Back to top

Image: Shutterstock

Capacity Expansions Aid Tyson Foods (TSN) Amid Rising Costs

Read MoreHide Full Article

Focus on capacity-expansion endeavors is favoring Tyson Foods, Inc. (TSN - Free Report) . The well-known leader in protein is well placed to capitalize on the rising demand for protein-packed brands. That said, Tyson Foods is not immune to rising costs and supply chain headwinds.

Let’s delve deeper.

Expansion Efforts Solid

Tyson Foods is undertaking several operational and supply chain efficiency programs to position itself better in the long run. The company continues accelerating 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.

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 is focused on efforts to expand into international markets as part of its strategic growth plan.

Zacks Investment Research
Image Source: Zacks Investment Research

Strength in Protein-Packed Brands

The Zacks Rank #3 (Hold) company focuses 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. The company has undertaken divesture of non-protein businesses to focus on the growing protein-packed food arena. TSN 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 continues 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 nearly 1% year over year in fiscal 2022. Per USDA forecasts, production in the Chicken segment will likely improve by almost 1% in fiscal 2022. For fiscal 2022, USDA projects domestic protein production (beef, pork, chicken and turkey) to be relatively in line with fiscal 2021 levels.

Will Hurdles Be Countered?

Tyson Foods 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 third quarter of fiscal 2022. 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.

Tyson Foods’ total volumes inched down 1.9% in the quarter. 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.

That said, Tyson Foods is constantly looking for ways to improve cost structure, alongside achieving operational improvements and customer service. Starting from fiscal 2022, it 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.

TSN has fallen 3.9% in the past year compared with the industry’s 7.7% decline.

Top 3 Food Bets

Some other top-ranked stocks are The Chef's Warehouse (CHEF - Free Report) , Nomad Foods (NOMD - Free Report) and Celsius Holdings (CELH - 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 financial year sales suggests growth of 40.7% from the year-ago reported numbers.

Nomad Foods, which manufactures and distributes frozen foods, currently has a Zacks Rank of 2 (Buy). NOMD has a trailing four-quarter earnings surprise of 11.2%, on average.

The Zacks Consensus Estimate for Nomad Foods’ current financial year sales suggests a decline of 2.9% from the year-ago period’s corresponding reported figures.

Celsius Holdings, which develops, processes, markets, distributes and sells functional drinks and liquid supplements, carries a Zacks Rank #2. Celsius Holdings delivered an earnings surprise of 118.8% in the last reported quarter.

The Zacks Consensus Estimate for CELH’s current financial year sales suggests growth of 97.3% from the year-ago period’s reported figures.

Published in