Tyson Foods, Inc TSN has been struggling with higher operating expenses owing to enhanced investments and restructuring initiatives, of late. Evidently, shares of the company have underperformed the industry in the past six months. In the said time frame, the company’s shares have increased 5.6% compared with the industry’s rise of 10.2%.
However, Tyson Foods’ shares have depicted a turnaround recently and increased more than 7% since Sep 28, when it raised fiscal 2017 earnings guidance along with other restructuring initiatives.
The company now expects adjusted earnings in the range of $5.20-5.30 per share, significantly higher than the previously anticipated range of $4.95-5.05. Further, the company projects adjusted earnings for fiscal 2018 in the range of $5.70-5.85. The Zacks Consensus Estimate for fiscal 2017 and 2018 are currently pegged lower at $5.09 and $5.35, respectively.
The higher earnings expectation for fiscal 2017 is backed by improved performance of the company’s Beef segment. This segment performed strongly during the third quarter of fiscal 2017, backed by enhanced domestic demand, improved availability of cattle supply and higher exports.
Financial Fitness, Job Cuts & Other Initiatives
In addition to improved earnings, Tyson Foods also stated that it would proceed with the implementation of its previously announced Financial Fitness plans, in an effort to induce greater operational efficiencies and create more value for its stakeholders.
Management also stated that the company would be adhering to job cuts for about 450 positions, to make the organization more agile and achieve greater financial efficiency. The headcount reductions would mainly be carried out in Chicago, Cincinnati and Springdale. We note that the company has been struggling with higher wage-related costs, owing to hikes to attract and retain efficient workers. Hence, the current job cuts are expected to offer the company considerable reduction in expense burden.
The management also expects net synergies of $200 million, $400 million and $600 million from the AdvancePierre acquisition for fiscal 2018, 2019 and 2020, respectively. The acquisition, which was carried out in June, is mainly expected to improve the performance of Tyson Foods’ Chicken and Prepared Foods segments.
In relation with its ongoing restructuring and improvement initiatives, Tyson Foods expects charges in the range of $140-$150 million to be reported in its fourth-quarter results. The charges mainly include in-process software implementations of approximately $70 million, employee termination costs of $45-$50 million and contract termination costs of $25-$30 million.
We expect that this Zacks Rank #3 (Hold) company’s dedicated efforts toward inducing operational efficiency and reducing costs to improve margins and boost the stock performance in the forthcoming months.
Looking for More Consumer Staples Stocks? Check These
Investors may also consider stocks such as Nu Skin Enterprises, Inc NUS, Ingredion Incorporated INGR and Constellation Brands, Inc STZ, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Nu Skin delivered an average positive earnings surprise of 10.8% in the trailing four quarters. It has a long-term earnings growth rate of 8.7%.
Ingredion Inc. delivered an average positive earnings surprise of 5.1 in the trailing four quarters. It has a long-term earnings growth rate of 11%.
Constellation Brands delivered an average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 18.2%.
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