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Tyson (TSN) Down 8.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Tyson Foods (TSN). Shares have lost about 8.6% in that time frame, underperforming the S&P 500.

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

Tyson Foods Q3 Earnings Top Estimates, Sales Up Y/Y

Tyson Foods posted third-quarter fiscal 2022 results, with the top and the bottom line beating the Zacks Consensus Estimate. Earnings declined year over year while sales increased. Results gained from a focus on operational excellence and aggressive cost management. Management is impressed with its progress in the chicken business. The company remains the market share leader in various retail business lines like Tyson, Jimmy Dean, Hillshire Farm and Ball Park brands.

Quarter in Detail

Adjusted earnings came in at $1.94 per share, beating the Zacks Consensus Estimate of $1.91. However, the bottom line declined 28% year over year.

Total sales came in at $13,495 million, up 8.2% from $12,478 million reported in the year-ago quarter. The top line surpassed the Zacks Consensus Estimate of $13,307.9 million. Gains from average price change were 8.1%, while total volumes inched down 1.9%.

Gross profit in the quarter came in at $1,611 million, down from $1,620 million reported in the prior-year quarter. Gross profit, as a percentage of sales, came in at 11.9%, down from 13% reported in the year-ago quarter. Tyson Foods’ adjusted operating income decreased 27% to $998 million. Adjusted operating margin contracted to 7.4% from 10.8% reported in the year-ago quarter.

Segment Details

Beef: Sales in the segment increased to $4,959 million from $4,954 million reported in the year-ago quarter. Volume inched up 1.3% on a solid global demand environment. These were somewhat offset by a tough labor environment and ongoing supply chain constraints. The average price decreased 1.2% in the segment, led by lower demand for premium cuts of beef.

Pork: Sales in the segment decreased to $1,619 million from $1,715 million reported in the year-ago quarter. Sales volume declined 1.7%, owing to reduced global demand. The average price declined 3.9%, led by lower export and retail demand.

Chicken: Sales in the segment increased to $4,366 million from $3,476 million reported in the year-ago quarter. Sales volume fell 2.1%, mainly due to the impact of a fire at a production facility during the fourth quarter of fiscal 2021. Also, lower outside meat purchases were a downside. The average price increased 20.1% on the impacts of pricing actions undertaken amid the inflationary cost environment.

Prepared Foods: Sales in the segment rose to $2,447 million from $2,323 million reported in the year-ago quarter. Prepared Foods’ sales volume declined 8.5%, thanks to impacts of higher pricing, uneven foodservice rebound, divestiture of its pet treats business (concluded in fourth-quarter fiscal 2021) and tough supply chain conditions. The average price increased 13.8%, mainly owing to the effects of revenue management amid an inflationary cost environment.

International/Other: Sales in the segment were $602 million, up from $488 million reported in the year-ago quarter. Volume moved up 21.9%, while average sales price jumped 1.5%.

Other Financial Updates

The company exited the quarter with cash and cash equivalents of $1,056 million, long-term debt of $8,261 million and total shareholders’ equity (including non-controlling interests) of $19,489 million. In nine months ended Jul 2, 2022, cash provided by operating activities amounted to $1,890 million.

Liquidity was $3.3 billion as of Jul 2, 2022. Management expects liquidity to remain above the company’s minimum target of $1 billion. The company projects capital expenditures to be nearly $1.9 billion for fiscal 2022.

Outlook

For fiscal 2022, the United States Department of Agriculture (“USDA”) projects domestic protein production (beef, pork, chicken and turkey) to be relatively in-line with fiscal 2021 levels. Starting from fiscal 2022, management launched a new productivity program to drive a better, faster and more agile organization. The company expects to achieve $1 billion in productivity savings by the end of fiscal 2024 and more than $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline. Management is on track to achieve its fiscal 2022 productivity savings. Management anticipates sales in the $52-$54 billion range in fiscal 2022.

Segment-Wise Guidance for Fiscal 2022

For the Beef segment, USDA projects domestic production to grow roughly 1% year over year in fiscal 2022. For Pork, domestic production is projected to decline almost 3% year over year in fiscal 2022, per the USDA. Per USDA forecasts, production in the Chicken segment will likely improve by nearly 1% in fiscal 2022. For fiscal 2022, the company expects lower results from its foreign operations in the International/Other segment owing to supply chain disruptions and other COVID-19 impacts.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Tyson has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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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