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Tyson Foods, Inc. (TSN), Hormel Foods Corporation (HRL): Don’t Be Too Chicken to Buy This Stock

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Tyson Foods, Inc. (NYSE:TSN) is the largest meat processor in the U.S., working with chicken, pork, and beef. Its recent quarterly results showed weaker-than-expected results, as consumers and restaurants switched to cheaper chicken from beef. The big news was the fact that Tyson cut its full-year guidance.

Tyson Foods, Inc. (NYSE:TSN)

The company’s stock was down nearly 5% on the news, but has slowly recovered as investors digest it. For the first quarter of 2013, Tyson saw chicken volume up 0.1%, beef down 3.9%, and pork down 2.2%. Tyson posted EPS of $0.36, compared to $0.44 for the same period last year and well below the consensus estimate of $0.45. CEO Donnie Smith noted that Tyson Foods, Inc. (NYSE:TSN)’s gross margins fell as its “beef segment suffered margin compression as consumers opted for the relative value of chicken.”

Some new initiatives for Tyson include joining forces with healthy and low-calorie food specialist Hungry Girl Lisa Lillien for new variants of low-calorie meals for calorie-conscious customers.Tyson Foods, Inc. (NYSE:TSN) is also focusing on Mexican food, as is evident from its strategic acquisition of the Mexican snacks and tortilla producer Don Julio Foods.

The other big positive for the company is its international presence. The company operates in Canada, Central America, China, the European Union, Japan, Mexico, Middle East, South Korea, Russia, Taiwan and Vietnam. However, international sales accounted for only 16% of sales, leaving plenty of room for growth. This growth should be driven by a rising middle class across all the developing nations.

Also, its chicken segment should continue to see strong momentum as there is an increasing number of health-conscious consumers that opt for chicken instead of red meat because of the associated health risks.

Stacking up the comps

Hormel Foods Corporation (NYSE:HRL) is a maker of various meat products, including fresh, frozen, cured, smoked, cooked and canned meat. Hormel Foods Corporation (NYSE:HRL)’s key segment is refrigerated foods, accounting for some 50% of revenues. This segment includes the Hormel Foods Corporation (NYSE:HRL) Refrigerated, Farmer John, Burke Corporation (Burke) and Dan’s Prize operating segments.

Hormel Foods Corporation (NYSE:HRL) is also relatively diversified when it comes to products. During the first quarter of 2013, a decline in the revenue from refrigerated foods was neutralized by an increase in prices across all other segments. Earlier this year, Hormel Foods Corporation (NYSE:HRL) bought the U.S.-based Skippy peanut butter business for some $663 million. Hormel Foods Corporation (NYSE:HRL) expects annual sales of Skippy to come in at $370 million. Although I see this as a positive diversification attempt that should lead to higher margins, I still prefer the large protein

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