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Can Tyson's (TSN) Q3 Earnings Help Continue Its Stellar Year?

Zachary Stutler

Tyson TSN is set to report its Q3 2019 (Tyson ends its fiscal year after September) earnings results before market open on Monday, August 5. YTD, the stock has gained over 51%, significantly outperforming both the S&P 500 and the meats product market which have gained 16.4% and 27.4%, respectively.

Overview & Fundamentals

Based in Arkansas, Tyson Inc. is the second largest meat processor in the world as of 2018. Tyson sells its meat through its own brand and multiple other popular brands such as Jimmy Dean, Hillshire Farm, Sara Lee, and Ball Park.

Along with selling its meats in retail stores such as Walmart WMT and Kroger KR, Tyson also sells its offerings to chain restaurants such as KFC and Taco Bell, which are owned by Yum! Brands YUM, as well as McDonalds MCD. Tyson also recently began its efforts to enter the alternative meat market.

Tyson was an early investor in Beyond Meat BYND, but sold its stake earlier this year in order to focus on its own alternative meat products. In June, Tyson announced it would roll out its Raised and Rooted brand, which featured plant-based nuggets and “blended burgers.” Although the products have yet to go on sale, Tyson may offer investors more information on the products and future alternative meat ideas.

TSN currently trades with a forward P/E of 12.61, significantly below its industry average of 15.68. This suggests that Tyson stock is relatively undervalued based on TSN’s impressive 2019 run and signals that its earnings outlook is headed in the right direction.

Q3 Outlook & Earnings Trends

Q3 revenue is expected to grow 10.51% from the year-ago period to $11.11 billion, according to our Zacks Consensus Estimate. Last quarter, Tyson posted revenue of $10.443 billion, for a 6.9% jump. Tyson’s revenues have continuously grown since 2007, and the company is not expected to stop anytime soon.

Tyson is expected to post total fiscal 2019 revenue of $42.90 billion, which would represent over 7% growth. An additional 5.92% growth is expected in fiscal 2020. This revenue growth could be even better if its alternative meat products end up being very successful.

In Q3, our Key Company Metrics call for Tyson’s chicken sales to increase over 26%, a huge jump for its second-biggest revenue stream. Tyson’s largest revenue stream, beef, is also expected to grow its revenue, although the 2% growth that is expected is significantly less than that of chicken. Overall, beef and chicken sales account for over 65% of Tyson’s total revenue.

Meanwhile, earnings are expected to decline by 2% this quarter and a total of 3% for fiscal 2019, giving quarterly and annual EPS of $1.47 and $5.97, respectively. Although earnings are expected to decline slightly this year, EPS is expected to rebound 9% in fiscal 2020, reaching $6.55, based on analyst predictions.

Bottom Line

As seen with the craze around Beyond Meat and Impossible Foods, alternative meats are trending right now and Tyson’s expansion into the market could prove to be a huge success and help the stock significantly. That being said, there is a little while before that is relevant to its financials, so investors should primarily keep an eye on Tyson’s top and bottom lines, as well as any updated guidance for the full fiscal year. If Tyson can continue to expand its revenues, its bottom line should catch up in terms of growth sooner or later.

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Tyson Foods, Inc. (TSN) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
McDonald's Corporation (MCD) : Free Stock Analysis Report
Yum! Brands, Inc. (YUM) : Free Stock Analysis Report
The Kroger Co. (KR) : Free Stock Analysis Report
Beyond Meat, Inc. (BYND) : Free Stock Analysis Report
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