Tyson Foods is expected to report fourth quarter earnings gains Tuesday (Nov. 13), lifting the meat giant to another record year. The consensus of analysts pegs fiscal year net income of roughly $2.173 billion, up 22% from a year ago.
Annual revenue ending Sept. 30 is forecast at $40.31 billion, up 5.4% year-over-year, but shy of the $41 billion forecast by Tyson executives to start the year.
Analysts will hear from Tyson Foods CEO Noel White during Tuesday’s earnings call. He has been in this role since Tom Hayes resigned abruptly effective Sept. 30, citing personal reasons.
In July, Tyson Foods trimmed its fiscal year earnings guidance by an average of 75 cents per share and analysts expect the company will be within its updated guidance range of $5.70 to $6 per share. Consensus pegs fiscal 2018 earnings per share at $5.94. Tyson has said its beef and prepared foods segments were performing well, but there has been weakness in the chicken and pork segments through the summer amid higher supplies and tepid demand.
For the fourth fiscal quarter ended Sept. 30, Tyson is expected to report $494 million in net income compared to $395 million earned a year ago, Earnings per share for the quarter are expected to be $1.35. Analysts expect fourth-quarter revenue of $10.27 billion, up 1.2% from a year ago.
Much of the added profit is tied Tyson’s beef business, Steve Kay, publisher of Cattle Buyers Weekly, recently said Tyson’s beef segment is generating lots of cash and is able to take advantage of 2.7% higher year-over-year slaughter numbers. That’s equal to about 600,000 more head slaughtered. Kay said about 40% of that gain relates to more cows (female) than normal being slaughtered. But with the added slaughter demand, Kay said Tyson is able to run its beef packing plants at a higher capacity utilization rate, which is a boost to margins.
He has also been impressed with Tyson’s ability to improve operating margins to better than 7%. Kay said the weakness in chicken and pork have been troublesome for Tyson, but the company is making record profits in its beef segment which is enough to subsidize weakness in the other proteins. Kay said beef packer margins are averaging around $200 a head for the industry and Tyson’s margins are almost always better than the industry average.
In recent months several analysts have re-evaluated Tyson Foods given the management change and weakness in poultry. Piper Jaffray Companies reiterated a “buy” rating and set a $75 price target for Tyson Foods in August. Akshay Jagdale, an equity analyst with Jefferies, said because Tyson reaffirmed its adjusted earnings forecast for fiscal 2018, ending Sept. 30, Hayes’ departure “is not a sign of potential operational issues.”
“Over his relatively short tenure, Tom made significant organizational changes,” Jagdale said. “All of these efforts set a good foundation but seem to have been overshadowed by a turn in the chicken and pork commodity cycles.”
Zacks Investment Research more recently upgraded Tyson Foods from a “hold” to a “buy” rating, setting a target price at $71. Stephens Inc. recently lowered its target price to $73, while reiterating a “buy” rating. Argus downgraded Tyson to a “hold” on Sept. 5, citing trade concerns and soft U.S. demand for chicken. Also last month, Buckingham Research reiterated a “hold” rating and a lower price target of $71.
While the recent $2.16 billion Keystone Foods acquisition is expected to be a longer-term growth play, there are short-term integration costs. Much of White’s time will be spent overseeing the integration of Keystone. In a blog post to employees, he recently said, “our biggest opportunities for growth are in two places: value-added foods and our international business.”
He said by growing internationally, the company will remove some of the risks, adding, “we’ve come a long way, but we’re still not as insulated as we’d like to be from earnings volatility.” He said by listening to customers and adapting to their needs, Tyson intends to be less impacted by market swings and better able to deliver strong and consistent results.
“For example, we’re putting emphasis on getting beef and pork to customers that are already cut and packaged in a way that it can immediately be put on the shelves and sold, without additional effort on their end,” he noted.
While a majority of analysts see upside potential in Tyson Foods, the stock (NYSE: TSN) performance has been weak with shares down 23% year-to-date. Tyson shares closed Friday at $62.08, up 58 cents. For the past 52 weeks, the share price has traded between $56.79 and $84.65.