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Tyson (TSN) Up 4.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Is (ENPH) Outperforming Other Oils-Energy Stocks This Year?

A month has gone by since the last earnings report for Tyson Foods (TSN). Shares have added about 4.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tyson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Tyson Foods Q1 Earnings Beat Estimates, Sales Miss

Tyson Foods, came out with its first-quarter fiscal 2019 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while the top line lagged the same. However, both the metrics declined year over year.

Q1 Details

Adjusted earnings for the quarter came in at $1.58 per share that surpassed the Zacks Consensus Estimate of $1.55. The bottom line also declined 13% year over year. Further, the company retained its earnings projection for fiscal 2019.

Net sales declined 0.4% to $10,193 million and missed the Zacks Consensus Estimate of $10,360 million. Sales volume increased 3.3% during the quarter, while average sales price went down 3.7%.

Gross profit for the fiscal first quarter came in at $1,355 million, down nearly 6.1% from the prior-year quarter’s figure. Nevertheless, gross margin contracted 80 basis points (bps) to 13.3%.

Tyson Foods' adjusted operating income declined nearly 11% to $841 million. Also, adjusted operating margin for the period came in at 8.3%, down 90 bps.

Segment Details

Chicken: Sales in the segment rose 3.9% to $3,115 million. Sales volume improved 17% year over year, owing to incremental volumes stemming from acquisitions. Average sales price in the quarter decreased 13.1%, courtesy of change in sales mix. Further, adjusted operating income tumbled 38.4% to $173 million, while adjusted operating margin contracted 380 bps to 5.6% during the quarter.

Beef: Sales in the segment increased 1% to $3,926 million. Sales volume declined 0.9% year over year, owing to reduction in live cattle processed. However, average sales price rose 1.9% on robust demand for beef products and higher exports. Further, adjusted operating income improved 18.7% to $305 million, while adjusted operating margin expanded 120 bps to 7.8% during the quarter.

Pork: Sales in the segment declined 8.1% to $1,179 million. The segment’s sales volume decreased 3.6% year over year, owing to the company’s efforts to balance supply with consumers’ demand. Average sales price also fell 4.6% on reduced livestock expenses. Adjusted operating income in the segment was $95 million, down 37.5% from the prior-year quarter’s figure. Adjusted operating margin contracted 370 bps to 8.1%.

Prepared Foods: Sales in the segment fell nearly 6.2% to $2,149 million. Prepared Foods’ sales volume contracted 12.9% on business divestitures. Average sales price increased 6.7%, owing to favorable product mix stemming from acquisitions. Adjusted operating income remained flat year over year at $268 million in the quarter. Adjusted operating margin expanded 80 bps to 12.5%.

Other: Sales in the segment were $143 million, up 62.5% year over year. Sales volume increased 7.3%, while average selling price in the segment surged 56.5%.

Other Financial Updates

Tyson Foods exited the quarter with cash and cash equivalents of $400 million, long-term debt of $8,075 million and shareholders’ equity of $13,259 million.

The company generated cash provided by operating activities of $868 million in the reported quarter. Further, management still projects capital expenditure to be approximately $1.5 billion for fiscal 2019. Additionally, for fiscal 2020, capital expenditure is anticipated to be $1.1-$1.3 billion.

Business Developments

The company completed the buyout of Keystone Foods from Marfrig Global Foods on Nov 30, 2018. Per the deal, Tyson Foods paid $2.3 billion in cash.

Also, Tyson Foods announced to acquire BRF S.A.’s Thai and European operations in a deal worth $340 million. The deal is anticipated to close by third-quarter fiscal 2019, subject to customary closing conditions.

Per the deal, the company will takeover four processing facilities in Thailand, one processing facility in the Netherlands and one processing facility in the United Kingdom. This move will enable the company to expand its value-added protein product offerings. The current guidance doesn’t include any impact from this acquisition.

Guidance

Although Tyson Foods witnessed soft sales in the reported quarter, the company expects demand for protein to rise consistently and is well positioned to exploit all opportunities in the space. For fiscal 2019, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 3% year over year.

The company expects sales in fiscal 2019 to reach nearly $43 billion, backed by higher volumes and mix coupled with impact of Keystone acquisition. The company continues to anticipate adjusted earnings per share (EPS) of $5.75-$6.10 in fiscal 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.63% due to these changes.

VGM Scores

At this time, Tyson has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Tyson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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