Tyson Foods Eyes Growth In FY17; Ignores Pricing Allegation

Leading meat processor Tyson Foods Inc. (NYSE:TSN) is sees significant opportunities to grow its retail and foodservice segments. In the investor conference held on Dec 7, 2016, the company announced that it has made a strong start to the first quarter fiscal 2017.

Following a decent start to the fiscal year, Tyson indicated that it is likely to update its guidance during the first quarter fiscal 2017 earnings conference call. The company also stated that its Core 9 categories and foodservice top-tier offerings continue to outperform the industry.

Tyson also stated that the chicken and prepared foods margins have returned to their normalized levels of 9–11%, as anticipated in the guidance provided at the fourth quarter and fiscal 2016 earnings conference call. Backed by a 2% gain in chicken supply as predicted by the United States Department of Agriculture (USDA) as well as constant input cost, Tyson believes that the chicken segment will once again be at/or above the upper end of the normalized range in fiscal 2017.

Tyson also added that the claims made in the lawsuits regarding the manipulation of chicken price index are baseless. Per allegations made in multiple lawsuits, several meat processors including Tyson Foods, Sanderson Farms Inc. (NASDAQ:SAFM) and Pilgrims Pride Corporation (NASDAQ:PPC) have colluded to manipulate the chicken supply, thus keeping the price of the commodity higher than the competitive market price.

Although the company is plagued by several headwinds at the moment, we believe that these risks will be short lived and this Zacks Rank #3 (Hold) company will be able to rebound thereafter.

We note that the company has underperformed the Zacks categorized industry since Oct 2016, when the litigations started. Nonetheless, the strong business momentum of the company is reflected in the fact that the shares of this meat processor have risen 10.3%, outperforming the Zacks categorized Food-Meat Products industry that has declined 5.4%.

A Stock to Consider

A better-ranked stock in the broader consumer staple sector is Hormel Foods Corporation (NYSE:HRL) , which carries a Zacks Rank #2 (Buy). Hormel Foods has an expected earnings growth rate of 9.6%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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