Tyson Foods, Inc. (TSN) is one of the world’s largest food companies, with operations in 20 countries, and is a recognized leader in protein. Leading brands include Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp and State Fair.
Tyson Foods reported first quarter EPS of $1.66 this morning, on target with consensus estimates, on $10.8 billion revenue, slightly below the $11.0 billion estimate. International demand for beef and pork products is increasing due to the epidemic of African Swine Fever that has decimated Asian hog populations. The quarter’s successes include record beef GAAP operating margins of 10.7% and a record adjusted operating margin of 11.2%. Revenue grew 6% year-over-year.
CEO Noel White commented, “Our Chicken segment performed better operationally, although in a soft pricing environment. Our Prepared Foods segment produced its sixth consecutive quarter of retail consumption growth, demonstrating the strength of our brands and innovation as we grew or held market share in all core categories. With improved access to global markets resulting from recent trade developments, there are reasons to be optimistic about fiscal 2020 and beyond and we are well-positioned to capitalize on opportunities in the global marketplace. Although we anticipate the challenges and volatility typical in our second fiscal quarter, our long-term outlook remains positive.”
The company embarked on a restructuring program that is expected to contribute to financial fitness by eliminating overhead and consolidating operational functions. This includes the layoff of 500 mostly-corporate employees and an associated $44 million pretax charge, leading to expected cost savings of $55-$65 million in fiscal 2020.
Thus far, Wall Street expects Tyson Foods to achieve 25.1% EPS growth in fiscal 2020 (September year-end). The P/E is just 10.8. Analysts will tweak their estimates over the next two weeks. The restructuring should slightly boost 2020 earnings estimates, as should strength in international trade. The fact that the stock is down today makes no sense in light of the company’s ongoing growth and success. TSN is trading at about 80, which represents price support that was established in September through November 2019. I’m moving TSN from Hold to a Strong Buy recommendation now that the share price seems optimal again. This is a great moment to buy low for traders and growth investors. Strong Buy.
Crista Huff, Cabot Undervalued Stocks Advisor, www.cabotwealth.com, 9787455532, February 5 & 6, 2020