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Tyson Foods (TSN) Benefits From Capacity Expansion, High Demand

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Tyson Foods, Inc. (TSN - Free Report) benefits from its focus on protein-packed brands and capacity-expansion efforts. The company continues to gain from robust demand in its retail core business lines. The ongoing recovery in the foodservice channel is also a driver. Apart from this, the company is impressed with its growing e-commerce channel. These factors drove Tyson Foods’ third-quarter fiscal 2022 top line, which increased year over year and beat the Zacks Consensus Estimate.

Yet, the company is not immune to inflationary headwinds and supply chain related issues. Let’s delve deeper.

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What’s Working Well for Tyson Foods?

Tyson Foods is undertaking several operational and supply chain efficiency programs to place itself better in the long run. In this regard, the company continues to accelerate digitalization via supply chain planning and execution processes to enhance customer service. Management is optimizing its plant network by adding fully cooked capacity, converting plants for value-added production, executing plant flexibility and enhancing portfolio mix. In its last earnings call, management highlighted investing in new plants and expanding existing capacity across its global network.

Presently, the company has eight plants under construction, with two envisioned to start operation during fiscal 2022 while the other six would start by the end of fiscal 2023. The incremental capacity will help the company counter capacity constraints, accelerate value-added growth and meet the rising consumer demand for protein. Management expects to invest nearly $1.9 billion in fiscal 2022, focused mainly on new capacity and automation objectives. Tyson Foods remains focused on efforts to expand into international markets as part of its strategic growth plan.

Tyson Foods remains 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. Additionally, the company 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 offering, owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics.

Considering its strong year-to-date results, management continued to expect fiscal 2022 sales in the $52-$54 billion range. For the Beef segment, the United States Department of Agriculture (“USDA”) projects domestic production to grow roughly 1% year over year in fiscal 2022. Per USDA forecasts, production in the Chicken segment will likely improve by nearly 1% in fiscal 2022. For fiscal 2022, the United States Department of Agriculture (“USDA”) projects domestic protein production (beef, pork, chicken and turkey) to be relatively in-line with fiscal 2021 levels.

Is All Rosy For Tyson Foods?

During third-quarter fiscal 2022, Tyson Foods total volumes inched down 1.9%. The downside can be attributed to supply constraints and a tough macroeconomic environment affecting consumer demand. For fiscal 2022, the company expects total volume growth to be flat year over year.

The company continued to witness increases in the cost of goods throughout the business, thanks to an increase in labor, feed ingredients, live animals and freight costs in the quarter. Tyson Foods’ quarterly gross profit in the quarter came in at $1,611 million, down from $1,620 million reported in the prior-year quarter. Gross profit, as a percentage of sales, came in at 11.9%, down from 13% reported in the year-ago quarter.

That being said, the company 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 expects to achieve $1 billion in productivity savings by the end of fiscal 2024 and more than $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline.

Shares of the Zacks Rank #3 (Hold) company have inched up 0.2% in the past year against the industry’s 6.9% decline.

Looking for Appetizing Food Bets? Check These Out

Some top-ranked stocks are The Chef's Warehouse (CHEF - Free Report) , General Mills, Inc. (GIS - Free Report) and United Natural Foods (UNFI - Free Report) .

Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chef Warehouse’s current financialyear sales suggests growth of 40.7%from the year-ago reported numbers.

United Natural Foods distributes natural, organic, specialty, produce and conventional grocery and non-food products. UNFI currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for UNFI’s current financial year sales suggests 7.6% growth from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 29.9%, on average.

General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank of 2. GIS has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for General Mills’ current financial year sales and earnings per share suggests growth of almost 2% and 1.5%, respectively, from the corresponding year-ago reported figures.

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