We recently reiterated our Neutral recommendation on
Tyson Foods Inc.
(
TSN
). The company delivered better-than-expected second-quarter fiscal
2012 earnings of 44 cents per share, exceeding the Zacks Consensus
Estimate of 38 cents by 15.8% as well as the prior-year earnings of
42 cents by 4.8%. The outperformance came on the back of strong
performance of processed foods and pork segment.
Tyson Foods has a significant presence in the international
market. Key international markets include Canada, Central America,
China, the European Union, Japan, Mexico, Middle East, South Korea,
Russia, Taiwan and Vietnam.
The company adds value to its portfolio by continuous
innovation, the most recent of which include Tyson whole grain
chicken chunks, and Tyson Stuffed Mini Bread Bowls in the grocery
channel, along with Tyson Grilled Chicken Tenderloins in the club
store channel.
However, the company faces some long-term challenges.
Possibilities of outbreaks in livestock diseases such as bird flu
or H1N1 pandemic would adversely affect the company's operations
and profitability. The probable presence of mad cow disease in one
of the Californian farms announced by the U.S. Department of
Agriculture (USDA) affected beef demand, and U.S. beef exports
plunged soon after the announcement was made.
Similarly, beef demand fell over the 'pink slime' controversy,
and many food stores like
McDonald's Corp
. (
MCD
) and
The Kroger Co
. (
KR
) who buy products from Tyson, stopped purchasing ground beef with
the controversial meat filler. Moreover, widespread anti-obesity
campaigns are discouraging consumption of meat products.
Skyrocketing input prices are posing great difficulty for the
company. High price of cattle has lowered operating margin and
volume in the beef segment for the past few quarters. Moreover,
USDA has predicted bad harvest of corn and soybeans in Brazil and
Argentina for the coming quarters, which will consequently increase
the feedstock price for Tyson and thus affect its margin
negatively.
The company did not provide a bright outlook for the year ahead.
Tyson believes that the overall domestic protein (chicken, beef,
pork and turkey) production is expected to decrease in fiscal 2012
compared with that in fiscal 2011. The fall in production will be
due to lower availability of cattle domestically, owing to
increased exports of cattle.
Based in Arkansas, Tyson Foods Inc. is a global distributor and
seller of chicken, beef, pork, prepared foods and related allied
products. Its products are marketed and sold primarily to grocery
retailers, grocery wholesalers, meat distributors, military
commissaries, industrial food processing companies, chain
restaurants, international export companies and domestic
distributors.
Currently, Tyson carries a Zacks #2 Rank (short term Buy
rating).
KROGER CO (KR): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis
Report
TYSON FOODS A (TSN): Free Stock Analysis Report
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