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Tyson Foods (TSN) Rallies More than 20% YTD: Will Momentum Stay?

·5 min read

Tyson Foods, Inc. TSN is gaining on rising demand in its retail channel, thanks to increased at-home consumption amid the pandemic. Moreover, the company’s solid e-commerce business coupled with focus on protein-packed brands is working favorably.

The stock has rallied 20.1% so far this year compared with the industry’s rise of 13.2%. Let’s discuss further.

Pandemic-Led Demand

Tyson Foods continued to see robust growth in the retail business amid the pandemic, while its foodservice business saw rebound in second-quarter fiscal 2021. The company delivered growth in the retail channel across all segments in the quarter. Notably, retail contributed $700 million to overall sales improvement during the first half and more than $260 million in the fiscal second quarter. In fact, strong retail sales were an upside to the company’s overall quarterly results, with the top and the bottom line increasing year over year and surpassing the Zacks Consensus Estimate.

In the second half of the year, the company expects to witness elevated demand in retail with volumes continuing to surpass pre-pandemic levels in Prepared Foods. Also, management anticipates seeing sequential improvement in foodservice in the second half. To this end, away-from-home traffic is increasing sequentially owing to vaccine rollouts and improvement in consumer mobility.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Other Factors Working Well for Tyson Foods

Tyson Foods’ e-commerce channel is performing well as consumers continue to rely on low or no contact buying methods amid the pandemic. Management, in its last earnings call, highlighted that e-commerce sales have surged 105% year on year during the last 13 weeks. During that time, the company generated nearly $425 million worth revenues through its online channel partners. Apart from this, Tyson Foods is benefiting from its brand strength, innovations, robust geographical reach and ability to leverage its manufacturing capabilities and cater well to the evolving global demand.

Incidentally, Tyson Foods is focused on higher protein production to cater to the rising demand for protein-packed food. For fiscal 2021, USDA expects domestic protein production (chicken, beef, pork and turkey) to improve less than 1% compared with fiscal 2020 levels. For the Beef segment, USDA projects domestic production to increase nearly 3% in fiscal 2021. Given continued strength in the Beef segment along with gradual rebound in foodservice the company is raising its sales guidance fiscal 2021. Management now anticipates sales in the bracket of $44-$46 billion in fiscal 2021 compared with the earlier guidance of $42-$44 million.

Well, Tyson Foods boasts a rich portfolio of protein-packed brands that are growing rapidly across the globe. Additionally, the company has undertaken divesture of non-protein businesses (such as Sara Lee Frozen Bakery, Kettle and Van’s) to focus on the growing protein-packed food arena. Apart from this, the company has been 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, Tyson Foods’ buyout of Tecumseh (June 2018) is quite noteworthy. Additionally, Tyson Foods has been venturing into alternative sources for meat and protein products. Recently, Tyson Foods announced that it is rolling out a range of plant-based products in chosen retail markets and digital platforms in Asia Pacific under First Pride brand. In January 2021, the company launched new alternative protein offerings under the Jimmy Dean Label.

Wrapping Up

Tyson Foods has been encountering hurdles related to coronavirus. During the second quarter of fiscal 2021, total volumes declined 3.7% year over year. The downside was mainly caused by pandemic-induced production inefficiencies. Further, severe winter weather during the quarter affected volumes negatively. Apart from this, Tyson Foods incurred nearly $95 million as direct incremental expenses associated with COVID-19. This put pressure on results, to an extent, in the quarter. These include team member costs, production facility sanitization and testing for coronavirus among others. In fact, management expects expenses associated with COVID-19 worth nearly $365 million in fiscal 2021.

Nevertheless, we believe that the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company keep its growth story alive.

Looking for Better-Ranked Food Bets? Check These

Medifast, Inc. MED, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darling Ingredients Inc. DAR, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 29.8%, on average.

Nomad Foods Limited NOMD, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 10.3%, on average.

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