It has been about a month since the last earnings report for Tyson Foods, Inc. (TSN - Free Report) . Shares have added about 1.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is TSN due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Tyson Foods Q1 Earnings & Sales Grow Y/Y
Tyson Foods posted first-quarter fiscal 2018 results, wherein the company reported adjusted earnings of $1.81 per share that outpaced the Zacks Consensus Estimate of $1.51 and improved 14% year over year. Results gained from higher sales, cost savings of $37 million from Financial Fitness Program and 21 cents positive impact from the latest tax reforms.
Net sales increased 11.4% to $10,229 million, courtesy of improved Beef, Chicken and Prepared Foods sales. Both retail and food service sales surpassed industry. Moreover, sales beat the Zacks Consensus Estimate of $9,892 million. Sales volume increased 5.2% during the quarter, while average sales price rose 5.9%.
Tyson Foods' adjusted operating income declined 3.3% to $950 million due to declines at Beef and Pork divisions. Also, adjusted operating margin contracted 140 basis points (bps) to 9.3%.
Chicken: Sales for the segment jumped 10.7% to $2,997 million. Sales volume increased 7.3% year over year owing to higher demand for chicken products and increased volumes resulting from the AdvancePierre buyout. Average sales price in the quarter increased 3.2% due to change in sales mix. Adjusted operating income rose 6.8% to $281 million, while adjusted operating margin contracted 30 bps to 9.4% during the quarter. Operating income growth was led by cost savings of $14 million from Financial Fitness Program, gains from AdvancePierre buyout and lower feed expenses, partly negated by higher labor, growout and freight costs.
Beef: Sales for the segment jumped 10.1% to $3,886 million. Sales volume rose 4.5% year over year owing to robust domestic demand for beef products, improved availability of cattle supply and higher exports. Higher exports and beef demand also outdid higher live cattle supply, leading to a 5.4% rise in average sales price. Adjusted operating income in the quarter was $257 million, down from the prior-year figure of $299 million. Adjusted operating margin fell 190 bps to 6.6% during the quarter. This could be attributable to greater labor and freight expenses.
Pork: Sales for the segment advanced 2.5% to $1,362 million. The segment’s sales volume declined 2.6% year over year, owing to the company’s effort to balance supply with consumers’ demand. Average sales price increased 5.2% due to increases related to greater livestock expenses. Adjusted operating income for the segment was $152 million depicting a 38.5% decrease from the prior-year quarter. Adjusted operating margin descended 790 bps to 11.8%. Escalated labor and freight expenses marred results.
Prepared Foods: Sales for the segment surged nearly 21% to $2,292 million. Prepared Foods’ sales volume grew 11.6% due to incremental volumes arising from the buyout of AdvancePierre. Average sales price rose 8.4% owing to favorable product mix from the acquisition of AdvancePierre and higher input costs. Adjusted operating income was $273 million in the quarter depicting a 43.7% surge year over year, fueled by Financial Fitness Program savings of $24 million, better mix and gains from AdvancePierre. This was partly negated by greater freight and input costs. Adjusted operating margin expanded 190 bps to 11.9%.
Other: Sales for the segment were $88 million, down 2.2%. Sales volume dropped 3.4% while average selling price in the segment climbed 1%. The segment incurred operating loss of $13 million compared with the loss of $17 million in the year-ago quarter.
Other Financial Updates
Tyson Foods exited the quarter with cash and cash equivalent of $293 million, long-term debt of $8,875 million and shareholders’ equity of $11,974 million.
The company generated cash flow from operating activities of $1,126 million in the first quarter. Further, management projects capital expenditures at approximately $1.4- $1.5 billion for fiscal 2018. This includes $100 million impact from tax reforms.
Management remains pleased with its solid start to fiscal 2018, which was backed by strength across its portfolio. The company expects demand for protein to continue rising, and it remains well placed to exploit all opportunities in the space. For fiscal 2018, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 3% year over year.
Further, Tyson Foods anticipates fiscal 2018 sales to increase 6-7% to nearly $41 billion. The upside can be attributed to higher revenues from AdvancePierre, increased volumes in its legacy business and enhanced mix in the Chicken segment.
Further, management expects the recent tax reforms to boost the bottom line by 85 cents in fiscal 2018. The company now envisions fiscal 2018 earnings in the range of $6.55-$6.70 per share, reflecting year-over-year growth of 23-26%. Earlier, management projected fiscal 2018 earnings in a range of $5.70-$5.85 per share, reflecting an increase of 7-10% year over year.
During the fourth quarter of 2017, the company announced a Financial Fitness Program, which is expected to enhance operating efficiency in the forthcoming periods. In fiscal 2018, the program is expected to result in net savings of $200 million, buoyed by synergies from AdvancePierre’s integration along with incremental removal of non-value added costs.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted by 9.4 % due to these changes.
Tyson Foods, Inc. Price and Consensus
At this time, TSN has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise TSN has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.