Company overview - Tyson Foods, Inc. is a food company, which is engaged in offering chicken, beef and pork, as well as prepared foods. The Company offers food products under Tyson, Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair brands. The Company operates through four segments: Chicken, Beef, Pork and Prepared Foods. It operates a vertically integrated chicken production process, which consists of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its subsidiary, Cobb-Vantress, Inc. (Cobb), the Company is engaged in supplying poultry breeding stock across the world. It produces a range of fresh, frozen and refrigerated food products. Its products are marketed and sold by its sales staff to grocery retailers, grocery wholesalers, meat distributors, warehouse club stores and military commissaries, among others.

TSN Details

Incremental sales from AdvancePierre to drive earnings: For nine months ended 01 July 2017, Tyson Foods Inc. (NYSE: TSN) reported a revenue growth of 1% to $28.1 billion, while net income was remained flat at $1.38 billion. Sales from Chicken segment grew 3% to $8.4 billion, Pork segment increased by 5% to $3.8 billion and Prepared Foods segment increased by 1% to $5.6 billion. Increased sales in the nine months of fiscal 2017 were primarily driven by higher pork and chicken prices and incremental sales from the acquisition of AdvancePierre. Operating income was increased marginally as strong earnings in Beef and Pork segments were offset by declines in Chicken and Prepared Foods segments. For Q3FY17, Operating income declined 9% primarily due to $59 million of purchase accounting and acquisition related costs associated with the AdvancePierre acquisition. Further, Chicken segment experienced disruptions as a result of two plant fires which led to incremental $24 million of net costs and Prepared Foods segment recorded a $52 million impairment in the nine months of fiscal 2017 related to San Diego Prepared Foods operation. In addition, the company incurred an incremental $12 million of compensation and benefit integration expense in the third quarter of fiscal 2017, for a total of $84 million of incremental expense in the nine months for fiscal 2017.
 

Result Summary in Millions (Source: Company Reports)
 
Stronger domestic demand for Beef and Pork products: Beef & Pork sales volume increased for the nine months and third quarter of fiscal 2017 due to improved availability of cattle supply, stronger domestic demand for beef products and increased exports. Average sales price of Beef for the nine months decreased due to increased availability of live cattle supply and lower livestock cost. However, average sales price for the third quarter of fiscal 2017 increased as demand for beef products and strong exports outpaced the increase in live cattle supplies. Accordingly, operating income increased due to more favourable market conditions as the company maximized revenues relative to the decline in live fed cattle costs, partially offset by higher operating costs. Average sales price for Pork increased as demand for pork products and strong exports outpaced the increase in live hog supplies. In turn, operating income increased as the company maximized revenues relative to the live hog markets, partially attributable to stronger export markets and operational efficiencies, which were partially offset by higher operating costs.


Segments’ results in Millions; (Source: Company reports)
 
Earnings from Chicken segment impacted by operational disruptions: Sales volume was up slightly in the nine months of fiscal 2017 due to better demand for chicken products, partially offset by operational disruptions from fires at two plants and decreased rendered product sales. Further, average sales price increased for the nine months and third quarter of fiscal 2017 due to sales mix changes. Operating income for the nine months and third quarter of fiscal 2017 was below prior year record results due to higher operating costs which included increased marketing, advertising and promotion spend and compensation and benefit integration expense of $35 million for the nine months of fiscal 2017. Additionally, operating income for the nine months of fiscal 2017 was impacted by $24 million of incremental net costs and lower sales volume attributable to the two plant fires.


Recent Product Launches; (Source: Company reports)
 
Prepared Foods:  For nine months of FY17, sales volume increased due to improved demand for retail products and incremental volumes from the AdvancePierre acquisition, partially offset by declines in food service. Average sales price was up slightly for the nine months of fiscal 2017 primarily due to better product mix attributable to the AdvancePierre acquisition, partially offset by a decline in input costs of approximately $55 million. Average sales price increased in the third quarter of fiscal 2017 due to better product mix which was positively impacted by the AdvancePierre acquisition and higher input costs of approximately $25 million. However, operating income for the nine months decreased due to an impairment of $52 million related to San Diego operation, in addition to higher operating costs at some of its facilities, increased marketing, advertising and promotion spend, $28 million of compensation and benefit integration expense and $21 million related to AdvancePierre purchase accounting and acquisition related costs. Additionally, Prepared Foods operating income was positively impacted by $135 million in synergies, of which $19 million was incremental synergies in the third quarter of fiscal 2017. The positive impact of these synergies to operating income was partially offset by investments in innovation, new product launches and growth of brands.
 

