In its fiscal 3Q16 earnings release, Tyson Foods (TSN) updated its guidance for fiscal 2016 and provided its outlook for fiscal 2017. The company mentioned that the Prepared Foods segment should benefit the most from innovation, new product launches, and growth of existing brands. It expects lower raw material costs of ~$240 million in fiscal 2016.
The operating margin for this segment is supposed to be near the low end of its normalized range of 10%–12% in fiscal 2016. In fiscal 2017, Tyson Foods expects to see an operating margin similar to that of fiscal 2016. The company plans to achieve this through continued investment in innovation, brand strengthening, and new product launches.
For the Beef segment, the company expects industry fed cattle supplies to increase by approximately 2%–3% in fiscal 2017, compared to fiscal 2016. It expects the operating margin to be in its normalized range of 1.5%–3.0% in fiscal 2016. In fiscal 2017, the company expects its operating margin to be in the upper end of this range.
For the Pork segment, the company believes industry hog supplies will increase by 2%–3% in fiscal 2017, compared to fiscal 2016. Its operating margin is expected to be higher than 10% in fiscal 2016 and higher than its normalized range of 6%–8% in fiscal 2017.
The Other segment includes Tyson Foods’ foreign operations associated with raising and processing chickens in China and India. It also includes third-party merger and integration costs. The company expects this segment’s operating loss to be $90 million in fiscal 2016. The expectations are the same for fiscal 2017.
Outlook for fiscal 2016
Tyson Foods’ capex (capital expenditure) is estimated to come in at ~$725 million for fiscal 2016, and its capex is expected to rise in fiscal 2017. In fiscal 2017, the company expects domestic protein production (chicken, beef, pork, and turkey) to increase ~2%–3% from fiscal 2016 levels, along with moderate export growth. This would put pressure on protein pricing. The company expects to realize incremental synergies of more than $700 million from the integration of Hillshire Brands in fiscal 2017. It expects to see synergies of more than $500 million in fiscal 2016 and more than $700 million in fiscal 2017 from the acquisition. The company hopes its profit improvement plan for the Prepared Foods segment will contribute to this goal.
Tyson Foods’ peers in the industry include Cal-Maine Foods (CALM), Flowers Foods (FLO), and Pilgrim’s Pride (PPC). CALM, FLO, and PPC have reported year-to-date returns of -7.6%, -24.8%, and 15.8%, respectively, as of August 9. The Global X SuperDividend U.S. ETF (DIV) invests 1.9% of its holdings in CALM.
In the next part of this series, we’ll see how Tyson Foods is positioning itself through innovation.