A month has gone by since the last earnings report for Tyson Foods (TSN). Shares have added about 9.7% 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 Q3 Earnings Meet Estimates, Sales Up Y/Y
Tyson Foods posted third-quarter fiscal 2019 results, with earnings meeting the Zacks Consensus Estimate and sales missing the same. Also, the bottom line declined year over year. Nevertheless, the top line increased from the prior-year quarter’s tally on the back of improved sales volumes across most segments. Further, management reinstated its view for fiscal 2019 and provided sales outlook for fiscal 2020.
Q3 in Details
Adjusted earnings for the reported quarter were $1.47 per share, in line with the Zacks Consensus Estimate. The bottom line declined 2% year over year.
Net sales improved nearly 8.3% to $10,885 million. However, the top line missed the Zacks Consensus Estimate of $11,108 million.
Sales volume increased 11.8% during the quarter while average sales price fell 3.5%.
Gross profit for the fiscal third quarter came in at $1,336 million, up nearly 2.8% from the prior-year quarter’s figure. However, gross margin contracted 60 basis points (bps) to 12.3%.
Tyson Foods' adjusted operating income dipped nearly 1.8% to $796 million. Also, adjusted operating margin for the period was 7.3%, down 80 bps.
Beef: Sales in the segment increased 4.1% to $4,157 million. Sales volume rose 1.8% year over year, driven by improved cattle supply and demand conditions. Average sales price rose 2.3% on robust demand for beef products. Adjusted operating income declined 15% to $271 million and adjusted operating margin contracted 150 bps to 6.5% during the quarter.
Pork: Sales in the segment increased 10.5% to $1,323 million. The segment’s sales volume increased 3.1% year over year, owing to higher supply of hogs. Average sales price improved 7.4% on higher livestock costs. Adjusted operating income in the segment amounted to $42 million, down 37.3% from the prior-year quarter’s figure. Adjusted operating margin fell 240 bps to 3.2%.
Chicken: Sales in the segment rose 12% to $3,331 million. Sales volume improved 23.4% year over year owing to incremental volume stemming from acquisitions. Average sales price in the quarter declined 11.4% courtesy of unfavorable sales mix. Further, adjusted operating income increased almost 21% to $237 million while adjusted operating margin expanded 50 bps to 7.1% during the quarter.
Prepared Foods: Sales in the segment declined nearly 2% to $ 2,089 million. Prepared Foods’ sales volume contracted 7.4% on business divestitures. Average sales price increased 5.4%, owing to favorable product mix. Adjusted operating income declined nearly 3.2% to $236 million in the quarter. Adjusted operating margin contracted 10 bps to 11.3%.
Other: Sales in the segment were $356 million, depicting significant growth from $75 million reported in the prior-year quarter. Sales volume and average selling price improved remarkably.
Other Financial Updates
Tyson Foods exited the quarter with cash and cash equivalents of $406 million, long-term debt of $10,461 million and shareholders’ equity of $14,141 million.
The company generated cash provided by operating activities of $1,535 million for the first nine months of fiscal 2019. Further, management projects capital expenditure to be approximately $1.3 billion for fiscal 2019 and for fiscal 2020, respectively.
Management reiterated its sales and earning view for fiscal 2019. It continues to expect the top line to rise $43 billion year over year, supported by volume growth, mix and gains from acquisition of Keystone as well as Thai and European operations of BRF S.A. Further, the company continues to anticipate adjusted earnings per share in the range of $5.75-$6.10 in fiscal 2019.
Further, the company provided sales estimates for fiscal 2020. Sales for the fiscal are expected in the band of $45-46 billion, indicating an increase nearly 6-7%. Management expects a favorable export environment to persist for each of its segments in fiscal 2020.
Additionally, Tyson Foods expects demand for protein to rise consistently and is well positioned to exploit all opportunities in the space. For fiscal 2020, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 2% year over year. A greater portion of the upside is likely to be absorbed by export markets.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Tyson has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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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