Tyson Foods, Inc.’s TSN third-quarter fiscal 2015 adjusted earnings of 80 cents per share missed the Zacks Consensus Estimate of 95 cents by 15.8%. Earnings, however, increased 7% from the year-ago quarter, backed by year-over-year improvements in sales and operating margins.
Revenues and Margins
Net sales increased 4% to $10.07 billion on the back of sales growth in beef and prepared foods business segments. Sales, however, missed the Zacks Consensus Estimate of $10.19 billion by 1.2%. Sales volume increased 2.9% led by stronger demand for chicken products and mix of rendered product sales.
Tyson's adjusted operating income increased 40% to $568 million driven by higher sales and lower feed costs. Adjusted operating margin increased 200 basis points (bps) to 5.6%.
Segment Details
Chicken: Sales in this segment decreased 2.5% year over year to $2.75 billion due to 5.3% decline in average sales price (ASP). Sales volume increased 2.9% backed by positive sales mix.
Operating income margin grew 450 bps to 11.4%, driven by lower feed ingredient costs, which decreased $125 million during the quarter.
Beef: Sales in this segment climbed 2.7% year over year to $4.3 billion. ASP went up 6.9% backed by lower domestic availability of fed cattle supplies, while sales volume decreased 3.9% due to reduction in live cattle processed.
The segment suffered an operating loss 0.2% of sales. 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 plunged 31.7% year over year to $1.20 billion due to 4.8% decline in volumes and 28.2% decrease in ASP. Operating margin shrank 130 bps to 5.3%.
Prepared Foods: Prepared Foods’ sales went up significantly to $1.81 billion from $901 million a year ago. This upside came on the back of 77.4% surge in volumes as well as ASP increase of 13.2% due to better product mix and increased prices owing to higher input costs.
Operating margin expanded on the back of an increase in sales volume and ASP, as well as profit improvement initiatives and the Hillshire Brands synergies.
International: Sales declined 33.2% to $244 million due to 25.3% plunge in volume and 10.5% ASP decline due to supply imbalances as a result of weak demand in China.
Operating margin was 0.4% of sales compared to a loss of 4.1% of sales incurred a year ago.
Guidance
For fiscal 2015, Tyson anticipates sales to be approximately $41 billion driven by Hillshire Brands integration and continuous sales increase in domestic value-added chicken and Prepared Food. The company expects capital expenditure to be nearly $900 million for fiscal 2015 and range between $900 million and $950 million for fiscal 2016.
Tyson expects overall domestic protein production (chicken, beef, pork and turkey) to increase roughly 3% year over year in fiscal 2016. Also, the company expects grain supplies to go up in fiscal 2016.
Tyson carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the consumer staple sector are Dr Pepper Snapple Inc. DPS, Monster Beverages Inc. MNST and Whitewave Foods Inc. WWAV. All these stocks carry a Zacks Rank #2 (Buy).
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