#$tsn

$TSN 2018-08-16 : Transcripts- Edited Transcript of TSN earnings conference call

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Q3 2018 Tyson Foods Inc Earnings Call

Springdale Aug 17, 2018 (Thomson StreetEvents) — Edited Transcript of Tyson Foods Inc earnings conference call or presentation Monday, August 6, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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EARNING UPDATE $TSN Tyson Foods, Inc. for quarter ending q_Jun18 – Revenue grew, Margins expanded

[s2If !current_user_can(access_s2member_level0)]Please login to read the earning update on TSN [lwa][/s2If][s2If current_user_can(access_s2member_level0)]Tyson Foods, Inc. reported earnings (EPS) of 1.47 per share for the quarter ending q_Jun18. This is vis-vis 0.85 per share for the previous quarter ending q_Mar18, a growth of 72.9 %. Compared to last year same quarter (q_Jun17), earnings grew…

Tyson Foods, Inc. (NYSE: TSN) trades at a P/E multiple of 9.6x, which is much lower than the Consumer Staples sector median of 23.0x. While this makes TSN appear like a stock to add to your portfolio, you might change your mind after gaining a better understanding of the assumptions behind the P/E ratio. In this article, I will break down what the P/E ratio is, how to interpret it and what to watch out for.

Understanding Valuation Multiples and the P/E Ratio

A Multiples Valuation, also known as a Comparable Companies Analysis, determines the value of a subject company by benchmarking the subject's financial performance against similar public companies (Peer Group). We can infer if a company is undervalued or overvalued relative to its peers by comparing metrics like growth, profit margin, and valuation multiples.

A P/E Multiple is a valuation ratio that indicates the multiple of earnings investors are willing to pay for one share of a company:

P/E Multiple = Stock Price ÷ Earnings Per Share

The P/E ratio is not meant to be viewed in isolation and is only useful when comparing it to other similar companies. Since it is expected that similar companies have similar P/E ratios, we can come to some conclusions about the stock if the ratios are different. I compare Tyson's P/E multiple to those of Hormel Foods Corporation (NYSE: HRL), Kellogg Company (NYSE: K), General Mills, Inc. (NYSE: GIS) and Dean Foods Company (NYSE: DF) in the chart below.

source: finbox.io Benchmarks: P/E Multiples

Since Tyson's P/E of 9.6x is lower than the median of its peers (18.2x), it means that investors are paying less than they should for each dollar of TSN's earnings. As such, our analysis shows that TSN represents an undervalued stock. In fact, finbox.io's P/E Multiple Model calculates a fair value of $129.31 per share which implies 75.4% upside.

Note that the selected multiple of 16.9x in the analysis above was determined by averaging Tyson's current P/E multiple with its peer group and sector.

Understanding the P/E Ratio's Limitations

Before jumping to the conclusion that Tyson should be added to your portfolio, it is important to understand that our conclusion rests on two important assumptions.

(1) the selected peer group actually contains companies that truly are similar to Tyson, and

(2) the selected peer group stocks are being fairly valued by the market.

If the first assumption is not accurate, the difference in P/E ratios could be due to a variety of factors. For example, if you accidentally compare Tyson with higher growth companies, then its P/E multiple would naturally be lower than its peers since investors reward high growth stocks with a higher price.

source: P/E model

Now if the second assumption does not hold true, Tyson's lower multiple may be because firms in our peer group are being overvalued by the market.

What This Means For Investors

As a shareholder, you may have already conducted fundamental analysis on the stock so its current undervaluation could signal a potential buying opportunity to increase your position in TSN. However, keep in mind the limitations of the P/E ratio when making investment decisions. There are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend you to complete your research on Tyson by taking a look at the following:

Valuation Metrics: what is Tyson's free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.

Risk Metrics: what is Tyson's CapEx coverage? This is the amount a company outlays for capital assets for each dollar it generates from those investments. View the company's CapEx coverage here.

Efficiency Metrics: inventory turnover is a ratio that measures the number of times a company's inventory is sold and replaced over the year. View Tyson's inventory turnover here.

Author: Matt Hogan

Expertise: Valuation, financial statement analysis

Matt Hogan is also a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.

His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron's, Seeking Alpha and investing.com.

Matt can be reached at [email protected].

Here are some of the stocks the Yahoo Finance team will be tracking for you today.

Delta Air Lines (DAL) is starting to resume some flights after the US airline carrier grounded all its flights worldwide following a system-wide computer failure that prevented passengers from checking in. “Our systems are down everywhere,” Delta told customers via a Twitter post early this morning.

