Friday Diversified Food Wrap-Up: Earnings from TSN; B&G Lags
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Diversified food stocks underperformed the S&P 500 index +0.36% to +1.46% in today's session. Industry leaders included Tyson Foods Inc. (NYSE: TSN), which reported earnings, and Chiquita Brands International Inc. These stocks rose 4.08% and 3.24% on volumes of 9.69M and 283.38K, respectively. Industry laggards included B&G Foods Inc. (NYSE: BGS) and Hershey Co. These securities fell 1.62% and 0.63% on volumes of 492.66K and 1.05M, respectively.
Sector-wide news included ethanol rules driving up beef prices; a drop in Argentine soy and corn prices due to drought fears subsiding; and continued British and Indian taste exchange.
Tyson Foods Inc. saw its shares rise today. The company announced earnings of $0.42 a share beating the $0.33 consensus estimate from 16 analysts covering the company for a positive earnings surprise of 26.89%. YoY sales rose 9% and revenue rose in beef (8.9%), chicken (5.5%), and pork (19%) operations.
On the negative side of the ledger, gross margins fell to 5.9% from 9.8% and operating margins fell to 3.3% from 6.5%. S&P lowered their FY 2012 EPS projection for the company stating that they were "pleased the chicken business returned to profitability, but disappointed by the extent of beef business profit weakness."
Overall, I am somewhat neutral on the security as well, there are several pros and cons to consider with Tyson. On one hand, its P/E (9.85), PEG (1.07), and gross and operating margins all underperform industry averages. On the other hand, Tyson boasts minimal long-term debt ($2.11B), rising inventories, and a macroeconomic environment in which an increasing global middle class should cause demand for protein based foods to rise.
B&G Foods Inc. saw its shares decline in today's session without any major news or press releases. As far as my analysis is concerned, however, defensive buy-and-hold investors with a penchant for income over stock price appreciation may find a lot of merit with the company. B&G's relative valuations, dividend payout, and sales health all appear to offer long-term stability and income.
First, B&G's relative valuations show some allure. Its gross (32.77%) and operating (20.79%) margins are well ahead of industry averages. This is likely the result of the name brand mark-up the company enjoys on their top-performing products like Emirl's, Cream of Wheat, Ortega, and B&M. The company's P/E is high at 20.77, but it more than likely reflects the growth expected from the company's recent purchase of Culver brands from Unilever. Culver brands includes products like Mrs. Dash, Baker's Joy, and Kleen Guard. Overall, the purchase should result in $90M for B&G's top line (assuming continuity), so the company's P/E should settle at a lower valuation after 1Q 2012.
Second, B&G just raised their dividend payout to $0.23 a share from $0.21. The 74% payout ratio may seem high for some investors, but the company's above mentioned products are well-established so retained equity for innovation is not required. Its 4.00% annualized dividend should offer a significant boost to most portfolios.
Finally, B&G has increased its YoY sales since 2006. This feat is impressive because industry heavyweights such as Kraft and Nestle saw declines as a result of the post-recession economic environment (this occurred in 2009 for both companies).
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