Tyson Foods, Inc (TSN - Free Report) recently entered into an agreement with private-equity firm — Kohlberg & Company — to sell its Sara Lee Frozen Bakery and Van’s businesses. The deal will include the sale of brands such as Chef Pierre, Bistro Collection, Van’s brands and license usage rights of Sara Lee brand across certain channels. It also comprises wind-up of two prepared foods facilities located in Tarboro and Traverse City as well as sales office in Canada.
Industry experts view the deal as part of the company’s strategy to focus on protein-packed brands.
Greater Focus on Protein Brands Bodes Well
Well, Tyson Foods’ growing appetite for protein-rich products has propelled the company to divest non-protein businesses. Apart from Sara Lee and Vans businesses, the company earlier divested its Kettle business and is also on the look-out for potential buyers for its pizza crust unit.
Although Tyson Foods continues to reduce non-protein offerings, it constantly strikes new deals to augment protein-packed offerings. In fact, the company has been venturing into alternative sources for meat and protein products, as evident from the buyouts of Beyond Meat and Memphis Meats. Apart from this, the company has been steadily expanding fresh prepared foods offerings, owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics. Further, the company 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 efforts 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 bumping up overall costs. Such factors have been weighing on the company’s shares, which declined 7.5% in the past six months compared with the industry’s 4.3% fall.
Nevertheless, we expect this Zacks Rank #3 (Hold) company’s Financial Fitness Program to induce savings and help alleviate cost-related issues to an extent. Moreover, the planned divestitures are likely to increase focus on key growth areas and utilize resources in the desired channels.
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