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Tyson Foods - The Real Beef?

Aug. 06, 2013 3:21 PM ETTyson Foods, Inc. (TSN)
Chris Bailey profile picture
Chris Bailey

The beef-related story that many investors will be reading about today involves the creation of the world's first lab-grown hamburger in a venture backed by Google (GOOG) co-founder Sergey Brin. From a stock market perspective though, investors should be concentrating on the results issued on Monday by Tyson Foods (NYSE:TSN).

Actually to take a step back, part of the rationale in developing lab-grown food is because of the mega-trend that Tyson Foods also sees. Contained in one of their recent presentation documents was this interesting slide:

So what exactly does Tyson Foods do? As shown below they are one of the leading American companies across the protein food chain, including a range of linked prepared foods on sale to consumers.

As shown above, Tyson has the leading position in chicken and beef production and is number two to Smithfield (SFD) in pork (Smithfield was recently subject to a bid from Shuanghui International of China which is currently going through anti-trust appraisal).

Livestock production has historically been a volatile business as fluctuations in pricing can lead to a disproportionate impact on production levels which then leads to further pricing fluctuations and so on. The stock market has historically put a low multiple on earnings and pricing fluctuations like this.

Any change would show up in prices first. Are we starting to see pricing discipline come into the protein markets? This chart from a Tyson presentation suggests it is possible:

Looking through the just-released Tyson Foods Q3 numbers, this trend has continued. Across all four divisions of the company (chicken, beef, pork and prepared foods) prices rose in Q3 year-on-year between a range of 2.9-6% and chicken sector margins were at an all-time high. This is impressive.

Donnie Smith, Tyson's CEO and President, reiterated progress on this front on the conference call

This article was written by

Chris Bailey profile picture
Award-winning global investor who resigned from his job managing a set of funds with over US$2bn under management so he could take full advantage of the current financial market opportunities. Likes to fuse bottom-up insights with top-down macroeconomic thought. Looks at all sectors and, with a reasonable liquidity filter, all countries.

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Comments (3)

chongkim74 profile picture
I feel the market is underestimating as well. South American pressures are significant with US livestock market, however Tyson mostly deals with domestic...plus its initiative to sell their precooked foods at convenience store aggressively (7 11) I expect a positive surprise earning.
chongkim74 profile picture
Thanks for the summary.
Chris Bailey profile picture
Thanks for the comment. Let's see how the thesis develops at the next quarterly update. My instinct is that the theme continues and the market is still underestimating the turnaround. We will see on the 18th November.
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