Tyson’s Recent Sales Show that Chicken Is a Winner

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Sales of chicken are hot as consumers are more inclined to buy it rather than more expensive meats like beef and pork. Tyson Foods (NYSE: TSN), the largest U.S. meat producer by revenue, reported strong third quarter sales driven in part by strong operating income in its chicken segment.

Meat producers like Tyson have benefited from falling grain prices, which have decreased the company’s costs related to animal feed. Sales to food service suppliers for the restaurant and fast-food industries have also improved. Tyson’s profit for the third quarter was $249 million, up from $76 million in 2012; diluted earnings per share rose to $0.68 from $0.21 per share in the same period last year. Sales rose 11% compared to a year earlier.

Food scares affecting other food producers in China have prompted Tyson to consider building its own poultry supply plants in the country. The company is currently discussing its expansion with the Chinese government. Tyson plans to produce 50% of its Chinese-sold chickens in the country by the end of 2013, and 100% by the end of 2014.

For 2014, the company expects sales to be driven by demand from overseas and the sale of ready-made products which carry a higher margin. Overseas production is expected to increase sales by 12% to 16% over the next several years. The company’s forecast for fiscal 2014 sales is about $36 billion, up from $34.5 billion expected by the end of this year. On Aug. 7, shares closed at $30.60; the company’s stock has risen about 50% since January.

ConAgra Foods’ latest acquisition expected to pay off

ConAgra Foods (NYSE: CAG), owner of brands such as Reddi-wip, Hunt’s, and Swiss Miss, reported strong fourth quarter earnings and a 17% rise in comparable earnings per share for fiscal 2013. The company had growth of 3% in its consumer foods segment. Earnings per share on a comparable basis was up 18%. Reported diluted earnings per share from continuing operations was $0.45; after adjusting for items affecting comparability, diluted earnings per share was $0.60.

For 2014, the company expects its January 2013 acquisition of packaged food company Ralcorp to play a big part in driving its sales growth. Annual diluted sales growth of 10% is expected for 2015 to 2017, after adjusting for comparability. Through Ralcorp's acquisition, the company expects to also significantly improve costs. ConAgra’s Consumer Foods segment is also expected to contribute to earnings per share growth. CEO Gary Rodkin expects some headwinds in the 2014 fiscal year, but believes that the company will post good earnings per share growth for the year.

Danone gains results by shuffling product line

In the first half of 2013, Danone (NASDAQOTH: DANOY.PK) had good results from adjustments to its product portfolio with net sales growing 5.6%. The economic environment was challenging in Europe, with sales growth down in the second quarter by 3%. In emerging markets and North America, sales growth of more than 10% was reported. The company’s strongest business segments during the first half of 2013 were (bottled) Waters, Baby Nutrition, and Medical Nutrition, with trading operating margins of 13.18%, 20.49%, and 19.31%, respectively.

Danone’s total trading operating margin was down 49 basis points to 13.34%, a reflection of low sales in Europe and the rising prices of raw materials like milk and other dairy ingredients. These conditions are expected to affect the company during the second half of 2013 and into 2014.

My foolish conclusion

Shares of food companies have done very well lately. Tyson Foods has grown about 25% in the past five years and growth over the next five years is estimated at 7%. With more modest growth expected in the future, investors should consider these shares when they dip in price.

ConAgra Foods, with shares up about 21% since January, also has good growth prospects through 2017 and is also worth considering. On the other hand, Danone’s ongoing high raw material costs and weak sales in Europe could put downward pressure on company earnings for the remainder of 2013.

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Eileen Rojas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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