Tyson (NYSE:
TSN) is a tricky stock. Commodity food producers like Tyson almost never get the valuation that packaged food companies like
Hormel (NYSE:
HRL) and
General Mills (NYSE:
GIS) carry. Even with that being said, though, Tyson has shown itself to be relatively less volatile than other protein producers but still gets no premium for that distinction. If Tyson can somehow maintain its current levels of free cash flow production, this is a stock that value investors should seriously consider.
Very Mixed Performance for Q2
Tyson's fiscal second quarter was a real mixed bag - solid top-line performance, but not a lot of great news on profitability. Tyson reported that revenue grew about 12% in the second quarter, comfortably above the average analyst estimate. Growth was consistently positive across the board, with the company's large beef operations showing 19% revenue growth and the pork business jumping 26%. Even as a laggard, the poultry business was still up 10%.
Profits were not nearly so solid. Gross margin slid to 6.7% from 8.2% a year earlier; not a surprise, given the increase in grain, energy, packaging and other inputs. Operating income fell 12% from last year, and the operating margin compressed by 1.2%. Although operating income in the pork segment more than doubled (and margins were better than 10%), the profit in beef fell by a quarter and poultry income dropped nearly 68%.
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