We reaffirm our Neutral recommendation on
Tyson Foods Inc.
). While the company has been delivering solid quarterly results,
lower corn prices are offset by skyrocketing cattle prices, thus
Why the Reiteration?
Tyson posted better-than-expected results in three out of the
last four quarters. Product innovation, expansion strategies and
cost savings program have remained the company's strong points.
However, the rising prices of cattle may pressure the margins in
the coming quarters.
Tyson is positioned as one of the world's leading meat
processors and has a strong presence in beef, pork, chicken and
processed food products categories. This acts as a buffer for the
company's sales and margins - if one category fails, the other
can overcome. Similarly, the company is stretched over a vast
geographical expanse in North America, Canada, Europe, Asia,
Middle East and Russia, which helps it to maintain sales and
Moreover, Tyson has bright prospects ahead as management
expects profit to rise for the coming fiscal years. Lower corn
prices and higher chicken supply leading to a decline in chicken
prices, is expected to boost profits.
It expects top-line sales growth in the range of 3%-4%,
value-added poultry and prepared foods to grow within 6% to 8%
and international business to grow in the 12%-16% range for
fiscal 2013-2015. The company expects to grow its business in
China, India and Mexico in mid double-digits by 2014.
Tyson adapts itself to the changing demand of consumers. It
conducts regular market research surveys and modifies its product
line-ups accordingly. As an increasing number of health conscious
U.S. consumers are focusing on nutritious breakfasts, Tyson
considers it a high potential category. In fiscal 2013, the
company has come up with two breakfast launches under Tyson Day
Starts brand that will include biscuit sandwiches, flat breads,
and wrapped omelets and Wright Brand breakfast sausage.
However, the high price of cattle has lowered operating
margins and volumes in the Beef segment over the past few
quarters. Moreover, severe drought conditions in 2012 forced
farmers to reduce their herd thus squeezing cattle supply.
Cattle prices have been projected to rise by U.S. Department
of Agriculture for 2014. Lower corn prices aiding lower feed
costs are being offset by higher cattle prices. This is expected
to further increase input costs in fiscal 2014 for cattle and hog
Again, ongoing macroeconomic headwinds are compelling
consumers to reduce their discretionary spending because of the
low disposable income. As a result, traffic at restaurants are
falling year over year.
Moreover, traffic at restaurants are expected to reduce
further in 2014 compared with the 2013 level due to higher gas
prices, payroll taxes, bad weather and economic uncertainty. This
is affecting the demand for Tyson's products.
Tyson has a Zacks Rank #3 (Hold). However, better-ranked
stocks in the retail sector include
Hormel Foods Corp.oration
Con Agra Foods Inc.
Green Mountain Coffee Roasters Inc. (
. All these stocks carry a Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
HORMEL FOODS CP (HRL): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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