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Tyson Foods (TSN) Gains on Solid Brands & Capacity-Expansion

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Tyson Foods, Inc. (TSN - Free Report) benefits from strategic growth efforts, including a focus on protein-packed brands and capacity expansion endeavors. The company’s retail core business lines, including well-known brands like Tyson, Jimmy Dean, Hillshire Farm and Ball Park, are delivering solid performance. Continued recovery in the foodservice channel is also a driver. These trends were witnessed in the second quarter of fiscal 2022, with the top and the bottom line increasing year over year and surpassing the Zacks Consensus Estimate.

Considering the solid performance in the first half of fiscal 2022, management raised its fiscal 2022 sales view. Management now anticipates sales in the $52-$54 billion in fiscal 2022. Earlier, the metric was anticipated in the upper end of $49-$51 billion in fiscal 2022.

Let’s delve deeper.

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What’s Driving Tyson Foods’ Growth?

Tyson Foods is undertaking many operational and supply chain efficiency programs to place itself better for the long run. The company is investing in capacity expansion and automation technology investments. In its last earnings call, management highlighted that it is on track with the construction of the new plants. The addition of new capacity will help the company address capacity constraints to better meet growing protein demand in all segments. Tyson Foods is ramping up utilization of its new plants in Humboldt, Eagle Mountain and Thailand. Further, management expects to commence operation for the fourth new plant in the fourth quarter of fiscal 2022. Apart from the new sites, the company upgrades capacity when required. In this regard, management has almost 10 projects planned for the fiscal third quarter, reflecting 25 million pounds of volume in Prepared Foods. The company projects capital expenditures to be nearly $2 billion for fiscal 2022.

Tyson Foods is constantly looking for ways to improve cost structure, alongside achieving operational improvements and customer service. Starting from fiscal 2022, management launched a new productivity program to drive a better, faster and more agile organization. The company is projecting to achieve $1 billion in productivity savings by the end of fiscal 2024 and over $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline. Management is on track to achieve its fiscal 2022 productivity savings.

Tyson Foods is focused on higher protein production to cater to the rising demand for protein-packed food. It boasts a rich portfolio of protein-packed brands that are growing rapidly across the globe. Management has undertaken divesture of non-protein businesses to focus more on the growing protein-packed food arena. Apart from this, the company has been steadily expanding its fresh prepared foods offerings, owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics. Another area of focus for Tyson Foods has been its e-commerce, as consumers are shifting to online shopping. It benefits from its brand strength, innovations, robust geographical reach and ability to leverage its manufacturing capabilities and cater to evolving global demand.

Is All Rosy for Tyson Foods?

During second-quarter fiscal 2022, Tyson Foods total volumes inched down 1.5%. The company witnessed adverse impacts from the Omicron surge in the quarter. Also, other labor and supply chain challenges are headwinds.

Tyson Foods has been battling escalated cost inflation for a while. In its last earnings call, management highlighted that every part of its business had borne inflation’s brunt. It saw increased costs across the supply chain for all inputs, including feed ingredients, live animals and other raw materials like cooking oils and basic supplies. The company is also grappling with an increased cost of labor and transportation owing to increased demand, fuel costs and limited availability.

Nevertheless, the aforementioned upsides will likely help the Zacks Rank #3 (Hold) company stay afloat amid such hurdles. TSN stock has increased 10% in the past six months compared with the industry’s growth of 6.7%.

3 Hot Food Stocks

Some better-ranked stocks are Pilgrim’s Pride (PPC - Free Report) , Sysco Corporation (SYY - Free Report) and Medifast (MED - Free Report) .

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). PPC has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial year earnings per share (EPS) suggests growth of 42.1% from the year-ago reported number.

Sysco, which engages in the marketing and distribution of various food and related products, sports a Zacks Rank #1. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Sysco’s current financial year sales and EPS suggests growth of 32% and 122.9%, respectively, from the year-ago reported number.

Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2 (Buy). MED has a trailing four-quarter earnings surprise of 12.9%, on average.

The Zacks Consensus Estimate for Medifast’ current financial year sales and EPS suggests growth of almost 19% and 11.5%, respectively, from the year-ago reported figure.