Tyson Foods (TSN, Financial) recently demonstrated impressive financial results in the fourth quarter of 2014. Its sales rose 14% while its operating income and adjusted earnings per share increased 20% and 32% respectively for the quarter. The company continues to grow exceptionally well and quickly. Looking forward Tyson Foods should benefit from the growing demand for chicken, pork and beef. Also, the recent acquisition of Hillshire brands should turn out to be a catalyst for the company in the long run.
Growing demand for chicken, beef and pork to boost its growth …
Tyson Foods should benefit from the growing demand for its tray-packed chicken as the retail customers are choosing more healthy options. It expects the chicken demand to grow around 3% to 4% as more and more consumers shift their focus from beef to chicken. It expects the chicken division to witness strong growth in its operating income for fiscal 2015. It expects the operating margins for chicken to be in the range of 7% to 9% in fiscal 2015 coupled with approximately 10% return on sales.
The company is working aggressively on many strategic edges that should keep its chicken division quite competitive going forward. It plans to add value-added capacity in the coming spring for its cooked and tray-packed chicken. This value-added capacity is occupied with value-added product mix that should support its growth in the long run.
Moreover, it has diversified its chicken portfolio with value-added offerings. Tyson expect its NatureRaised Farms brand of no-antibiotics-ever chicken to grow at a double-digit growth rate in the long run. The company expects these diversified offerings to support its buy-and-grow strategy that should assist the company to take advantage of price. It is also using a small amount of MAP spending to generate more than 800 million consumer impressions that should support its growth for fresh chicken going forward.
Tyson Food expects the growing demand for chicken to offset its beef segment that continues its struggles for lower cattle supplies. This lower supply is leading to higher costs and reduced margins for the company. It expects softness in its beef division with reduced volume. However, this reduced supply will enable beef prices to go high going forward that should boost results for the segment. Beef prices have already appreciated approximately 21.5% and are expected to rise further in fiscal 2015.
Nevertheless, it continues to see high demand for beef across the region and expect this high demand to support its chicken and pork pricing. Also, Tyson Food can make big money if it procures beef amid this tight supply. It should benefit from the heifer retention, which is building momentum and should possibly rebuild the herd. This should perhaps help the company keep the availability intact with growing beef demand in the region.
In addition, its pork business looks pretty appealing with the price growth of around 16.5%. It is effectively procuring hog amid tight supply. Its capacity utilization continues to remain above the industry averages. Additionally, the company projects expansion in hog supply in fiscal 2015. It expects hog supply to surge approximately 2% to 3% in fiscal 2015. This should certainly enhance its pork margins and accelerate its profitability.
Hillshire brands to gear up the growth momentum …
Tyson Food has completed acquisition of Hillshire Brands. The company expect this acquisition to significantly drive its growth going forward. Hillshire has promising brands under its belt such as Jimmy Dean, Ball Park, State Fair and Hillshire Farms. Further, the company continues to invest in the growing innovative pipeline of Hillshire Brands. Tyson Food expects the Hillshire acquisition to deliver incremental revenue of approximately $4.00 billion for its prepared food business this year.
It has already expanded the Hillshire brands with the launch of Jimmy Dean frozen sandwiches and bowls for lunch and dinner. This launch has certainly widened the brand horizons that were limited to breakfast earlier. The company expect this new day part to deliver incremental revenue for the company going forward. In addition, it remains on track to expand its Ball Park, Park's Finest franks brands as it plans to launch new extensions for these brands in retail. It also plans to extend Hillshire Farm American Craft line of handcrafted, small batch smoked sausage with new products featuring authentic ingredients in bold flavors.
Ending notes
Tyson Food continues to benefit from positive end market conditions due to its strong position in various markets. Also, it is seeing increasing demand for chicken, beef and pork that should help the company boost its top and bottom line performance this fiscal year.
