A Glance at Tyson Foods- Deal for Beef Plant

The global food industry is very vast, since there is no way to survive without food; its demand will always exist. The Food industry includes manufacturing of food, agriculture, food processing, marketing, food service, regulations, wholesale, distribution and more. Various companies in this sector are growing rapidly. The highly appealing areas for investments in the food industry are meat and sausage producing companies, confectionery, dairy, wine, sugar producing companies, canned fruits & vegetables and more.

The meat processing industry traditionally has been one of Kazakhstan’s primary agriculture industries. In Kazakhstan, the demand for meat and poultry products is growing, and many local entrepreneurial enthusiasts have taken the initiative to start their own business to meet the increasing demand in the meat industry.

According to few market research reports the global food and beverage industry is expected to grow at a rate of 5% per year and global expenses on food products by consumers is expected to reach USD 20 trillion by 2030.

In this article, we are discussing a significant global food company which has recently signed a deal for expanding its business in Kazakhstan.

Tyson Foods: A Global Food Company

Springdale headquartered food company, Tyson Foods is one of the world’s largest companies and a leader in the production of protein and was established in 1935 by John W. Tyson and employs ~141,000 members. It has an extensive portfolio of brands and products which includes Tyson®, Aidells®, State Fair®, Jimmy Dean®, Ball Park®, Wright®, ibp® and Hillshire Frm®.

Collaboration to expand beef operation

Tyson Fresh Meats Inc, the beef and pork subsidiary of Tyson Foods Inc announced that it had signed an agreement with the private holding company Kusto Group and the Republic of Kazakhstan. This agreement is on a project that, in its initial phase, could lead to the construction of a modern beef processing plant in Kazakhstan and it is expected to harvest capacity of ~2,000 head per day from that plant. This collaboration is a part of a wider initiative for enlarging and modernizing agriculture taken by the Government of Kazakhstan, starting with the production of meat.

Dakota Dunes based subsidiary Tyson Fresh Meats Inc currently operates beef plants in Illinois, Washington, Kansas Nebraska, Iowa and Texas. In the financial year 2019, the company generated ~USD 15.8 billion in sales in its beef business.

Hunger Relief Goal increased USD 50 Million

On 3 December 2019, Tyson announced that the company has exceeded its goal (which was pledged in 2015) of achieving USD 50 million in cash and product donations by 2020 to fight hunger, in just four years by contributing more than USD 60 million for the hunger relief.

Tyson’s contributions comprise of providing more than 5 million pounds of protein donated to community pantries, food banks and disaster relief efforts and hunger relief grant to nonprofit organizations.

Recently, the company was awarded Lawler USD 100,000 for enlarging the farm’s operations and making sure that its mission is sustainable for the near future.

Fourth Quarter (Fiscal year 2019) Financial Highlights

• The company reported GAAP EPS of ~USD 1.01 which is down by 31% as compared to prior corresponding year (pcp);
• Tyson reported GAAP operating income of ~USD 604 million;
• The company reported total GAAP operating margin of 5.5%;

FY2019 Highlights (year ended September 28, 2019)

• Tyson reported GAAP EPS of nearly USD 5.52, which is down by 33% as compared to the prior corresponding year (prior year included a one-time tax benefit of USD 2.71)
• The company reported GAAP operating income of approximately USD 2,827 million;
• GAAP operating margin of 6.7% was reported for the fiscal year 2019;
• The company recorded Beef GAAP operating margin of 7.0%.

Outlook for FY2020

For the financial year 2020 United States Department of Agriculture (USDA) indicates that domestic production of protein (chicken, beef, turkey and pork) should grow nearly 2-3% from the financial year 2019 levels, but Tyson anticipated export markets should absorb the enhanced production.

Tyson provided a summary of the outlook for each segment and an outlook for net interest expense, liquidity, capital expenditures, tax rate and dividends for the financial year 2020.

• Beef- For the financial year 2020, the company expects industry fed cattle supplies to go up by ~2% as compared to FY2019 with plenty of supplies in areas where the company operates its plants. For FY2020, the company believes its Beef segment's adjusted operating margin would be 6.5-7.5%.
• Pork- In FY2020 Tyson expects that the industry hog supplies will go up by nearly 3% as compared to the previous fiscal year and it also deems that from its Pork segment’s adjusted operating margin would be 6-8%, for the fiscal year 2020.
• Chicken- United States Department of Agriculture anticipates 2-3% increase in chicken production in FY2020 as compared to previous year. Tyson expects that adjusted operating margin from its chicken segment would be 6-8%.
• Prepared Foods – Tyson mentioned that it is expecting the raw material costs to increase in the fiscal year 2020 as compared last financial year, but the company believes to recoup the enhanced raw material expenditures via pricing. Tyson foods anticipate that adjusted operating margin from its Prepared Foods segments would be 10-12% for the financial year 2020.
• Capital Expenditures- The company anticipates that capital expenditures to be approximately USD 1.3 billion for the fiscal year 2020 and it will include spending for operational improvements, safety, production growth, animal well-being, infrastructure replacements and upgrades.
• Tyson foods believe net interest expense to approximately USD 450 million for financial year 2020.
• The company expects a minimum liquidity target of USD 1.0 billion for the fiscal year 2020.
• The projected adjusted effective tax rate to be ~23.5% in the financial year 2020.

Stock information

The company is listed on NYSE under the code TSN, and its stock closed at USD 87.51 on 12^th December 2019, down by 1.11%, with a market capitalisation of approximately USD 25.83 billion.

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