Tyson - the real beef? (version 2)

I first wrote about the chicken/beef/pork/prepared foods company Tyson Foods in August when I concluded that based on the company's improved pricing power and the rise in the global demand for protein-based foodstuffs:

'I believe we are at a paradigm shift in how shares in Tyson Food are perceived'

Since then Tyson shares bumped up briefly to US$32 but have come back to the US$28s levels they were at back in August:

So, what to make of their fiscal Q4/FY numbers out today?

Well, it is always good to see a company refer to its Q4 results as 'great'.  The reason why they said this is outlined below...full year targets were either hit or exceeded:

In August I wrote how impressed I was by the company's pricing power...once again at 5.9% average price change, pricing was very good (and across all four key areas).  Clearly the company is prioritising this above volume changes per se. 

Unsurprisingly, this fed into good operating margins across the business, although I note that pork and prepared foods generated higher margins over the full year than in Q4 alone:

Looking forward to the fiscal year ending in September 2014, Tyson talked about the benefits of lower grain feed prices meaning chicken profit margins were likely to be in a 5-7% range.  Pork profits in an anticipated 6-8% range also seem good.  Prepared foods continues to see investment, as Tyson develops this business, and a 4-6% anticipated margin range is solid given this.  The only negative from the forward hopes statement are in the beef division where 'imbalances' in supply may hold margins to a 2.5-4.5% range.  Put it all together though and it is still plausible that all four key division show progression in operating margin in the company's next fiscal year versus the one that has just ended. 

Additional to this, the company continues to buyback shares (average price of just over US$30/share in Q4 i.e. higher than the current share price) and also, over the full year, return the entire c. US$700m free cash flow generated (c. US$600m by buybacks, US$100m in dividends). 

With a current EV (Friday close) of US$11.5bn the company is trading at (a now) historic x8.4 EV/ebit and a free cash flow yield of just over 6%.  The above tells me that the company should be trading at a x10 EV/ebit multiple.  That's a share price of around US$34 - and that's even before factoring in any further earnings improvements over the next year. 

More insights to come from the conference call but, on these numbers, Tyson is the real beef. 


Postscript: A few conference call thoughts - in short, nothing to dissuade me from the thoughts above. 

‘chicken viewed as value (by consumers) versus other proteins’

Breakfast category opportunities in prepared – pork sausages, chicken

‘we should overdeliver on our EPS goals…weighted towards the third and fourth quarter’

In China want to process 100% of its ‘own birds’ by the end of 2014

‘we are feeling very good on our prepared foods business’