Tyson Foods Down 10% in 3 Months, Market Volatility a Worry

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Tyson Foods, Inc.TSN has been walking a tightrope, thanks to volatile market conditions for chicken and pork. The renowned food company received a jolt from increased tariffs that triggered unstable demand conditions. This has kept investors on the sidelines, evident from the stock's 10.7% decline in the past three months compared with the industry 's fall of 4.2%. Let's take a closer look at the factors weighing on this Zacks Rank #4 (Sell) company's performance.

Volatile Market Conditions Hurt Earnings Hopes

During the third quarter of fiscal 2018, the company witnessed sluggish volumes in the Chicken and Pork segments. The recently raised tariffs have put pressure on exports and made protein supplies abundant, which has led to unstable prices. Owing to the availability of cheaper protein options, demand conditions for chicken has been volatile. Going ahead, management expects such conditions to persist and negatively impact the Pork and Chicken segments. In fact, management expects domestic and export prices of chicken and pork to be affected by increased tariffs in 2018. Moreover, the increased supply of protein is likely to trigger volatility in the commodity market such as for cattle and poultry, ultimately leading to unfavorable volume/mix.

Thanks to such deterrents, the company lowered earnings projection for fiscal 2018. Tyson Foods expects adjusted earnings for the fiscal in the range of $5.70-6.00 per share compared with the previous view of $6.55-6.70.

Freight Expenses Also A Worry

Rising freight expenses is a significant challenge for Tyson Foods. Evidently, higher freight expenses negatively impacted operating income in the Beef, Chicken, Pork and Prepared Foods segments during the third and the second quarters of fiscal 2018. Also, the company expects these hurdles to linger, which is likely to increase overall expenses in fiscal 2018.

Wrapping up

However, management expects demand for protein products to continue rising. Incidentally, improved Beef and Prepared Foods volumes aided top-line growth during the third quarter. The Prepared Foods category has been depicting solid growth in particular, owing to rising demand for protein-packed brands and positive synergies from the acquisition of AdvancePierre. Going ahead, for fiscal 2019, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 2-3% year over year. Moreover, Tyson Foods anticipates fiscal 2018 sales to increase nearly 6%. Further, we remain encouraged by the company's Financial Fitness Program which is anticipated to generate total savings of roughly $200 million in fiscal 2018.

While these factors bode well for Tyson Foods, the current market conditions raise concerns for the company's near-term prospects.

Unsure About Tyson Foods? Check These Solid Food Stocks

Medifast MED , with a Zacks Rank #1 (Strong Buy), delivered positive earnings surprise in the last four quarters. You can see the complete list of today's Zacks #1 Rank stocks here .

Chefs' Warehouse CHEF , with long-term earnings per share growth rate of 22%, carries a Zacks Rank #2 (Buy).

Pinnacle Foods PF has long-term earnings per share growth rate of 8% and a Zacks Rank #2.

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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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