E Tyson Foods’ Segment Performance Suggests Stock Is A Buy

Tyson (TSN) is one of our favorite plays in the protein supplier sector. The company provides chicken, beef, pork, and a variety of prepared foods to both retail and commercial restaurants. The stock has been volatile, but has trended higher in the last year:

Source: Yahoo Finance

As you can see, the name often jumps, and has seasonal strength. That said, over time the name has continued to improve. In this column, we touch specifically upon the trends we are noticing in each of the key segments of the company, as these are the underlying drivers of revenue and earnings strength, both of which have improved over the last few years.

Chicken is the flagship product

The flagship product for Tyson is chicken. Tyson saw sales volume and average sales prices that rose 3.2% and rose 7.3%, respectively, year-over-year in Q2 2018. More specifically, Tyson saw sales of $2.997 billion versus $2.706 billion last year for chicken products. Expenses weighed here as operating income rose but only slightly to $272 million versus $263 million in Q1 2017. Demand remains strong and sales volume for chicken products up on an organic basis however the purchase of AdvancePierre helped significantly. As such, be mindful of the volume from the generated from the AdvancePierre acquisition.  

We also want to point out that when we looked into pricing we noticed a promising trend. Average sales price increased a lot, but this was due to sales mix changes. Operating income benefited from cost savings programs. The positive incremental impact of AdvancePierre and slightly lower feed costs helped tremendously, but higher labor and freight expenses offset some of this.

Looking ahead, we expect both sales volume to improve as well as margins here thanks to efforts to control input costs.

Pork sales are volatile

The pork segment continues to be volatile. Quarter-to-quarter, we continuously see concerning trends, followed by promising ones. In Q1, the segment saw a decline in volume of 2.6% which stuck out. However, this was offset by a strong 5.2% increase in prices.