Walmart (WMT) shares are in the spotlight. It’s official, the world’s largest retailer said it would buy online retailer Jet.com for about $3 billion in cash. The potential deal could help Walmart better compete with rival Amazon (AMZN) in the e-commerce space. The deal is expected to close this year.

Mattress Firm (FMRM) surged more than 100% in early trading. South African furniture retailer Steinhoff is buying the owner of Sleepy’s for $2.4 billion, or $64 a share. That’s a 110% premium based on Mattress Firm’s closing price on Friday. The deal will give Steinhoff an entry into the US market.

Potential for a split court changes the calculus on key litigation before the Supreme Court.

by David Marcus and William McConnell

The death of Justice Antonin Scalia over the weekend may complicate nearly a dozen significant business cases pending before the U.S. Supreme Court.

The absence of the conservative icon from the panel creates a greater likelihood that contentious cases will result in a 4-4 tie among the justices. The lack of a clear majority will leave the previous rulings by lower courts intact.

One key case is a challenge to new Environmental Protection Agency rules governing carbon dioxide emissions from power plants. On Feb. 9 the Supreme Court blocked their implementation pending the outcome of a legal challenge to the climate change rules by more than two dozen states. If an appeals court upholds the rules, the regulations would remain on hold pending a Supreme Court ruling expected to come no sooner than 2017. Scalia was among the 5-4 majority voting for the stay. In previous opinions addressing climate change Scalia argued that climate change was a distinct issue from air pollution.

Other business-related cases likely to be impacted by his absence or the potential for a 4-4 split on the court:

Friedrichs v. California Teachers Association

The legal question in this case, argued before the justices Jan. 11, is whether "agency shop" agreements for public employees violate the First Amendment. Prompted by efforts to limit the political influence of public-sector unions, conservative groups that helped bring the case argued that a teacher's free-speech rights were violated by a requirement that she pay union fees. A ruling on behalf of the teacher would overturn a 1977 decision upholding public-sector union agency fees. During oral argument Scalia was "dubious" of the need to charge non-members. If the union's work was valuable to teachers it should be able to get them to sign up willingly, he said.

Spokeo v. Robins

Argued on Nov. 2, the justices must consider whether plaintiffs may sue even if they have no concrete injuries. A plaintiff argued that people search website Spokeo Inc. posted inaccurate information about him and is seeking to represent a class of people with similar complaints. The Fair Credit Reporting Act provides up to $1,000 in damages for inaccurate reports. The U.S. Chamber of Commerce argued that allowing standing to be based solely on a technical statutory violation would render traditional class-certification requirements meaningless and would invite class action abuse.

Tyson Foods v. Bouaphakeo

In another case involving class actions, the court on Nov. 10 heard whether a certified class may include people who suffered no injuries. This case examines the certification by a lower court of a class action against Tyson Foods on behalf of 3,000 hourly workers who seek pay for time putting on and removing protective gear. Wal-Mart, Dow Chemical and other companies urged the court to reject class actions unless specific legal claims predominate among the entire class.

Merrill Lynch v. Manning

In this case, argued Dec. 1, the court must decide whether the federal government has jurisdiction over state-law claims seeking to establish liability based on violations of the Securities Exchange Act.

Puerto Rico v. Franklin California Tax-Free Trust

The justices will hear argument on March 22 about Puerto Rico's effort to establish a bankruptcy regime for itself similar to Chapter 9 for municipalities.

The Supreme Court is hearing two potentially important patent cases this term.

In re Cuozzo involves the controversial inter pares review process, in which the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office reviews the validity of a previously awarded patent at the request of a third party. Last year, the Court of Appeals for the Federal Circuit held that its lacks jurisdiction to review a PTAB decision to institute or deny a request for inter pares review and that the PTAB may give claims their "broadest reasonable interpretation."

The other patent law matter involves the issue of what constitutes willful infringement of a patent for the purposes of calculating damages. The Court consolidated two cases that raised that very issue, Stryker Corp. v. Zimmer Inc. and Halo Electronics Inc. v. Pulse Electronics Inc.

Said David Hayes, a patent law partner at Fenwick & West LLP in San Francisco, "The Supreme Court's patent decisions in the last couple of years have generally been unanimous or at least not closely divided, so I don't think Scalia's death would make much of a difference to the outcome of those cases."

There are also a number of key cases in which the court has been asked to take up later in 2016 or in 2017:

American International Group Inc. v. U.S.

The justices would have to decide whether an appeals court erred by treating foreign income taxes not as taxes, but as expenses, in determining entitlement to the foreign tax credit.

McWane Inc. v. FTC

The justices would have to decide whether McWane's partial exclusive-dealing arrangement is unlawful under the FTC Act. The Federal Trade Commission previously ruled that a rebate letter was an unlawful exclusive dealing policy, even though a competitor was able to enter the market.

