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Tyson (TSN) Beats Q1 Earnings, Revenues on Higher Margins - Analyst Blog

Zacks Equity Research
Updated

Tyson Foods, Inc. (TSN) delivered solid first quarter fiscal 2015 results as the company exceeded the Zacks Consensus Estimate on both counts.

Adjusted earnings of 77 cents per share exceeded both the Zacks Consensus Estimate and the prior-year earnings of 72 cents by 6.9%. Strong sales performance and improved operating margin drove earnings in the quarter and made up for the higher input costs.

 

Tyson Foods Inc. - Quarterly EPS | FindTheBest

 

Revenues and Margins

Net sales increased 23% to $10.817 billion in the quarter on the back of sales growth in most of the business segments. Sales beat the Zacks Consensus Estimate of $10.424 billion by 3.8%.

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Tyson's adjusted operating income increased 37% to $564 million in the quarter driven by higher sales and lower feed costs. Adjusted operating margin increased 50 basis points to 5.2%.

Segment Details

From the second quarter of fiscal 2014, Tyson began reporting International operations as a separate segment (previously included in the Chicken segment). The segment includes foreign operations related to raising and processing live chickens in Brazil, China, India and Mexico.

Chicken: Sales in this segment increased 4.7% year over year to $2.78 billion driven by 3.1% increase in volume and 1.5% higher average sales price (ASP). Sales volume grew on the back of stronger demand for chicken products. Average sales price increased as a result of favorable market conditions and sales mix.

Operating income margin grew 310 basis points to 12.6% in the quarter, owing to higher average sales price and volumes and lower feed ingredient costs, which decreased $110 million during the first quarter of fiscal 2015.

Beef: Sales in the Beef segment climbed 17.6% year over year to $4.39 billion. ASP went up 20.9% due to lower domestic availability of fed cattle supplies, while sales volume decreased 2.7% due to a reduction in live cattle processed.

Operating loss margin was 0.1% in the first quarter as against an income margin of 1.6% in the prior-year quarter. The loss was due to higher fed cattle costs and reduced consumption of beef products, along with increased input costs, as well as lower sales volumes and increased operating costs.

Pork: Pork segment sales climbed 8.1% year over year to $1.54 billion driven by 1.1% growth in volumes and a 7% increase in ASP driven by increased demand for pork products. Additionally, ASP increased due to lower total hog supplies, which resulted in higher input costs. Operating margin declined 60 basis points to 7.9%.

Prepared Foods: Prepared Foods’ sales went up significantly to $2.133 billion from $907 million in the year-ago quarter. This was backed by 89.5% rise in volumes, primarily due to the acquisition of Hillshire Brands completed on Aug 28. (Read: Tyson Foods Completes Merger, Hillshire Brands Delisted) as well as improved demand for the prepared foods. ASP increased 24.1% due to better product mix and increased prices owing to higher input costs.

Operating margin increased 340 basis points to 5.2% due to an increase in sales volume and average sales price, as well as profit improvement initiatives and Hillshire Brands synergies.

International: Sales declined 6.7% to $305 million on volume decline of 3.8% due to the sale of the Brazil operation in the first quarter of fiscal 2015. ASP declined 2.9% due to supply imbalances associated with weak demand in China.

Operating loss margin was 4.6% in the quarter compared with loss margin of 8.6% in the prior-year quarter. The lower loss margin was due to the sale of the Brazil operations and better market conditions in Mexico.

Guidance for Fiscal 2015

For fiscal 2015, the company anticipates sales to be approximately $42 billion as the company integrates Hillshire Brands and continues to accelerate domestic value-added chicken sales and Prepared Food sales.

Tyson also expects overall domestic protein production (chicken, beef, pork and turkey) to increase approximately 1% in fiscal 2015. Also, the company expects grain supplies to go up in fiscal 2015.

Tyson carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the consumer staple sector include Supervalu, Inc. (SVU), Sysco Corp. (SYY) and Reynolds American, Inc. (RAI). While Supervalu holds a Zacks Rank #1 (Strong Buy), Sysco and Reynolds American carry a Zacks Rank #2 (Buy). 


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