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​Tyson Foods beats on FQ2 sales and earnings, improves FY2016 EPS outlook

Tyson Foods, one of the world largest producers of beef, pork and chicken, issued decent financials for its fiscal 2016 second quarter ended April 2. Revenues slipped 8.1% y-o-y to $9.17 bn but surpassed consensus estimate of $9.03 bn. The decline was due to lower sales across most of the segments like chicken, beef, pork and prepared foods segments. Sales volume decreased 0.9%, while average sales price (ASP) went down 7.3%. At the same time, adjusted operating income jumped 27.3% to $704 mn as the company benefitted from the lower feed costs in the chicken segment as well as lower prices for the animals it slaughters and processes at its plants, including cattle. As a result, operating margin expanded 220 basis points to a record 7.7%. Adjusted earnings per share of $1.07 beat analysts’ average projection of 96 cents and improved 42.7% y-o-y.

Strong cash flows allowed Tyson to repurchase 6.9 mn shares for $400 mn during the reported quarter. A quarterly dividend was 15 cents per share, which offers annualized dividend yield of 0.9%.

Tyson improved its full fiscal year 2016 adjusted EPS guidance and expects it in the range of $4.20-4.30 compared with the previous projection of $3.85-3.95. Sales forecast was maintained at about $37 bn. The company expects overall domestic protein production (chicken, beef, pork and turkey) to increase roughly 2-3% y-o-y. Besides, Tyson, which bought Hillshire Brands in 2014, said it continues to anticipate more than $500 mn of savings in fiscal 2016 and more than $700 mn in fiscal 2017 from the deal.

I expect Tyson’s shares to continue growth, with medium-term target at $75.