Why Is Tyson (TSN) Down 19% Since Last Earnings Report?

It has been about a month since the last earnings report for Tyson Foods (NYSE:TSN). Shares have lost about 19% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tyson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Tyson Foods' Earnings & Sales Miss Estimates in Q1

Tyson Foods, Inc. came out with its first-quarter fiscal 2020 results. We note that both the top and the bottom line missed the Zacks Consensus Estimate for the second straight quarter. Nonetheless, both sales and adjusted earnings per share improved year over year.

Q1 in Details

Adjusted earnings for the reported quarter were $1.66 per share, missing the Zacks Consensus Estimate of $1.70. However, the bottom line grew 5% year over year. Net sales increased 6.1% to $10,815 million. However, the top line missed the Zacks Consensus Estimate of $11,115 million. Sales volume was up 4.7% and average sales price increased 1.4%.

Gross profit for the fiscal first quarter came in at $1,440 million, up 6.3% from the prior-year quarter. Gross margin remained flat at 13.3%. Tyson Foods' adjusted operating income grew 6% to $894 million, while adjusted operating margin remained flat at 8.3%.

Segment Details

Beef: Sales in the segment dipped 2.2% to $3,838 million. Sales volume contracted 8% year over year owing to lower live cattle harvest capacity stemming from the temporary closure of a production facility due to fire. Average sales price rose 5.8% on robust demand for beef products. Adjusted operating income improved to $431 million from $305 million in the year-ago period, while adjusted operating margin expanded 340 bps to 11.2% during the quarter.

Pork: Sales in the segment grew 17% year over year to $1,379 million. Sales volume increased 7.3% year over year, owing to higher domestic availability of hogs and improved demand. Average sales price improved 9.7% year over year related with higher livestock costs and robust export markets. Adjusted operating income in the segment amounted to $193 million, more than doubled from the prior-year quarter’s figure. Adjusted operating margin expanded 590 bps to 14%.

Chicken: Sales in the segment rose 5.7% to $3,292 million. Sales volume increased 4.5% year over year, owing to incremental volumes stemming from acquisitions. Average sales price in the quarter rose 1.2% owing to reduced rendering and blending sales, partly offset by weak chicken prices due to tough market conditions. Adjusted operating income declined to $78 million from $173 million in the year-ago period, while adjusted operating margin contracted 320 bps to 2.4% during the quarter.

Prepared Foods: Sales in the segment edged down 0.4% to $2,140 million. Prepared Foods’ sales volume contracted 3.1% as volume growth in the consumer products business was more than offset by other intersegment sales channel shifts. Average sales price increased 2.7% owing to favorable product mix and higher raw-material costs. Adjusted operating income declined to $180 million from $268 million in the prior-year period. Adjusted operating margin contracted 410 bps to 8.4%.

International/Other: Sales in the segment were $498 million, up from $143 million reported in the prior-year quarter. Sales volume and average selling price improved remarkably.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $497 million, long-term debt of $9,772 million and total shareholders’ equity of $14,566 million. In the quarter under review, cash provided by operating activities were $894million. Further, management still projects capital expenditure to be approximately $1.3 billion for fiscal 2020. The company incurred capital expenditures of $312 million in the quarter. During the quarter, the company repurchased 1.5 million shares for $132 million.

Guidance

For fiscal 2020, USDA expects overall domestic protein production (chicken, beef, pork and turkey) to rise 3-4% year over year. A greater portion of the upside is likely to be absorbed by export markets. Moving on, management anticipates industry-fed cattle supplies in the beef unit to rise roughly 1% in fiscal 2020 as compared to fiscal 2019. For fiscal 2020, the company expects Beef segment's adjusted operating margin to reach near the high end of 6.5-7.5%.

For pork, the company envisions increased industry hog supplies to the tune of nearly 4% year over year. Also, livestock costs are projected to grow in fiscal 2020. For fiscal 2020, the company envisions Pork segment's adjusted operating margin in the band of 6-8%. Additionally, chicken production is estimated to rise 4% in fiscal 2020, per USDA. For fiscal 2020, the company anticipates Chicken segment's adjusted operating margin to be 4-6%.

Speaking of the prepared foods segment, raw material costs are likely to remain high throughout the fiscal year. Having said that, the company forecasts pricing action to provide some cushion to the said unit. For fiscal 2020, the company expects Prepared Foods segment's adjusted operating margin to be 10-12%. Moreover, its international segment is anticipated to improve in fiscal 2020, driven by enhanced foreign operations coupled with gains from recent acquisitions.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -30.31% due to these changes.

VGM Scores

At this time, Tyson has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Tyson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.