Tyson Foods Protein-Packed Brands Solid, Cost Woes Prevail

Robust portfolio of protein-packed brands along with focus on launching organic products has been working well for Tyson Foods, Inc. (NYSE:TSN) . Moreover, efforts like acquisitions and efficiency-building programs are yielding. These endeavors have been driving this Zacks Rank #3 (Hold) company amid input cost inflation. Let’s discuss.

Efforts to Enhance Protein-Packed Brands

Tyson Foods is focused on enriching its portfolio with robust protein-packed brands and capitalize on rising demand for such products. Notably, United States Department of Agriculture (USDA) expects overall domestic protein production (chicken, beef, pork and turkey) to rise 2-3% year over year in fiscal 2020.

In this regard, the company’s beef and pork subsidiary — Tyson Fresh Meats, Inc — has recently inked an agreement with the Republic of Kazakhstan and a major beef producer Kusto Group for a project to develop a modern beef processing plant. The proposed project, with an expected harvest capacity of 2,000 head-per-day, will add an overseas beef plant for Tyson Foods. Further, industry experts believe that the development in Kazakhstan will open up ample export opportunities for Tyson Foods in China, Russia and the Middle East. Also, the company can leverage its well-established distribution networks in Central Europe.

In fact, the company has undertaken divestiture of non-protein businesses such as Sara Lee Frozen Bakery, Kettle and Van’s to focus on the growing protein-packed food arena.

Focus on Acquisitions & Other Growth Efforts

Tyson Foods has been focusing on acquisitions to expand its portfolio and boost sales volume. We note that, the company completed the acquisition of the European and Thai operations of BRF S.A. in June 2019. The buyout strengthened the company’s footing in the Thai poultry space and expanded presence in the U.K. and the Netherlands.

Prior to this, Tyson Foods acquired Keystone Foods business in November 2018. The business has particularly been bolstering performance of the Chicken as well as the International and Other segments. Other notable acquisitions in the past include AdvancePierre, Original Philly Holdings, Hillshire and Mexican food restaurant chain — Don Julio Foods.

Moreover, the company has been steadily expanding the fresh prepared foods offering owing to consumers’ rising demand for natural fresh meat without any added hormones or antibiotics. In this respect, Tyson Foods’ buyout of Tecumseh is quite noteworthy. Further, the company is on track with the launch of new plant-based protein and blended products under the Raised & Rooted brand.

This apart, Tyson Foods is on track with the Financial Fitness Program to enhance supply-chain efficiencies, reduce overheads and drive the bottom line. The company aims to generate savings from this program through synergies from acquisition integration and incremental cost optimization, which involves the removal of non-value-added costs. Management stated that it expects the program to generate savings worth $600 million by 2020. Majority of these savings are expected to drive the Prepared Foods and Chicken segments.

Driven by such upsides, Tyson Foods’ shares have surged 48.7% in a year compared with the industry’s growth of 28.4%.

Hurdles to be Countered

Tyson Foods is witnessing high input costs across some of its categories. This is exerting pressure on operating profits of certain segments. Evidently, during fourth-quarter fiscal 2019, higher livestock costs in the pork unit, feed-ingredients costs in the chicken unit and raw-material costs in the prepared foods unit were headwinds. Persistent rise in such input metrics might dent operating profits.

That being said, we cannot ignore the aforementioned upsides.

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