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Will Tyson Foods' (TSN) Solid Momentum Continue This Year?

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Tyson Foods, Inc. (TSN - Free Report) looks well poised to sustain its momentum this year, courtesy of robust portfolio of protein-packed brands. Moreover, efforts such as acquisitions and efficiency-building programs are yielding.

Clearly, these upsides have raised analysts’ optimism in the stock despite input cost inflation and weaknesses in the beef unit. Evidently, the Zacks Consensus Estimate for fiscal 2020 earnings moved up nearly 15% to $6.75 in the past 30 days. Markedly, this Zacks Rank #3 (Neutral) stock has surged 61.6% in the past year compared with the industry’s growth of 35.7%.

Let’s discuss the factors that will likely drive the company’s performance in 2020.

Factors Boosting Tyson Foods’ Growth

Tyson Foods expects demand for protein to rise consistently. Moreover, United States Department of Agriculture (USDA) expects overall domestic protein production (chicken, beef, pork and turkey) to rise 2-3% year over year in fiscal 2020. The company is undertaking significant efforts to capitalize on the rising demand for protein-packed products. To this end, Tyson Foods is focused on enriching the portfolio to exploit all opportunities in the space. Additionally, the company has undertaken divestiture of non-protein businesses (such as Sara Lee Frozen Bakery, Kettle and Van’s) to focus more on the growing protein-packed food arena.

Further, Tyson Foods has been focusing on acquisitions to expand its portfolio and boost sales volume. We note that, the company completed the acquisition of the European and Thai operations of BRF S.A. in June 2019. The buyout strengthened Tyson Foods’ footing in the Thai poultry space and expanded presence in the U.K. and the Netherlands.  

Prior to this, the company acquired Keystone Foods business in November 2018. The business has particularly been bolstering performance of Tyson Foods’ Chicken as well as the International and Other segments. Other notable acquisitions of Tyson Foods in the past include AdvancePierre, Original Philly Holdings, Hillshire and Mexican food restaurant chain, Don Julio Foods.

The company has been steadily expanding the fresh prepared foods offering, owing to consumers’ rising demand for natural fresh meat without any added hormones or antibiotics. In this respect, Tyson Foods’ buyout of Tecumseh is quite noteworthy.  Further, the company is on track with the launch of new plant-based protein and blended products under the Raised & Rooted brand.

Will Tyson Foods Overcome Hurdles?

Tyson Foods is witnessing high input costs across some of its categories. This is exerting pressure on operating profits of certain segments. During the fourth quarter, higher livestock costs in the pork unit, feed-ingredients costs in the chicken unit and raw-material costs in the prepared foods unit were headwinds. Persistent rise in such input metrics might dent operating profits. To top it all, lower sales volume in beef segment thanks to lower live cattle processing
capacity stemming from closure of a production facility due to fire exerted pressure on the company’s performance in the fourth quarter.

Nonetheless, the company is on track with the Financial Fitness Program to enhance supply-chain efficiencies, reduce overheads and drive the bottom line. Tyson Foods aims to generate savings from this program through synergies from acquisition integration and incremental cost optimization, which involves the removal of non-value-added costs. Management stated that it expects the program to generate savings worth $600 million by 2020. Majority of these savings are expected to drive the Prepared Foods and Chicken segments.

We believe that the aforementioned growth drivers are likely to help Tyson Foods maintain its impressive momentum going this year.

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