Tyson Foods' Bold Moves Have Led to Big Profits

This food giant has benefited from acquiring one of its rivals and expanding into biodiesel fuels.
By Thomas Scarlett ,

Fortune favors the bold. One sign of a strong company is that, even after it has established a dominant position in its market, it remains willing to take decisive actions to make its position even stronger. That's the kind of stock that can guarantee big returns over the long haul.

It also describes Tyson Foods (TSN) - Get Report , a provider of chicken, beef and pork products. The Springdale, Ark.-based company's acquisition of one-time rival Hillshire Brands and its innovative expansion into biofuels have helped it boost revenue to more than $40 billion in 2015. 

Tyson's stock price rose 1.74% in Friday trading. 

The purchase of Hillshire Brands, which is known for such popular brands as Jimmy Dean sausage and Ball Park hot dogs sparked considerable debate among analysts. Some contended that it was unwise because it was getting into a bidding war with another company, Pilgrim's Pride.

Tyson wound up paying more than $7 billion to acquire its former competitor. But after more than two years, the deal has paid off handsomely. In fact, The Street's Jim Cramer says that Tyson has "transformed itself" by making the move.

The company's most recent earnings report bears out this verdict. Tyson set new records in terms of operating income (up 27% to $704 million, on a year-over-year basis) and operating margin (7.7%). Earnings per share came in at $1.07 per share-up from 75 cents a share year over year, and significantly higher than most food industry analysts had predicted.

As a well-known consumer products company, Tyson has the capacity to remain strong during volatile markets. We live in turbulent times: With less than four months to Election Day, it is not yet clear who the next president will be. If Donald Trump wins, we could see radical changes in U.S. trade policy, with unforeseeable consequences.

And while the immediate storms following the surprise Brexit vote seem to have passed, a further splintering of the European Union could have a ripple effect that would be felt globally.

But Americans love eating chicken, and that is unlikely to change any time soon. If the U.S. economy slows down, the demand for Tyson's cheap food products-hot dogs, chicken nuggets, and the like-might actually increase. Tyson is a major supplier to retail giants like Wal-Mart and McDonald's.

The company has been adept at putting various waste products generated by its own processes to good use. For example, Tyson's plants are left with a vast supply of animal fats. So it created a business unit called Tyson Renewable Energy to examine ways to commercialize use of this leftover material by converting it into fuels. Tyson now has a joint venture with ConocoPhillips to produce roughly 175 million gallons of biodiesel a year, enough to run Tyson Foods' truck fleet for more than three years.

---

Tyson meets all the criteria: well-established brand names, bold management, and a reasonable price (the price-to-earnings ratio is under 20). Wouldn't it be nice to have a whole list of companies like that? We've got a report that can guarantee you will profit from 85% of your trades! With compound returns like that, you can afford to retire in high style. To get the free report, just click here.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Loading ...