Tyson Foods expected to post lower quarterly net income, higher revenue

Equity analysts estimate Tyson Foods will on Feb. 8 report first-quarter profits of $562.5 million, down 5.3% from the $594 million earned a year ago. Analysts have an earnings consensus of $1.50 per share, down from $1.59 earned a year ago.

During the first quarter ending Dec. 31, Tyson Foods rang up $9.892 billion in sales revenue, rising 7.6% from the year-ago period, according to the consensus of 15 analysts following the company.

Analysts with Zacks pegged chicken sales at $2.876 billion and beef sales of $3.671 billion, up 5.3% and 4.1% respectively from a year ago. The company’s pork segment is expected to have sales of $1.284 billion up 2.6% year over year. The prepared foods segment consensus sales are $2.109 billion, up 11.3% from the prior-year quarter.

While sales are rising, margins are likely being hurt by volatility in the cost of raw materials, higher transportation expenses, intense promotions through the holiday season and rising wages, according to Zacks’ analysis.

In the quarter (Oct. 1 through Dec. 31), Tyson’s beef segment likely made money as packer margins were solid in the quarter according to Sterling Profit Tracker. For the full year, beef packer margins averaged $120 per head. Pork packer margins ranged from $13 to $34 per head in the quarter, for a full year average of $23 per head, down from $24 a year in 2016.

Chicken supplies are higher which has curtailed pricing power in recent months, but Tyson Foods said its “buy versus grow” program allows it make more money when commodity prices are soft. Wall Street expects Tyson to report solid profits in its chicken segment.

“Tyson Foods likely benefited from the sale of Sara Lee and Van’s which closed in December and its continued focus on protein-packed brands and the company’s significant geographical foothold,” Zacks noted. The report also stated, “Tyson witnessed major sales from the markets of Canada, Central America, China, the European Union, Japan, Mexico, Middle East, South Korea and Taiwan.”

Analysts applaud Tyson CEO Tom Hayes for the “Financial Fitness Program” he unveiled in late 2017. That plan includes finding increased efficiency top to bottom in the company and maintaining a tight cost structure while also making strides in sustainability. At the same time, the company is finding ways to strategically invest for the future by taking stakes in Memphis Meats and Beyond Meat.

For fiscal year 2018, Hayes expects an adjusted earnings target range of $5.70 to $5.85 which would represent between 8% and 13% growth over fiscal 2017. That would represent a five-year compounded annual growth rate of 20%, the company said last quarter.

Tyson expects top-line revenue to reach $41 billion this year, helped by an expected $320 million in incremental sales from AdvancePierre.

Nine of the 15 analysts who cover Tyson Foods rate the stock a “buy” with a consensus target price of $84.81. In December RBC Capital raised its target price to $90 and kept the “hold” rating. Argus upgraded the stock to “buy” in December from a “hold” position, and Piper Jaffray initiated coverage on Tyson Foods on Jan. 5 with a target price of $94.

Shares of Tyson Foods (NYSE: TSN) closed Monday at $73.07, down $1.42 or 1.91% while the broader markets sold off more than 4% for the day. Over the past 52-weeks, Tyson shares have traded between $84.65 and $57.20. Shares are up 12.3% from one year ago when the closing prices was $65.06.