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Tyson Foods Protein Production to Gain From Keystone Deal
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Tyson Foods, Inc. (TSN - Free Report) is looking to expand its protein-packed offerings, as is evident from the past buyouts and the latest move to acquire Keystone Foods business. The transaction, worth around $2.16 billion, is expected to be completed in mid-fiscal 2019 and is subject to certain customary closing conditions and regulatory approvals.
Benefits From the Deal
Keystone supplies beef, pork, chicken and fish to quick service restaurants, convenience stores and retail channels across the globe. In fact, the company is a major supplier of McDonald's Corporation (MCD - Free Report) . Further, some of Keystone’s value-added products include beef patties, chicken nuggets, wings and tenders as well as breaded fish fillets. With such a broad array of meat and chicken products, Keystone is undoubtedly a remarkable inclusion to Tyson Foods’ portfolio. Further, through this buyout, the company will be able to procure six processing facilities and an innovation center, located in the United States. The takeover will benefit the company with three additional innovation centers and eight plants located across South Korea, China, Thailand, Australia and Malaysia. These are likely to bolster Tyson Foods’ international presence with improved sales as well as distribution network in growth markets and also strengthen exports to key markets in Europe, Middle East and Africa.
Tyson Foods plans to fund this deal through a combination of existing liquidity and new debt. Excluding certain costs, management expects the buyout to be accretive to adjusted earnings per share in the first year. By the third year, the company expects to generate synergies close to $50 million from this deal.
Bolstering Protein Offerings: A Lucrative Growth Strategy
Well, Tyson Foods’ growing appetite for protein-rich products has propelled the company to strike new deals to augment offerings. Such a strategy is well suited for meeting the rising demand for protein-rich products. In fact, the company has been venturing into alternative sources for meat and protein products, evident from the buyouts of Beyond Meat and Memphis Meats.
Apart from this, the company has been steadily expanding fresh prepared foods offering, owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics. Such efforts combined with the acquisition of AdvancePierre and Original Philly reflects on the company’s focus on augmenting protein-rich food products. Driven by fruitful buyouts, the Beef and Prepared Foods segments have been depicting a solid performance since the past few quarters.
Apart from making investments and buyouts, Tyson Foods also undertakes strategic divestitures to increase focus on the expanding protein-rich space. This is evident from the company’s recent deal to offload the pizza crust business. Also, in this regard, the company recently concluded the sale of Sara Lee Frozen Bakery and Van’s businesses to Kohlberg & Company.
Market Volatility is a Concern
Although Tyson Foods well-chalked efforts has been yielding, there are certain concerns that can’t easily be ignored. During the third quarter of fiscal 2018, this Zacks Rank #4 (Sell) company witnessed sluggish volumes in the Chicken and Pork segments, due to lower demand. Going ahead, management expects such volatile conditions to persist and affect the Pork and Chicken segments. In fact, management expects domestic and export prices of chicken and pork to be negatively impacted by increased tariff rates in 2018, which also compelled the company to narrow earnings projection for fiscal 2018. This also seems to have hurt investors’ sentiments. Evidently, shares of Tyson Foods have lost 15.1% in the past six months compared with the industry’s decline of 6.3%.
Nevertheless, we believe that Tyson Foods’ strategic moves in the protein-rich space position it well for the long term. Markedly, for fiscal 2018, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 3% year over year. Further, we expect the recent buyout of Keystone will tap growth prospects in the protein food products space.
The Chefs' Warehouse, Inc (CHEF - Free Report) , with long-term earnings per share growth rate of 22%, also carries a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
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Tyson Foods Protein Production to Gain From Keystone Deal
Tyson Foods, Inc. (TSN - Free Report) is looking to expand its protein-packed offerings, as is evident from the past buyouts and the latest move to acquire Keystone Foods business. The transaction, worth around $2.16 billion, is expected to be completed in mid-fiscal 2019 and is subject to certain customary closing conditions and regulatory approvals.
Benefits From the Deal
Keystone supplies beef, pork, chicken and fish to quick service restaurants, convenience stores and retail channels across the globe. In fact, the company is a major supplier of McDonald's Corporation (MCD - Free Report) . Further, some of Keystone’s value-added products include beef patties, chicken nuggets, wings and tenders as well as breaded fish fillets. With such a broad array of meat and chicken products, Keystone is undoubtedly a remarkable inclusion to Tyson Foods’ portfolio. Further, through this buyout, the company will be able to procure six processing facilities and an innovation center, located in the United States. The takeover will benefit the company with three additional innovation centers and eight plants located across South Korea, China, Thailand, Australia and Malaysia. These are likely to bolster Tyson Foods’ international presence with improved sales as well as distribution network in growth markets and also strengthen exports to key markets in Europe, Middle East and Africa.
Tyson Foods plans to fund this deal through a combination of existing liquidity and new debt. Excluding certain costs, management expects the buyout to be accretive to adjusted earnings per share in the first year. By the third year, the company expects to generate synergies close to $50 million from this deal.
Bolstering Protein Offerings: A Lucrative Growth Strategy
Well, Tyson Foods’ growing appetite for protein-rich products has propelled the company to strike new deals to augment offerings. Such a strategy is well suited for meeting the rising demand for protein-rich products. In fact, the company has been venturing into alternative sources for meat and protein products, evident from the buyouts of Beyond Meat and Memphis Meats.
Apart from this, the company has been steadily expanding fresh prepared foods offering, owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics. Such efforts combined with the acquisition of AdvancePierre and Original Philly reflects on the company’s focus on augmenting protein-rich food products. Driven by fruitful buyouts, the Beef and Prepared Foods segments have been depicting a solid performance since the past few quarters.
Apart from making investments and buyouts, Tyson Foods also undertakes strategic divestitures to increase focus on the expanding protein-rich space. This is evident from the company’s recent deal to offload the pizza crust business. Also, in this regard, the company recently concluded the sale of Sara Lee Frozen Bakery and Van’s businesses to Kohlberg & Company.
Market Volatility is a Concern
Although Tyson Foods well-chalked efforts has been yielding, there are certain concerns that can’t easily be ignored. During the third quarter of fiscal 2018, this Zacks Rank #4 (Sell) company witnessed sluggish volumes in the Chicken and Pork segments, due to lower demand. Going ahead, management expects such volatile conditions to persist and affect the Pork and Chicken segments. In fact, management expects domestic and export prices of chicken and pork to be negatively impacted by increased tariff rates in 2018, which also compelled the company to narrow earnings projection for fiscal 2018. This also seems to have hurt investors’ sentiments. Evidently, shares of Tyson Foods have lost 15.1% in the past six months compared with the industry’s decline of 6.3%.
Nevertheless, we believe that Tyson Foods’ strategic moves in the protein-rich space position it well for the long term. Markedly, for fiscal 2018, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 3% year over year. Further, we expect the recent buyout of Keystone will tap growth prospects in the protein food products space.
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The Chefs' Warehouse, Inc (CHEF - Free Report) , with long-term earnings per share growth rate of 22%, also carries a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>