered to cattle producers and discounts on pricing.

Segment Details

Beef: Sales in the segment increased 3.9% to $3,987 million. Sales volume rose 5.6% year over year primarily due to sturdy domestic and export demand. Average sales price declined 1.7% due to higher availability of live cattle.

Pork: Sales in the segment improved 4.4% year over year to $1,439 million. Sales volume declined 3% year over year due to temporary inactiveness of a production facility for a portion of the quarter due to mechanical malfunction. Average sales price increased 7.4% owing to strong demand conditions.

Chicken: Sales in the segment declined 14% to $2,831 million. Sales volume fell 7% due to reduced production throughput along with COVID-19 impacts. Average sales price improved 2.7% due to favorable sales mix and retail market conditions.

Prepared Foods: Sales in the segment dropped 1.3% to $2,113 million. Prepared Foods’ sales volume declined 8.8% due to reduction in the foodservice channel stemming from reduced demand and lower production throughput due to the impact of COVID-19. Average sales price increased 7.5% on account of favorable product mix and pass through of higher raw material costs.

International/Other: Sales in the segment were $469 million, down 5.8% year over year. Sales volume dipped 6.8%, while average sales price inched-up 1%.

Tyson Foods, Inc. Price, Consensus and EPS Surprise

Tyson Foods, Inc. Price, Consensus and EPS Surprise
Tyson Foods, Inc. Price, Consensus and EPS Surprise

Tyson Foods, Inc. price-consensus-eps-surprise-chart | Tyson Foods, Inc. Quote

Other Financial Updates

The company exited the quarter with cash and cash equivalents of $2,406 million, long-term debt of $10,791 million and total shareholders’ equity (including non-controlling interests) of $15,781 million. In the first three months of fiscal 2021, cash provided by operating activities amounted to $1,385 million.

Total liquidity was about $4.2 billion as of Jan 2, 2021. Management expects its liquidity to remain more than the company’s minimum target of $1 billion. The company projects capital expenditures to be nearly $1.3-$1.5 billion for fiscal 2021. In February 2021, the company repaid $750 million of its outstanding term loan worth $1.5 billion.

Outlook

For fiscal 2021, USDA expects domestic protein production (chicken, beef, pork and turkey) to remain flat compared with fiscal 2020 levels. On an adjusted basis, the company expects its Prepared Foods unit to improve in fiscal 2021, year on year. The Pork segment is expected to remain strong, but at a lower level than in fiscal 2020. Moreover, the Beef segment is expected to deliver similar or marginally lower performance in fiscal 2021 compared with fiscal 2020 levels. However the Chicken unit is likely to deliver lower results in fiscal 2021. Management continues to anticipate sales in the bracket of $42-$44 billion in fiscal 2021.

Tyson Foods expects food and protein demand to shift among different sales networks and witness short-term hiccups amid the pandemic. Nonetheless, worldwide demand is expected to keep increasing. The company is facing several hurdles related to the pandemic, which are expected to elevate operating costs and put pressure on volumes in fiscal 2021.

While the company is unable to forecast the impacts of COVID-19 on its short- and long-term demand, management stated that it is well placed in terms of liquidity to run its business and meet obligations.

Segment-Wise Guidance for Fiscal 2021

For the Beef segment, USDA projects domestic production to increase in the range of 1-2% in fiscal 2021. For Pork, domestic production growth is likely to be up 1%, per the USDA. Further, USDA forecasts domestic production in the Chicken segment to be slightly lower in fiscal 2021, as compared to fiscal 2020.

For the Prepared Foods segment, the company continues to focus on responding to the changing consumer behavior and rising costs. Finally, the company expects better results from its operations in the International/Other segment.

Looking for Food Stocks? Check These

Sanderson Farms, Inc. SAFM, flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 48.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pilgrims Pride Corporation PPC, has a long-term earnings growth rate of 5.6% and a Zacks Rank #2 (Buy).

The Hain Celestial Group, Inc. HAIN, also with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 26.7%, on average.

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