Tyson Foods, Inc.’s (TSN - Free Report) subsidiaries announced plans to acquire poultry rendering and blending assets of AMPRO Products, Inc. and American Proteins, Inc. The deal will enable Tyson Foods to bolster animal products recycling capabilities, which will aid in expanding animal feed business. Worth almost $850 million, the deal is subject to certain customary closing conditions and regulatory approvals.
That said, let’s delve into how the company’s latest stride in the animal rendering arena will impact its performance.
Recycling to Aid Animal Feed
The buyouts will help Tyson Foods gain four rendering facilities located in Alabama and Georgia along with 13 blending plants situated across Southeastern and Midwestern states. Moreover, close to 700 employees who work for American Proteins, are likely to form part of Tyson Foods team, which will bolster the company’s workforce.
The newly-acquired facilities will significantly boost Tyson Foods’ animal byproducts business unit. Management believes that animal rendering plays a crucial role in the company’s operations, as it lowers wastes radically and supports recycling animal products for feed, pet food as well as aquaculture.
Well that’s not just it, the deal will also enable Tyson Foods to meet sustainability goals as rendering is considered to be an environment-friendly method for preventing animal products going into landfills. This would also enable the company to minimize greenhouse gas emissions
Buyouts Aid Tysons Foods Expansion
Tyson Foods never seems to lose its appetite for buyouts and constantly strikes new deals to augment offerings. Such a strategy is well suited for meeting the rising demand for protein-rich products. In fact, the company has been venturing into alternative sources for meat and protein products, evident from the buyouts of Beyond Meat and Memphis Meats. Apart from this, the company has been steadily expanding fresh prepared foods offering, owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics. Further, Tysons Foods has made several investments to strengthen poultry production in Tennessee. Such efforts combined with the acquisition of AdvancePierre and Original Philly indicate the company’s dedicated focus on augmenting protein-rich food products.
Driven by such fruitful ventures, Tyson Foods’ Chicken, Beef and Prepared Foods segments have been depicting a solid performance since the past few quarters. Management expects demand for protein to continue rising and is on track 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.
Wrapping it Up
We note that Tyson Foods has been struggling with rising freight costs. Also, the company has been increasing employee investments to improve productivity, which has been raising cost burden. Such factors have been weighing on this Zacks Rank #4 (Sell) company’s performance, which declined 13.7% in the past six months compared with the industry’s 11.3% fall
Nevertheless, we expect that the company’s efforts to reduce expenses combined with strategic efforts to drive sales will suitably offset cost-related hurdles. Moreover, the latest move to enhance animal rendering capacity is projected to strengthen Tyson Foods’ footing in the food space, particularly its animal feed business.
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