Wells Fargo Bank v. Gutierrez, et al.

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

This Week’s Post: Thanksgiving 2015

It’s a light week for earnings calls since it’s Thanksgiving, but we were still able to pull together a handful of interesting quotes.

This week’s post contains more color on the state of the consumer (most companies continue to say that spending is soft).  Tech Data also called out weak IT spending in North America and Donaldson said that global construction markets have weakened further.  

There are some things to be thankful for though…there’s pent up demand in housing markets and bloated inventories are getting right sized.  More importantly, Williams Sonoma’s CEO reminds us that human connection is what really matters.

The Macro Outlook:

The consumer is a bit of a mystery right now

“We certainly spend a lot of time here trying to understand the consumer and they really are right now, it’s a bit of a mystery.” —Cracker Barrel (Restaurants)

We know that the retail environment was challenged last quarter

“as everybody has witnessed over the last quarter, the Retail environment went through a very challenging time in the third quarter…I think given the continued volatility in environment, you are going to see a continued focus on inventory levels, not only in watches, across retailers overall.” —Movado (Watches)

Other consumer industries reported softness too

Cracker Barrel said that restaurant industry performance was weak

“Industry performance was below prior year levels and recent economic signals were mixed. We believe the consumer spending was challenged during the quarter, particularly in October” —Cracker Barrel (Restaurants)

Campbell Soup said consumers remain cautious

“consumers remain very cautious. We’re continuing to see Americans save more and spend less amid the uncertain economic climate.” —Campbell Soup (Packaged Foods)

Dollar Tree’s customer is still under a lot of pressure despite lower gas prices

“I think the customer especially our customer, our middle income, low middle income to lower income customers are still under pressure and they are concerned. They’ve seen lower gasoline prices and that’s helpful. But at the same time it’s not enough for that lower income customer. It’s just not enough to make a change in their shopping habits. At the same time they’ve seen lower gasoline prices. They’ve seen higher food prices. They’ve seen higher rent prices. They’ve seen higher healthcare costs. They’ve seen higher taxes. So they are still concerned, they are still under pressure” —Dollar Tree (Retail)

Other industries are seeing pressure too

IT spending is moderating in the Americas

“We don’t make the market; we don’t create the demand; we respond to the realities of it. And the realities are that IT spending is moderating in the Americas. It’s reflected not only in our results but in all of the results in the ecosystem.” —Tech Data (IT Wholesaler)

The global construction market has worsened

“Since our last update, our outlook for the construction equipment market has worsened…The softening that we see in construction is really we’re talking about from a global perspective. So we saw additional softening in some geographies like China. We clearly see it hard in Brazil right now.” —Donaldson (Industrial Components)

There are potential bright spots too though

There is still a lot of pent up demand for housing

“I am still extremely positive on what the future holds because…there is a tremendous amount of pent up demand…at some point there is going to be some form of a break out and there is going to be much more demand than we are seeing now. But the ultimate question is when, which I just can’t predict.” —Beacon Roof (Roof Supplies)

Small Businesses are investing in IT

“there are still good pockets of opportunity. In the quarter, we just reported, as Chuck described, SMB continued to be a strong area. We delivered double-digit growth in the Americas in SMB. So, there are pockets of strength.” —Tech Data (IT Wholesaler)

Inventories are bloated, but companies are making progress right sizing them

“We would continue to say there is more large row crop tractors in used row crop tractors in the market in the US and Canada than we would prefer. So it does continue to be a focus of ours, as we go through 2016. But we are making progress, so we are seeing that large Ag inventory coming down. In fact if you look at the high point in 2014, we’re down about 18% from that point. So again, making progress.” —John Deere (Farm Machinery)

Hopefully this is just a healthy pause

“It does feel like the economy might be slowing a little bit…It feels like a may be a healthy pause here, I don’t know. Things can certainly get worse. There is a lot of uncertainty in the world that could cause a slowdown in the economic activity. We’re not seeing it yet.” —Eaton Vance (Asset Management)

International:

Tiffany was encouraged by performance in China despite macroeconomic news

“With China in the news so much regarding their economy stock market and currency, we are pleased and encouraged that our total sales in China increased by a healthy amount in the third quarter despite volatility and sensitivity to headline macro events.” —Tiffany (Jewelry)

Financials:

Companies have relied on financial engineering to create growth this cycle

“Generating growth in this environment has been and remains difficult. As a result, the industry continues to respond with consolidation, spin-offs, aggressive cost cutting programs, and other measures to improve operational efficiency.” —Campbell Soup (Packaged Foods)

