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Is Tyson Foods (TSN) Poised for a Beat in Q3 Earnings?

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Tyson Foods, Inc. (TSN - Free Report) is slated to report third-quarter fiscal 2017 results on Aug 7, before the opening bell. The question lingering in investors’ minds is, whether this meat processor will be able to post a positive earnings surprise again in the to-be-reported quarter. The company’s earnings have outpaced the Zacks Consensus Estimate in two of the trailing four quarters, with an average beat of 2.75%. In fact, it has posted positive earnings surprise in seven out of 13 straight quarters.

Let us see how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model shows that Tyson Foods is likely to beat earnings because it has the right combination of two key ingredients.

Zacks Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.15%. This is because the Most Accurate estimate is $1.31 per share, while the Zacks Consensus Estimate is pegged at $1.27. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Tyson Foods currently carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating estimates. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Tyson Foods’ Zacks Rank #3 and an Earnings ESP of +3.15% makes us very optimistic about a possible earnings beat.

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate for third-quarter and fiscal year 2017 have improved significantly in the last seven days. While estimates for the third quarter moved up 4.1%, it increased 2.6% for fiscal year. In fact, the current Zacks Consensus Estimate of $1.27 and $5.19 for the third quarter and fiscal 2017 reflects year-over-year growth of 5.4% and 18.2%, respectively.

Moreover, analysts polled by Zacks expect revenues of $9.48 billion for the said quarter, up 0.8% from the year-ago quarter. Also, revenues for fiscal 2017 are projected to grow 1.2% to $37.3 billion.

Tyson Foods, Inc. Price, Consensus and EPS Surprise


Tyson Foods, Inc. Price, Consensus and EPS Surprise | Tyson Foods, Inc. Quote

Factors at Play

Tyson Foods remains on track to shape its robust portfolio of food products. The company has been making efforts to expand its protein-packed brands through solid innovation and brand-building efforts. The acquisition of AdvancePierre (completed on Jun 8), divestment of non-protein businesses (Sara Lee Frozen Bakery, Kettle and Van’s), and focus on growth categories and channels are in line with the company’s strategy to expand its protein-packed brands.

However, we believe sluggishness in beef segment due to higher domestic availability of fed cattle supplies and lower livestock costs have been hurting the stock. Higher investments in the prepared foods category as well as higher wages are also increasing the expense burden of the company and thereby pressurizing margins.

Nevertheless, Tyson Foods is streamlining its organizational structure across its Chicken, Pork, Beef and Prepared Foods segments in order to boost their efficiency and maximize growth. The company’s strong position in chicken segment and its efforts to innovate and offer nutritious products to health-conscious consumers, also remain encouraging. We note that currently, Tyson consumer brand products offer chicken with No Antibiotics Ever (NAE), keeping in view consumers preference for healthy products. Thus, it seems that Tyson Foods remains well equipped with the categories that are currently in high demand at the national foodservice chains. Further, the company is set to make significant investments to improve the supply network within the food-service channel. We expect these efforts to reflect in the quarter to be reported.

While shares of Tyson Foods have underperformed the industry in the last one month, with stock rising 2.7% in comparison to the industry’s growth of 4.1%, we believe the company’s efforts to expand protein-packed products and offer nutritious products to health-conscious consumers have the potential to drive the stock higher in the near term.

Stocks with Favorable Combination

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Avon Products, Inc. has an Earnings ESP of +22.22% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kellogg Company (K - Free Report) has an Earnings ESP of +3.19% and a Zacks Rank #3.

Cott Corporation has an Earnings ESP of +18.75% and a Zacks Rank #3.

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