Tyson Foods Expected To Report Record Year On Monday

Wall Street is eyeing a big payday from Tyson Foods on Monday (Nov. 17) when the meat giant reports fourth quarter and fiscal 2014 year earnings, with quarterly sales estimated by some to exceed $10 billion.

Net quarterly profit could hit $268.5 million, or 76 cents per share, which would be a gain of 8.5% from the year-ago period, according to a consensus of analysts’ estimates. Springdale-based Tyson is expected to post quarterly sales of $10.15 billion, 14% higher in part because of the recent $8.5 billion acquisition of Hillshire Brands.

For the fiscal year which ended Sept. 30, analysts predict Tyson Foods to earn a total $2.83 per share, which equates to net annual profits of $1 billion. This would be a $182 million gain from a year ago. Annual revenue is expected to be a record $42 billion, compared to $37.5 billion in fiscal 2013.

Tyson Foods, which has predominantly been a commodity business with beef previously comprising 41% of sales, is morphing into more of a packaged food supplier as it focuses on blending its prepared foods segment with Hillshire Brands products. That said, beef and chicken still comprise the largest percentage of the business.

BEEF OUTLOOK
Commodity beef packers have been running negative operating margins for the past two months as cattle prices hit record highs and there have been fewer retail promotions to encourage consumption.

From July through September, Tyson’s fourth quarter period, beef packer margins ranged between $55 per head in July to $22 per head in August, moving to losses of $40 per head in September. The losses have since widened to $75 per head as of last week, according to Sterling Beef Profit Tracker.

Tyson typically reports better numbers than the commodity beef margin indices indicate.

Robert Moskow, an analyst with Credit Suisse, said his conversations with beef processors indicate beef margins are better than expected. Shorter beef supplies in the freezers are also giving packers the ability to raise wholesale prices. The USDA total pounds of beef in cold storage are down 20% from last year.

“We expect Tyson to enjoy similar benefits,” he noted.

Analysts expect beef operating income to be around $162 million, comparable to the same quarter last year.

CHICKEN GAINS
The chicken side of the business is rolling in cash amid lower grain costs and steady demand from food service and the retail business, in spite of higher prices.

Georgia Dock pricing on Oct. 1 for boneless, skinless breast meat was $2.19 per pound, coming down a from an annual high of $2.24 in mid July. A year ago the Georgia Dock price was $1.90 per pound, up 24.3% year-over-year.

Operating profit estimates for Tyson’s chicken segment range from $185 million to $200 million for the quarter. A year ago the company reported $175 million in chicken profits.

Chicken margins have been high this entire year according to Ken Zaslow, analyst with BMO Capital Markets. He expects they should hold above historical averages for the foreseeable future.

Zaslow said there will be support for margins from limited production growth and strong demand. He said Georgia Dock whole bird prices remained at record levels thanks to ongoing demand amid tight competing meat supplies and a limited supply of small birds.

PORK SEGMENT
Moskow said the falling sow prices bode well for Hillshire Brands’ profit margins in its first quarter under Tyson Foods.

Frozen pork supplies were down slightly from last year, according to the USDA report. Stocks of pork bellies were down 29% from last month, but up 136% from last year.

Last year, Tyson Foods reported flat pork results in the quarter, and a 20% drop in operating income during fiscal 2013. At $296 million, operating income for fiscal 2013 was hurt by reduced exports and tighter packer margins.

Analysts expect pork profits to be higher than a year ago.

PREPARED FOOD
This segment is poised to be much stronger than a year-ago after the recent marriage with Hillshire Brands. The prepared foods segment is poised to go from being 9% of the company’s total sales to 18%, according to projections.

Because Hillshire Brands is primarily a branded, higher margin business, Tyson expects a positive push on its net operating income. Prior to the acquisition, Tyson’s prepared foods segment comprised just 5% of the company’ overall operating income. The pro forma company has prepared foods with 20% of the total operating income.

During Monday’s earnings report, analysts are expecting Tyson management to provide some details on the assimilation of Hillshire into its business model. Tyson already announced closure of its older plants, and production shifts. Locally, Tyson Foods laid-off roughly 50 back office staff in its corporate offices.

Insiders at Tyson Foods told The City Wire that worker sentiment inside the corporate headquarters has been tense following the lay-off and the unknown of what this acquisition will mean for more local jobs changes.