Zacks Investment Research

Tyson Foods Inc.’s (TSN) first quarter 2013 adjusted earnings of 48 cents per share surpassed the Zacks Consensus Estimate of 39 cents by 23.1%. Quarterly earnings also increased an impressive14.3% year over year backed by strong sales in chicken coupled with operational efficiencies.

Revenue and Margins

Net sales went up marginally by 0.1% year over year to $8.4 billion in the quarter, but missed the Zacks Consensus Estimate of $8.5 billion. Sales growth in the Chicken and Beef segment was offset by declines in the other two segments −Pork and Prepared Foods.

Tyson’s gross profit went up 8.9% to $537 million from the prior-year quarter. Operating income went up 7.9% to $300 million in the quarter. Quarterly operating margin inflated 30 basis points to 3.6% of net sales, as compared with prior year quarter primarily due to operational efficiencies.

Segment Details

Chicken: Sales increased 7.0% year over year in the Chicken segment to $2.96 billion. However, sales volume dropped 1.1% due to decrease in domestic production.

Operating margin went up 240 basis points year over year to 3.6% in the Chicken segment, portraying positive pricing and operational efficiencies.

Beef: Sales in the Beef segment went up marginally by 0.5% year over year to $3.5 billion. Sales volume contracted 10.0% in the first quarter due to reduced processing of live cattle and reduced domestic demand. Operating margin inflated 40 basis points year over year to 1.3% backed by positive pricing and operational efficiencies.

Pork:The Pork segment revenue slipped 7.6% year over year to $1.4 billion. Sales volume declined 2.2% due to low consumer demand. Operating margin contracted 200 basis points to 9.2% from the year-ago quarter due to less pork margins owing to the excess domestic availability of pork products.

Prepared Foods: Prepared Foods sales declined 2.3% to $841 million compared with the prior year quarter. Sales volume increased 1.8%. Operating margin shrank 200 basis points to 3.9% due to lower average sales price, favorable product mix and additional investment in lunchmeat business.

Other Financial Details

The company repurchased 5.1 million shares for $100 million in first quarter of fiscal 2013.

The company paid a total dividend of $53 million during the first quarter of 2013 including a special dividend of 10 cents per share. The company also hiked its quarterly dividend by 25%.


Tyson believes that overall domestic protein (chicken, beef, pork and turkey) production will decrease by 1% in fiscal 2013 from 2012 levels due to increased costs for cattle and hog producers owing to the drought conditions of the summer of 2012 in U.S.

For fiscal 2013, the company expects sales to increase to approximately $35 billion, driven by anticipated price increases as domestic availability of protein goes down and raw material costs increase.

The company projects capital expenditure of $550 million in fiscal 2013. Tyson also expects interest expense of $140 million for fiscal 2013.

Other Stocks To Consider

Peer companies like Smithfield Foods Inc. (SFD) carrying Zacks Rank #1 (Strong Buy) and Hormel Foods (HRL) and Sanderson Farms Inc. (SAFM) both carrying a Zacks Rank #2 (Buy) are currently doing quite well.

HORMEL FOODS CP (HRL): Free Stock Analysis Report
SANDERSON FARMS (SAFM): Free Stock Analysis Report
SMITHFIELD FOOD (SFD): Free Stock Analysis Report
TYSON FOODS A (TSN): Free Stock Analysis Report
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Zacks Investment Research

Zacks Investment Research

Zacks Investment Research Inc. is an equity research firm. It offers research through quantitative and qualitative analysis. The firm caters to individual and institutional clients. Zacks Investment Research Inc. was founded in 1978 and is based in Chicago, Illinois.

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