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Can Tyson (TSN) Beat Q1 Earnings on Product Innovation? - Analyst Blog

Zacks Equity Research
Updated

Meat processor Tyson Foods Inc. (TSN) is set to report first-quarter fiscal 2015 results on Jan 30, before the opening bell. Last quarter, it posted a 13.0% negative earnings surprise. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Tyson is likely to beat earnings estimates because it has the right combination of two key ingredients.

Zacks ESP: Tyson Foods currently has an Earnings ESP of +2.78%. This is because the Most Accurate estimate of 74 cents per share is pegged higher than the Zacks Consensus Estimate of 72 cents.

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Zacks Rank: Tyson carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement. 

The combination of Tyson’s Zacks Rank #3 (Hold) and 2.78% ESP makes us confident about a positive earnings beat on Jan 30.

What's Driving the Better-than-Expected Earnings?

Tyson’s continuous product innovations and strong momentum in most of its business segments which is driving sales of the company should help it to post modest gains in the to-be-reported quarter.

There is a general shift of demand among health conscious consumers from red meat to low-calorie chicken and processed chicken food items. This has helped the chicken segment drive higher gains in the recent quarters.

Moreover, the company witnessed strong demand of value added chicken and tray packs which drove sales in the chicken segment in the past few quarters. This is expected to continue in the first quarter of fiscal 2015 as well.

Tyson’s endeavor to adapt to the changing demand for low-calorie protein foods is encouraging. The company launched NatureRaised Farms brand of no-antibiotics-ever chicken which has been successful and reported double-digit growth in fiscal 2014.

In addition, during fourth-quarter fiscal 2014, Tyson launched Hillshire’s Jimmy Dean frozen sandwiches and bowls for lunch and dinner, thus diversifying the brand beyond breakfast. The company’s venture into the growing breakfast category is expected to boost the top line in the upcoming quarters.

Other Stocks to Consider

Here are some other companies worth considering as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Pilgrims Pride Corp. (PPC), with an Earnings ESP of +11.11% and a Zacks Rank #1.

Reynolds American Inc. (RAI), with an Earnings ESP of +1.15% and a Zacks Rank #2.


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TYSON FOODS A (TSN): Free Stock Analysis Report
 
REYNOLDS AMER (RAI): Free Stock Analysis Report
 
PILGRIMS PRIDE (PPC): Free Stock Analysis Report
 
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Zacks Investment Research