About a month has gone by since the last earnings report for Tyson Foods, Inc. (TSN - Free Report) . Shares have lost about 3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Tyson Foods Beats on Q3 Earnings & Sales
Tyson Foods posted better-than-expected third-quarter fiscal 2017 results, wherein both earnings and sales surpassed the Zacks Consensus Estimate. The company reported adjusted earnings of $1.28 per share that was marginally ahead of the estimate and increased 6% year over year. The results mainly benefitted from the strong performance of its segments, primarily Beef and Chicken.
Revenues and Margins
Net sales increased 4.8% to $9.85 billion primarily due to improvement across all its food segments and beat the Zacks Consensus Estimate of $9.48 billion. Sales volume increased 0.5%, while average sales price (ASP) inched up 4.2%.
Tyson Foods' adjusted operating income declined 1.4% to $756 million due to higher operating costs. Adjusted operating margin contracted 50 basis points (bps) to 7.7%.
Chicken: Sales for the segment came in at $2.9 billion. Sales volume increased 1.6% year over year owing to higher demand for chicken products. Average sales price for the quarter increased 2.9% due to change in sales mix. However, adjusted operating margin declined 350 bps to 10.4% due to higher operating costs.
Beef: Sales for the segment came in at $4 billion. Sales volume rose 0.4% year over year, owing to robust domestic demand for beef products, improved availability of cattle supply and higher exports. These factors positively impacted the average sales price, which increased 5.3%. Adjusted operating margin expanded 130 basis points to 3.7% on the back of favorable market conditions.
Pork: Sales for the segment came in at $1.3 billion. The segment’s sales volume grew 0.6% year over year driven by enhanced exports as well as sturdy demand for pork products. Average sales price increased 3.3%, while adjusted operating margin increased 70 bps to 10.3%, gaining from live hog markets.
Prepared Foods: Sales for the segment came in at $1.9 billion. Prepared Foods’ sales volume grew 2.4% due to incremental volumes arising from the buyout of AdvancePierre. These were partly offset by fall in food service. Average sales price was up 4.9% due to favorable product mix arising from the acquisition of AdvancePierre. Adjusted operating margin contracted 90 bps to 10% due to higher operating costs.
Other: Sales for the segment came in at $85 million, while volume declined 11.9%. The segment incurred operating loss of $20 million compared with the loss of $23 million in the year-ago period.
Other Financial Update
Tyson Foods ended the quarter with a cash and cash equivalent of $231 million, long-term debt of $9.8 billion and shareholders’ equity of $10.1 billion. Further, management projects capital expenditures to be approximately $1 billion for fiscal 2017.
For fiscal 2017, Tyson anticipates sales to be over $38 billion, as the company is hopeful regarding improving volumes across all its segments. For Fiscal 2018, it anticipates sales to increase to $41 billion. Tyson Foods envisions fiscal 2017 earnings in the range of $4.95-$5.05 per share, reflecting an increase of 13% year over year. The Zacks Consensus Estimate for the fiscal year is currently pegged at $5.19.
For fiscal 2018, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to increase roughly 3-4% year over year. The company expects to realize synergies of over $200 million by fiscal 2020 from the recent buyout of AdvancePierre (acquisition completed on Jun 7).
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted down by 7.3% due to these changes.
At this time, the stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.