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Tyson Foods, Inc. (TSN), Pilgrim’s Pride Corporation (PPC), Smithfield Foods, Inc. (SFD): Can This Meat Producer Offer Investors Safety?

Tyson Foods, Inc. (NYSE:TSN) is the largest meat producer in the world. Based on that fact alone, the company will always see demand. However, negative trends can still impact the share price. Investors knew this all too well in 2008/2009 when the stock dropped by greater than 50%.

On a relative basis, the stock held up better than its peers, but no investor wants to deal with such a steep loss. Tyson Foods, Inc. (NYSE:TSN) faces negative industry trends once again, but it still might be capable of stock appreciation.

Tyson Foods, Inc. (NYSE:TSN)

Results and expectations
In the third quarter, Tyson Foods, Inc. (NYSE:TSN)’s overall sales grew at a 5.7% clip year-over-year, mostly thanks to a 3.7% jump in average sale price and a 2.2% increase in sales volume

Due to increased raw-material costs and reduced supply, pricing power has been key for Tyson Foods, Inc. (NYSE:TSN). That said, volume has also been strong for chicken, beef (recent rebound), and prepared foods. Only pork saw a slight decline in volume, due to falling demand and fewer exports. The business looks to be in good health, and Tyson Foods is upbeat about the future.

In addition to price increases, Tyson Foods is also focused on operational improvements in order to improve margins. Cost reduction and labor management are expected to play big roles. On the growth side, Tyson Foods will continue to focus on domestic value-added chicken (seeing continuous strong demand), international chicken production, prepared-food sales, and innovative products.

Thanks to recent weather conditions, Tyson Foods, Inc. (NYSE:TSN) expects the planting environment to improve. This will lead to increased grain supplies and lower costs. For fiscal year 2013 and fiscal year 2014, Tyson Foods anticipates approximately $34.5 billion and $36 billion in sales, respectively.

The chicken segment should continue to perform well thanks to steady demand. Reduced costs have aided the beef segment, and Tyson Foods intends to improve its operational execution in beef. Pork exports are also expected to improve. Increased costs for prepared foods should be offset by operational improvements and pricing.

While all of Tyson Foods, Inc. (NYSE:TSN)’ segments matter, chicken and beef are the most important. Both segments showed solid improvements in the third quarter.

Q3 2012 Q3 2013
Chicken 2,855 3,158
Beef 3,487 3,723
Pork 1,344 1,332
Prepared foods 764 797
Total 8,261 8,731

*Sales in millions (Source: 10-Q)

Overall, it’s a net positive. However, that doesn’t guarantee that Tyson Foods is the best investment option in its peer group.

Tyson Foods vs. peers
It’s clearly evident that Tyson Foods is a well-run operation, but so is Pilgrim’s Pride Corporation (NASDAQ:PPC). While Tyson Foods has a 22% share of the domestic meat market, Pilgrim’s Pride Corporation (NASDAQ:PPC) isn’t far behind with a 19% share.

Pilgrim’s Pride Corporation (NASDAQ:PPC) is also optimistic about the near future, and it recently beat expectations. Fundamentally, these two stocks are also similar.

Trailing P/E Net Margin ROE Dividend Yield
Tyson Foods 15 2.06% 12.41% 0.60%
Pilgrim’s Pride 13 3.67% 30.33% None


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