Tyson Foods (TSN)

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See all Bulls Reasons Bulls: Reasons To Buy Tyson is the number one U.S. Beef processor 0% agree Tyson is the number one U.S. Beef processor Domestically, Tyson leads beef processing and is a close second in chicken and pork processing. View or Edit Reason 0 votes 0% agree See all 5 Bears Reasons Bears: Reasons To Sell Downgrade to " JUNK" Status 0% agree Downgrade to " JUNK" Status June 19th,2008 Fitch Ratings downgraded the company’s status to “junk”. Fitch said that the chicken processor’s credit statistics will likely deteriorate in the near term as a result lower-than-anticipated operating earnings, with increased grain costs and pricing... read more View or Edit Reason 0 votes 0% agree Labeling controversy may negatively impact sales 0% agree Labeling controversy may negatively impact sales In late 2007 Tyson was dealt a setback when the US department of agriculture (USDA) reversed an earlier decision to allow the company to label its chicken products "raised without antibiotics." Tyson has spent millions of dollars since June in advertising, promoting itself as... read more View or Edit Reason 0 votes 0% agree Tyson's performance highly dependent on commodity prices 0% agree Tyson's performance highly dependent on commodity prices Tyson stock performed well in 2006 and the first half of 2007, however, its short term earnings are still dramatically impacted by the boom and bust cycle of commodity prices. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Reasons to sell. OneNews.com just came out that Tyson's is replacing Labor Day with a Muslim hol... more [Dismiss] [Done] I'm researching the value of pork, swine and related products in the country the past few years ... more [Dismiss] [Done] holcomb [Dismiss] [Done] See All Suggestions

Top Contributors James Watson Vincent McPhillip Related Articles Smithfield Foods (SFD) Hormel Foods (HRL) Pilgrim's Pride (PPC) Beef Prices (US) Corn Prices

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Pork as a banned element in 'shariah financing'

This could prove troublesome for those companies or financial institutions who have to toe the line against any use of pork or byproducts in regard to the laws of shariah, in 'shariah-compliant investments,' where a panel of 'shariah scholars' must determine if a deal is financible based on its avoidance of certain banned products and forms of commerce, a chief taboo product of which is swine or any products deriving from same.

The company's earnings rely heavily on commodities prices, which are the principal costs in raising livestock. In particular, the company has been hurt by rising corn prices, a key component of animal feed, as demand for the grain has skyrocketed due to the increase in ethanol as a biofuels. Energy prices, disease outbreaks, government regulation, and product pricing are other major trends affecting the company's business outlook. Domestically, the company leads the beef segment and is a close second in chicken and pork. Tyson's already dominant position in these protein markets leaves prepared foods as the most likely area of for significant growth potential. Consumption in increasingly wealthy countries such as China may also overall growth for the company abroad.

[edit] Corporate Overview

Headquartered in Springdale, Arkansas, Tyson Foods entered the meat processing industry in 1935. Since then, the company has become the world's largest processor and marketer of chicken, beef and pork products mostly through a long history of acquisitions, its most recent being the acquisition of IBP, Inc.--now called Tyson Fresh Meats, Inc. (TFM)--in 2001. The company is also the second largest publicly traded food company in the Fortune 500, as measured by revenue, and employs 107,000 worldwide. In fiscal 2007, Tyson Foods exported to more than 80 countries, including Canada, Central America, China, the European Union, Japan, Mexico, Russia, South Korea and Taiwan.

The company generated $26.9 billion in 2007 sales operating in five business segments: Chicken; Beef; Pork; Prepared Foods; and Other.

[edit] Products

Chicken and beef sales account for almost 80% of Tyson's total sales^[1]

[edit] Chicken

In fiscal 2007, the chicken segment generated $8.1 billion in sales. This business focuses primarily around the processing of live chickens into fresh, frozen and value-added chicken products. From 2005 to 2006, chicken sales decreased 4.4%, primarily due to lower average sales prices caused an oversupply of proteins in the marketplace. In 2007, however, chicken sales rebounded somewhat rising 3.1%. Corn and soybean meal are major production costs in the poultry industry, representing roughly 37% of the cost of growing a live chicken in FY 2006. Heading into 2008, Tyson anticipates an increase in grain costs in excess of $300 million which could significantly impact earnings in this segment. The Chicken segment’s operating results have also been affected negatively by higher energy costs and decreased margins at the company’s Mexico operations.

[edit] Beef

Tyson's beef operations are the company's largest accounting for almost half of revenues. In fiscal 2007, the beef segment contributed the largest portion of Tyson's revenue, generating $12.7 billion in sales (48% of overall sales). This segment focuses primarily on processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. It also involves deriving value from allied products such as hides and variety meats for sale to further processors and others. In addition to selling to food-providers, Tyson also sells its allied beef products to pharmaceutical and technical products manufacturers. Compared to 2006, beef sales increased 7.6% in 2007 primarily on the back of higher input prices which were passed onto customers.

[edit] Pork

In fiscal 2007, the pork segment generated $3.3 billion in sales. This segment processes live market hogs and fabricates pork carcasses into primal and sub-primal meat cuts and case-ready products. Like its beef segment, Tyson also sells its allied pork products to pharmaceutical and technical products manufacturers, as well as live swine to pork producers. Pork sales increased almost 10% in 2007 compared to fiscal 2006 when a $33 million one time charge related to a legal settlement involving the Company’s live swine operations reduced sales.

[edit] Prepared Foods

In fiscal 2007, the prepared foods segment was the company's smallest sales contributor, generating $2.7 billion in sales. This segment manufactures and markets frozen and refrigerated food products, including pepperoni, beef and pork pizza toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes and processed meats. In fiscal 2007, prepared foods sales dropped another 1% after falling 3.9% from 2005 due to plant closing costs and lower average sales prices.

[edit] Biofuel

In 2007, Tyson created a partnership with oil company ConocoPhillips (COP) to produce biodiesel from animal fat. ConocoPhillips, the third-largest U.S. oil company, said it plans to spend about $100 million over a 3 to 5 year period to prepare several refineries to process the fuel. Tyson said production is expected to start late in 2007 and ramp up through spring 2009. At full production--estimated at 175 million gallons per year of biodiesel--Tyson expects annual earnings of 4 cents to 16 cents a share from the project.

[edit] Customers

The company's products are marketed and sold to national and regional grocery retailers, regional grocery wholesalers, meat distributors, clubs and warehouse stores, military commissaries, industrial food processing companies, national and regional chain restaurants or their distributors, international export companies and domestic distributors who service restaurants, food service operations such as plant and school cafeterias, convenience stores, hospitals and other vendors.

Tyson Foods' #1 customer is Wal-Mart Stores (WMT), which accounted for approximately 12.5% of the Company’s fiscal 2006 consolidated sales. No other single customer or customer group represented greater than 10% of fiscal 2006 consolidated sales. Tyson sells 36% of its products through food service channels and nearly half to supermarkets.

[edit] Trends & Forces

[edit] Availability & Price of Raw Materials

Tyson Foods' operating costs are dramatically affected by the price of raw materials, such as seed grains, live cattle, live swine and ingredients. Corn and soybean meal are major production costs in the poultry industry, representing roughly 37% of the cost of growing a chicken. Commodity cost inflation continues to weigh on Tyson's earnings; in the company's Q4 earnings call Tyson lowered earnings guidance for FY 2008 citing an addition $300 million in grain costs for its chicken department and an "extremely difficult" beef environment. Most of the cattle and swine Tyson processes are purchased from independent producers. A rise in the price of grain, swine, or cattle will cause a drop in earnings, and vice versa. The production of feed ingredients is affected by, among other things, weather patterns throughout the world (including hurricanes, the global level of supply inventories and demand for grains and other feed ingredients, as well as the agricultural policies of the U.S. and foreign governments.

[edit] Product Pricing

With each of its products, Tyson Foods must use supply and demand analysis to find the appropriate price that will optimize sales. A variety of other factors can shift the price of the company's products, including product safety and quality, brand identification (marketing), breadth and depth of product offering, customer service and credit terms. At the start of 2007, Tyson manually increased the price of its products by 6.1% and offset this with cutbacks in the volume of chicken produced yielding a net quarterly gain in revenues of 4%. The lower prices typical of summer months, however, could hurt Tyson's 2007 pricing scheme. Playing the pricing game well is crucial to the company's financial success.

[edit] Disease outbreaks

Any disease outbreak in Tyson's chickens, cattle, or swine will decrease the demand for the company's products and detriment the company's earnings. Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of Tyson's fresh chicken, beef or other products to or from its suppliers, facilities or customers. This could also result in negative publicity that may have an adverse effect on the company's ability to market its products successfully.

[edit] Energy Costs

Rising oil prices increase distribution and processing costs and have a negative impact on overall financial performance. Tyson hopes to mitigate these concerns by developing biodiesel from leftover animal fats with petroleum company ConocoPhillips.

[edit] Competition

Because Tyson produces in four main segments, chicken, beef, pork, and prepared foods, it must compete against companies ranging from those that specialize in one of these segments to companies that compete in each of these segments. In short, Tyson's competitors depend on the segment of business. There are five competitive elements that the company focuses on: brand identification, breadth and depth of the product offering, product quality, customer service and price.

• Beef:Tyson is the leading processor of beef products in the U.S., with 25% share of the domestic beef market. Excel and Swift Foods are the firm's closest competitors, with 22% and 14% market share, respectively.
• Chicken: Tyson is the second-largest domestic chicken processor, with 21% share of the U.S. market, trailing only Pilgrim's Pride (PPC), which holds 25%.
• Pork: Tyson is also the second-largest domestic producer of pork, with 18% share of the market. Smithfield Foods (SFD) holds 25% of the pork market share.

[edit] References

1. ↑ [Tyson 2007 10k p. 15]