U.S. consumer spending surged to $94 a day for the month of July, up from $89 per day in July 2013. Also, it is higher than $91 per day in the month of June. This means that people in the U.S. have started spending more as they earn more. This is definitely good news for all the retailers, who find it difficult to survive in an environment where consumer spending is low.
The most obvious industry to benefit from this uptrend is the food industry, be it packaged food or items such as chicken, beef and pork. Therefore, Tyson Foods (TSN, Financial), which produces and markets products such as beef, pork and chicken, is having a gala time, as evident from a rise of 29% in its share price. Also, the company reported its third-quarter results and revised its outlook, enabling its share prices to move north.
Mixed bag of numbers
The top line of the food company surged 11% to $9.7 billion over last year’s quarter. This was higher than the estimate of $9.5 billion. One of the key reasons for this increase was higher demand for its products as well as rising prices of beef and pork, which are driving sales higher.
The meat company witnessed growth across all the segments, leading to a higher top line. The pork segment was one of the best performers with a 32.6% increase in its revenue. Sales were driven by higher demand and an increase in price of 26.3%. Prices have been increasing due to tight hog supply mainly due to the PED virus.
Even the beef segment grew 12.5% to $4.2 billion as prices climbed 13.5%, due to lower availability of cattle feed. However, chicken volumes have risen 1.3% since higher prices of other products made people shift to chicken, which has a lower price tag.
Earnings for the quarter also rose to $0.75 per share as against $0.69 per share, in the previous year. However, analysts were expecting the bottom line to be at $0.78 per share. The company could have managed to post better earnings, but rising input costs weighed on its bottom line.
What lies ahead?
The meat retailer announced its plans to sell off its chicken-producing plants in Mexico and Brazil. Also, it will close three plants in the Prepared Food segment. This will help Tyson in streamlining its costs as well as getting money to finance its recent acquisition of Hillshire Brands.
The company announced its plans to buy Hillshire Brands recently, in order to strengthen its prepared Food segment. Tyson excels in selling commodity meat and poultry-related products, whereas Hillshire specializes in frozen and pre-packaged, ready-to-eat retail products. This will help the meat retailer expand its reach in the popular breakfast segment.
This acquisition is in addition to another acquisition made in January this year. Tyson bought Bosco’s Pizza Co. at the beginning of this year, thereby expanding its product portfolio further.
Key thoughts
Tyson Foods is doing pretty well and as the overall consumer spending is on the rise, the retailer is able to benefit from it. Also, new additions to its products and acquisitions made recently should continue to benefit. Further, the food retailer raised its outlook for the year, making investors hopeful about the company. Hence, Tyson looks good to go.
