A month has gone by since the last earnings report for Tyson Foods (TSN - Free Report) . Shares have added about 3.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Tyson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Tyson Foods Q2 Earnings Beat Estimates, Sales Improve
Tyson Foods posted second-quarter fiscal 2019 results, wherein sales and earnings surpassed the Zacks Consensus Estimate. However, the bottom line declined year over year. Moreover, sluggish sales in Prepared Foods and Pork segments affected the quarter’s outcome.
Q2 in Detail
Adjusted earnings for the reported quarter were $1.20 per share that surpassed the Zacks Consensus Estimate of $1.12. The bottom line declined 6% year over year.
Net sales improved nearly 6.9% to $10.44 billion and surpassed the Zacks Consensus Estimate of $10.23 billion. Sales volume increased 11.6% during the quarter while average sales price went down 4.8%.
Gross profit for the fiscal second quarter was $1,355 million, reflecting an improvement of nearly 17.4% from the prior-year quarter’s figure. Further, gross margin expanded 100 basis points (bps) to 11.4%.
Tyson Foods' adjusted operating income declined nearly 5.4% to $654 million. Also, adjusted operating margin for the period was 6.3%, down 80 bps.
Beef: Sales in the segment increased 5.5% to $ 3,884 million. Sales volume improved 3.2% year over year, driven by improved cattle supply and demand conditions. Average sales price rose 2.3% on robust demand for beef products. Further, adjusted operating income improved 30% to $156 million while adjusted operating margin expanded 70 bps to 4% during the quarter.
Pork: Sales in the segment declined 7.4% to $1,172 million. The segment’s sales volume improved 1% year over year, owing to increased supply of hogs. Average sales price fell 8.3% on reduced livestock costs. Adjusted operating income in the segment was $100 million, up 26.6% from the prior-year quarter’s figure. Adjusted operating margin improved 230 bps to 8.5%.
Chicken: Sales in the segment rose 15.1% to $3,407 million. Sales volume improved 26.2% year over year, owing to incremental volume stemming from acquisitions. Average sales price in the quarter declined 11%, courtesy of change in sales mix. Further, adjusted operating income declined 47.9% to $150 million and adjusted operating margin contracted 530 bps to 4.4% during the quarter.
Prepared Foods: Sales in the segment declined nearly 5.6% to $ 2,027 million. Prepared Foods’ sales volume contracted 9.5% on business divestitures. Average sales price increased 3.9%, owing to favorable product mix. Adjusted operating income improved nearly 14.2% to $249 million in the quarter. Adjusted operating margin expanded 200 bps to 12.3%.
Other: Sales in the segment were $277 million, depicting significant growth from $82 million in the prior-year quarter. Sales volume and average selling price improved remarkably.
Other Financial Updates
Tyson Foods exited the quarter with cash and cash equivalents of $360 million, long-term debt of $10,810 million, and shareholders’ equity of $13,558 million.
The company generated cash provided by operating activities of $939 million in the reported quarter. Further, management projects capital expenditure of $1.3-$1.4 billion for fiscal 2019. Additionally, for fiscal 2020, capital expenditure is anticipated at $1.1-$1.3 billion.
Tyson Foods expects demand for protein to rise consistently and is well positioned to exploit all opportunities in the space. For fiscal 2019, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 2% year over year. A portion of this rise is likely to be absorbed by export markets.
The company expects sales in fiscal 2019 to increase nearly $43 billion year over year. This upside can be attributed to higher volume and mix coupled with impacts of the Keystone acquisition. Further, the company continues to anticipate adjusted earnings per share (EPS) of $5.75-$6.10 in fiscal 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.19% due to these changes.
At this time, Tyson has an average Growth Score of C, a grade with the same score on the momentum front. 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Tyson has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.