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Tyson Foods (TSN) Solid Brands & Capacity-Expansion Efforts Aid

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·5 min read
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Focus on protein-packed brands is working favorably for Tyson Foods, Inc. TSN. The well-known leader in protein is benefiting from capacity-expansion efforts. However, the company is battling escalated cost inflation and labor-related challenges.

Let’s delve deeper.

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Zacks Investment Research


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What’s Favoring Tyson Foods?

Tyson Foods is focused on higher protein production to cater to the rising demand for protein-packed food. For fiscal 2022, management anticipates sales in the upper end of the $49-$51 billion range. Volumes are expected to rise 2-3% year over year as the company is committed to optimizing its footprint and operating its plants at full capacity. For fiscal 2022, the United States Department of Agriculture (“USDA”) forecasts production in the Chicken segment to improve by nearly 2%.

Tyson Foods boasts a rich portfolio of protein-packed brands that are growing rapidly across the globe. To focus more on the growing protein-packed food arena, the company has undertaken the divesture of non-protein businesses (such as Sara Lee Frozen Bakery, Kettle and Van’s). TSN has been steadily expanding fresh prepared foods offering, considering consumers’ inclination toward natural fresh meat offerings without any added hormones or antibiotics. In June 2021, Tyson Foods announced the rolling out of a range of plant-based products in chosen retail markets and digital platforms in the Asia Pacific under the First Pride brand. The introduction of plant-based alternatives in the region brings Tyson Foods closer to its objective of building an impressive portfolio of plant protein brands. In January 2021, the company launched new alternative protein offerings under the Jimmy Dean Label.

Tyson Foods is undertaking several operational and supply chain efficiency programs to place itself better for the long run. In this regard, the company is investing in capacity expansion and automation technology investments. In its first-quarter fiscal 2022 earnings call, management highlighted that it is on track to open 12 new plants, which will enable it to tackle capacity constraints and growing demand for protein globally. The additional capacities include nine chicken plants, two case-ready beef and pork facilities and one bacon unit. Management expects to anticipate capital expenditures of nearly $2 billion during fiscal 2022 to support global protein demand growth.

Starting from fiscal 2022, management launched a new productivity program to make the organization better, faster and more agile. The program focuses on three critical areas — operational and functional excellence, digital solutions and automation. The company expects to achieve $1 billion in productivity savings by the end of fiscal 2024 and $300-$400 million in fiscal 2022, relative to a fiscal 2021 cost baseline.

Is All Rosy for Tyson Foods?

Tyson Foods witnessed a challenging labor environment, which continued in the first quarter of fiscal 2022. Although volumes inched up 0.3% in the quarter, the metric was impacted by a tough labor environment. In the beef segment, volumes declined 6.2% due to the challenging labor environment and escalated supply chain constraints in the quarter. Prepared Foods’ sales volume declined 2.6%, thanks to reduced production throughput stemming from tough labor and supply environment. On its last earnings call, management highlighted that labor-related challenges are also affecting the company’s ability to achieve optimal mix across the network.

In addition, Tyson Foods has been battling escalated cost inflation for a while. In its call, management highlighted that it witnessed inflation across the business in areas such as labor, grain costs, live cattle and hog costs as well as freight costs.

Nonetheless, we believe that the aforementioned upsides will likely keep the Zack Rank #3 (Hold) company going. TSN’s stock has increased 17.2% in the past six months compared with the industry’s growth of 7.1%.

3 Hot Food Bets

Some better-ranked stocks are Pilgrim’s Pride PPC, Flowers Foods FLO and McCormick & Company MKC.

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen, and value-added chicken and pork products, carries a Zacks Rank #2 (Buy). Shares of Pilgrim’s Pride have declined 9.4% in the past six months.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial year earnings per share (EPS) suggests growth of 21.9% from the year-ago reported number. PPC has a trailing four-quarter earnings surprise of 24.9%, on average.

Flowers Foods, the producer and marketer of packaged bakery products, currently carries a Zacks Rank #2. Shares of Flowers Foods have increased 5.2% in the past six months.

The Zacks Consensus Estimate for Flowers Foods’ current financial year sales and EPS suggests growth of 7.2% and 4%, respectively, from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of 9%, on average.

McCormick is one of the leading manufacturers, marketers and distributors of spices, seasonings, specialty foods and flavors. It presently carries a Zacks Rank #2. Shares of McCormickhave increased 29.3% in the past six months.

The Zacks Consensus Estimate for McCormick's current financial-year sales and EPS suggests growth of 5% and 3.9%, respectively, from the year-ago period’s reported figures. MKC has a trailing four-quarter earnings surprise of 7.3%, on average.


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Tyson Foods, Inc. (TSN) : Free Stock Analysis Report

McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report

Flowers Foods, Inc. (FLO) : Free Stock Analysis Report

Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report

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