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Tyson Foods' (TSN) Capacity Expansions & Brand Portfolio Solid

Focus on capacity-expansion endeavors is favoring Tyson Foods, Inc. TSN. The well-known leader in protein is well-placed to capitalize on the rising demand for protein-packed brands. These upsides fueled TSN’s first-quarter fiscal 2023 sales, which increased year over year and surpassed the Zacks Consensus Estimate.

Let’s delve deeper.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Sales Performance Solid

In the first quarter fiscal of 2023, Tyson Foods’ total sales came in at $13,260 million, up 2.5% from the $12,933 million reported in the year-ago quarter. Gains from the average price change were 1.7%, while total volumes rose 0.8%. Results gained from the company’s continued efforts to optimize its existing footprint, add new capacity and adjust the product mix while meeting customer and consumer needs effectively. The company’s retail channel drove $324 million of sales improvement led by Chicken and Prepared Foods. Its industrial and other channel sales grew $108 million, led by beef and chicken units.

Factors Driving Tyson Foods Growth

The Zacks Rank #3 (Hold) company is undertaking a number of operational and supply chain efficiency programs to place itself better in the long run. In this regard, the company is investing in capacity expansion and automation technology investments. Management continues accelerating digitalization via supply chain planning and execution processes to enhance customer service. It optimizes its plant network by adding fully cooked capacity, converting plants for value-added production, executing plant flexibility and enhancing the portfolio mix.

Tyson Foods projects capital expenditures of nearly $2.5 billion for fiscal 2023. These include expenditures related to capacity expansion and utilization, automation to battle labor-related hurdles and product and brand innovation.

Tyson Foods focuses on higher protein production to cater to the rising demand for protein-packed food. For fiscal 2023, the USDA projects domestic protein production (beef, pork, chicken and turkey) to be relatively flat from the fiscal 2022 levels. Management anticipates sales in the $55-$57 billion range in fiscal 2023, suggesting a 3-7% year-over-year growth. Per USDA forecasts, production in the Chicken segment will likely improve by nearly 3% in fiscal 2023. For the fiscal, the company expects better results from its foreign operations in the International/Other segment.

In its last earnings call, management highlighted that it serves an estimated one-fifth of U.S. protein consumption. The company is well placed to cater to consumer’s steady protein demand, despite the tough macroeconomic environment and rising inflation. It remained the market share leader across most retail core categories in the first quarter of fiscal 2023. The company brands, including Tyson, Jimmy Dean, Hillshire Farm, and BallPark continue to perform well. Tyson Foods boasts a rich portfolio of protein-packed brands that are growing rapidly across the globe.

What’s Hurting Tyson Food’s Performance

In the first quarter of fiscal 2023, Tyson Foods’ gross profit came in at $968 million, down from the $2,015 million reported in the prior-year quarter. The gross profit, as a percentage of sales, came in at 7.3%, down from the 15.6% reported in the year-ago quarter. Tyson Foods’ adjusted operating income plunged 68% to $453 million. The adjusted operating margin contracted to 3.4% from 11.1% reported in the year-ago quarter.

That being said, the company is constantly looking for ways to improve cost structure, alongside achieving operational improvements and customer service. Starting from fiscal 2022, management launched a new productivity program to drive a better, faster and more agile organization. The company generated productivity savings of more than $700 million in fiscal 2022, which helped fight inflationary hurdles. The program is expected to generate savings of more than $1 billion by fiscal 2023, one year ahead of the original plan.

TSN has dropped 0.9% year-to-date compared with the industry’s 5.3% decline.

Solid Staple Bets

Some better-ranked consumer staple stocks are General Mills GIS, Beyond Meat BYND and Kimberly-Clark Corporation KMB.

General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 6.3% and 7.4%, respectively, from the corresponding year-ago reported figures.

Beyond Meat, which develops, manufactures, markets and sells plant-based meat products, currently carries a Zacks Rank #2. BYND has a trailing four-quarter negative earnings surprise of 29.3%, on average.

The Zacks Consensus Estimate for Beyond Meat’s current fiscal-year earnings suggests an increase of 39.7% from the year-ago reported number.

Kimberly Clark is engaged in the manufacture and marketing of a wide range of consumer products around the world. It currently has a Zacks Rank of 2. KMB has a trailing four-quarter earnings surprise of 1.4%, on average.

The Zacks Consensus Estimate for Kimberly Clark’s current financial year sales and earnings suggests growth of 1.7% and 5.2%, respectively, from the year-ago reported numbers.

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