Don't laugh. Tyson Foods
The company's latest quarterly results were excellent. Sales were up 11%. Net income was up 46%. Tyson shares, after a more than 10% move today, sit near their 52-week high. Yet, with earnings guidance for 2004 at $0.90 to $1.20 a share, the stock trades at a reasonable 12 to 17 times forward earnings.
Rising margins coming
Mad cow disease (bovine spongiform encephalopathy, or BSE) recently knocked beef operating margins from a slim 1.9% to a negative 0.9%. Although Tyson sees a slight possibility of up to $30 million in future BSE-related charges, it also sees the potential for exports to Mexico in eight weeks and for the Japanese and Korean markets to reopen in three to six months. Any such resumption in exports will fatten margins.
Margins on chicken products rose from 0.7% to 6.1%. The outlook for chicken, with Avian Flu (AI) hurting major Asian exporters like Thailand, is strong -- but so are U.S. feed prices. Overall, Tyson sees operating margins holding and possibly rising to 7%.
In confirmation, rival chicken producer Pilgrim's Pride
Interestingly, Tyson's better margins on pork -- up from 4.0% to 6.7% -- were not matched by those of the world's largest pork producer Smithfield Foods
Overall, Tyson's operating margins remained at around last year's 2.5%. Smithfield's margins, by comparison, were a more modest 1.5%, while Pilgrim's Pride, even after an earnings explosion, had margins of 3.0%.
Investors looking for higher margins have few large-cap choices in the group. Spam producer Hormel
Tyson is growing, reducing debt, focusing on margins, and in the sweet spot of the high-protein diet craze. At today's prices, its merits look meaty and worth savoring.
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