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Tyson (TSN) Down 5.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Tyson Foods (TSN - Free Report) . Shares have lost about 5.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tyson 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 catalysts.

Tyson Foods Q4 Earnings Beat Estimates, Sales Down Y/Y

Tyson Foods posted fourth-quarter fiscal 2018 results, with earnings improving year over year and beating the Zacks Consensus Estimate. However, top-line performance was dismal due to lower sales in the Prepared Foods and Pork categories.

Adjusted earnings for the quarter came in at $1.58 per share that surpassed the Zacks Consensus Estimate of $1.33. The bottom line also improved roughly 10% year over year. Lower tax rates supported the quarterly figure by approximately 20 cents.

Sales and Margins

Net sales declined 1.4% to $9,999 million and missed the Zacks Consensus Estimate of $10,154 million. Sales volume increased 2.7% during the quarter, while average sales price went down 4.1%.

Gross profit for the fiscal fourth quarter came in at $1,349 million, down nearly 0.1% from the prior-year quarter’s tally. Nevertheless, gross margin expanded 20 basis points (bps) to 13.5%.

Tyson Foods' adjusted operating income declined nearly 7.9% to $831 million. Also, adjusted operating margin for the period came in at 8.3%, down 60 bps.

Segment Details

Chicken: Sales in the segment rose 2.6% to $3,115 million. Sales volume improved 10.4% year over year owing to incremental volumes stemming from acquisitions. Average sales price in the quarter fell 7%, courtesy of change in sales mix. Further, adjusted operating income declined 43% to $182 million, while adjusted operating margin slumped 480 bps to 5.8% during the quarter.

Beef: Sales in the segment increased 2.7% to $3,913 million. Sales volume rose 3.4% year over year owing to robust demand for beef products, improved availability of cattle supply and higher exports. However, average sales price inched down 0.6% due to increases in cattle supply and lower costs of livestock. Adjusted operating income in the quarter was $348 million, up nearly 11% from the prior-year quarter’s figure. Adjusted operating margin surged 70 bps to 8.9%.
 
Pork: Sales in the segment declined 16.7% to $1,134 million. The segment’s sales volume declined 2.7% year over year owing to the company’s efforts to balance supply with consumers’ demand. Average sales price also fell 14.5%. Adjusted operating income in the segment was $76 million, down 38.8% from the prior-year quarter’s tally. Adjusted operating margin contracted 240 bps to 6.7%.

Prepared Foods: Sales in the segment fell nearly 7.3% to $2,097 million. Prepared Foods’ sales volume contracted 7.9% due to business divestitures. Average sales price inched up 0.6% owing to favorable product mix stemming from acquisitions. Adjusted operating income was $235 million in the quarter, rallying 54.6% on a year-over-year basis. Adjusted operating margin expanded 450 bps to 11.2%.

Other: Sales in the segment were $60 million, down 34.8% year over year. Sales volume dropped 41.7%, while average selling price in the segment climbed 11.8%. The segment incurred adjusted operating loss of $10 million compared with loss of $9 million in the year-ago quarter.

Other Financial Updates

Tyson Foods exited the quarter with cash and cash equivalents of $270 million, long-term debt of $7,962 million and shareholders’ equity of $12,811 million.

The company generated cash flow from operating activities of $12,963 million for fiscal 2018. Further, management projects capital expenditures at approximately $1.5 billion for fiscal 2019.

Guidance

Tyson Foods expects demand for protein to rise consistently and is well placed to exploit all opportunities in the space. For fiscal 2019, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 3% year over year.

Also, the company is on track with its Financial Fitness Program. Savings from this program are expected to primarily boost the Prepared Foods and Chicken segments.

All said, the company expects sales in fiscal 2019 to increase nearly 2.2% year-on-year to reach $41 billion. The upside can be attributed to higher volumes and mix. Adjusted earnings per share are anticipated in the band of $5.75-$6.10 compared with $6.16 delivered in fiscal 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 8.77% due to these changes.

VGM Scores

Currently, Tyson has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Tyson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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