GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

A Few Reasons To Consider Tyson Foods for the Long Run

August 07, 2014 | About:
jaggom

jaggom

0 followers

The world’s second-largest meat processor, Tyson Foods (TSN), released impressive results for the third quarter. The company reported fantastic growth in its top line and its results came in line with expectations. Greater demand for chicken and pork products were the main growth drivers for the company. There are many key points Tyson Foods is counting on, which can take its growth to a new level. With rising demand for meat products and the proposed selling of Latin American chicken operations, Tyson Foods is expected to get better in the future.

Doing well

Tyson is seeing a strong fiscal year so far. Its quarterly revenue improved by 11% to $9.63 billion. This topped analysts’ estimates. Consensus had been modeling revenue of $9.5 billion. Chicken and pork products were the best sellers for Tyson, and they resulted in a solid improvement in its earnings. The earnings of the company grew by 9%, reporting EPS of $0.75 per share, which was more than $0.69 per share from last year’s same quarter.

Tyson Foods, having delivered a commendable performance in the third quarter, is all set to accelerate to new highs. Management is optimistic about its growth prospects. Tyson is focusing on important growth drivers, and is planning to sell some of its less preferred units such as the Latin American chicken operations. Though it is performing well, Tyson thinks that company can even perform better without it so it plans to sell this operation to JBS.

Besides, Tyson is also focusing on its home market. It is selling off its international operations and plans to use the money to pay off the acquisition charges of Jimmy Dean sausage maker Hillshire Brands Co.

Making the business efficient

Further, it has confirmed the shutdown of three of its plants. With this, Tyson Foods is aiming at restructuring its utilities and becoming more focused about its operational excellence. However, this shutdown of the plants will result in $49 million as impairment charges, but the company isn’t worried about this as the shutdown will ultimately improve its operational performance. This will lead to better revenue in the future. Moreover, in the long run, these initiatives are expected to drive better sales, as it will allow Tyson to shift its production units to better capacities.

Also, under its expansion moves, the acquisition of Hillshire is expected to help Tyson in expanding its area of operation, adding more customers to it. Also, with such a combination, management thinks that Tyson will reap benefits in terms of improvements in operations, purchasing, and distribution. In addition, management has also taken a strict decision to maintain a cost-efficient structure to improve its profit margins.

Beyond the weakness

Tyson did see some temporary disruptions as a result of a fire which broke out at one of its fully cooked processing plants. But now, the plant is back to its operations with new equipment installed. The company did face some unexpected loss as a result, and is expecting this event to impact its fourth quarter results by a small margin. But, Tyson sees better demand for beef and pork, which will lead to an improved performance going forward.

Seeing the growth momentum, management has come up with a strong guidance for fiscal 2015. Tyson is expecting overall growth to improve 10%. On the revenue front, the company is expecting its top line to improve by 11%.

Conclusion

Looking at the financials, Tyson Foods looks impressive and reasonable with a decent trailing P/E of 15.04. Management is also expecting synergies to come its way with the acquisition of Tyson and Hillshire by 2015, which will help the company grow. Taking a look at its earnings growth for the next five years, an impressive growth in Tyson’s earnings by a CAGR of 19% is visible. So Tyson Foods is a good bet for the long run.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK