story by Kim Souza
ksouza@thecitywire.com
The story at Tyson Foods is an ever-changing saga as the meat giant continues its metamorphosis away from commodity-based business models to more consumer-branded and higher-margin products following the $8.55 billion acquisition of Hillshire Brands in August 2014.
At Tyson Foods’ presentation at the Consumer Analyst Group of Europe (CAGE) annual conference in London on Wednesday (March 18), executives told analysts that Tyson’s branded product portfolio, operational execution and other improvements from the acquisition of Hillshire Brands give them the confidence to reiterate fiscal 2015 guidance of $3.30 to $3.40 adjusted earnings per share.
This comes on the heels of roughly $1 billion in market cap losses over the past two weeks after confirmation of a highly pathogenic strain of Avian influenza in a Butterball turkey flock in Arkansas and in neighboring Missouri. While analysts typically agree that risks to a diversified protein company like Tyson Foods are present given the continuing spread of the H5N2 bird flu strain, any catastrophic event is unlikely.
Tyson execs said they continue to grow with consumer demands from working closely with McDonald’s to provide chicken raised with no human-sensitive antibiotics to revamping and expanded brands like Jimmy Dean into more products than just breakfast sausage. From healthier, cleaner label lunch meats to expanded flavor profiles in frozen chicken, Tyson executives said they are dialed into what consumers want and prepared to deliver.
Aside from sharing growth opportunities, Tyson Foods Chief Financial Officer Dennis Leatherby said Tyson Foods realized $60 million in synergies (increased revenue, cost reductions, better margins, etc.) from the Hillshire deal in the first quarter of 2015 (October through December 2014) which was slightly ahead of projections.
“We are on pace to meet or exceed more than $225 million in annual synergies this year. We have strong cash flows that give us options for the future. We have the size, scale and flexibility to serve customers and consumers in multiple channels, and we’re creating value for our shareholders,” Leatherby said at the conference. “It is gratifying to be in control of our own destiny, and we’re looking forward to telling our growth story to investors in Europe.”
SHARES RALLY
Tyson Foods shares (NYSE: TSN) began trading lower on Wednesday but rallied with the broader markets in the early afternoon session following the Federal Reserve’s decision to keep interest rates unchanged through April with the possibility of raising them thereafter as economic data dictates.
Tyson shares rose more than 2% on the Fed’s announcement trading above $39 a share for the first time since the H5N2 was detected in Arkansas. Tyson shares are likely still undervalued by Wall Street, according to Credit Suisse analyst Robert Moskow.
Tyson shares closed above $39.50 on Wednesday, which is still below the $42 target price projected by Moskow and the $44.24 high price reached in March 2014. His projected Tyson earnings of $3.36 per share are in line with corporate guidance, but Moskow remains neutral on the stock.
EXPANSION
Tthe meat company also announced a $47 million investment on a new boxed beef warehouse associated with its plant in Lexington, Neb. Construction is expected to begin this spring and will include a 50,000-square-foot warehouse. The addition is designed to improve the "flow, efficiency and capacity" of the Lexington facility's boxed beef storage and distribution systems, and should be finished in mid-2016.
The new warehouse is not expected to add jobs to the plant, which employs more than 2,700 people.
Leatherby said Tyson will continue to invest in its own facilities to increase efficiencies, but the company’s primary goal for its cash flow is to reduce the $3 billion debt it took on to purchase Hillshire Brands.
He said despite the low interest rate, the company wants to retire as much of the debt as soon as possible to be in the position to return more equity to investors through share buybacks and perhaps allow for more strategic acquisitions to enhance the company’s growing value-added business.