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Why Was Tyson Foods Fined?

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Price movement

Tyson Foods (TSN) has a market cap of $27.0 billion. It fell by 1.1% to close at $74.25 per share on August 16, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -0.30%, 6.2%, and 39.9%, respectively, on the same day. TSN is trading 1.3% above its 20-day moving average, 9.2% above its 50-day moving average, and 22.0% above its 200-day moving average.

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Related ETFs and peers

The iShares Morningstar Mid Core ETF (JKG) invests 1.3% of its holdings in Tyson Foods. The ETF tracks a market-cap-weighted index of US mid-cap companies that exhibit both growth and value characteristics as determined by multifactor selection. The YTD price movement of JKG was 9.7% on August 16.

The Consumer Staples Select Sector SPDR ETF (XLP) invests 1.5% of its holdings in Tyson Foods. The ETF tracks a market-cap-weighted index of consumer staples stocks drawn from the S&P 500.

The market caps of Tyson Foods’ competitors are as follows:

  • Hormel Foods (HRL) — $18.9 billion
  • Pilgrim’s Pride (PPC) — $5.7 billion
  • Sanderson Farms (SAFM) — $2.0 billion

Latest news on Tyson Foods

In a press release on August 16, 2016, Associated Press reported that “inspectors fined Tyson Foods more than $263,000 for safety violations at an East Texas poultry plant where a worker’s finger was amputated when it became stuck in a conveyor belt, federal officials announced Tuesday.”

It also noted, “The U.S. Department of Labor said in a news release that Tyson was fined for 15 serious violations at its plant in Center, near the Louisiana border,” adding that “among the violations found by inspectors were high levels of carbon dioxide, lack of proper safeguards on moving machine parts and not enough protective equipment for workers. It also was determined that employees were exposed to slip-and-fall hazards due to a lack of proper drainage and fire hazards resulting from improperly stored compressed gas cylinders.”

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Performance of Tyson Foods in fiscal 3Q16

Tyson Foods reported fiscal 3Q16 sales of $9.4 billion, a fall of 6.9% from the sales of $10.1 billion in fiscal 3Q15. Sales of the chicken, beef, and prepared foods segments fell by 0.51%, 12.1%, and 0.06%, respectively. On the other hand, sales of the pork segment rose by 5.3% between fiscals 3Q15 and 3Q16. The company’s gross profit margin and operating income rose by 33.0% and 36.2%, respectively.

Its net income and EPS (earnings per share) rose to $484.0 million and $1.25, respectively, in fiscal 3Q16, compared with $343.0 million and $0.83, respectively, in fiscal 3Q15. It reported adjusted EPS of $1.21 in fiscal 3Q16, a rise of 51.3% from fiscal 3Q15.

TSN’s cash and cash equivalents fell by 71.4% and its inventories rose by 1.4% between fiscals 4Q15 and 3Q16. Its current ratio rose to 1.8x and its debt-to-equity ratio fell to 1.3x in fiscal 3Q16, compared with 1.5x and 1.4x, respectively, in fiscal 4Q15.

Quarterly dividend

Tyson Foods declared a quarterly dividend of $0.15 per share on its Class A common stock and $0.14 per share on its Class B common stock. The dividends will be paid on December 15, 2016, to shareholders of record at the close of business on December 1, 2016.

Projections

The company has made the following projections for fiscal 2016:

  • sales of ~$37 billion
  • capital expenditures of ~$725 million
  • net interest expense of ~$245 million
  • adjusted EPS in the range of $4.40 to $4.50
  • chicken segment to have an operating margin of more than 12%
  • beef segment to have an operating margin in the range of 1.5%–3.0%
  • pork segment to have an operating margin of more than 10%
  • prepared foods segment to have an operating margin at the low end of 10%–12%

The company has made the following projections for fiscal 2017:

  • sales growth of 1%
  • interest expense of $225 million
  • pork segment to have an operating margin above 6%–8%

In the next part, we’ll take a look at Whirlpool.

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