Tyson Foods (TSN, Financial) reported impressive results for the third quarter on the back of strong run in of most of its divisions like chicken, beef, and pork. However, it did observe a slowdown in its prepared food segments that pressurized its earnings during the quarter due to a persistent run up in the raw material inputs for pork.
Its revenue for the third quarter came in at $9.68 billion, an increase of 11% from $8.73 billion in the same quarter a year earlier, beating the consensus estimates of $9.47 billion in revenue for the quarter. The food production company also posted 4.4% rise in its net profit to $260 million, or earnings of $0.75 per share as compared to $249 million or earnings of $0.69 per share in a year ago quarter. However, its earnings of $0.75 fell short of $0.78 earnings per share estimated by the analyst for the third-quarter 2014.
Growth in the cards
Nevertheless, the company has projected 10% earnings per share growth in the fiscal 2015 that should excite its shareholders and investors going forward. In addition, the company is planning to close down three of its plants in Cherokee, Iowa; Buffalo; and St. Teresa, N.M that should enhance its capacity utilization and effectively leverage its cost structure. On the same note, Tyson has decided to sell off its poultry business to Pilgrim’s Pride, a unit of JBS in Brazil and Mexico for $575 million. This sell off should assist the company to pay debt associated to its acquisition of Hillshire Brands.
It remains solid to close this transaction by the end of fourth-quarter and excited about the combining strengths that should drive its growth and deliver more returns to its investors and shareholders in future. Tyson is further looking forward to effectively integrate the best aspects of both the organizations, especially Hillshire’s brand-building, marketing, innovating and product development capabilities that should indeed will boost its performance in the coming years. This should also help Tyson to uplift the performance for its Prepared Food segment, while addition more synergies to its operations.
Tyson anticipates capturing substantial synergies from the combination of its prepared foods business with Hillshire. In addition, Donnie Smith the Chief Executive officer of Tyson Foods said that the company remains well on track to integrate and explore more synergies to its business. It plans to gain approximately $225 million in synergy in the first year and about $500 million in three years times. Moreover, the Hillshire acquisition should become officially accretive to its earnings in 2015. These strategic moves should certainly drive its profitability and help the company to better expand its presence in the international market.
Expecting a better future
Additionally, the food company is planning to buy new equipment in its chicken segment for its high-margin value added products that should enhance its production volume in the current as well as in the fiscal 2015. Tyson’s volume was down in the last two quarters due to unexpected fire at one of its fully cooked processing plants that had pressurized its volume. However, Tyson has now almost repaired the mechanism and remains on track to delivering normal volume. In fact, the company is confident of delivering a 10% return on sales in its Chicken segment in 2015. Also, Tyson is planning to roll over additional production facility in the coming spring that should enhance its production capabilities in the future.
Tyson’s Beef and Pork segment continue to deliver strong performance due to strong demand for these products across the region. Its Beef segment continues to see higher demand, despite higher pricing that should certainly boost sales for its beef segment in the fourth-quarter as well. Also, the company is effectively executing its revenue enhancing program and busy in promoting its premium branded beef program that should enhance its results going forward.
In addition, Tyson is planning to add heavier weight cattle in fiscal 2015 that should help the company to concentrate on the feed lines and result in lower feed ingredient cost. Tyson expects its Beef business next year to remain same as this year with respect to cattle supply and operating margin prospective.
Its international business also looks good as China is witnessing recovery in the demand that had once pressurized due to the food safety concerns. Also, the company is seeing a better supply balance resulting from the absence of stock imports should strengthen its pricing during fiscal 2015. The company is looking forward to a great start in fiscal 2015 and expects its sales, operating profit and EPS to grow at a healthy pace.
Conclusion
Tyson Foods is currently trading at the trailing P/E of 13.91 and forward P/E of 11.55 that indicate that the stock has reasonable valuations and looks solid to yield high return in the future. In addition, its PEG ratio of 0.70 expected for the next five year continues to support its growth prospects in the future. Also, the analysts have estimated CAGR of 19.00%, greater than average industry CAGR of 13.17% for the next five years displays tremendous growth prospects for the company in the coming years.
