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Tyson Foods (TSN) Gains From Acquisitions and Demand Surge

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Tyson Foods, Inc. (TSN - Free Report) has been depicting strong growth backed by higher demand for chicken, beef and pork as well as acquisition related synergies. The company recently reported third-quarter fiscal 2017 results, wherein it witnessed strong volume growth in most of its segments. The growth came on the back of increased demand for protein rich food products.

We observe that Tyson Foods’ shares have outpaced the broader Consumer Staples sector in the past three months. Shares of the company increased 11.1% compared with the sector’s decline of 0.8%.

Let’s now delve deeper into the aspects that have been aiding the company’s performance of late.

Increased Demand Aids Growth

Both earnings and revenues increased year over year during the third quarter of fiscal 2017. The increase was driven by the solid performance of its segments, primarily Beef, Pork and Chicken, owing to rising demand of these products. Notably, the Beef segment was seen to be sluggish in the past. Nevertheless, robust domestic demand for beef products, improved availability of cattle supply and higher exports aided the segment’s growth during the third quarter. Increased level of exports also benefited Beef and Pork segments during the quarter. For fiscal 2018, the USDA expects overall domestic protein production (chicken, beef, pork and turkey) to increase. 

Acquisitions & Expansion Yields Positive Results   

Tyson Foods has been focusing on acquisitions to expand its portfolio. During the third quarter of 2017, it completed the acquisition of AdvancePierre for approximately $4.2 billion. Integration of this newly acquired business is on track. Tyson Foods expects the transaction to generate net synergies of approximately $200 million within the next three years. The acquisition also indicates the company’s focus on expanding its protein-packed brands and its fresh prepared foods offering. 

Tyson Foods’ Hillshire acquisition (completed in fiscal 2014) resulted in synergies of $580 million in fiscal 2016 and anticipates synergies of $675 million for fiscal 2017. This acquisition has boosted the company’s consumer products portfolio with the addition of strong brand names and provided an avenue for it to sell pork products in higher-margin end markets. Further, the company’s acquisition of Mexican food restaurant chains, Circle Foods and Don Julio Foods, in fiscal 2013 shows its commitment to diversify its product line up.

Recently, Tyson Foods had announced that it will invest $84 million in its poultry plant located at Union City, TN. The investment will expand the plant’s capacity and is anticipated to create more than 300 jobs. The expansion of the facility is expected to begin in the fall and be completed by mid-2019.

Continued Innovation

Tyson Foods continuously innovates and adds products to an already rich food line up. As an increasing number of health-conscious U.S. consumers are focusing on nutritious breakfasts, the company considers it a high-potential category. Recent launches like Jimmy Dean Frittatas and Stuffed Hash Browns, Tyson Food Service Fully Cooked Drumsticks and Buffalo Chicken Crispitos are getting good response from consumers.

Bottom Line

Efforts taken by Tyson Foods to expand its network and capacity have increased the company’s cost structure, thereby creating pressure upon margins. The company has also been incurring higher wages, further raising its expense burden. Nevertheless, its acquisitions and innovation efforts have been yielding positive results, and are expected to aid the company to further raise its sales volumes and thereby overcome its current challenges.

Moreover, Tyson Foods currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A, indicating its inherent strength. Such factors make the stock highly favorable amongst investors.

Looking For More Consumer Staples Stocks? Check These

Investors may also consider stocks such as Constellation Brands, Inc. (STZ - Free Report) , Nu Skin Enterprises, Inc. (NUS - Free Report) and Inter Parfums, Inc. (IPAR - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands delivered an average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 18.2%.

Nu Skin delivered an average positive earnings surprise of 10.8% in the trailing four quarters. It has a long-term earnings growth rate of 8.7%.

Inter Parfums delivered an average positive earnings surprise of 18.1% in the trailing four quarters. It has a long-term earnings growth rate of 12.3%.

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