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Solid Retail Demand Aids Tyson Foods (TSN) Despite Rising Costs

Tyson Foods' (TSN) retail business sees continuous robust growth while its foodservice business rebounds. Also, the company's capacity expansion endea...

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This story originally appeared on Zacks

Tyson Foods, Inc. TSN continues to benefit from rising demand in its retail channel. The company’s robust growth efforts like focus on protein-packed brands and capacity expansion endeavors are driving growth. However, rising costs are a concern.



Let’s discuss further.

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Retail Channel Fuels Growth

Tyson Foods delivered growth in the retail channel across all segments in the third quarter of fiscal 2021. Management on its last earnings call, highlighted that retail contributed more than $1 billion to the overall sales improvement year to date and more than $300 million in the quarter. The fiscal third quarter marked the company’s 12th consecutive quarter of retail share gains in core business lines, thanks to solid brands. In fact, strong retail sales aided the company’s overall results for the fiscal third quarter with both the top and the bottom line increasing year over year as well as surpassing the Zacks Consensus Estimate. Besides, Tyson Foods foodservice business saw a rebound as the restaurant industry started to reopen.

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What Else is Driving Growth?

Tyson Foods is undertaking a number of operational and supply-chain efficiency programs to place itself better for the long run. In this regard, the company is investing in capacity expansion and automation technology. Its Humboldt production facility in Tennessee recently came online. The company is solidifying its case-ready meats business by reusing its plant capacity in South Carolina. It intends to reopen an idle facility in Columbia and transform it into a meat-cutting hub. Also, this meat products company plans to introduce a facility in Utah soon.



Tyson Foods is focused on higher protein production to cater to rising demand for protein-packed food. The company boasts a rich portfolio of protein-packed brands that is growing rapidly across the globe. It is steadily expanding its fresh prepared foods offering owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics.



The company’s nationwide launch of the Raised & Rooted brand that includes three new products bodes well amid rising demand for plant-based protein options. In June 2021, Tyson Foods announced that it is rolling out a range of plant-based products in the chosen retail markets and on digital platforms in the Asia Pacific under the First Pride brand. In January 2021, the company launched alternative protein offerings under the Jimmy Dean Label.



For fiscal 2021, the United States Department of Agriculture (USDA) expects domestic protein production (chicken, beef, pork and turkey) to rise less than 1% from the fiscal 2020 reported levels. For the Beef segment, USDA projects domestic production to increase nearly 3% year over year in fiscal 2021. The company expects its Beef segment to deliver a better performance in fiscal 2021 the fiscal 2020 reading.



Considering the continued strength in the company’s Beef segment and the ongoing inflationary pressures being somewhat countered by pricing actions, management raised its fiscal 2021 sales guidance. It now anticipates sales in the bracket of $46-$47 billion for fiscal 2021. Earlier, the company had projected the metric in the bracket of $44-$46 billion.

Is All Rosy for Tyson Foods?

During the third quarter of fiscal 2021, Tyson Foods incurred nearly $55 million of direct incremental expenses associated with COVID-19, which put pressure on its results to an extent. The company saw indirect COVID-19 costs, which included expenses associated with raw materials, transportation, underutilization and reconfiguration of plant, premiums offered to cattle producers and discounts on pricing. Management anticipates expenses associated with COVID-19 worth nearly $325 million for fiscal 2021.



The company on its quarterly earnings call highlighted that it saw a tough availability of labor, massive inflationary pressures on raw material costs, global supply-chain problems as well as an evolving demand backdrop.



We believe, Tyson Foods’ aforementioned upsides are likely to help it stay poised amid hurdles. Shares of the currently Zacks Rank #3 (Hold) company have increased 21.9% so far this year compared with the industry’s growth of 10.3%.

Top 3 Picks

Pilgrim’s Pride Corporation PPC, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of almost 34%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.



Sanderson Farms, Inc. SAFM, currently flaunting a Zacks Rank of 1, has a long-term EPS growth rate of 36%.



Sysco Corporation SYY, currently carrying a Zacks Rank #2 (Buy), has a long-term EPS growth rate of 9%.



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