Is Tyson Foods Worth a Bet? - Analyst Blog

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On Jun 6, 2014, we issued an updated research report on Tyson Foods Inc. ( TSN ).

Tyson reported mixed second-quarter fiscal 2014 results on May 5. The food processing company's first-quarter earnings per share of 60 cents missed the Zacks Consensus Estimate by a penny but beat the year-ago figure by 58%. Profit improved year over year backed by strong sales in most of the segments. Net sales of $9.03 billion surpassed year-ago results by 7.7% and beat the Zacks Consensus Estimate by 2.6%.

However, the Spring, Arkdale-based Tyson expressed concerns regarding the dearth of domestic availability of chicken and pork in the near future. Moreover, the meat processor fears the supply constraint will make it difficult to meet the growing demand for protein in the international market. Again, livestock diseases, higher input prices and constrained consumer discretionary environment due to ongoing macroeconomic challenges are matters of concern.

However, management remains confident that it will be able to combat the headwinds through innovating newer product lines as per the changing demand for protein foods. Moreover, Tyson is looking for opportunities to expand its fresh meat business. In this regard, on Jun 9, the company won the bidding war to buy packaged meat producer The Hillshire Brands Company ( HSH ). Tyson had been competing with rival poultry producer Pilgrim's Pride Corp. ( PPC ).

Tyson outbid Pilgrim's Pride's offer of $55 per share on Jun 3 by raising its bid to $63 to acquire Hillshire's top meat brands like Jimmy Dean sausages and Ball Park hot dogs.

The Zacks Rank #3 (Hold) company initially offered $50 per share in cash for Hillshire Brands on May 29, in response to Pilgrim's Pride's offer of $45 for all the outstanding shares of Hillshire announced on May 27.

If the deal gets through, the purchase would make Tyson the industry leader in chicken production and increase its margins in other categories such as desserts and lunch meats. Tyson will also benefit from the strength of Hillshire's products in the breakfast category where the former has little presence. The purchase would also improve Tyson's economy of scale with more customers and shelf space. However, for that, Hillshire will have to terminate its deal with Pinnacle Foods Inc . ( PF ) dated May 12, 2014 in which Hillshire intended to buy the later to bolster its presence across the frozen, refrigerated and dry grocery categories. A group of analysts, however are not happy with Tyson as they feel that Tyson had overpaid for the bid.

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TYSON FOODS A (TSN): Free Stock Analysis Report

HILLSHIRE BRAND (HSH): Free Stock Analysis Report

PINNACLE FOODS (PF): Free Stock Analysis Report

PILGRIMS PRIDE (PPC): 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.

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

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