Is this Beef Provider Worth a Look?

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Meat companies are indeed facing tough times, struggling with both the problems of low demand and cost inflation. U.S. drought conditions have made life miserable since it is leading to extremely high cattle feeding costs. However, Tyson Foods (NYSE: TSN) is bucking the trend through its commendable moves. After a disheartening third quarter it remained focused on improving its profitability which led to fourth quarter results which were above expectations.

What’s going on?

Revenue remained almost flat over last year mainly due to the compensating effect of higher prices on lower volumes. However, the company’s bottom line was mind blowing. Adjusted earnings more than doubled to 55 cents per share. This was truly surprising since the meat producer was suffering from increased cattle feeding costs which had led earnings drop of 2% in the previous quarter.

Nonetheless, Tyson decided to increase its strategic efforts and manage its costs efficiently. Also, chicken’s higher prices played a very important role here. The boost in price came in from industry’s restructuring efforts such as production cuts.

Even industry peer Pilgrim’s Pride Corporation (NASDAQ: PPC) benefitted from the increase in chicken’s prices which showed up on its recent quarter. Its earnings recovered to a profit of 17 cents per share as compared to previous year’s loss. Pilgrim’s remodeling of its business and a growing export business also helped in boosting results.

Pilgrim’s restructuring also included the sell-off of its egg operations to Cal-Maine Foods (NASDAQ: CALM), a leading provider of specialty eggs in United States. Cal-Maine acquired 2 production complexes from Pilgrim’s which have a capacity of 1.4 million laying hens. Through this acquisition from Pilgrim’s Pride, Cal-Maine is planning to expand and strengthen its Texas operations  since the egg marketer expects higher demand in the upcoming holiday season.

Focus Areas

Coming back to Tyson Foods, its chicken segment has been doing really well. This is mainly because people are shifting to cheaper options due to increase in meat prices. Hence, the company will be focusing its efforts on this segment so that it can make the maximum profit out of it.

Also, it plans to increase prices due to continuous rise in input costs. It is expected to cut down on its production which will lead to a boost in chicken prices. This will help Tyson expand its margins further.

The meat producer has been laying a lot of stress on international expansion. The key area of focus will be China where it will be expanding in a big way. This looks like an interesting move since the company is currently witnessing huge demand in the international markets. This has already made its export business highly profitable. In fact, export sales have been a major contributor to its total revenue.

Tyson Foods also declared its intention to develop convenience stores which will make customers’ shopping easy. It intends to provide better service and maintain quality in such stores. Also, it will be innovating on value-added products for its store traffic.

The Takeaway

The company is making significant efforts to improve its performance and to come out healthy from the ongoing problems. Amongst all, export sales and chicken are the stars which are expected to outshine other operations in future. Moreover, the company has paid dividends and repurchased its shares, providing benefits to investors. Tyson Foods seems to be rising above the prevailing difficult situation and is expected to perform decently in the months to come. It is prudent to remain on the sidelines and wait for the right time to invest.


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