Consolidation is altering the landscape in many industries

“consolidation and intensified competition are disrupting and altering the landscape.” —Campbell Soup (Packaged Foods)

Bank loan funds have seen an exodus as investors lose confidence that interest rates will rise

“we had a lot of money move into the bank loan asset class in 2013 and anticipation at that point of rising interest rate. Maybe those investors weren’t really fully informed or fully committed about what this asset class was. I think there is a lot of that money is now been flushed out of the asset class.” —Eaton Vance (Asset Management)

Consumer:

Ross Stores expects the retail environment to be very promotional this holiday season

“There is ongoing uncertainty in the macroeconomic environment and, based on the current retail landscape, we expect the upcoming holiday season to be highly promotional. As a result, while we always hope to do better, we believe it is prudent to maintain a conservative posture.” —Ross Stores (Off-Price Retail)

A highly anticipated Star Wars video game has gotten off to a slow start

“I think Star Wars Battlefront got off to a slow start. Given the buzz around the movie, we anticipate that this game is going to be a very strong game…we do think that it is going to rally very strong, as we get to closer to the movie.” —Gamestop (Video Game Retailer)

Campbell Soup has shifted 40% of its advertising budget to digital

“we’re shifting our spend overall to about 40% of our spend in digital, and that is creating a different dynamic between working and non-working media.” —Campbell Soup (Packaged Food)

Technology:

The 4 big IT initiatives: cloud, security, big data and productivity

“these four transformation areas is exactly what virtually every customers looking for. How do I transform my IT environment to a hybrid environment? How do I secure my digital enterprise? How do I enable analytics, big data analytics environment? And how do I drive workplace productivity. And we are aligning software service and hardware or infrastructure to that” —Hewlett Packard (Enterprise Tech)

HP is shutting down its public cloud offering and using Microsoft as a preferred provider

“we announced in October that we will double down on our private and managed cloud capabilities and sunset our public cloud offering. This is the right move. It plays to our strength in private and managed cloud. We will continue to extend our cloud infrastructure leadership and integrate the public cloud element for our customers through a strategic partner-based model…Going forward, Microsoft Azure will become a preferred public cloud partner.” —Hewlett Packard (Enterprise Tech)

Industrials:

Heavy duty truck production is set to slow next year

“The anticipated slowdown in heavy-duty North American truck production next year is well documented…we know that in the U.S. first rate truck builds there is a decline in the future, and we’ve just tried to take a more cautious approach in the second half of our fiscal year and bake that in for the U.S. market.” —Donaldson (Industrial equipment)

Materials, Energy:

Total Energy Services’ CEO thinks that there needs to be consolidation in oil service in North America

“We strongly believe that the North American energy services industry must consolidate to provide the efficiencies in economies of scale necessary to compete in an increasingly global market. We believe this need for rationalization will become more apparent over the next few quarters.” —Total Energy Services (Oil Service)

Good acquisition opportunities may start to appear over the next few quarters

“Our view is things are going to settle out here over the next few quarters, there is going to be a lot of good acquisition and consolidation opportunities we’re going to use the strength of our balance sheet and our abilities to generate substantial cash at low utilizations.” —Total Energy Services (Oil Service)

Jacobs Engineering thinks its downstream energy customers may be close to a bottom

“We do believe that the clients in some of these end markets have either hit or are close to bottom… my comments on hitting the bottom and stabilizing is more from a Jacobs position…most of our activity is focused on refining and chemicals.” —Jacobs Engineering(Engineering & Construction)

Hormel Foods has been able to refill their barns after the Avian Flu, but wont fully recover for another couple of quarters

“We were able to completely refill our barns, but as we talked about before, the primary turkey for most of our value-added items is our tom turkeys. It’s a 22-week market cycle and so we will not been fully back to normalized volumes throughout the earliest of second quarter of fiscal 2016″ —Hormel Foods (Meat Packer)

Households have been eating more pork thanks to lower prices

“In the retail channel, we are seeing increase featuring of Pork as pricing has come down. For the most recent year-over-year comparison, fresh Pork volume was up 6% on 2% lower pricing.” —Tyson Foods (Meat Packer)

Miscellaneous Nuggets of Wisdom:

Human connection still matters (especially around the holidays)

“Human connection still matters in the digital age” —Williams Sonoma (Home Goods)

…Equities move sharply higher as job growth rose more than expected in September (revised high for August as well), while the unemployment rate drops below 6% (lowest level since 2008). The jobs report strengthens the view of those who favor a rise in rates sooner than mid-year, as the drop in the unemployment below 6% is ahead of Fed projections (though no wage increases and participation rate at new record lows!). Equities resume upward momentum, as once again it appears between 4-7% decline is max for markets – gains across the board (except for commodities).