Download Consumer Staples- Tyson Pitch

Consumer Staples- Tyson Foods Pitch
Ticker: TSN
Sector: Consumer Staples
Market Cap: 14.19B
Presenter: Austin Hagerty
Buy: Full Position
1
Company Operations
Second largest food production company in the Fortune 500
Tyson Produces roughly 1 out of every 5 pounds of chicken, beef
and pork in the U.S
Multi-Protein Chicken, Beef, Pork
Multi-Channel Retail, Food Service, Exports
Multi-National United States(96%), China, India
2
Revenue & Operating Income
Breakdown
Revenue Breakdown
Operating
Income Breakdown
Prepared Foods
Prepared foods
9%
7%
Pork
15%
Chicken
35%
Pork
24%
Chicken
47%
Beef
22%
Beef
41%
Chicken
Pork
Beef
Pork
Prepared foods
Chicken
Chicken
Prepared
Foods
Beef
Pork
Prepared Foods
Beef
3
Why Tyson?
•
•
•
•
Diversified vs pure play chicken producers
2nd Largest food producer in the Fortune 500 next to Pepsi co
Positioned well to grab that growth(US/CHINA/INDIA)
As people enter the middle class, they consume more proteins.
4
Industry trends
• Cattle industry is slaughtering fewer heifers than usual
 Good for supply in the future
• Hog industry is retaining more sows than usual
 Good for supply in the future
• Feed costs for chicken production are decreasing
 71% of costs on average
• Beef + Pork are expensive due to low supply
 Makes chicken attractive
• More weight put on the hogs
 Helps to offset low volume
7
Hillshire Farms Acquisition
•
•
•
•
•
•
•
Hillshire Farms acquired August 28, 2014
Synergies expected to be $225m 2015
$500m in synergies by 2018
Increased margins expected
Iconic brands
Leading market share in important value-add protein categories
Expertise in new product development and innovation
5
Hillshire Farms Acquisition
5
Investment returns
• Aggregate MIRR of projects over the last four years have been just shy of 25%
“People often forget that a business with the 2% return on sales can still
generate a pre-tax ROIC of 15% if you maximize the efficiency of your assets
to turn your capital quickly, which is what we do.”
• Achieved a 12-month pre-tax return on invested capital up just over 20%
compared to 16% for the prior year period.
• 20% ROIC goal is an important metric for Tysons and one they plan to achieve
8
Recent Events
• Fire occurred at one of their plants and operational issues at another
– New production capacity Spring FY’15 and full recovery by FY’15
• Sold operations in Mexico and Brazil to JBS for $575m
– Did not have necessary scale to achieve the market leadership they hoped
– Attractive price
• Closing 3 plants
– Improve capacity utilization and streamline cost structure
– Significant cost savings and production efficiencies expected
Production Capacity
Chicken
Beef
Pork
Prepared Foods
87%
78%
88%
83%
9
Financial Highlights
• $2.78 eps- Conservative guidance
given
• Chicken segment to possibly have
new normalized range
• $500m in synergies by 2018 from
Hillshire
• Increased margins likely in Fy’15
• 10% EPS growth expected
• 20% EPS growth expected over 2013
• 10% revenue growth
 Hillshire prepared foods has over 9%
margins
 Tysons prepared foods has between
2-3%
6
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
2nd Largest food producer in
Fortune 500
Paid large premium for Hillshire
Acquisition
Synergies from Hillshire deal
Commodity pricing for feed could
rise
Industry trends in favor of Tyson
Larger amount of debt now due to Continued decrease in feed costs
acquisition/lower FCF in short
for chicken segment
term(No buybacks)
Synergies from Hillshire may not
play out as hoped
History of buybacks/dividends
Current production issues which
are expected to be
resolved(Negative Q’3 for
chicken)
Less slaughtering of heifers and
sows(Female cattle & pig
respectively),increasing supply in
future.
Chicken prices could fall due to
increased supply
Much more diversified than pure
chicken producers(i.e. Sanderson
farms, Pilgrim Pride)
International segment recovery
Loss of Walmart as a customer
(13% of sales)
Roughly 25% IRR on past
investments
Aging population continues to
move from carbs >protein
Several $1BN brands ranked #1
Prepared food segment margin
growth thanks to Hillshire
Chicken segment expected to
reach 10% growth vs old 5-7%
normalized range
11
DCF Price target and price chart
Bull: DCF Estimate: $53.04 /
27.85% upside
Base: DCF Estimate: $48.50/
16.89% upside
Bear: DCF Estimate: $42.03/
1.31% Upside
12