Will Tyson Foods' (TSN) Q3 Earnings Reflect Coronavirus Woes?

Tyson Foods, Inc. TSN is likely to report a decline in both top and bottom lines when it reports third-quarter fiscal 2020 numbers on Aug 3, before the opening bell. The Zacks Consensus Estimate for revenues is pegged at $10.5 billion, indicating a drop of 3.7% from the prior-year quarter’s reported figure.

The Zacks Consensus Estimate for third-quarter earnings has risen 4.6% in the past 30 days to 91 cents. However, this suggests a deterioration of 38.1% from the figure reported in the year-ago period. In the last reported quarter, the company delivered a negative earnings surprise of 36.4%. Further, this renowned meat products company has a trailing four-quarter negative earnings surprise of 10.1%, on average.

Tyson Foods, Inc. Price and EPS Surprise

Tyson Foods, Inc. Price and EPS Surprise

Tyson Foods, Inc. price-eps-surprise | Tyson Foods, Inc. Quote

Key Factors to Note

In its second-quarter earnings call, management said that Tyson Foods had been battling several hurdles on account of the coronavirus outbreak and the resultant shutdown of some manufacturing facilities. The company is being adversely impacted by lower workforce, supply-chain volatility and the temporary idling of facilities. The company said that it expects such hurdles to elevate the operating and production cost burden and also weigh on its volumes for the remainder of fiscal 2020. This is likely to get reflected in the company’s third-quarter results. Moreover, retail volume increases have not been enough to compensate for soft foodservice volumes. Management expects volume declines in the second half of fiscal 2020. The company particularly said that it expects such market trends to continue in the third quarter.

Apart from this, Tyson Foods has been experiencing high input costs across some of its categories. In the Prepared Foods segment, the company anticipates disruptions from coronavirus to affect raw-material availability in the remainder of fiscal 2020. This raises concerns for the quarter under review.

Further, for the Chicken segment, management expected weak pricing to continue in the third quarter. Notably, this segment has greater exposure to the foodservice channel compared with other segments. Although Tyson Foods adjusted parts of its production capacity to meet retail demand, foodservice losses have not been entirely compensated. Moreover, the channel shift is weighing on margins and a reduced workforce has lowered plant efficiency, leading to elevated production costs. Given the increased domestic supplies but lower foodservice consumption and high production costs, chicken operations are expected to have incurred losses in the back half of fiscal 2020. Also, in the second-quarter earnings call, management said that it expects profitability in the International segment to remain affected by COVID-19-related woes in the short term.

Nonetheless, the company’s export markets have been strong. Another channel performing well is e-commerce, which saw considerable sales growth in the second quarter. The company expected such favorable trends to continue. Also, the company has been benefiting from its robust portfolio of protein-packed brands. Further, the company’s Financial Fitness Program, which is focused on enhancing operating and supply-chain efficiencies, reducing overheads and aiding the bottom line, bodes well.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Tyson Foods this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Tyson Foods currently has a Zacks Rank #3 and an Earnings ESP of +10.29%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks With Favorable Combinations

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season.

Nu Skin NUS has an Earnings ESP of +6.35% and a Zacks Rank #1.

Flowers Foods FLO has an Earnings ESP of +9.41% and a Zacks Rank #2.

Clorox CLX has an Earnings ESP of +0.59% 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.

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