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Tyson Foods: The Trends Are This Stock’s Friends

Summary

The global pork shortage resulting from African swine fever increased US pork exports and boosted demand for chicken and beef.

In periods of high inflation, Tyson’s cost pass-through model limits potential profit margin pressure.

The recovering restaurant industry is pushing beef prices higher.

Tyson’s recently announced settlements related to chicken price-fixing litigation remove a significant headwind.

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Joe Raedle/Getty Images News Tyson Foods (NYSE: TSN ) is one of the largest meat processors in the world. The company is diversified in its product offerings, it sells beef, pork, chicken and prepared foods, and can boast of a wide geographic reach, TSN registered sales in 145 countries in FY 2020.

The firm’s major markets include the European Union, the Middle East, Canada, Mexico, Central America, Chile, China, Japan, Malaysia, South Korea, Taiwan, and Thailand.

These strengths, coupled with a firm financial foundation, have Tyson well positioned to benefit from a growing demand for protein, particularly overseas. That trend, coupled with supply shortages of pork created by the African swine fever in China, provide strong tailwinds for the stock. A Glance At Recent Results

Tyson’s Q4 results were reported in mid November. The company beat on the top and bottom line. GAAP EPS of $3.71 beat by a whopping $1.51, and Non-GAAP EPS of $2.30 exceeded consensus by $0.08. Full year adjusted EPS was up 53%.

Revenue of $12.81 billion beat analysts’ expectations by $120 million and was up by over 20% year-over-year.

By segment, Chicken sales surged 21.5% in the fiscal fourth quarter, to $3.90 billion. The growth was driven by a 20.2% increase in pricing and a 1.3% increase in volume. However, the segment posted an adjusted loss of $113 million versus positive earnings of $91 million a year earlier.

Pork sales rose 29.6% to $1.65 billion, but segment operating profit fell to $78 million from a prior $162 million.A 35% volume increase in Beef, largely due to the reopening of restaurants, resulted in a 26.3% gain in sales in that segment to $5.01 billion. Adjusted segment operating profit grew to $1.1 billion from $433 million a year earlier.Revenue rose 7%, to $2.3 billion in the Prepared Foods segment, driven by demand in the foodservice channel. However, operating profit fell from $236 million to $39 million, and operating margin dropped to 1.7% from 11.2%.The ‘Other’ segment, which includes the International business, reported an adjusted revenue increase year-over-year to $546 million from a prior $456 million. Using 2019 results as the comparable, management is targeting high single-digit compound annual growth rate in adjusted EPS over the mid term. The company’s goal is to return 12% on invested capital and to realize operating cash flows of approximately $4 billion.To achieve this target, Tyson will devote $4 billion to $6 billion in capex over the next three years.The company also has plans to open twelve plants in the next two years. […]

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