Tyson Foods, Inc.’s (TSN) third-quarter fiscal 2014 adjusted earnings of 75 cents per share missed the Zacks Consensus Estimate of 83 cents by 9.6%. Quarterly earnings, however, increased 8.7% from the prior-year earnings of 69 cents as a strong sales performance made up for rather softer margins.
Revenues and Margins
Net sales increased 11.0% to $9.7 billion in the quarter, due to sales growth in most of the business segments. Sales beat the Zacks Consensus Estimate of $9.3 billion by 4.3%.
Tyson's operating income slipped 2.8% to $407 million in the quarter due to higher feed costs.
Segment Details
From the second quarter of fiscal 2014, Tyson began reporting International operation as a separate segment, which was previously included in Chicken segment. The International segment includes foreign operations related to raising and processing live chickens in Brazil, China, India and Mexico.
Chicken: Sales in this segment inched up 0.3% year over year to $2.82 billion as higher demand in international markets was partially offset by discontinued operations in some plants. Average sales price (ASP) declined 1.0% primarily due to lower feed ingredient costs, partially offset by mix changes.
Beef: Sales in the Beef segment climbed 12.5% year over year to $4.2 billion backed by higher demand for beef products. ASP went up 13.5% due to lower domestic availability of fed cattle supplies.
Pork: The Pork segment sales climbed 32.6% year over year to $1.8 billion driven by better domestic demand for pork products. ASP increased 26.3% due to lower hog supplies thus raising input costs.
Prepared Foods: Prepared Foods’ sales went up 13.0% to $901 million compared with the year-ago quarter backed by improved demand. ASP increased 8.7% due to higher input costs. The Prepared Foods segment had a disappointing quarter primarily due to the continued run up in pork raw material input. In the earnings conferece call, the company also announced the sale of its operations in Brazil and Mexico for $575 million.
International: Sales went up 6.4% to $365 million compared with the year-ago quarter backed by growth of business in Brazil and China. ASP declined 9.2% due to poor export market conditions.
Other Financial Details
Tyson Foods had $587 million of cash and cash equivalents as of Jun 28, 2014, compared with $438 million as of Mar 29, 2014. Long-term debt stood at $1.8 billion as of Mar 29, 2014 compared with $1.9 billion as of Mar 29, 2014.
On July 1, 2014, Tyson entered into a definitive merger agreement to acquire Hillshire Brands for $63 per share in cash. The deal is expected to close by September 27, 2014, subject to customary regulatory approvals.
Guidance for Fiscal 2014
The company maintained its fiscal 2014 guidance. For fiscal 2014, Tyson expects overall domestic protein production (chicken, beef, pork and turkey) to increase approximately 1% from fiscal 2013. However, the company expects grain supplies to go up in fiscal 2014.
Tyson plans to close three Prepared Foods plants. The production from the closed plants will be moved to other existing facilities. For International chicken revenue is expected to go up.
For fiscal 2014, Tyson expects sales to be around $38 billion backed by strong demand for its products. The company expects capital expenditure within $600 to $650 million.
Tyson issued fiscal 2015 guidance. It expects earnings per share growth of 10% for fiscal 2015. For fiscal 2015, Tyson expects sales to be around $42 billion backed by strong demand for its products. The company expects capital expenditure within $900.
Tyson carries a Zacks Rank #3 (Hold). Another stock in the food, meat processing sector includes Sanderson Farms Inc. (SAFM), Pilgrims Pride Corporation (PPC) and Hormel Foods Corp. (HRL). While Pilgrims Pride and Sanderson Farms carry a Zacks Rank #1 (Strong Buy), Hormel Foods carries a Zacks Rank #2 (Buy).
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