Tyson Foods Up 30% in a Year: Can it Retain the Momentum?

Tyson Foods, Inc.TSN has been a favored pick for investors in 2017. The food giant, specializing in fresh, frozen and processed meat and chicken products, has witnessed shares soar almost 32.6% this year, compared with its industry 's rally of 26.6%.

Tyson Foods' strategies have been paying off and driving business growth. Let us take a look at some of the initiatives undertaken by the company and see how it is placed for the upcoming periods.

Protein Packed Brands: An Important Growth Driver

Tyson Foods actively responds to consumers increasing preference for protein-packed meat and chicken products. Notably, sales volume in the chicken segment inched up 1.6% and 4.1% during the third and fourth quarters of fiscal 2017, respectively. Encouraged by such growth, the company has undertaken several efforts to expand poultry production capacity, especially in Tennessee. Along with the chicken segment, the company's beef unit grew 0.4% and 3.3% in the past two quarters. Robust domestic demand for beef products, improved availability of cattle supply and higher exports have been the primary drivers in this segment.

Further, Tyson Foods has been focusing on acquisitions to strengthen protein-packed portfolio. In this regard, the company's AdvancePierre buyout favorably impacted the Prepared Foods segment's performance in the last two quarters. To enrich Prepared Foods category, the company also announced the buyout of Original Philly Holdings in November 2017. Management continues to expect positive synergies from these acquisitions.

Latest Venture Into Meat Substitute Market

Growing demand for protein-rich products has led to intensive animal farming, causing significant environmental and animal welfare concerns. Moreover, plant-sourced protein products are considered healthy and a viable substitute of meat by a growing demography of protein-savvy consumers.

Driven by such trends, Tyson Foods has been tapping into alternative sources of protein. The company recently raised its stake in the California-based company, Beyond Meat, which specializes in plant-based burger patties, non-GMO soy, heat-and-eat meals and pea protein frozen foods. Owned by the leading cereal producer Kellogg K , Beyond Meat has a wide market reach in the meat substitute market. Such initiatives strengthen Tyson Foods competitive position against firms which have substantial presence in the meat substitutes markets, such as AMZN and Kroger KR .

Lingering Concerns for Tyson Foods

Tyson Foods has been consistently hiking wages to ensure greater employee retention. However, such endeavors increase the company's expense burden. Moreover, Tyson Foods' capacity expansion initiatives require the recruitment of more workers. This may further augment the company's cost burden. Additionally, the company is exposed to the risks of volatility in the prices of raw materials, which may lead to unfavorable volume/mix. Such headwinds are expected to pose viable challenges for Tyson Foods, if not aptly offset.

Final Thoughts

Tyson Foods expects its performance in fiscal 2018 to gain from business integration synergies and other cost-optimization efforts, such as the recently-introduced Financial Fitness Program. In fact, management expects net saving of nearly $200 million in fiscal 2018 along with synergies worth $400 million and $600 million estimated for fiscal 2019 and 2020, respectively. Such efforts are expected to offset the negative impacts of the expense burden and price volatility.

Moreover, Tyson Foods' robust portfolio of brands makes it a strong contender in the food industry. Further, this Zacks Rank #3 (Hold) company's expansion efforts are expected to drive growth in the forthcoming periods and boost investor's optimism. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here .

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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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