Tyson Foods: Seeing The Light At The End Of Tunnel
By:NewsyStocks   Tuesday, July 06, 2021 1:37 PM

Tyson foods, Inc. (NYSE: TSN) and its subsidiaries are the world's largest meat protein company and the second largest food production company in the fortune 500. It produces, distributes and markets chicken, beef, pork, prepared foods and related allied products. In latest fiscal quarter, Tyson foods earned $6.9B and net income was $159M. The earnings growth was 4% over prior quarter and operating income grew by 10% in comparison with last quarter. At present its share price is trading at $16.25, its 52 week range is from $10.76 to $20.57. Better product mix coupled with increased consumer spending and improved operational efficiencies should help its share price appreciate further in coming days.

In first quarter of 2010, Tyson foods reported earnings of $.42 per share compared to $.32 per share loss in Q2 09. The operating margin improved by 5%, it was .46% same quarter last fiscal year. Management took some key steps to reduce financial risks as well, it retired over $450M of debt and now net debt is under $2.2B. Its chicken segment posted an operating income of $114M and 4.6% return on sales compared to a negative $46M and -1.9% return on sales. The visible improvement in chicken segment was driven by better execution and operational efficiencies. The Beef and pork segment performance was good as well; total operating income was $126M and $69M respectively. The operating income for prepared foods segment was $37M and 5% return on sales in the first quarter of 2010. Overall quarterly performance can be assessed from below chart:

Tyson Foods Quarterly Performance

Tyson Foods Quarterly Performance (Source: Finance Google)

In last fiscal year Tyson foods earned $26.7B and net income was negative at $545M. The revenue growth was relatively flat and net margin was negative. The negative result was due to high grain cost and net losses on its commodity risk management activities related to grain and energy purchases. However over the last four quarter Tyson foods operating performance is improved. The annual performance is as given below:-

Tyson Foods Quarterly Performance

Tyson Foods Annual performance (Source: Finance Google, Annual report)

All of Tyson core business had increased operating result for the six months ended April, 2010, as compared to same period last year. The operational efficiencies occurred in the areas of cost reduction, logistic cost optimization and capacity management. Total margin management gains year-to-date compared to prior year was approximately $250M.Margin management improvement occurred in the areas of mix, export, sales, and price optimization.

Positive Attributes

Improved Operational Efficiencies: Due to operational efficiencies and better execution, company saved $400M. With ongoing effort to optimize input cost, capacity management should have positive impact on its bottom line and net income.

Improving Market Sentiment: The positive market sentiment and improved consumer spending will have favorable impact on its top line growth.

Improving key financial Metrics: Total debt to capitalization at the end of quarter declined to about 39%, return on invested capital for the previous 12 month stood at more than 12%.Overall net interest expense is expected to be down at $315M for fiscal 2010, down from $325M in last quarter. So there is visible improvement in key financial metrics.

International operation: In recent years, Tyson foods expanded its international operation in Asia and South America through several small acquisitions. These acquisitions should help grow its revenue in coming time


Economic Slowdown: If US market enters in recession again than that would potentially halt its growth momentum. Overall economic indicators are indicating towards a weak recovery and a positive GDP growth for remaining quarters of 2010.

Higher Grain Cost: Operating result were negatively impacted in the second quarter of fiscal 2010 by an increase in grain cost of $19M and were positively impacted in the first six months of fiscal 2010 by a decrease in grain cost of $65M.

Derivative based Financial Instruments: The operating income will be affected by derivative contracts and value. Overall impact for Beef segment can be seen as given below:









Decline in operating result



All figures are in $MN, Source: Latest 10Q

Credit Ratings: On September 4,2021 , S&P downgraded the credit rating from BBB- to BB, this downgrade increased the interest rate on the 2016 notes from 6.85% to 7.35% a further downgrade would increase the interest rates on 2016 notes.

Management Expectation for rest of the year

In chicken segment, for rest of fiscal year 2010, management expect better pricing environment and expect to see grain cost down. Beef and Pork segment has been performing well even in an environment of tighter supply. It is expected to do well in remaining period of 2010 as well. Management expect in likely increase in input cost for prepared  food segment, however management has made appropriate changes in sales contract to tackle expected higher input prices. Tyson foods had two good quarters and latest quarter started very well which should help meet its revenue target.

Overall, Tyson foods appear attractive at current share price.  Improving operational efficiencies coupled with growing sales should help appreciate its share price.