Stocks with great momentum have always attracted valued investors and Tyson Foods Inc. (TSN, Financial) is also no exception.
The company has posted excellent quarterly results, including adjusted sales of more than $40 billion. With the acquisition of Hillshire Brands, the company’s prepared food segment had a very strong performance in fiscal 2015.
Tyson Foods is one of the world's largest producers of chicken, beef, pork and prepared foods. Its leading brands are Tyson, Jimmy Dean, Hillshire Farm, Sara Lee frozen bakery, Ball Park, Wright, Aidells and State Fair. The company operates an integrated poultry production process that consists of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Tyson operates in five segments: Chicken, Beef, Pork, Prepared Foods, and other (includes foreign operations). The company provides products and services to customers throughout the U.S. and employs around 120,000 people in 130 countries.
Strong fourth quarter results
On Nov. 23, 2015, this leading meat processor reported financial results for its fourth quarter 2015, as well as fiscal 2015 results. The company’s total revenue increased 3.97% to $10.50 billion, compared to $10.10 billion in the previous year quarter. Adjusted sales for the reported quarter decreased 0.24% to $9.75 billion, compared to $9.78 billion in the year-ago quarter. Net income per share was 63 cents, and cash flows from operations were $898 million.
Adjusted operating income increased 21% to $568 million compared to $469 million in the previous year quarter. Tyson Foods recorded fourth quarter adjusted operating margin of 5.8% and captured $98 million in total synergies. Further, the company repurchased 5.9 million shares for $250 million, excluding shares repurchased to offset dilution from its equity compensation plan. Tyson Foods ended the quarter with cash and cash equivalents of $688 million and long-term debt of $6.01 billion.
Segments’ performance for fourth quarter 2015
Tyson Foods’ adjusted operating income in the chicken segment increased due to higher sales volume and lower feed ingredient costs, while adjusted sales volume increased as a result of stronger demand for chicken products and mix of rendered product sales. Adjusted operating income in the beef segment decreased due to unfavourable market conditions associated with a decrease in supply, which drove up fed cattle costs.
Adjusted sales volume in the pork segment decreased due to the divestiture of the company’s Heinold Hog Markets business in the first quarter of fiscal 2015. Excluding the impact of the divestiture, Tyson Foods’ adjusted sales volume grew 6.5% and 3.5% for the fourth quarter and 12 months of fiscal 2015, driven by higher demand for its pork products. Prepared Foods’ adjusted sales volume increased due to incremental volumes from the acquisition of Hillshire Brands, and adjusted operating income enhanced due to an increase in sales volume and average sales price mainly attributed to Hillshire Brands.
Fiscal 2015 results
For fiscal 2015, Tyson Foods’ adjusted sales and adjusted EPS increased 9% to $40.6 billion and 7% to $3.15 compared to the prior year. Adjusted operating income increased 37% year over year to $2.25 billion. Tyson Foods generated free cash flow of more than $1.5 billion, cash flow from operations of $2.6 billion, and reduced net debt by $1.7 billion. The company’s international segment reported sales of $4.6 billion for the fiscal 2015. Further, the company has achieved $322 million in synergies for the fiscal year.
Projections for fiscal 2016
Tyson Foods expects the following for fiscal 2016:
- Sales of $41 billion.
- Capital expenditures of $900 million.
- Net interest expense of $255 million.
- As of Oct. 3, 2015, the company’s liquidity was $1.9 billion, and it expects to maintain liquidity in excess of $1.2 billion.
- The company expects to increase its share repurchases under our share repurchase program.
- The company expects domestic protein production (chicken, beef, pork and turkey) to increase approximately 3% from fiscal 2015 levels.
- The company’s target for achieving synergies is more than $500 million, and more than $700 million in fiscal 2017.
Segments’ projections for fiscal 2016:
- The company expects lower feed costs of approximately $100 million for its chicken segment. Further, it expects operating margin should exceed 10%.
- For the beef segment, the company expects industry fed cattle supplies to be flat to slightly higher. Further, it expects operating margin should approximate the low end of the newly revised normalized range of 1.5% to 3.0%.
- For the pork segment, Tyson Foods expects industry hog supplies to increase around 2% to 3%, and operating margin will be in its normalized range of 6% to 8%.
- For the prepared foods segment, the company expects lower raw material costs of approximately $350 million, and operating margin will be near the low end of the 10% to 12% range.
- For the other segment, the company expects adjusted operating loss of approximately $50 million.
Growth and operations
Tyson Foods products are available in more than 130 countries. On June 1, 2015, Mexico's Federal Economic Competition Commission has approved the sale of Tyson Foods’ poultry business in Mexico to Pilgrim's Pride Corporation (PPC, Financial). Further, the company has also begun selling its products in Brazil.
In addition, Tyson Foods has poultry production operations in China and India. In India, Tyson partnered with Godrej India in the name of Godrej Tyson Foods Ltd. and it is the first company to market fresh chilled chicken in India. In India, the company has two processing locations in Mumbai and Bangalore.
Since 2001, Tyson Foods has poultry operations in China. Based on the province, Tyson Foods functions in four distinct operations, Tyson Nantong, Tyson Dalong, Tyson Rizhao, and Tyson Weifang. Recently, the company has introduced Tyson fresh, tray-packed chicken products for its Chinese retail consumers.
Management
On July 31, 2015, the company selected Mikel A. Durham as a new independent director on the Tyson board. She has a strong background in branded consumer packaged goods, deep understanding of foodservice, as well as experience in leading international growth strategies. This will help Tyson Foods to expand its wings further.
How Tyson Foods stands out
The company is growing its businesses through organic growth and operational efficiency capital projects with attractive returns and is acquiring businesses that supports its strategic objectives. Further, Tyson Foods is returning cash to its shareholders through share repurchases and dividends, while maintaining plenty of liquidity and investment grade credit ratings and strong incremental debt capacity.
To provide unique products with healthier options, Tyson Foods has two world-class research and development centers. For three consecutive years, Tyson Foods was recognized by CSP Magazine as the leader for chicken in customer service, marketing support, and innovative products categories in the Brand Perception Study among convenience store suppliers.
Tyson Foods is recognized as a leader in hunger and disaster relief and has donated 100 million pounds of food over the past 15 years. Recently, the company has announced of donating $50 million in cash and in-kind over the next five years in the fight against hunger, with a special focus on innovative initiatives at the local level.
(Source: Company Website)
On a concluding note
Tyson Foods is one of the largest food companies in the world with strong revenue growth, solid stock price performance, impressive record of EPS growth, attractive valuation levels, and good cash flow from operations. The company holds first or second position in brands over 13 categories. Further, Tyson Foods is ranked second in U.S. frozen foods with products in growing categories.
The meat and poultry industry is the largest segment of U.S. agriculture and Tyson Foods has enough room to grow. Additionally, with the recent quarterly release, the company is aiming for a better future and is all set to deliver a healthy menu to its investors. It is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
