Why Is Tyson (TSN) Down 1.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Tyson Foods (TSN). Shares have lost about 1.4% 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 catalysts.

Tyson Foods Q2 Earnings Top Estimates, Sales Up Y/Y

Tyson Foods' second-quarter fiscal 2021 adjusted earnings came in at $1.34 per share, which beat the Zacks Consensus Estimate of $1.11. Moreover, the bottom line surged 68% year over year.

Total sales came in at $11,300 million, which increased 3.8% from $10,888 million reported in the year-ago quarter. The top line surpassed the Zacks Consensus Estimate of $11,204 million. Gains from average price change were 7.5%, while total volumes declined 3.7%.

Gross profit in the quarter came in at $1,253 million, up from $1,021 million reported in the prior-year quarter. Gross profit, as a percentage of sales, came in at 11.1%, up from 9.4% reported in the year-ago quarter. Tyson Foods’ adjusted operating income soared 43% to $739 million. Moreover, adjusted operating margin expanded from 4.7% to 6.5% in the quarter.

During the quarter, the company incurred nearly $95 million as direct incremental expenses associated with COVID-19, which put pressure on results to an extent.These include team member costs, production facility sanitization, testing for coronavirus, donations, product downgrades, rendered product and professional fees. Apart from these factors, indirect COVID-19 costs included expenses associated with raw materials, transportation, underutilization and reconfiguration of plant, premiums offered to cattle producers and discounts on pricing.

Segment Details

Beef: Sales in the segment increased to $4,046 million from $3,979 million reported in the year-ago quarter. Volume declined 5.8% year over year due to lower live cattle processed stemming from impacts of severe winter weather and tough labor environment. Average sales price increased 7.5% on the back of solid beef products demand.

Pork: Sales in the segment increased to $1,477 million from $1,266 million reported in the year-ago quarter. Sales volume declined 0.5% year over year thanks to reduction in live hogs processed due to severe winter weather. Average sales price increased 17.2% owing to strong demand conditions.

Chicken: Sales in the segment increased to $3,553 million from $3,397 million reported in the year-ago quarter. Sales volume fell 3.2% due to pandemic-led reduced production throughput, disruptions associated with severe winter weather, lower hatch rate and a tough labor environment. Average sales price increased 7.8% due to favorable sales mix and market conditions.

Prepared Foods: Sales in the segment increased to $2,164 million from $2,080 million reported in the year-ago quarter. Prepared Foods’ sales volume declined 4.2% due to reduction in the foodservice channel stemming from reduced demand and lower production throughput. Average sales price increased 8.2% due to favorable product mix and pass through of higher raw material costs.

International/Other: Sales in the segment were $487 million, up from $465 million reported in the year-ago quarter. Sales volume inched up 1.2%, while average sales price increased 3.5%.

Other Financial Updates

The company exited the quarter with cash and cash equivalents of $877 million, long-term debt of $9,784 million and total shareholders’ equity (including non-controlling interests) of $16,070 million. In the first six months of fiscal 2021, cash provided by operating activities amounted to $1,349 million. Total liquidity was about $2.6 billion as of Apr 3, 2021. Management expects liquidity to remain more than the company’s minimum target of $1 billion. The company projects capital expenditures to be in the lower end of $1.3-$1.5 billion for fiscal 2021.

Outlook

For fiscal 2021, USDA expects domestic protein production (chicken, beef, pork and turkey) to improve less than 1% compared with fiscal 2020 levels. On an adjusted basis, the company expects its Prepared Foods unit to remain flat in fiscal 2021 year on year. The Pork segment is expected to remain lower than in fiscal 2020. Moreover, the Beef segment is expected to deliver better performance in fiscal 2021 compared with fiscal 2020 levels. The Chicken unit is likely to deliver lower results in fiscal 2021. Management anticipates sales in the bracket of $44-$46 billion in fiscal 2021, reflecting solid beef markets countered by rising costs.

Segment-Wise Guidance for Fiscal 2021

For the Beef segment, USDA projects domestic production to increase nearly 3% in fiscal 2021. For Pork, domestic production growth is likely to be up by less than 1%, per the USDA. Further, USDA forecasts domestic production in the Chicken segment to be slightly lower in fiscal 2021 compared with fiscal 2020 levels. For the Prepared Foods segment, the company continues to focus on responding to the changing consumer behavior and rising costs. Finally, the company expects better results from its operations in the International/Other segment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Tyson has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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