Tyson Exceeds, Affirms Outlook - Analyst Blog

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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.


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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: PPC , SFD , TSN

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