Tyson Foods financials expected to improve in third fiscal quarter report

Most equity analysts expect improved third-quarter numbers from Tyson Foods with a turnaround in the chicken segment, gains in prepared foods and international with solid beef results. The company reports fiscal third-quarter earnings on Monday (Aug. 9).

Consensus net income for the meat giant is forecast at $550 million, up 8.3% from the same period last year. For the quarter ending June 30, Tyson is also expected to report revenue of $11.3 billion, up 12.75% year over year with gains across all of Tyson’s operating segments.

Analysts expect Tyson’s troubled chicken segment to report operating income of $34 million in the quarter, reversing the $120 million loss reported a year and sequentially better than the $6 million reported in the prior quarter. The company is still struggling to get its operating margin higher in chicken but in the third quarter the margin ended positive at 1%. This was better than the negative 3.9% margin a year ago and 0.2% margin reported last quarter..

Food service sales have picked up across the country in recent months and that is expected to help Tyson Foods and its chicken competitors. Tyson’s chicken sales are forecast at $3.744 billion, up from $3.112 billion a year ago. Pricing for chicken has been high but future pricing power seems to have waned in the past month. Also grain costs remain elevated for corn and soybean meal which are the two main feed ingredients Tyson feeds its chickens.

Ben Bienvenu, an analyst with Stephens Inc., recently raised earnings guidance for Tyson Foods on the belief chicken fundamentals will remain solid for the next six to nine months. The updated guidance is $1.52 per share, up from $1.15 per share previous third quarter forecast. Operating income is pegged at $810 million, up 8.3% from a year ago.

“We have slightly increased our earnings estimate on momentum in price strength as higher grain costs, tightening supplies/production disruptions and an improving demand backdrop, supported by aggressive buying from foodservice and further processors, have all been supporting pricing,” Bienvenu said.

He doesn’t expect to see material improvement in Tyson’s chicken operating margin until the company is fully able to update pricing contracts this fall. Bigger chicken gains will just be part of the story.

Tyson is also expected to have solid results in its beef segment despite recent margin pressure. Beef operating income is forecast at $588 million, down from $636 million a year ago, but better than the $445 million reported last quarter. The company’s operating margin of 14% is still near historical highs set last year. Beef sales are forecast at $4.201 billion, up from $3.653 billion a year ago.

Bienvenu expects beef packer margins will remain high supported by robust demand domestically and in export markets. He said cattle prices have been increasing in light of higher feed costs and decreases in the number of head available, but packer margins have been strong. Beef production was up 15.6% year over year during the quarter.

Tyson’s pork segment is expected to be weaker than a year ago despite 50% higher sales at $1.683 billion. Operating income is forecast at $33.7 million, down from $107 million reported a year ago. The operating margin is pegged 2%, falling from 9.6% a year ago.

Stephens said margin compression has been troublesome for the pork segment as live hog prices and grain costs have risen faster than finished pork meat prices. Margins have recently bounced off of the lows but remain well under historical levels.

The prepared foods segment at also is expected to report sales of $2.106 billion, up from $2.035 billion with operating income of $147 million, improving $2 million from a year ago while operating margin held steady at 7%.

Tyson’s international segment is expected to report sales of $406 million, up from $402 million a year ago. Operating income is expected at $4 million, a marked improvement over the $8 million loss reported a year ago. Tyson operates in 10 countries on five continents including chicken and pork businesses in China and Korea and chicken operations in Thailand, Malaysia and Australia, The company also has operations in Europe.

Bienvenu recently raised his target share price for Tyson Foods to $90, based on the recent higher earnings estimate. Analysts with Zacks Research also predict Tyson will outperform earnings and revenue expectations in the quarter.

Shares of Tyson Foods (NYSE: TSN) closed Thursday (Aug. 5) at $70.14 per share, down 22 cents. Year-to-date Tyson shares are up 9.78%. The stock has been trending downward since mid-May after hitting a 52-week high price of $81.79. The consensus one-year target price is $83.50, lower than the $90 target recently set by Stephens Inc. As of early August, 11 of the 16 analysts following the company were bullish on the shares, seven with “buy” ratings and four with “strong buy” ratings. The remaining five analysts were neutral on Tyson Foods.