Jefferies Gives Preview On Tyson Foods Ahead Of Earnings

Jefferies has modeled Tyson Foods

F2Q EPS of $0.44, -5% Y/Y and just above $0.43 Street est. It expects very strong pork margins and favorable feed contracts to largely offset the continued margin pressure facing the chicken industry. Sticking with Jefferies margin resiliency thesis, pork margins and contract benefits will fade, but slack should be picked up by a turn in chicken prospects in late 2011. The details are few and far between, but on the February 4 earnings call Tyson stated that for F2Q it is “pretty well covered at levels higher than F1Q, but below the current market". Jefferies continues to expect the combination of favorable feed contracts and aggressive cost management to keep TSN's chicken segment margins in the black for the balance of FY11. Jefferies expects pork margins to increase 360 bps to 11.0% in F2Q11 driven by what its research indicates was a near-doubling of average pork packer gross margins in the quarter. Jefferies expects margins to sequentially decline over the balance of the fiscal year, but remain above the normalized range given the very favorable global supply/demand balance. Jefferies has a $22 PT and Buy rating on TSN TSN is trading lower at $19.25