Tyson Foods Inc.
(
TSN
) delivered better-than-expected first-quarter 2012 earnings of 42
cents per share, exceeding the Zacks Consensus Estimate of 33
cents. However, the earnings lagged the prior-year earnings of 78
cents per share.
Profits were driven by higher sales as well as strong
performance in all the segments, particularly in Chicken, Pork and
Prepared Foods.
Revenue and Margins
Net sales recorded a growth of 9.4% to $8.3 billion from $7.6
billion in the year-ago quarter, while it was in line with the
Zacks Consensus Estimate. The upswing came as an outcome of sales
growth across all its segments.
Tyson's operating income declined by 44.2% to $278 million in
the quarter compared with $498 million in the prior-year quarter.
Quarterly operating margin contracted 320 basis points to 3.3%,
portraying an augmented grain and feed ingredient and other raw
material costs.
Segment Details
Sales grew 5.5% in the
Chicken
segment to $2.8 billion compared with $2.6 billion in the year-ago
quarter. Sales volume decreased 5.3% on the back of a decrease in
domestic production pounds as a result of balancing our supply with
forecasted customer demand, partially offset by increases in
international sales volumes and open-market meat purchases.
Operating margin came down to 1.2% in the Chicken segment
compared with 6.9% in the year-ago quarter portraying increases in
grain and feed ingredients costs, partially offset by operational
efficiencies as well as improved mix and pricing.
On a year-ago basis, sales climbed by a decent 8.5% in the
Beef
segment to $3.5 billion compared with $3.2 billion. Sales volume
contracted by 8.5% in the quarter. Segment operating margin
contracted 270 basis points to 0.9%, owing to volatile market
conditions.
Pork
segment revenue spiked 19.1% to $1.5 billion compared with $1.2
billion in the year-ago quarter, powered by a jump in price and
growth in volume. However, operating margin contracted to 310 basis
points to 11.2% from the year ago quarter.
Prepared Foods
sales increased 6.8% to $861 million compared with $806 million in
the year-ago quarter. Although the segment faced a decline in the
sales volume by 1.4% from the year-ago quarter, operating margin
expanded 240 basis points to 5.9%, fueled by mix changes and an
increase in average sales prices, which were partially offset by an
increase in raw material costs and lower volumes.
Other Financial Updates
Tyson exited the quarter with cash and cash equivalents of $857
million. Long-term debt was $2.1 billion and shareholders' equity
was $5.8 billion at the end of December 31, 2011.
In the first quarter of 2012, the company repurchased 1.8
million shares for approximately $35 million. As of December 31,
2011, 11 million shares remain authorized for repurchases. Tyson
expects to continue its share repurchase plan in future.
Guidance
Tyson believes that the overall domestic protein (chicken, beef,
pork and turkey) production is expected to decrease in fiscal 2012
on the back of increased export.
Fiscal 2012 sales are expected to exceed $34 billion due to
price increases related to decreases in domestic availability of
protein and rising raw material costs.
The company expects to spend around $800-$850 million in fiscal
2012. The company expects a net interest expense of approximately
$185 million, which is lower than the year ago level by $46
million.
We are encouraged by Tyson Foods' significant presence in the
international market. The company is vertically integrated and has
advanced processing capabilities. However, the company faces stiff
competition from both national and regional players like
Smithfield Foods Inc.
(
SFD
) and
Pilgrim's Pride Corporation
(
PPC
).
We currently have a Zacks #3 Rank on Tyson shares, which
translates into a short-term Hold rating. On a long-term basis, we
provide a Neutral recommendation on the stock.
PILGRIMS PRIDE (
PPC
): Free Stock Analysis Report
SMITHFIELD FOOD (
SFD
): Free Stock Analysis Report
TYSON FOODS A (
TSN
): Free Stock Analysis Report
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