Tyson Foods, Inc. (TSN, Financial), with headquarters in Springdale, Arkansas, is one of the world's largest food companies with leading brands such as Tyson, Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair. It’s a recognized market leader in chicken, beef and pork as well as prepared foods, including bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, tortillas and desserts.
The company serves retail and foodservice customers in the U.S. and about 130 countries. It has about 113,000 team members employed in the U.S. and around the world. (Company’s website)
The company reported a strong third-quarter with notable earnings, delivering record EPS, operating income and return on sales. Following its strong performance in all the segments, it raised the full-year fiscal 2016 earnings guidance.
Third quarter results
The company reported record EPS of $1.25, which marked an increase of 51% from the prior-year quarter.
Adjusted EPS was $1.21 during the quarter, which marked an increase of 51% from the prior-year quarter.
Operating income during the quarter was $767 million, an increase of 36% from $563 million in the prior-year quarter, and adjusted operating income increased by 35% from the prior-year quarter.
Operating margin during the quarter was a record 8.2%.
- Record Chicken segment operating margin of 13.9%.
- Prepared Foods segment operating margin of 10.9%.
- Pork segment operating margin of 9.6%.
The company gained by $150 million in total synergies; $63 million incremental synergies over the prior-year quarter.
Sales during the quarter were $9.4 billion ($10 billion during the prior-year quarter).
Net income attributable to Tyson during the quarter was $484 million ($343 million in the prior-year quarter).
Effective tax rate during the quarter was 31.8% (which was 33.6% in the prior-year quarter).
Share repurchases
The company generated strong cashflows of $425 million to repurchase 6.6 million shares during the third quarter. It bought back an additional $380 million worth of shares to date in the fiscal fourth quarter.
Dividend
The company declared the quarterly dividend of 15 cents per share on Class A common stock and 13.5 cents per share on Class B common stock, payable on Sept. 15, to shareholders of record at the close of business on Sept. 1.
Segmentwise results (in millions)
| Segments | Sales | Operating Income (Loss) | Adjusted Operating Income (Loss) | |||
| Current Quarter | Prior Year Quarter | Current Quarter | Prior Year Quarter | Current Quarter | Prior Year Quarter | |
| Chicken | $2,743 | $2,757 | $380 | $313 | $380 | $313 |
| Beef | $3,783 | $4,305 | $91 | $(7) | $91 | $(7) |
| Pork | $1,271 | $1,207 | $122 | $64 | $122 | $64 |
| Prepared Foods | $1,809 | $1,810 | $197 | $207 | $197 | $197 |
| Others | $99 | $244 | $(23) | $(14) | $(23) | $1 |
Expectations for Fiscal 2017
| Ă‚ | Range |
| Domestic protein production (chicken, beef, pork and turkey) | To increase approximately 2% to 3% from fiscal 2016 levels and moderate export growth |
| Total synergies | To be approximately $700 million in fiscal 2017 |
| Sales | To be around $37 billion. For fiscal 2017, it expects sales to increase 1%. |
| Capex | To be around $725 million for fiscal 2016. It plans to increase capex in fiscal 2017. |
| Liquidity | The company maintains a minimum liquidity target of $1.2 billion. |
| Net interest Expense | It expects net interest expense to be around $245 million for fiscal 2016 and $225 million for fiscal 2017. |
Strong attributes of the quarter
- Generating momentum.
- Strong EPS, operating income and return on sales.
- All operating segment results performed well with the Chicken segment delivering a record 13.9% return on sales.
Focus
- The company is concentrating on value-added products.
- Optimizing cost structure.
- The company is investing in retail packaged brands.
- The company has differentiated its chicken business by being more consumer driven.
- Upgrading product mix.
Why Tyson?
It is growing its businesses through organic growth and is constantly returning value to the shareholder though share repurchases and dividends. It is constantly altering its portfolio to cater to Ă‚ changing consumer trends. The company's future is strong, and investors may benefit from adding this stock over the long run.
It has an increased presence in the Prepared Foods category, which is good and will reap returns. It is also planning to invest more in this segment. The company boasts of a strong balance sheet and with this, it can expand through strategic acquisitions and investing in the Prepared Foods category.
On a concluding note
Tyson is among the leaders in volume sales growth among the top 10 branded food companies. The company’s volumes in key categories are gaining momentum. The performance in recent years has been higher with more stable margins in the company’s Chicken segment. Tyson is fundamentally changing the way it operates its businesses and is focusing more on meat proteins. It has upgraded its product mix into more branded, value-added items and created the “Buy vs. Grow” strategy of production, significantly de-commoditizing the business.
It is a good position generating momentum that will take it into 2017 and beyond. The first half of the fiscal year was good, and it expects continued strong performance in the second half. The meat and poultry industry is the largest segment of U.S. agriculture and Tyson Foods has enough room to grow. The stock looks attractive; adding it to a portfolio will reap shareholder returns.
Disclosure: I do not hold any position in the company.
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