Why is Tyson (TSN) down 4% since last earnings report?

A month has passed since the last earnings report from Tyson Foods (TSN). Stocks lost about 4% during this period, underperforming the S&P 500.

Will the recent negative trend continue until the next earnings release, or is Tyson set for a breakout? Before we dive into the reaction of investors and analysts lately, let’s take a look at the latest earnings report to better understand the important factors.

Best estimates for Tyson Foods second-quarter earnings, sales up year-over-year

Tyson Foods reported impressive results in the second quarter of fiscal 2022, with revenue and net income growing year over year. Sales and earnings exceeded Zacks’ consensus estimate. Management noted that better operational execution and strong customer and consumer demand for its brands and products are contributing to the upside. Management has raised its sales vision for fiscal 2022.

Quarter in detail

Adjusted earnings came in at $2.29 per share, beating Zacks consensus estimate of $1.83. Net income increased 71% year over year.

Total sales were $13,117 million, up 16.1% from $11,300 million in the prior year quarter. The top line topped Zacks’ consensus estimate of $12,432.3 million. Gains from the average price change were 17.6%, while total volumes declined slightly by 1.5%.

Gross profit for the quarter was $1,735 million, compared to $1,253 million in the year-ago quarter. Gross profit, as a percentage of sales, was 13.2%, compared to 11.1% in the year-ago quarter. Tyson Foods adjusted operating profit rose 57% to $1,161 million. Adjusted operating margin increased to 8.9% from 6.5% in the prior year quarter.

Segment details

Beef: Segment sales increased to $5,034 million from $4,046 million in the prior year quarter, driven by strong global demand. These were somewhat offset by a difficult working environment and continued supply chain constraints. Volume increased slightly by 0.6% and the average price increased by 23.8% in the segment.

Pork: Segment sales increased to $1,565 million from $1,477 million in the prior year quarter. Sales volume decreased by 4.8%, mainly due to the unfavorable effects resulting from a difficult working environment. The average price increased by 10.8% due to higher input costs such as live hogs, labor, freight and transportation costs. These were somewhat offset by an unfavorable mix linked to labor shortages.

Chicken: Segment sales increased to $4,086 million from $3,553 million in the prior year quarter. Sales volume increased slightly by 0.6%, mainly due to a strong demand environment, somewhat offset by supply chain constraints. The average price increased by 14.4% under the effect of pricing actions undertaken in an environment of inflationary costs.

Prepared foods: Segment sales were $2,393 million, compared to $2,164 million in the prior year quarter. Prepared food sales volume decreased 5.3%, driven by reduced throughput resulting from a challenging work and supply environment as well as an uneven food service resumption. The divestiture of its pet treats business (completed in the fourth quarter of fiscal 2021) also hurt the measure. The average price increased by 15.9%, mainly due to revenue management in an inflationary cost environment and a positive product mix.

International/Other: Segment sales were $565 million, compared to $487 million in the prior year quarter. Volume increased 5.1%, while the average selling price jumped 10.9%.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $1,151 million, long-term debt of $8,270 million and total equity (including non-controlling interests) of $19,156 million. During the six months ended April 2, 2022, cash provided by operating activities was $1,224 million. Liquidity was $3.4 billion as of April 2, 2022. Management expects liquidity to remain above the company’s minimum target of $1 billion. The company plans capital expenditures of nearly $2 billion for fiscal 2022.

Outlook

For fiscal year 2022, the USDA expects domestic protein production (beef, pork, chicken, and turkey) to be relatively consistent with fiscal year 2021 levels. Beginning with fiscal year 2022, management has launched a new productivity program to foster a better, faster and more agile organization. The company expects to realize $1 billion in productivity savings by the end of fiscal year 2024 and more than $400 million in fiscal year 2022, compared to a cost benchmark for the fiscal year 2021. Management is on track to realize its productivity savings for fiscal year 2022. Management now expects sales in the range of $52 billion to $54 billion for fiscal year 2022. Previously, the measure forecast sales in the top tier of $49 billion to $51 billion for fiscal year 2022.

Sector orientations for the 2022 financial year

For the beef segment, the USDA projects domestic production to increase less than 1% year-over-year in fiscal year 2022. For pork, domestic production is expected to decline nearly 3% year-over-year in fiscal year 2022, according to the USDA. The USDA expects Chicken segment production to improve by nearly 1% in fiscal 2022. For fiscal 2022, the company expects lower results from its overseas operations in the International/Other segment due to supply chain disruptions and other pandemic-induced impacts.

How have the estimates changed since then?

It turns out that the new estimates have tended to rise over the past month.

VGM Scores

Right now, Tyson has a Growth Score below D, but his Momentum Score is faring much better with a B. Tracing a somewhat similar path, the stock has been given an A rating on the side of the value, which puts it at the top. 20% for this investment strategy.

Overall, the title has an overall VGM score of B. If you’re not focused on a strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending higher for the stock overall, and the magnitude of these revisions looks promising. Notably, Tyson has a Zacks rank #3 (Hold). We expect the title to return online in the coming months.

Performance of an industry player

Tyson is part of the Zacks Food – Meat Products industry. Over the past month, Pilgrim’s Pride (PPC), a stock in the same industry, has gained 13%. The company released its results for the quarter ended March 2022 more than a month ago.

Pilgrim’s Pride reported revenue of $4.24 billion in the last quarter, representing a year-over-year change of +29.5%. EPS of $1.18 for the same period versus $0.42 a year ago.

For the current quarter, Pilgrim’s Pride is expected to post earnings of $1.17 per share, indicating a change of +85.7% from the prior year quarter. The Zacks consensus estimate has remained unchanged for the past 30 days.

Pilgrim’s Pride has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM score of B.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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