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Tyson Foods Fell Due to Live Cattle Futures Contracts

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Jan. 26 2016, Updated 7:38 a.m. ET

Price movement of Tyson Foods

Tyson Foods (TSN) has a market cap of $18.1 billion. It fell by 3.5% to close at $49.68 per share on January 19, 2016. The price movements on weekly, monthly, and year-to-date (or YTD) bases are -5.8%, -7.7%, and -6.8%, respectively.

At times, the stock has broken the support of 20-day and 50-day moving averages. Currently, TSN is trading 6.3% below its 20-day moving average, 1.2% below its 50-day moving average and 12.4% above its 200-day moving average.

The First Trust Consumer Staples AlphaDEX ETF (FXG) invests 5.6% of its holdings in Tyson Foods. The ETF tracks an index of large-cap and mid-cap US consumer staples stocks. The underlying index uses multifactor selection and tiered equal weighting. The YTD price movement of FXG is -1.5%.

The PowerShares DWA Consumer Staples Momentum ETF (PSL) invests 3.7% of its holdings in Tyson Foods. The ETF tracks an index of US consumer cyclical companies selected and weighted by price momentum.

The competitors of Tyson Foods (TSN) and their market caps are as follows:

  • Hormel Foods (HRL) – $20.3 billion
  • Pilgrim’s Pride (PPC) – $5.5 billion
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Impact of CME futures on Tyson Foods

The meat producers and feeders use CME Group’s futures contract to minimize the risk of owning cattle. These live futures fell 9% to a two-year low in the second half of 2015 with high-frequency traders. Tyson Foods lost $70 million in the fourth quarter of 2015 due to high volatility in live futures contracts.

Performance of Tyson Foods in fiscal 4Q15 and fiscal 2015

Tyson Foods (TSN) reported 4Q15 net sales of $10,506.0 million, a rise of 4.0% compared to net sales of $10,105.0 million in fiscal 4Q14. Its net income and EPS (earnings per share) rose to $258.0 million and $0.63, respectively, in fiscal 4Q15, compared to $137.0 million and $0.35, respectively, in fiscal 4Q14.

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Fiscal 2015 results

In fiscal 2015, TSN reported net sales of $41,373.0 million, a rise of 10.1% year-over-year. Its net income and EPS rose to $1,220.0 million and $2.95, respectively, in fiscal 2015, compared to $864.0 million and $2.37, respectively, in fiscal 2014.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of Tyson Foods are 16.8x and 2.1x, respectively, as of January 19, 2016.

Projection

Tyson Foods has made the following projections for fiscal 2016:

  • Sales are expected to be ~$41 billion.
  • Capital expenditure is expected to be ~$900 million.

Tyson Foods expects to increase share repurchases under its share repurchase program. In fiscal 1Q16, as of November 20, 2015, it repurchased ~4.4 million shares for $200 million, excluding shares repurchased to offset dilution from equity compensation plans.

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