Tyson Foods Beats, Falls Y/Y - Analyst Blog

By Zacks Equity Research,

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Tyson Foods Inc. ( TSN ) delivered better-than-expected second-quarter 2012 earnings of 42 cents per share, exceeding the Zacks Consensus Estimate of 38 cents. However, the earnings lagged the prior-year earnings of 44 cents per share due to decrease in domestic production resulting from an effort to balance supply with forecasted demand.

Revenue and Margins

Net sales recorded growth of 3.4% to $8.3 billion from $8.0 billion in the year-ago quarter, while it missed the Zacks Consensus Estimate of $8.5 billion. The upswing came as an outcome of sales growth across all its segments.

Tyson's operating income declined to $302 million in the quarter compared with $300 million in the prior-year quarter. Quarterly operating margin contracted 10 basis points to 3.7%, portraying an augmented grain and feed ingredient and other raw material costs.

Segment Details

Sales increased in the Chicken segment to $2.9 billion, compared with $2.7 billion in the year-ago quarter. Sales volume inched down 1.6% on the back of a decrease in domestic production pounds.

Operating margin came down to 5.0% in the Chicken segment, compared with 1.4% 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 in the Beef segment to $3.4 billion compared with $3.3 billion. Sales volume contracted 10.7% in the quarter.

The Pork segment revenue slipped to $1.37 billion compared with $1.38 billion in the year-ago quarter. Operating margin contracted to 8.4% from the year-ago quarter.

Prepared Foods sales increased to $807 million compared with $778 million in the year-ago quarter. Operating margin expanded 5.5%, fueled by mix changes and an increase in average sales prices, 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 $11.2 billion at the end ofthe second quarter of 2012.

In the second quarter of 2012, the company repurchased 3.6 million shares for approximately $70 million. On May 3, 2012, Tyson's Board of Directors approved an increase of 35 million shares authorized for repurchase under this program.


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 exports.

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. Further, the company expects a net interest expense of approximately $190 million, which is lower than the year ago by $41 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 ).

Currently, we have a Zacks #3 Rank on Tyson, 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 Stocks: PPC , SFD , TSN

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