Wall Street predicts lower fourth quarter income, higher revenue for Tyson Foods 

Tyson Foods is expected to report mixed results on Monday (Nov. 16) from the company’s fiscal fourth-quarter and fiscal year results. Wall Street consensus calls for fourth-quarter net income of $1.19 per share, down 1.65% from the prior-year period. Revenue for the quarter is expected to be $11.01 billion, up 1.2% from a year ago.

The 85-year-old meat giant is expected to have fiscal 2020 earnings of $5.03 per share down from $5.46 per share earned last year. Net income is expected at $1.83 billion, down from $2.02 billion a year ago. Revenue for the year is expected to be up just under 1% to $42.79 billion.

Tyson Foods management has been cautious and pulled guidance for fiscal 2020 as the company experienced higher operating costs related to the COVID-19 pandemic.

SEGMENT EXPECTATIONS
Analysts who watch Tyson estimate beef operating income for the quarter to be $350 million, lower than the $376 million reported a year ago. Analysts expect Tyson’s beef segment to do better than the industry average but said quarterly results are likely lower than a year ago because of higher operating costs associated with COVID-19.

Tyson’s business segments are also expected to report mixed results with the beef segment carrying the load for a challenged chicken segment. Beef processing margins averaged $368 per head in the quarter ending Sept. 30, according to Stephens Inc. Commodity Monitor. Average processing margins were up 2% from the same quarter a year ago.

Year-to-date U.S. beef exports are down 8.5% from a year ago driven by decreased sales to Mexico (-28.3%), Egypt (-26.1%), Japan (-3.6%) and South Korea (-2.9%), according to the U.S. Meat Export Federation. U.S. beef shipments to Asia have increased in recent months because of tightening supplies from Australia.

The pork segment has seen strong results in the fourth quarter compared to a year ago. The industry average pork processing margin was $38.88 in the quarter, up from the $16.79 reported a year ago. Slaughter numbers were up 5% in the first half of the quarter before diving in late August below the five-year average of 2%. The same was true of total pork production. Last year, Tyson reported pork operating income of $26 million, and analysts expect operating income to be higher at $57 million for the fourth quarter.

Tyson’s chicken segment has been negatively impacted by COVID-19 given a large part of this business is foodservice (restaurant). The industry average processing margin for the fourth quarter was $13 cents, higher than the 11-cent average from a year ago.

Poultry production fell in July by 5% as foodservice demand remained tepid. Slaughter numbers were down 4% in July before rebounding by 2% in September. Tyson said the segment was the most negatively impacted by COVID mostly because of the plummeting foodservice segment and unprecedented demand for retail chicken sold in grocery stores.

Wholesale chicken prices dipped in the quarter, with the exception of wings that continues to set records of nearly $2 per pound by the end of September. Higher grain costs are expected to weigh on this segment for the fourth quarter. Tyson reported an operating income of $90 million in the fourth quarter of last year. Analysts expect that will be slightly lower as the cost of doing business has increased.

EXPANSION, CHALLENGES
The company’s burgeoning prepared foods segment has also been hurt by COVID-19 because much of the product is sold into foodservice. The segment had operating income of $104 million in the fourth quarter of 2019. That is expected to decline slightly this year.

Tyson’s international segment continues to be a work-in-progress. Operating income in the fourth quarter of 2019 was $8 million, reversing a $10 million loss from the prior-year period. Tyson is expected to see slightly higher international income from a year ago.

On Tuesday, Tyson announced plans to expand chicken operations in China and Thailand with two new plants and a plant expansion in the Netherlands. Tyson said this investment is a move to address the global population and income growth that will continue to increase the need for protein.

CEO Dean Banks said the new China plant is expected to create more than 700 jobs while the new plant in Thailand – part of an existing joint venture with GFPT Public Co. Ltd. – will create more than 1,000 jobs.

Tyson recently has been building its overseas presence to meet the needs of foodservice customers and also is expanding its retail profile in several foreign markets. The efforts include developing in-country production and export capability in Australia, Brazil, China, India, Malaysia, South Korea, the Netherlands and Thailand, generating $5.4 billion in international sales.

BEARS VS BULLS
Stephens Inc. remains neutral on Tyson shares with a target price of $64 as of Nov. 1. Credit Suisse downgraded Tyson shares from outperform to neutral in early August as the protein company faced COVID-19 challenges across the business. Among the 16 analysts that cover Tyson Foods, 7 of still rate the stock a “buy” and 5 analysts have the stock rated “hold” as of Nov. 8.

The Wolf Report for investors published on Nov. 8 took a different view on Tyson shares noting the stock is undervalued by 24%.

“The company positives are found in the fundamental side of things – such as debt, dividend coverage, market position and market share, credit rating and similar qualities, with the bearish negatives being mainly found in the company’s record of following regulations and practices, as well as potentially the competition from other companies,” the report noted.

Shares of Tyson Foods (NYSE: TSN) closed at $60.64 on Tuesday, up 12 cents in light volume. For the past 52 weeks, shares have traded between $45.57 and $94.24. Year-to-date shares are down 33%.