Leading U.S. Protein Producers; (Source: Company reports)

Sale of Non-Protein Businesses: In April 2017, the company announced sale of three non-protein businesses, Sara Lee® Frozen Bakery, Kettle and Van’s® (all are part of Prepared Foods segment), as part of strategic focus on protein-packed brands. The projected revenue of these businesses was approximately $650 million for fiscal 2017 and had a net carrying value of $838 million at July 1, 2017. The company expects to close the transaction by the end of calendar year 2017 and estimates to record a net pre-tax gain as a result of the sale of these businesses.

Acquisition of AdvancePierre to complement the protein packed brands: Tyson Foods has completed the acquisition of AdvancePierre Foods Holdings in a move aligned with its strategic intent to supply the fastest growing portfolio of protein packed brands. The company completed a tender offer to buy all the outstanding shares of common stock of AdvancePierre for $40.25 per share in cash at total value of approximately $4.2 billion. The offer closed on June 6, 2017, and was followed by a merger of a wholly-owned subsidiary of Tyson Foods into AdvancePierre. AdvancePierre is a leading national producer of ready-to-eat lunch and dinner sandwiches, sandwich components and snacks. Its customers include food service, retail and convenience store providers with revenues of $1.6 billion in 2016.
 

Complementary Portfolios of Strong Brands; (Source: Company reports)
 
Expansion of Tennessee Poultry Operations: Tyson Foods will invest $84 million as part of its commitment to the continued success of its Union City, Tennessee poultry plant, which is expected to be completed by mid-2019. The project will increase capacity to the plant’s existing harvest area, add processing lines, as well as upgrades to supporting operations at the hatchery, feed mill and in transportation. In order to meet the new capacity of the facility, Tyson Foods estimates the need of about 200 more broiler chicken houses to be built in north western Tennessee within the next two years.

Outlook: The company expects fiscal 2017 sales to be above $38 billion led by sales volume across each segment. For fiscal 2018, it expects sales to grow to approximately $41 billion which excludes the revenue of the three non-protein businesses held for sale. Moreover, the expected increase in fiscal 2018 sales is attributed to incremental AdvancePierre sales of $1.15 billion, increase in sales volume in legacy businesses and an increase in pricing predominantly in Chicken segment.


FY17 Outlook; (Source: Company reports)
 
USDA indicates domestic protein production (beef, pork, chicken and turkey) to increase approximately 3-4% in fiscal 2018, while the strong export markets might partially offset the increase. The company expects to realize net synergies of more than $200 million from AdvancePierre acquisition within three years with most of these benefits realized in Prepared Foods segment. Further, the company expects to realize synergies of around $675 million in fiscal 2017 from the Hillshire Brands acquisition as well as from the profit improvement plan for legacy Prepared Foods business with some incremental synergies expected to be realized in fiscal 2018.
 

FY18 Outlook; (Source: Company reports)

Stock performance: The shares of TSN have declined about 14% in the last one year, while the same have been up about 10% in the past three months as on August 24, 2017. Going forward, strong chicken margins and the Chinese reopening to U.S. beef imports coupled with synergies from acquired businesses are expected to drive the company’s profits. Moreover, its diversified product portfolio of beef, chicken and pork is expected to support the company's earnings against volatile prices. Given the ramp up of chicken production led by record demand from U.S. consumers as consumers seek more protein in their diets, and an optimistic outlook, we give a “Buy” recommendation on the stock at the current market price of $64.56


TSN Daily chart (Source: Thomson Reuters)
 

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations