Wall Street expects a nice payday from Tyson Foods

Tyson Foods is expected to release healthy first quarter earnings of 64 cents a share on Friday (Jan. 31) ahead of the market opening. This would equal about $226 million in net income, a 30% gain over earnings in the year-ago period. The 64-cent per share mark is the consensus estimate of 11 analysts who follow the meat company.

Virtually all of that gain is expected to come from improved metrics in the company’s chicken division, with a 5% gain in gross sales revenue — 3.5% more in volume and 1.5% more in price. Total revenue projections of $8.76 billion in sales are 4.3% better than those achieved a year ago.

Analysts with Credit Suisse peg Tyson to report 60 cents per share, with total revenue growth of $8.77 million, up 4.4% year-over-year. They note that consumers continue to trade down from record high beef costs to lower priced chicken.

Tyson is expected to see operating profits of $202 million in its chicken segment, up 88% from the $107 million reported a year ago. Lower grain costs and other internal efficiencies helped to raise the segment’s operating margin to 6.5%, more near historical levels. A year ago the segment ran less efficiently with a 3.8% operating margin.

This looks to be the best first quarter results for Tyson Foods in several years, despite ongoing headwinds in the beef and pork segments.

The beef segment is expected to report $3.642 billion, up 2% in volume sales with 2.5% higher prices than a year ago. Operating income for the beef segment is expected to be $44 million, down from $46 million a year ago. The segment’s operating margin of $25 per head, according to analysts. If that’s the case, Tyson outperformed the beef packer industry as whole. Average margins for the full quarter were likely in a range of negative $30 to $45 per head, according to Derrell Peel, livestock marketing specialist at the Oklahoma State University. 

Tyson’s processing facilities are located closer to their cattle sources which results in a lower delivery cost. In general, it costs 10 cents per head, per mile to ship cattle, analysts note.

Peel said last week, packer margins were likely positive $35 to 45 a head. He said the drop in boxed beef prices the past two days will push packer margins negative again as fed cattle prices are not falling as fast from the recent spike.

Credit Suisse analysts believe the second quarter ending Mar. 31 will the toughest for beef margins with some recovery expected in the back half of the year.

Pork sales for Tyson Foods are expected to be $1.411 billion, up 3.5% from a year go — all of that was price related. Lower operating profits are expected in this segment — $85 million versus $125 a year ago. This decline is linked to a 32% decline in profit per head.

Tyson continues to invest in its prepared foods segment and is updating several plants for better operating efficiencies and acquiring other companies that can help the food company expand its value-added sales in convenience stores.

Prepared Foods sales are expected to be $862 million, up 2.5% from a year ago. However, operating profits are expected to decline to $24 million, some 27% because of the ongoing renovations in some of the larger lunch meat plants.

Last quarter Tyson launched seven new handheld protein items, jumping on the breakfast bandwagon. This follows a trend of consumers shifting away from cereal to protein filled convenient breakfast items. Hillshire Farms, Kellogg and ConAgra have each benefited from this trend. Tyson estimates the frozen handheld breakfast category grew by $1 billion year over year. Tyson hopes capture its share with the Day Starts branded products such as biscuits, flatbreads and wrapped omelets.

Analysts expect an update from Tyson on this push for more convenience food sales during the call on Friday, Jan. 31. 

Shareholders have seen their investment value rise 54% in the past year closing at $34.49 on Thursday (Jan. 30). Given the increased stock price, Credit Suisse is neutral on the shares. 

Motley Fool contributor Daniel Jones notes that sales data from the past three years indicates the company is improving its sales but doing so by means of rising costs and fewer customers and/or lower sales per customer.

“Although it's nice to be able to charge more for your product, a corresponding falloff in sales volume implies that the company could be affected by competitors like Kraft Foods or Pilgrim's Pride,” Jones noted.