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Tyson Foods' (TSN) Capacity Expansion Aids, High Costs Persist

Tyson Foods, Inc. TSN is benefiting from its focus on protein-packed brands and capacity-expansion efforts. The company continues to gain from robust demand in its retail core business lines. The ongoing recovery in the foodservice channel led by QSRs is a driver. That said, escalated input cost inflation is a headwind.

Let’s discuss further.

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What’s Working for Tyson Foods?

Tyson Foods is undertaking a number of operational and supply chain efficiency programs to place itself better for the long run. In this regard, the company is investing in capacity expansion and automation technology investments. In its last earnings call, management highlighted that it is on track to open 12 new plants over the next two years, which will enable it to tackle capacity constraints and growing demand for protein globally. The additional capacities include nine chicken plants, two case-ready beef and pork facilities and one bacon unit. Management anticipates capital expenditures of nearly $2 billion during fiscal 2022 to support global protein demand growth.

Certainly, Tyson Foods is focused on higher protein production to cater to the rising demand for protein-packed food. For fiscal 2022, the United States Department of Agriculture (“USDA”) projects domestic protein production (beef, pork, chicken and turkey) to improve slightly from fiscal 2021 levels. For fiscal 2022, Tyson Foods expects to grow its total volumes by 2% to 3%, outpacing the overall protein consumption growth. A significant percentage of the volume growth is likely to come from the chicken segment and optimized product portfolio. Enhanced capacities and initiatives to improve operations are likely to boost performance.

Tyson Foods boasts a rich portfolio of protein-packed brands that are growing rapidly across the globe. The company has undertaken the divesture of non-protein businesses (Sara Lee Frozen Bakery, Kettle and Van’s) to focus more on the growing protein-packed food arena. It is steadily expanding fresh prepared foods offering, owing to rising demand for natural fresh meat offerings without any added hormones or antibiotics. Tyson Foods has been venturing into alternative sources for meat and protein products. In this regard, the company’s nationwide launch of Raised & Rooted, including three new products, bodes well amid rising demand for plant-based protein options. In June 2021, Tyson Foods announced that it would roll out a range of plant-based products in chosen retail markets and digital platforms in the Asia Pacific under the First Pride brand.

Hurdles on Way

During fourth-quarter of fiscal 2021, Tyson Foods incurred nearly $65 million as direct incremental expenses associated with COVID-19, which put pressure on results to an extent. These include team member costs, production facility sanitization and testing for coronavirus among others. Apart from these factors, indirect COVID-19 costs included expenses associated with raw materials and transportation among others. Management, in its quarterly earnings call, also highlighted that it foresees tough availability of labor. The company witnessed inflation across the business, in areas such as wages, grain cost, live animal costs and pork, meat cost and prepared foods as well as freight costs across the enterprise.

That being said, the aforementioned upsides are likely to help the Zacks Rank #3 (Hold) company stay afloat amid such hurdles. The stock has increased 27.9% in the past six months compared with the industry’s growth of 9.8%.

Hot Consumer Staples Bets

Some better-ranked stocks are Medifast, Inc. MED, United Natural Foods UNFI and Sanderson Farms, Inc. SAFM.

United Natural Foods, the leading distributor of natural, organic and specialty food and non-food products in the United States and Canada, sports a Zacks Rank #1 (Strong Buy) at present. Shares of UNFI have rallied 20.5% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for United Natural Foods’ current financial year earnings per share (EPS) and sales suggests growth of 8.8% and 4.8%, respectively,from the year-ago reported number. UNFI has a trailing four-quarter earnings surprise of 35.4%, on average.

Sanderson Farms, the producer of fresh, frozen and minimally prepared chicken, currently sports a Zacks Rank #1. Shares of SAFM have risen 3.5% in the past six months.

The Zacks Consensus Estimate for Sanderson Farms’ fiscal 2022’s sales suggests almost 1% growth from the year-ago reported figure. SAFM has a trailing four-quarter earnings surprise of 496.3%, on average.

Medifast, the manufacturer and distributor of weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2 (Buy). Shares of Medifast have plunged 28.3% in the past six months.

The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of about 63% and 49.3%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 17.3%, on average.

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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Tyson Foods, Inc. (TSN): Free Stock Analysis Report
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