Tyson Foods Beats Top And Bottom Line With Higher Prices
As surprising as it may sound, Tyson Foods NYSE: TSN may be a hedge against the rising tide of consumer inflation. Call it a stretch, but the company is part of the infrastructure of American food and thereby qualifies as a real asset, at least to some degree. Nitpicking aside, the company’s Q3 results are much better than expected and benefitting from the same inflation that is cutting into results for other companies. The bottom line? Higher prices for beef, pork, chicken, and prepared foods have greatly outpaced both the CPI and PPI data and are helping to drive this company’s turnaround story.
Tyson Foods Grows On Slowing Volume
Tyson Foods had a great quarter but it’s one of those reports that give us mixed feelings. While the company beat on the top and bottom lines and provided a favorable outlook it’s all offset by inflation. The company reported $12.18 billion in consolidated revenue which is up 20.4% over last year but on a 10.7% decline in volume offset by a 22.5% increase in pricing. It’s good the company beat the consensus estimate by 95 basis points and is exhibiting solid pricing power but at the expense of the consumer. This is a trend that can not be sustained. The good news is the company also announced a major productivity realignment that should help control the need for future price actions.
On a segment basis, beef and pork led the volume decline with contractions in the high teens while chicken and prepared foods posted smaller declines. Chicken and prepared foods also saw the smallest price increases so there is that to consider. The International segment was the only one to post growth and that was a healthy 11.2%.
Moving down to the margin and earnings the good news is equally tainted by inflation with both gross and operating margins showing significant increases. This left operating profit up nearly 100% from last year and the GAAP earnings well above consensus. The GAAP $3.71 beat the consensus by $1.51 including the extra week in last year’s quarter while the adjusted $2.30 beat by a smaller $0.08. Looking forward, the company is guiding F2022 revenue above consensus and is expecting up to $400 million in cost savings this year, news that bodes well for margin and earnings.
Tyson Foods Strengthens Its Balance Sheet
Tyson Foods is putting its windfall earnings to good use by paying down debt and improving the balance sheet. The company says it paid down $2 billion in debt this year, and increased its capital position by another $1 billion, improving the net debt by $3 billion. The company’s liquidity position is over $4.2 billion as of the end of the fiscal year putting it in great shape to continue growing the dividend, buy back shares, and invest in growth. Tyson Foods is not one of the higher-yielding consumer staples stocks but it is among the deepest values and comes with a very positive outlook for dividend increases. With the payout only 22% of the MarketBeat.com consensus estimate, a 25% CAGR, and a 9-year history of increases we see a high likelihood of aggressive increases in the future.
The Technical Outlook: Tyson Confirms Support
Shares of Tyson Foods are moving higher in the wake of the Q4 report confirming support at the short-term moving average. Price action has been range-bound recently but moving higher within that range and now on the verge of breaking to a new high. If the market can make a definitive break above the $82 level we see this stock rallying to the $95 to $100 range by early next year.
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