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Will Market Volatility Hurt Tyson Foods (TSN) in Q4 Earnings?

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Tyson Foods, Inc. (TSN - Free Report) is slated to report fourth-quarter fiscal 2018 results on Nov 13, before the opening bell. We note that earnings of this renowned meat products company surpassed estimates in three of the trailing four quarters, the average being 8.12%. Let’s see what’s in store for the company this time around.

High Protein Demand Bodes Well

This renowned food company is steadily gaining from rising demand for protein-rich products, which is fueling performance in the Beef and Prepared Foods segments. In fact, the Prepared Foods category is depicting solid growth, owing to rising demand for protein-packed brands and positive synergies from the acquisition of AdvancePierre. Further, Tyson Foods has made several investments to strengthen poultry production in Tennessee.

Along with the expanding demography of protein-savvy consumers, demand for fresh and organic food options have been growing rapidly, courtesy of rising health consciousness. Well, the company’s investments in Memphis Meats and Beyond Meat underscores efforts to expand in this space.

Management expects demand for protein to continue rising. The company is well placed to make most of the opportunities in the space. For fiscal 2019, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 2-3% year over year. Moreover, Tyson Foods anticipates fiscal 2018 sales to increase nearly 6% in the range of $40-$41 billion, courtesy of higher revenues from AdvancePierre, increased volumes in legacy business and enhanced mix in the Chicken segment.

Well, such upsides are likely to aid top-line growth in the impending quarter. Markedly, the consensus mark for net sales for the fourth quarter is currently pegged at $10,154 million, depicting a rise from $10,145 million delivered in the year-ago quarter.

Tyson Foods, Inc. Price, Consensus and EPS Surprise

 

Weak Chicken & Pork Categories Are a Worry

During the third quarter of fiscal 2018, Tyson Foods witnessed sluggish volumes in the Chicken and Pork segments. This was largely due to lower demand. Going ahead, management expects such volatile conditions to persist and negatively impact the Pork and Chicken segments. In fact, management expects domestic and export prices of chicken and pork to be affected by increased tariff rates in 2018. Moreover, volatility in the prices of raw materials such as cattle and poultry may lead to unfavorable volume/mix, causing an increase in product prices. Thanks to such deterrents, the company lowered earnings projection for fiscal 2018.

Additionally, higher fright and labor costs are persistent concerns for the company. In fact, several other food companies like United Natural Foods (UNFI - Free Report) , McCormick & Company (MKC - Free Report) and TreeHouse Foods (THS - Free Report) have also been grappling with higher freight and transportation costs.

We expect such headwinds to dent Tyson Foods’ performance in the upcoming quarterly release. Incidentally, the Zacks Consensus Estimate for earnings for the fourth quarter is currently pegged at $1.33, which depicts a decline of almost 7% from the year-ago quarter’s figure. The projection has been stable in the past 30 days.

Wrapping up, let’s take a look at the picture unveiled by the Zacks Model for the impending quarter.

Zacks Model

Our proven model does not show that Tyson Foods is likely to beat earnings estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Tyson Foods currently carries a Zacks Rank #3, its Earnings ESP of 0.00% reduces chances of an earnings beat.  

You can see the complete list of today’s Zacks #1 Rank stocks here.

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