Tyson Foods earnings estimated to rise 7% in fiscal 2019

Springdale-based Tyson Foods is expected to see first-quarter net income rise 7% from a year ago with per share net income to be $1.70 per share. Consensus revenues are expected to be $11 billion, up 9% from a year ago.

Tyson Foods will report earnings Thursday morning (Feb. 6) before the market opens and ahead of the company’s annual shareholder meeting in Springdale.

Zack’s Research analysts said rising demand for protein-packed food continues to be a key catalyst for Tyson Foods given its large portfolio of products and access to global markets. Zack’s is bullish on Tyson Foods and believes the company will beat estimates. Zack’s rates Tyson shares a “buy” saying the company has made strategic acquisitions that give it a larger global footprint where much of the future demand will originate.

While Wall Street overall is bullish for Tyson Foods, analysts with Little Rock-based Stephens Inc. recently lowered their fiscal 2020 earnings, citing challenges in the company’s chicken segment. Ben Bienvenu, an analyst with Stephen’s, set his first-quarter estimates at $1.33 per share with full-year earnings of $6.37, down from $6.49 previously predicted.

“We slightly lowered our first-quarter chicken and prepared foods estimates, while the results for the pork segment was raised. Beef and International results were left unchanged for the quarter,” Bienvenu noted.

He said sluggish chicken prices began to improve following the announcement of China opening its market to U.S. poultry. He said chicken production has outpaced demand, but as the fallout from asian swine fever (ASF) continues to unravel, he expects China will ramp up imports of protein. He also expects Tyson to make progress through the year in improving operations in its underperforming chicken plants.

“As we progress through 2020, export pulls should continue to be strong due to the global protein deficit caused by African Swine Fever and we are hopeful that we see the launch of a McDonald’s chicken sandwich both of which should help alleviate excess supplies stemming from elevated broiler production levels. We are modeling feed costs rising 1.6% from a year ago with higher corn prices more than offsetting lower soybean meal prices to start 2020,” Bienvenu noted.

Stephens expects chicken segment operating income of $102.5 million, down from $173 million a year ago. Despite lower profits, chicken segment revenue is expected at $3.417 billion, up nearly 10% from the prior-year period. Tyson’s beef segment has produced strong profits throughout 2019 and analysts expect profits will remain solid this year amid strong demand and ample cattle supplies. Tyson’s beef operating income for the first quarter, ending Dec. 31 is estimated to be $338.7 million, up 11% from a year ago. Beef segment revenue is expected at $3.984 billion, up 1.5% from last year.

Stephens reports the beef processing margin for the quarter averaged $308 per head, up 20% from a year ago. Cutout prices (sum of the parts) averaged $228 per hundredweight in the quarter, up 6% from last year.

Beef analyst Derrell Peel, with Oklahoma State University Extension, recently told Talk Business & Politics he expects Tyson Foods and its beef competitors to have a positive year. He said demand is high and packers have ample cattle supplies to support record level production. He said more positive trade deals would also help the industry keep production positive. He said the devastating fires in Australia will also give U.S. packers opportunities to backfill holes created in the market.

Tyson Foods Prepared Foods segment is expected to have operating income of $193.6 million for the first quarter. This is down 27% from a year ago, amid higher input costs of raw materials that lowered operating margins to 8.5% in the quarter, compared to 12.5% reported in the year-ago period. Prepared Food sales are expected at $2.277 billion, up 6% from a year ago.

Tyson’s pork segment is expected to post operating income of $108 million, up 14.6% from a year ago. Tyson has improved its pork operations margins to an expected rate of 9%, up from 7.7% last year. Pork sales are expected at $1.209 billion, up 2.6% year over year.

“We have raised our first-quarter pork estimate to reflect stronger-than-anticipated export demand along with a moderation in hog costs. Commodity pork profits likely expanded during the quarter, reflecting strong cutout performance that outpaced the rise in hog input costs. During the quarter, export demand was solid as China remained the top buyer of U.S. pork,” Bienvenu said.

Stephens reports the pork processing margin averaged $40.01 per head, up 36.7% in the first quarter. Pork cut-out prices (the sum of the parts) average $77.54 in the quarter, up 3.7% from a year ago.

Stephens also downgraded its rating on Tyson Foods to a hold position from a buy recommendation but held the target price at $95. (Stephens Inc. conducts investment banking services with Tyson Foods and is compensated accordingly.) Wall Street consensus for Tyson Foods is bullish, with 27 analysts rating the company a “buy” and 13 analysts at neutral. The average target price among the analysts is $99 per share.

Shares of Tyson Foods (NYSE: TSN) closed Monday (Feb. 3) at $83.27, up 64 cents in light trading. For the past 52 weeks, the share price has ranged between $58.20 to $84.69. Tyson shares are up nearly 35% over the last year.