Tyson To Fund Innovation In Non-Meat Protein Food Category

Meat processor Tyson Foods Inc. (NYSE:TSN) plans to adapt itself to cater to the growing demand for meat substitutes. As part of this strategy, it has set up a venture capital fund worth $150 million to invest in companies that develop these products.

The new venture fund named Tyson New Ventures LLC will invest in alternative forms of protein and food sustainability and will complement the company's continued investments in innovating its core fresh meats, poultry and prepared foods businesses. Additionally, the new venture will focus on developing technologies to reduce food wastage.

Notably, the Springdale, AR-based meat processor recently bought a 5% stake in a plant-based protein producer, Beyond Meat. Management has marked this takeover as its first step toward stepping up investment in meat substitutes.

The company’s endeavor to expand its portfolio for meat substitutes is laudable as it is a growing sector. A recent study has shown that per capita consumption of meat, particularly high-protein red meat, has witnessed a decline in the developed countries over the years. Increasing health consciousness of the people, change in dietary plans and risk of outbreak of animal diseases are leading to low consumption of meat products. Amid this scenario, the meat substitute market is expected to witness substantial growth.

Traditionally, Tyson has been fast to adapt itself according to needs and preferences of the consumer. The company continuously innovates and adds products to an already rich food lineup. The new venture fund is exemplary as it reflects the company’s promptness in acting as per the changing needs of the consumers. Tyson New Ventures is led by Mary Kay James, the former managing director of DuPont (NYSE:DD) Ventures and chairperson of the National Venture Capital Association.

The company has been witnessing softness in the Beef, Chicken and Prepared Foods segment. Lower cattle supply and higher fed cattle costs have been responsible for the sluggishness in the segment. Further, the company has decided to reduce its beef production capacity in response to lower cattle supply. Even the chicken segment is facing several transitory headwinds of late. Higher soybean meal input cost has been denting margins in the sector. The shares have declined 23.9%, underperforming the Zacks categorized Food-Meat Products industry in the last three months, which has showcased a decline of 18.8%.

We believe that the new venture of this Zacks Rank #3 (Hold) company to diversify its portfolio towards meat substitutes is likely to help the company rebound in the future.

Key Picks in the Sector

Some better-ranked stocks in the broader consumer staple sector include Sanderson Farms Inc. (NASDAQ:SAFM) , Hormel Foods Corporation (NYSE:HRL) and Sysco Corporation (NYSE:SYY) .

Sanderson Farms has an expected earnings growth rate of 5%. The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hormel Foods Corporation carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 10.5%.

Sysco Corporation also carries a Zacks Rank #2 and has an expected long -term earnings growth rate of 8.83%.

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