Tyson Foods Inc.'s (TSN) third-quarter fiscal 2013 adjusted earnings (excluding impairment charges and currency translation gains) of 69 cents per share beat the Zacks Consensus Estimate of 59 cents by 17.0%. Quarterly earnings also beat the prior-year quarter earnings of 51 cents by 35.0%.
Earnings were on the upswing due to strong momentum in the Chicken segment and the company’s lower outstanding shares following share buyback during the third quarter.
Revenues and Margins
Net sales increased 5.7% to $8.7 billion in the quarter, due to sales growth in Chicken and Beef segments. Sales also beat the Zacks Consensus Estimate of $8.6 billion.
Tyson's adjusted operating income climbed 2.2% to $419 million in the quarter. Adjusted operating margin contracted 70 basis points (bps) to 4.8% of sales, driven by lower input cost following a sharp fall in corn prices during the quarter.
Segment Details
Chicken: Sales increased 10.6% year over year to $3.2 billion backed by higher demand in both international and domestic markets. Sales volume climbed 4.4% due to a rise in sales during the quarter.
Operating margin inflated 140 bps to 7.0% from the year-ago quarter, portraying a dip in feed costs due to lower corn prices following a record harvest during the quarter.
Beef: Sales in the Beef segment climbed 6.7% year over year to $3.7 billion. Sales volume increased 3.8% in the third quarter due to higher demand. Operating margin inflated 110 bps to 3.1% following increased operational efficiencies and a relatively stable live cattle market.
Pork: The Pork segment sales slipped 0.1% year over year to $1.33 billion. Sales volume decreased 4.7% due to a supply-demand imbalance in the domestic economy and lower exports during the quarter. Operating margin contracted 10 bps to 3.0% from the year-ago quarter due to less margin in the Pork segment due to higher average sales price and livestock cost.
Prepared Foods: Prepared Foods’ sales went up 4.3% to $797 million compared with $764 million in the year-ago quarter. Sales volume climbed 1.3% due to higher demand for certain foodservice products. Operating margin shrank 320 bps to 3.0%, due to product-mix changes, higher raw material cost and additional investments in lunchmeat business.
Balance Sheet and Share Repurchase
Tyson Foods held $943 million of cash and cash equivalents as of Jun 29, 2013, compared to $762 million as of Mar 30, 2013. Long-term debt stood at $1.89 billion as of Jun 29, 2013, compared to $1.90 billion as of Mar 30, 2013. The company repurchased 4.0 million shares for $100 million in third-quarter fiscal 2013.
Guidance for Fiscal 2013
Tyson believes that overall domestic protein (chicken, beef, pork and turkey) production will increase by 1% in fiscal 2013 from the 2012 levels due to favorable weather conditions resulting in higher grain supplies.
For fiscal 2013, the company expects sales to stand at $34.5 billion. The company projects capital expenditures of $550 million-$600 million in fiscal 2013. For fiscal 2014, Tyson expects capital expenditure within the range of $650 million-$700 million.
Tyson also expects interest expense of $140 million for fiscal 2013..
Guidance for Fiscal 2014
The company issued fiscal 2014 sales guidance of $36 billion. The guidance reflects the Tyson’s strategy to drive growth in domestic value-added chicken sales, prepared food sales and international chicken production.For fiscal 2014, Tyson expects capital expenditure within the range of $650 million-$700 million and interest expense of $100 million.
Tyson carries a Zacks Rank #2 (Buy). Other diversified consumer staples stocks worth considering include Dole Food Company Inc. (DOLE), Lorillard Inc. (LO) and The J M Smucker Company (SJM). While Dole Food carries a Zacks Rank #1 (Strong Buy), J M Smucker and Lorillard hold a Zacks Rank #2 (Buy).
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