Fair Value | 103.00 USD
Market Cap | 21.85 USD bln
Strategic Business Approach and Future Prospects
Several ongoing trends have an impact on Tyson’s long-term growth prospects. Consumers in the United States are eating less red and processed meat, which accounts for 67% of Tyson’s sales, while consumption of chicken, which accounts for 32%, is increasing. Furthermore, there is a strong international demand for meat, and while Tyson’s international sales account for only 15% of their portfolio, this figure is expected to grow as they continue to invest in this area.
Tyson’s beef segment has performed well over the last five years, thanks to strong international demand, resulting in an increase in operating margins from less than 2% prior to 2017 to an average of 10%. On the contrary, the chicken segment has faced operational challenges, resulting in higher costs when compared to competitors.
Tyson is facing challenges as a result of industry-wide issues such as labor shortages, decreased hatchability, and grain inflation.
Internal issues, such as inefficiencies in production and customer service, as well as a skewed buy-versus-grow strategy that resulted in costly open market meat purchases, have all contributed to their problems. Despite spending $700 million on labor and plant automation in fiscal 2022, chicken operating profit margins increased from 0.2% in 2021 to 5.5% in 2022. Tyson expects to save another $300 million to $400 million in fiscal 2023, allowing it to maintain mid- to high-single-digit consolidated operating margins until fiscal 2032.
Nevertheless, a significant increase in costs could have an impact on near-term margins. Furthermore, an increased supply of chicken and pork may result in a deflation in these protein products in the coming quarters. The lack of a competitive advantage, whether it is a strong brand or a cost advantage, has resulted in a no-moat rating. Despite being the largest beef and chicken producer in the United States, Tyson lacks evidence of a scale-based cost advantage because approximately 80% of their products are undifferentiated.
– The impact of African swine fever in China, which has resulted in a significant protein deficit, is expected to boost short-term protein demand. Concurrently, the country’s ongoing gradual rise in per capita protein consumption is expected to fuel long-term growth.
– Because of robust global demand for beef, the beef segment, which accounts for 37% of Tyson’s fiscal 2022 sales, has seen significant profit gains.
– The cost pass-through model in Tyson’s chicken segment acts as a buffer in the current inflationary environment, mitigating potential pressure on profit margins.
– The majority of the company’s offerings lack distinctiveness, making charging premium prices and achieving significant profit margins difficult.
– Tyson is likely to face sales growth constraints as consumers in the United States consume less red meat and processed meat, which account for 67% of their sales.
– Tyson’s Chicken Division experienced a number of operational errors that harmed its performance, requiring significant investment to fix the issue.