Analyst more bullish on Tyson Foods based on stronger beef demand

In late July, Tyson Foods lowered its fiscal year earnings guidance by an average of 65 cents per share. The company cited volatile meat prices relating to excess supplies of chicken and pork. But in recent weeks as demand for pork has improved and beef sales ring up profits one Wall Street analyst has raised guidance expectations for the year which ended Sept. 30.

Farha Aslam, an analyst with Stephens Inc., credits operational improvements and better beef and pork sales for the 7.5% increase she forecasts for fiscal 2018 earnings. Aslam raised guidance for the quarter from $1.32 to $1.42 per share and pegged full-year earnings at $6 per share, while holding with the 2019 estimate of $6.15 per share.

Tyson continues to see weaker sales in chicken and Aslam reduced her operating profit for chicken to $163 million for the fourth quarter. She previously forecast operating profit of $313 million for the company’s poultry segment. She said weaker chicken prices and softer demand from consumers are weighing down profits in this segment.

The U.S. Department of Agriculture’s cold storage data for September indicates total chicken stocks sitting in freezers are up 17% from a year ago, rising 4% from the prior month. This indicates an oversupply of chicken relative to demand which is pushing wholesale pricing lower as the chicken business heads toward its typically weaker season from October through December.

Tyson has said it continues to be aggressive with pricing and cost management but noted early in the fourth quarter demand was weaker than expected.

While Tyson’s chicken segment is managing through the challenges, Aslam said the beef segment is poised to do well. She raised the fourth quarter operating profit for beef to $313 million, up from $283 million, citing “very strong” demand for U.S. beef domestically and abroad. She also estimates the pork segment will have operating profits of $83 million, up from her previous guidance at $57 million, citing moderating hog costs in the period. The prepared foods segment is poised to benefit from lower pork prices which prompted Aslam to maintain a segment operating profit of $240 million in the quarter.

The USDA said beef sitting in cold storage rose 3% in September from a year ago. Frozen pork supplies were down 5% year-over-year, but up 1% from the prior month. Hurricane Florence’s damage to pork producers in North Carolina is part of the reason pork supplies are down.

Analysts with the Steiner Consulting Group noted beef production in September was down from a year ago because of one less day of slaughter and aggressive fed cattle marketings. The note said combined with lower imports and robust exports, the pace of inventory build last month was somewhat limited. Steiner also credits the increase in cold storage to retailers and other end-users accumulating product for year-end holiday needs rather than a sign of demand weakness.

Tyson said it expects full year earnings between $5.70 and $6 per share. Tyson will report fiscal 2018 earnings ahead of the market opening on Nov. 13.

Shares of Tyson Foods (NYSE: TSN) closed Wednesday (Oct. 24) at $ 61.71 per share. Over the past 52-week period shares have ranged in price between $56.79 to $84.65. The one-year target price set by Wall Street consensus is $71.33. Tyson shares are down 22.9% in value year-to-date.