Tyson Foods (TSN) Surges YTD Buoyed by Solid Protein Demand

Tyson Foods, Inc. TSN is poised to continue gaining from its efforts to capitalize on the rising demand for protein-packed products. Notably, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise roughly 2-3% year over year in fiscal 2020. Tyson Foods’ focus on enriching the portfolio to cater to this rising demand, along with its Financial Fitness Program, has been boosting investors’ spirits despite input cost inflation.

Shares of this Zacks Rank #3 (Hold) company have soared 71.7% year to date, easily outpacing the industry’s growth of 40.2%. Let’s delve deeper.

Focus on Protein-Packed Products Aids

Tyson Foods has a rich portfolio of protein-packed brands that are growing rapidly across the globe. During the fourth quarter of fiscal 2019, sales in pork, chicken and prepared foods segments reflected growth. Markedly, sales volume in the pork unit has been gaining from improved demand, while volumes in the Chicken unit have been rising on the back of acquisitions. Incidentally, sales volume in this unit advanced 13.1% year on year during the fourth quarter.

Tyson Foods has been focusing on acquisitions to expand the portfolio and boost sales volume. We note that the company completed the acquisition of the European and Thai operations of BRF S.A. in June. The buyout strengthened Tyson Foods’ footing in the Thai poultry space and expanded presence in the U.K. and Netherlands.  Prior to this, the company acquired Keystone Foods business in November 2018, which has particularly been bolstering performance of its Chicken as well as the International and Other segments. Other notable acquisitions of Tyson Foods in the past include AdvancePierre, Original Philly Holdings, Hillshire and Mexican food restaurant chain, Don Julio Foods.

Additionally, the company has undertaken divestiture of non-protein businesses (such as Sara Lee Frozen Bakery, Kettle and Van’s) to focus more on the growing protein-packed food arena. Apart from this, it has been steadily expanding the fresh prepared foods offering, owing to consumers’ rising demand for natural fresh meat without any added hormones or antibiotics. In this respect, Tyson Foods’ buyout of Tecumseh is quite noteworthy.  Further, the company is on track with new plant-based protein and blended products launch under the Raised & Rooted brand.

Cost Woes Likely to be Countered

Tyson Foods is witnessing high input costs across some of its categories. This is weighing on operating profits of certain segments. During the fourth quarter, higher livestock costs in the pork unit, feed-ingredients costs in the chicken unit and raw-material costs in the prepared foods unit were headwinds. A consistent rise in such input metrics might dampen the company’s operating profits.

Nonetheless, Tyson Foods, which shares space with Hormel Foods HRL, is on track with the Financial Fitness Program to enhance supply-chain efficiencies, reduce overheads and drive the bottom line. The company aims to generate savings from this program through synergies from acquisition integration, and incremental cost optimization, which involves the removal of non-value-added costs. Earlier, management stated that it expects the program to generate savings worth $600 million by 2020. Majority of these savings are expected to benefit the Prepared Foods and Chicken segments.

This along with other growth drivers is likely to help Tyson Foods maintain its impressive momentum.

Check These Solid Food Stocks

McCormick & Company MKC, with a Zacks Rank #2 (Buy), has a long-term earnings per share growth rate of 8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Beyond Meat BYND, also with a Zacks Rank #2, has an impressive earnings surprise record.

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