What Impacted Tyson Foods’ Margins in Fiscal 3Q17



Increased spending took a toll on margins

Tyson Foods’ (TSN) margins declined on a YoY (year-over-year) basis despite generating improved volumes and higher average selling prices. The company’s increased investment in business through marketing, advertising, and promotional spending hampered its fiscal 3Q17 margins.

During the reported quarter, the gross profit margin fell by 80 basis points to 12.2%, reflecting higher promotional spending. Meanwhile, the operating margin contracted 110 basis points to 7.1%. However, the adjusted operating margin decreased by 50 basis points to 7.7% in fiscal 3Q17.

In comparison, Pilgrim’s Pride (PPC) and Sanderson Farms’ (SAFM) margins are expected to benefit from increased demand and lower feed costs. During the last reported quarter, Pilgrim’s Pride’s adjusted EBITDA improved by 480 basis points on the back of higher sales.

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Profitability by segment

Tyson Foods’ Beef segment’s operating margin expanded by 130 basis points to 3.7%, reflecting higher demand for beef products in the United States (SPY) and international markets coupled with lower costs of live cattle. Meanwhile, higher average selling prices further supplemented the segment’s margins. However, increased operating expenses remained a drag. Management expects operating margins to be 5% in fiscal 2017. For fiscal 4Q17, the operating margin is projected to be in the range of 4%–5%.

As for the Pork segment, the adjusted operating margin expanded 70 by basis points to 10.3%. Increased exports and higher pricing, coupled with an improved mix, boosted the segment’s margins. However, increased operating costs continue to dent the segment’s profitability. Management projects fiscal 2017 operating margin to be 12%. Moreover, in fiscal 4Q17, the operating margin is expected to be in the range of 6%–8%.

In the Chicken segment, the operating margin decreased by 370 basis points. Higher volumes and pricing were more than offset by increased operating costs relating to advertising, marketing, and promotions. For fiscal 2017, operating margins are expected to be at 10%. In fiscal 4Q17, they’re projected to be in the range of 10%–11%.

The Prepared Foods segment’s operating margin fell by 190 basis points to 9% in fiscal 3Q17, reflecting increased business investments to support innovation and new product launches. The segment’s operating margin is projected to be at 9% in fiscal 2017. In fiscal 4Q17, it’s expected to be in the range of 7%–8%.


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