Tyson Foods Inc. (TSN) released its second-quarter 2011 on May 9, 2011 where adjusted earnings remained flat year over year at 42 cents a share, missing the Zacks Consensus Estimate by 1 cent. Profits were driven by higher sales price as well as increased volume.
Revenue and Margins
Net sales recorded a growth of 15.7% to $8,000 million from $6,916 million in the year-ago quarter, surpassing the Zacks Consensus Estimate of $7,500 million by 6.6%. The upswing came as an outcome of sales growth across all its segments.
Tyson’s operating income declined by 11.1% to $303 million in the quarter compared with $344 million in the prior-year quarter. Quarterly operating margin contracted 120 basis points to 3.8%, portraying an augmented other feed ingredient costs, freight and weather-related expenses.
Segment Details
Sales grew 9.9% in the Chicken segment to $2,739 million compared with $2,491 million in the year-ago quarter. In spite of a reduction in production, sales volume continued to grow on the back of a cut in inventory levels.
Operating margin came down to 1.4% in the Chicken segment compared with 4.6% in the year-ago quarter portraying increased spending on grain and energy purchases by the company.
On a year-ago basis, sales climbed by a decent 18.9% in the Beef segment to $3,333 million compared with $2,804 million. However, volume contracted by 0.6% in the quarter. Segment operating margin contracted to 2.8% from 4.5% in the year-ago quarter. Operating margin contracted as a result of expenses related to purchase of cattle.
Pork segment revenue spiked 26.2% to $1,384 million compared with $1,097 million in the year-ago quarter, powered by an 18.4% jump in price and 6.6% growth in volume. Operating margin jumped to 10.5% in the Pork segment compared with 6.3% in the year-ago quarter.
Prepared Foods sales plummeted 4.6% to $778 million compared with $734 million in the year-ago quarter. However, the segment continues to face higher input costs, though fully offset by an increase in selling price. Segment operating margin dipped to 4.0% compared with 5.0% in the year-ago quarter.
Other Financial Updates
Tyson exited the quarter with cash and cash equivalents of $794 million. Long-term debt was $2,105 million. During the first quarter, $254 million was provided by operating activities and the company used $374 million for investing activities.
Guidance
For fiscal 2011, the company expects overall domestic production of chicken, beef, turkey and pork to increase as operational, pricing and mix improvements are expected to offset the increased input cost. The company expects sales to exceed $32 billion mostly due to price increases associated with rising raw material costs. The company plans to make capital expenditures of approximately $700 million in the fiscal year 2011.
We are encouraged by Tyson Foods’ significant presence in the international market. The company is vertically integrated and has advanced processing capabilities. However, the company faces stiff competition from both national and regional players like Smithfield Foods Inc. (SFD) and Pilgrim's Pride Corporation (PPC).
We currently have a Zacks #3 Rank on Tyson shares, which translates into a short-term Hold rating.
PILGRIMS PRIDE (PPC): Free Stock Analysis Report
SMITHFIELD FOOD (SFD): Free Stock Analysis Report
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