Can Tyson Foods Crush Pilgrim's Pride and Hormel?

Tyson Foods (NYSE: TSN  ) will release its quarterly report on Monday, and after rising to new heights during the summer, the meat company's stock has given up ground over the past few months. With China's Shuanghui having completed its purchase of rival Smithfield Foods, Tyson now has to deal with survivors Pilgrim's Pride (NASDAQ: PPC  ) and Hormel Foods (NYSE: HRL  ) to ensure it can retain its leadership role in the U.S. meat industry.

Tyson Foods is a well-diversified meat company, with production, distribution, and marketing of chicken, beef, and pork. In addition to selling raw meat, it also markets prepared foods like pepperoni, bacon, and full meals to reap the higher margins available from those products. But with all the changes in the industry lately, what's the next step for Tyson strategically? Let's take an early look at what's been happening with Tyson Foods over the past quarter and what we're likely to see in its report.

Stats on Tyson Foods

Analyst EPS Estimate

$0.69

Change From Year-Ago EPS

25%

Revenue Estimate

$8.89 billion

Change From Year-Ago Revenue

6.1%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Tyson Foods serve up tasty earnings this quarter?
In recent months, analysts have reduced their views on Tyson Foods earnings slightly, cutting their September-quarter estimates by $0.02 per share and their full-year fiscal 2014 projections by about 1%. The stock has posted a more substantial decline, dropping 10% since mid-August.

Coming into the quarter, Tyson was riding high with substantial momentum in its stock price. Sales rose 5.7% in the company's June quarter, with Tyson benefiting both from higher sales volumes and stronger pricing for its products. With food-production costs having been fairly high, Tyson's ability to pass through its costs to customers has helped it keep margins fairly strong, and the company has worked hard to reduce operational costs as well.

Yet Tyson faces strong competition as well. Pilgrim's Pride has much better returns on equity, and it sports a higher net margin than Tyson has managed recently. Moreover, with Shuanghui's financial strength behind it, Smithfield will now be able to wield its lead in the pork-processing market to further advantage, potentially pressuring Tyson in that key growth market. Meanwhile, Hormel has been able to push its own stock price to all-time record highs lately, with the processed-food side of its business offering greater ability to promote its brand and command premium margins.

One controversy that hit Tyson during the quarter involved the use of Zilmax, a dietary supplement that promotes cattle growth. In early August, the company said it would stop accepting Zilmax-fed beef cattle as of September. As exports to key global markets become more important to the industry's success, you can expect Tyson, Hormel, and their rivals to do whatever it takes to satisfy other countries that their products conform to local regulations and preferences. Also, concerns about animal welfare have gained in importance lately, with shareholders proposing that Tyson deal with potential issues in order to avoid any loss of business to foreign markets.

In the Tyson earnings report, watch to see how well the company does in its processed-foods segment. Hormel and fellow processed-food rival ConAgra (NYSE: CAG  ) have seen respectable revenue growth but have faced challenges to bottom-line expansion, making Tyson's expected long-term profit growth even more impressive. But if Tyson starts to succumb to the same macroeconomic troubles hitting ConAgra and Hormel, then it could lead to further share-price declines for Tyson.

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