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Tyson Foods (TSN) Gains on Improved Efficiency, Protein Demand

Tyson Foods Inc. TSN has been dedicated to achieving sustainable top-line growth and margin enhancement in the long term. Alongside its leadership team, the company is actively implementing a comprehensive strategy centered on efficiency and modernization, which involves a thorough examination of the cost structure throughout the organization to foster operational excellence.

TSN declared its plan in the third quarter of fiscal 2023 to close four additional chicken facilities, bringing the total number of closures announced this year to six, showcasing its steadfast commitment to undertaking significant actions aimed at enhanced performance.

Tyson Foods is actively implementing various operational and supply-chain efficiency programs to position itself better for the near future. These initiatives include investments in digitalization and automation technology to accelerate its supply-chain planning and execution processes for enhanced customer service.

The company has also been focused on improving its ability to forecast supply and demand more accurately, meeting the needs of customers and consumers. To this end, it recently chose to shift its approach for Tyson-branded chicken from "no antibiotics ever" to one that focuses on antibiotics essential for human medicine.


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Zacks Investment Research

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Will Saving Initiatives Ease Margin Pressure?

In the third quarter of fiscal 2023, Tyson Foods experienced significant margin pressure, with its gross profit totaling $677 million, a notable decrease from the $1,611 million reported in the same period of the previous year. This decline resulted in the gross profit margin falling to 5.2%, down from 11.9% in the year-ago quarter.

One of the primary factors contributing to this margin pressure was the escalation of input costs per pound. The increase in cattle costs, coupled with unfavorable derivative impacts and higher labor expenses, played a significant role in driving these elevated input costs.

However, TSN is committed to improving its cost structure for productivity savings. In fiscal 2022, a productivity program was launched and resulted in more than $700 million in productivity savings. By the end of the second quarter of fiscal 2023, the company had already surpassed its $1-billion aggregate target, more than a year ahead of schedule.

Wrapping Up

Protein demand has been driving Tyson Foods. For fiscal 2023, the United States Department of Agriculture (“USDA”) forecasts a slight increase in domestic protein production (including beef, pork, chicken and turkey) from that reported in fiscal 2022.

Management's sales projection for fiscal 2023 is pegged at $53-$54 billion. The company anticipates improved performance from its foreign operations within the International/Other segment for the fiscal year.

Per USDA forecasts, the production in the Chicken segment is likely to improve 3% in fiscal 2023. However, in the Beef segment, USDA predicts a 3% year-over-year decline in domestic production. Domestic production is expected to be relatively stable for Pork in fiscal 2023.

The Zacks Rank #3 (Hold) stock has railed 8.2% in the past three months compared with the industry’s rise of 0.4%.

3 Hot Stocks to Consider

We have highlighted three better-ranked stocks, namely MGP Ingredients, Inc. MGPI, Flowers Foods FLO and Celsius Holdings CELH.

MGP Ingredients produces and markets ingredients and distillery products to the packaged goods industry. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and EPS suggests growth of 5.8% and 10.4%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of around 18%, on average.

Flowers Foods emphasizes providing high-quality baked items. The company currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Flowers Foods’s current financial-year sales suggests growth of 6.7% from the year-ago reported figures. FLO has a trailing four-quarter earnings surprise of 7.6%, on average.

Celsius Holdings, which offers functional drinks and liquid supplements, currently carries a Zacks Rank #2. CELH delivered an earnings surprise of 100% in the last reported quarter.

The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 88.9% and 168.8%, respectively, from the year-ago reported numbers.

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