Why Tyson Foods Productivity Plans Can Make It A Buy
Publishing strong results for its fourth quarter and fiscal year 2021, Tyson Foods (NYSE: TSN) has continued a positive trend which has seen its stock gain around 30% in the past 12 months. Both revenue and earnings per share (EPS) rose year over year to exceed consensus analysts’ expectations. The real story, however, is the details Tyson shared about its “productivity plan” and the growth investors can likely expect if this program goes as planned.
Tyson’s fourth quarter and year-round experience
Tyson’s results beat Wall Street’s average forecast on the top and bottom, with revenues rising sharply and EPS rising. Adjusted EPS jumped 35% year-over-year, while adjusted EPS for the full year climbed 53%. For both periods, net gains outpaced revenue growth as the business turns revenue into profit more efficiently.
Tyson saw volumes decline in all of its major categories, including beef, pork, chicken and prepared foods, with the sole exception of its small international segment. However, prices rose sharply across all categories, more than offsetting lower volumes and driving positive revenue growth overall. The strongest category was beef, where prices rose 32.7% against a volume drop of 15.4%.
Tyson is planning a profitable future
While the results were generally good, perhaps the most important part of the report was the announcement of a new productivity plan. CEO Donnie King said: “[W]We are launching a new productivity program designed to generate more than $ 1 billion in annual savings by the end of 2024. âKing and other executives then provided more details of the plan on the call. to the results.
The projected billion dollars in savings uses 2021 as a benchmark. While full results will not be apparent until the target year 2024, the success of the program will be visible in the coming months, as it is expected to reduce spending by $ 300-400 million in fiscal year 2022, which started on October 1. 3. It will help investors judge whether Tyson’s plans are actually working and whether they have the potential to arrive ahead of schedule.
The productivity plan has three parts, as outlined during the conference call. First, management wants to reduce costs by cutting red tape and improving internal efficiency. This effort is expected to save $ 300 million per year when fully deployed.
Second, Tyson will streamline sourcing and warehousing through digital initiatives, such as using artificial intelligence to collect and process data to find the cheapest and most efficient shipment for products. when they leave the company’s processing plants. Predictive analytics like the type Tyson plans to use can help improve efficiency by turning data into accurate predictions of future business conditions, according to research from Advanced Market Analytics.
In practical terms, this can mean savings in the supply chain, fast and inexpensive transportation, reduced downtime on production lines, more accurate demand forecasts and substantial inventory reductions thanks to these new forecasts. of request. Tyson expects savings of $ 250 million from the digital portion of his plan.
And third, Tyson plans to dramatically increase its use of automation to generate approximately $ 450 million in additional annual savings. The CEO said he would use “robotic technologies to automate difficult, high-turnover jobs,” citing a “substantial opportunity to automate the deboning process at our poultry harvesting facilities” as an example of planned automation.
Tyson’s plan for the 2021 economy
Given the current economic conditions, Tyson’s plans look very timely. Two of its three focus areas address issues facing the United States and global economies following the impact of COVID-19 lockdowns. The supply chain is still supported by particularly rare truck drivers. The American Trucking Associations (ATA) said in October that the United States currently suffers from an 80,000 driver shortage according to its research, which is expected to worsen to 160,000 over the next decade. With a high number of retirements and many truckers dissatisfied with both the pay and lifestyle demanded of drivers, to close the gap would require a million new truckers to be trained and made redundant each year. .
The Biden administration’s vaccination mandate or ‘Temporary Emergency Standard’ (ETS) only added to the deadlock, with independent-minded truckers frequently viewing the warrant as an unnecessary violation of freedom personal. The ATA has launched a legal challenge that suspended the warrant and could potentially overturn it for the trucking industry. The ATA denounces “the enormous disruption that this illegal ETS will cause to the trucking industry”. While his legal challenge may ultimately be successful, disputes between truckers and companies over the vaccine are currently adding to supply chain issues, with truckers potentially resigning during tenure, according to the Truckload Carriers Association.
In this environment, Tyson’s predictive analytics and AI could be of great help in getting meat shipments around bottlenecks and finding the cheapest options available in a difficult shipping situation. In addition, its automation will not only help reduce the impact of the current labor shortage, but it could also alleviate the disruption caused by sick leave and social distancing requirements in the event of a new COVID outbreak. -19. If at least part of the production line is automated, workers are likely to have less contact with each other, possibly helping to avoid epidemics and plant closures that nearly broke the line. American meat supply in 2020.
Even after the current supply and labor challenges have subsided, improving efficiency and lowering labor costs through AI analysis and production line robotics will help Tyson stay streamlined and profitable. His plans seem smart and timely, which makes this food stock a potential buy for both its short-term success and its long-term flexibility to adapt to changing market conditions.
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