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Tyson (TSN) Up 7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Tyson Foods (TSN - Free Report) . Shares have added about 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 Q4 Earnings & Sales Top Estimates, Rise Y/Y

Tyson Foods posted solid fourth-quarter fiscal 2020 results. Adjusted earnings came in at $1.81 per share, which beat the Zacks Consensus Estimate of $1.15. Moreover, the bottom line surged 50% year over year.

Total sales advanced 5.3% to $11,460 million, including volume gains of 5.9% and an adverse impact of 0.6% from average price change. Also, the top line surpassed the Zacks Consensus Estimate of $11,110 million.

Gross profit in the quarter came in at $1,610 million, up 41.4% from the prior-year quarter’s levels.  Tyson Foods’ adjusted operating income soared 40% to $961 million. During the quarter, the company incurred $200 million as direct incremental expenses associated with COVID-19, which put pressure on results to an extent. Additional COVID-19 costs amounted to $540 million for fiscal 2020. These include escalated costs related to workers’ health and production facility downtime, such as personal protection equipment, sanitization of production facilities, testing for coronavirus and product downgrades to name some. Apart from these, certain indirect COVID-19 costs like raw materials, transportation, underutilization and reconfiguration of plant, premiums offered to cattle producers and discounts on pricing dented results.

Segment Details

Beef: Sales in the segment increased 10.6% to $4,272 million. Sales volume rose 11.8% year over year, whereas average sales price declined 1.2% due to higher availability of live cattle supply along with reduced cost of livestock.

Pork: Sales in the segment jumped 8.7% year over year to $1,368 million. Sales volume rose 15.2% year over year due to solid demand and higher availability of live hogs. Average sales price dropped 6.4% owing to lower livestock cost.

Chicken: Sales in the segment inched down 0.4% to $3,433 million. Sales volume climbed 1.9% but average sales price declined 2.3% due to weak chicken prices stemming from tough market conditions.

Prepared Foods: Sales in the segment rose 5.8% to $2,277 million. Prepared Foods’ sales volume rose 1.6% and average sales price increased 4.2% on account of favorable product mix related to higher retail demand.

International/Other: Sales in the segment were $491 million, down 4.3% year over year. Sales volume dipped 3.5% and average sales price slipped 1%.

Other Financial Updates

The company exited the quarter with cash and cash equivalents of $1,420 million, long-term debt of $10,791 million and total shareholders’ equity (including noncontrolling interests) of $15,597 million. In fiscal 2020, cash provided by operating activities was $3,874 million.

Total liquidity was about $3.2 billion as of Oct 3, 2020. Management expects its liquidity to remain more than the company’s minimum target of $1 billion. Management projects capital expenditures to be nearly $1.2-$1.4 billion for fiscal 2021. Additionally, the company raised its quarterly dividend to 44.5 cents on Class A shares and 40.05 cents for Class B shares, which took effect from Nov 13. The raised dividend is payable on Dec 15 to shareholders of record as on Dec 1. This takes the annual dividend rate for fiscal 2021 to $1.78 for Class A shares and $1.602 for Class B, reflecting a 6% hike from fiscal 2020 levels.

Outlook

For fiscal 2021, USDA expects domestic protein production (chicken, beef, pork and turkey) to rise about 1% year over year. On an adjusted basis, the company expects Beef and Pork units to remain sturdy, while the Chicken and Prepared Foods segments are also expected to strengthen year over year in fiscal 2021. Management anticipates sales to be $42-$44 billion in fiscal 2021.

Tyson Foods expects food and protein demand to shift among different sales networks and witness short-term hiccups amid the pandemic. Nonetheless, worldwide demand is expected to keep increasing. The company is battling several hurdles related to the pandemic, which are expected to elevate operating costs and put pressure volumes in fiscal 2021. While the company is unable to forecast the impacts of COVID-19 on its short- and long-term demand, management stated that it is well placed in terms of liquidity to run its business and meet obligations.

In the Beef segment, USDA projects domestic production to grow about 2% in fiscal 2021. In the fiscal, management anticipates adequate supplies in the markets where its plans operate.  For Pork, domestic production growth is likely to be flat to up slightly, per the USDA. Further, USDA forecasts domestic production in the Chicken segment to be flat to a slight increase from the fiscal 2020 level. For the Prepared Foods segment, the company continues to focus on responding to the changing consumer behavior as it goes into fiscal 2021. Finally, the company expects better results from its operations in the International/Other segment.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -6.8% due to these changes.

VGM Scores

At this time, Tyson has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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