Tyson Foods Inc. (TSN) delivered third-quarter 2010 earnings of 65 cents a share, exceeding the Zacks Consensus Estimate of 59 cents by 10.2% and the year-ago earnings of 35 cents by 85.7%.
Revenue and Margins
Net sales recorded a growth of 11.6% to $7,438 million from $6,662 million in the year-ago quarter, but slightly missed the Zacks Consensus Estimate of $7,306 million. The upswing came as an outcome of sales growth across all its segments.
Tyson’s operating income shot up 83.7% to $507 million in the quarter compared with $276 million in the prior-year quarter. Quarterly operating margin expanded 270 basis points to 6.8%, portraying solid margin in all its reporting segments.
Segment Details
Sales grew 4.6% in the Chicken segment to $2,527 million compared with $2,417 million in the year-ago quarter, on the back of strong volumes, higher average sales prices, gain from its recent acquisitions and prudent inventory management. Operating margin advanced to 7.4% in the Chicken compared with 5.9% in the year-ago quarter.
On a year-ago basis, sales rose 13.4% in the Beef segment to $3,149 million compared with $2,777 million, attributed to higher average price partially offset 5.1% decline in volume. Segment operating margin progressed to 5.6% compared with 2.4% in the year-ago quarter.
The Pork segment revenue spiked 31.8% to $1,249 million compared with $948 million in the year-ago quarter, powered by 31.6% jump in price and an essentially flat volume. Operating margin jumped to 10.0% in the Pork segments compared with 3.0% in the year-ago quarter.
The Prepared Foods sales surged 11.9% to $753 million compared with $673 million in the year-ago quarter. However, the segment continues to face higher input costs, though fully offset by an increase in selling price. Segment operating margin plunged to 2.9% compared with 5.9% in the year-ago quarter.
Other Financial Updates
Tyson exited the quarter with cash and cash equivalents of $834 million. Long-term debt was $2,489 million.
In the first three quarters of 2010, Tyson used cash, restricted cash and cash flows from operations to pay down its debt by nearly $900 million and to reinvest over $400 million back into its business as capital expenditure.
In the quarter under review, Tyson repurchased more than $400 million of debt.
The company lowered its capital expenditures target to $600 million for the fiscal 2010, as the ongoing projects will not be completed in current fiscal year. Tyson forecasts capital expenditure of about $700 million in fiscal 2011.
Tyson anticipates net expenses of $335 million for the fiscal 2010, which includes $59 million of losses from note repurchases. The company projects fiscal 2011 net interest expense of $250 million, down compared with fiscal 2010.
The company plans to use available cash to repurchase notes. Management hinted that the company does not have debt maturities over the next two years. However, an 8.25% Notes is due in October 2011 which the company plans to pay through cash and cash flows from operations.
Tyson expects fiscal 2010 to be a better year than the last, helped by strong operating performance at its Beef, Pork and Prepared Foods segments. Further, the company is making operational improvements to maximize margins at its Chicken segment.
Tyson hinted that improvement in the operational efficiencies and lower interest expense will establish the company for a strong start in fiscal 2011. The company anticipates overall protein production (beef, chicken, pork and turkey) to rise in fiscal 2011 from fiscal 2010.
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Net sales recorded a growth of 11.6% to $7,438 million from $6,662 million in the year-ago quarter, but slightly missed the Zacks Consensus Estimate of $7,306 million. The upswing came as an outcome of sales growth across all its segments.
Tyson’s operating income shot up 83.7% to $507 million in the quarter compared with $276 million in the prior-year quarter. Quarterly operating margin expanded 270 basis points to 6.8%, portraying solid margin in all its reporting segments.
Segment Details
Sales grew 4.6% in the Chicken segment to $2,527 million compared with $2,417 million in the year-ago quarter, on the back of strong volumes, higher average sales prices, gain from its recent acquisitions and prudent inventory management. Operating margin advanced to 7.4% in the Chicken compared with 5.9% in the year-ago quarter.
On a year-ago basis, sales rose 13.4% in the Beef segment to $3,149 million compared with $2,777 million, attributed to higher average price partially offset 5.1% decline in volume. Segment operating margin progressed to 5.6% compared with 2.4% in the year-ago quarter.
The Pork segment revenue spiked 31.8% to $1,249 million compared with $948 million in the year-ago quarter, powered by 31.6% jump in price and an essentially flat volume. Operating margin jumped to 10.0% in the Pork segments compared with 3.0% in the year-ago quarter.
The Prepared Foods sales surged 11.9% to $753 million compared with $673 million in the year-ago quarter. However, the segment continues to face higher input costs, though fully offset by an increase in selling price. Segment operating margin plunged to 2.9% compared with 5.9% in the year-ago quarter.
Other Financial Updates
Tyson exited the quarter with cash and cash equivalents of $834 million. Long-term debt was $2,489 million.
In the first three quarters of 2010, Tyson used cash, restricted cash and cash flows from operations to pay down its debt by nearly $900 million and to reinvest over $400 million back into its business as capital expenditure.
In the quarter under review, Tyson repurchased more than $400 million of debt.
The company lowered its capital expenditures target to $600 million for the fiscal 2010, as the ongoing projects will not be completed in current fiscal year. Tyson forecasts capital expenditure of about $700 million in fiscal 2011.
Tyson anticipates net expenses of $335 million for the fiscal 2010, which includes $59 million of losses from note repurchases. The company projects fiscal 2011 net interest expense of $250 million, down compared with fiscal 2010.
The company plans to use available cash to repurchase notes. Management hinted that the company does not have debt maturities over the next two years. However, an 8.25% Notes is due in October 2011 which the company plans to pay through cash and cash flows from operations.
Tyson expects fiscal 2010 to be a better year than the last, helped by strong operating performance at its Beef, Pork and Prepared Foods segments. Further, the company is making operational improvements to maximize margins at its Chicken segment.
Tyson hinted that improvement in the operational efficiencies and lower interest expense will establish the company for a strong start in fiscal 2011. The company anticipates overall protein production (beef, chicken, pork and turkey) to rise in fiscal 2011 from fiscal 2010.
TYSON FOODS A (TSN): Free Stock Analysis Report
Zacks Investment Research
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