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Can Strong Brands & Saving Efforts Pare Tyson Foods' Hurdles?

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Despite sluggishness across some units, Tyson Foods, Inc. (TSN - Free Report) has managed to maintain a firm footing in the food space on efficient strategies. Well, this renowned meat products player is gaining from consistent focus to bolster protein-packed offerings. Additionally, its saving efforts are encouraging. Let’s take a closer look.

Efforts to Strengthen Portfolio

For fiscal 2019, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 3% year over year. Rising demand for protein-packed food products is a fueling factor for higher protein production. In fact, Tyson Foods boasts a rich portfolio of protein packed brands that are growing rapidly across the globe.

To further expand protein offerings, Tyson Foods frequently engages in business acquisitions. We note that on Feb 6, 2019, the company announced a deal to acquire the European and Thai operations of BRF S.A. for approximately $340 million in cash. The buyout is likely to strengthen Tyson Foods’ foothold in the Thai poultry space and expand its presence in the U.K. and the Netherlands. On Nov 30, 2018, the company acquired Keystone Foods business, which supplies a broad array of meat and chicken products across the globe. The move is likely to bolster Tyson Foods’ international presence as well as improve sales and distribution network in growth markets. Other notable acquisitions of Tyson Foods include — AdvancePierre, Original Philly Holdings, Hillshire as well as Mexican food restaurant chains, Circle Foods and Don Julio Foods.

Apart from this, the company is steadily expanding fresh prepared foods offering to cater to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics. In this respect, the buyout of Tecumseh is quite noteworthy. The deal has added the popular air-chilled Smart Chicken brand along with a variety of chicken sausages, fresh and deli-style chicken to its portfolio. Tyson Foods is venturing into alternative sources for meat and protein products, which is evident from its investments in Beyond Meat and Memphis Meats.

Saving Efforts on Track

Toward the latter half of 2017, Tyson Foods announced a Financial Fitness Program to enhance operating and supply-chain efficiencies, reduce overheads as well as fuel the bottom line in the forthcoming periods. In fact, the company generated savings worth $253 million in fiscal 2018, higher than the earlier goal of $200 million.  The company aims to generate savings from this program, through synergies from acquisition integration along with incremental cost optimization. Earlier, management had stated that it expects the program to generate savings worth $400 million in 2019 and $600 million by 2020. Majority of these savings are expected to drive the Prepared Foods and Chicken segments.


Can Efforts Mitigate Headwinds

We note that lower sales in the Pork and the Prepared Foods categories have been weighing on Tyson Food’s top line for a while. Pork segment sales volumes are dismal due to the company’s efforts to balance supply with consumers’ demand. Further, the Prepared Foods category is bearing the brunt of business divestitures.

Apart from these, the company is witnessing rising input costs in categories like pork bellies, beef and pork trim and turkey breast. These costs are likely to continue to rise in the forthcoming periods. Further, the company is experiencing cost pressures due to a tight labor market.

Nevertheless, we expect Tyson Foods to overcome these headwinds backed by robust endeavors to expand in the protein space and efforts to boost financial strength through savings plans. In fact, such well-spun efforts have boosted investors’ optimism in this Zacks Rank #3 (Hold) stock that rallied 31.9% in the past three months compared with the industry’s rise of 20.4%.

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