There's Meat on the Bone With Tyson Foods
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sure, I know what some of you may be thinking, 'What's this guy doing foraging in the refrigerator of the Meat Products industry in the Consumer Goods sector when he could be eyeing an exciting digital venture or something similar?"
It's because people still have to eat, and companies such as Tyson Foods (NYSE: TSN) are increasingly finding new ways to keep them fed with products they desire. Therefore, for investors, the following are a few reasons to consider adding Tyson Foods to your investing grocery cart.
Diverse Products and a Global Reach
Tyson produces, distributes, and markets chicken, beef, pork, prepared foods, and associated products. The company provides their products to the U.S. and approximately 130 other countries.
For investors there's some safety in numbers, such as product category numbers. Tyson offers fully-cooked chicken and beef products, snack products, to-go products, uncooked frozen chicken, fresh chicken, canned/pouched chicken, heat and eat entrees, and more.
Investors should note that a down-dip in one product category isn't a disaster for Tyson. with so much being offered in other product categories. Likewise, with their extensive market reach worldwide, downturns in one region can be offset by market strength elsewhere...and there's a lot of "elsewheres" to choose from.
Acquisitions to Feed Consumer Tastes
The company's on a bit of a feeding frenzy with recent acquisitions. I like their purchase of assets of Circle Foods, LLC. The focus here for Tyson Foods is consumers' penchants for menus of the Mexican variety. Circle Foods is established in this market with well-known products, including Nuevo Grille and Tortillaland products.
Before this acquisition, Tyson was already on trend with their Tyson Mexican Original subsidiary and their brand Mexican Original. The Tyson Mexican Original subsidiary acquired the assets of Don Julio Foods this year (Don Julio Authentic and Clover Club brands).
Investors should consider that Tyson Mexican Original is the second-largest tortilla manufacturer in America. Don Julio Foods, now in Tyson's kitchen, produces corn and flour tortillas and salty snacks. It looks like market share will only grow via this combination.
Tyson has their Tyson Fresh Meats division. They offer their "branded," "beef," and "pork" programs. They serve the retail and foodservice industries. Again, the company's diversification is something for investors to consider. Tyson Foods is capturing a share of consumer dollars - whether consumers are perusing the aisles of their local supermarkets or opening the door at their favorite casual restaurant, Quick Service Restaurant (QSR), or some other eating establishment.
Think of the value their programs provide to foodservice. It's hectic and competitive enough in this industry to have to worry about consistent, quality meat supply. Tyson focuses on this supply chain. For example, Tyson Fresh Meats sends out more than 5 billion pounds of boxed beef annually, worldwide. Branded products they offer include premium Certified Angus Beef.
There's something to be said for investing in companies that have "been there, done that." In other words, they're not typically shaken to the core by economic volatility. They've experienced it before, may currently be experiencing it, and more than likely will experience it in the future. They can ride these storms out because of their experience, the historical precedents that they've dealt with successfully in the past, and the aforementioned diversification as applies to products, geographic areas, and operating divisions.
Tyson Foods had their problems in the 2013 2Q. For example, total sales volumes for Prepared Foods decreased in the quarter due to reduced demand for specific foodservice products. However, they're not flinching. Their president & CEO, Mr. Donnie Smith, stated in May, "Our second quarter typically is our most challenging, and this quarter was no exception. However, our business is structured to withstand adverse conditions, and we worked through the issues while positioning ourselves for what we believe will be a strong performance in the second half of the year."
Investors should take note of companies that don't view the competitive landscape before them through rose-colored glasses. Tyson Foods "is structured to withstand adverse conditions." They know they will experience adverse conditions. As an investor, consider companies that have a foundation in place that helps safeguard somewhat their core businesses - and shareholders - when things get rough.
What about other players in the Meat Products sector? Hormel Foods (NYSE: HRL), maker of Spam, Stagg Chili, and more is also thinking Mexican flavors. In fact, they have an investment in the MegaMex Foods venture (a 50 percent stake). MegaMex unveiled a line of "Herdez" brand Mexican cooking sauces earlier this year. The Herdez del Fuerte group of Mexico and Hormel set up the MegaMex venture a few years ago.
Consider the aggressiveness of this combined venture. The MegaMex Foods venture is looking to grow sales. They're doing it with Mexican-food product innovation and acquisitions. In 2010, MegaMex Foods acquired Don Miguel Foods; in 2011, they acquired Fresherized Foods.
Moreover, investors should note that Hormel, like Tyson Foods (with their traditional brands that have served them well) are always innovating and aligning new product initiatives to evolving consumers tastes, in this case the trend of many things Mexican - and Mexican sauces pairing well with meat.
With Smithfield Foods (NYSE: SFD) investors should look at the recently announced strategic combination with Shuanghui International Holdings Limited. The two companies have entered into a definitive merger agreement This merger's going to make Smithfield an even greater force in the Meat Products sector.
Shuanghui International is the majority shareholder of Henan Shuanghui Investment & Development Co. Henan Shuanghui is the largest meat processing enterprise in the People's Republic of China. Smithfield Foods is the largest pork processor and hog producer globally. Investors interested in a taste of food product companies should consider this powerful combination and the massive market opportunity in China that's now open to those who invest in Smithfield.
Furthermore, Smithfield Foods is also into joint ventures to foster growth. They announced this past February a joint venture with Kansas City Sausage Company, a top American sausage producer and sow processor. Smithfield is looking to build their packaged meats business.
On the global front, Smithfield Foods is ensuring their foreign markets remain with them. The company is focusing on being a foremost provider of ractopamine-free pork (ractopamine hydrochloride is an anabolic substance used as a feed additive). They lead the industry in the production of ractopamine-free pork. China and Russia have said that they will require certification from third parties that any pork they receive is free of ractopamine.
For investors, it's wise to consider a company such as Smithfield that looks to leverage the strengths of other businesses to build their own business, which is what Smithfield is doing with the Kansas City Sausage acquisition. Even more important for investors to consider is the climate for drug-free healthier meats. Smithfield understands the market demands for meat free of anabolics and such, and now is set to serve the Chinese and Russian markets as per those nations' demands.
Global meat consumption ebbs and flows; it's the nature of the industry, and more so in recent years as consumers' modify their diets to sometimes include less meat. But the line-ups at retail and foodservice tell us meat is here to stay, and so are the companies experienced in negotiating the particulars of this multi-faceted industry.
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