Tyson's 4Q Earnings Lag - Analyst Blog
[Article mentions Pilgrim's Pride below, in addition to discussing the industry, imo]
Tyson Foods Inc. (TSN) reported its fourth-quarter and fiscal 2011 adjusted earnings of 26 cents a share and $1.97, respectively. The fiscal result included a $0.03 per diluted share gain related to the sale of interests in an equity method investment; and $0.05 per diluted share reduction to income tax expense related to a reversal of reserves for uncertain foreign tax positions.
The fourth quarter earnings missed the Zacks Estimate of 31 cents by 19.23% and plunged from the year ago earnings by 96.5%. The fiscal results however, surpassed the Zacks Estimate by 3 pennies although it slipped from the year ago earnings by 8.99%. Profits were driven by higher sales as well as strong performance in all the segments, particularly Chicken and Pork.
Revenue and Margins
Net sales recorded a growth of 12.9% to $8.4 billion from $7.4 billion in the year-ago quarter, while it was in line with the Zacks Consensus Estimate. The upswing came as an outcome of sales growth across all its segments.
Tyson’s operating income declined by 127.3% to $172 million in the quarter compared with $391 million in the prior-year quarter. Quarterly operating margin contracted 330 basis points to 2.0%, portraying an augmented grain and feed ingredient and other raw material costs.
Segment Details
Sales grew 9.2% in the Chicken segment to $2.8 billion compared with $2.6 billion in the year-ago quarter. Sales volume increased 3.7% on the back of improved production, while increased pricing and mix led to the rise in the average sales prices.
Operating margin came down to 3.4% in the Chicken segment compared with 4.0% in the year-ago quarter portraying increased sales volume and operational improvements more than offset by increased raw material costs.
On a year-ago basis, sales climbed by a decent 15.8% in the Beef segment to $3.5 billion compared with $3.0 billion. Sales volume expanded by 1.7% in the quarter. Segment operating margin contracted 830 basis points to a negative 2.9%.
Pork segment revenue spiked 13.6% to $1.4 billion compared with $1.2 billion in the year-ago quarter, powered by a jump in price and growth in volume. However, operating margin contracted to 200 basis points from the year ago quarter.
Prepared Foods sales increased 3.5% to $827 million compared with $799 million in the year-ago quarter. Although the segment faced a decline in the sales volume by 2.5% from the year ago quarter, operating margin expanded 21 basis points fueled by an increase in average sales prices, which were partially offset by an increase in raw material costs and lower volumes.
Other Financial Updates
Tyson exited the quarter with cash and cash equivalents of $716 million. Long-term debt was $2.1 billion and shareholders’ equity was $5.7 billion.
In fiscal 2011, the company repurchased 9.7 million shares for approximately $170 million. As of October 1, 2011, 12.8 million shares remain authorized for repurchase.
Guidance
Tyson believes that the overall domestic protein (chicken, beef, pork and turkey) production is expected to decrease in fiscal 2012 on the back of increased export.
Fiscal 2012 sales are expected to exceed $34 billion due to price increases related to decreases in domestic availability of protein and rising raw material costs.
The company expects to spend around $800-$850 million in fiscal 2012. The company expects a net interest expense of approximately $185 million, which is lower than the year ago level by $46 million.
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 #2 Rank on Tyson shares, which translates into a short-term Buy rating. On a long-term basis, we provide a Neutral recommendation on the stock.
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