Tyson Foods Is Known for the Different Essay

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Tyson Foods is known for the different pork, beef and chicken products they sell to grocery stores, meat distributors, whole sellers, restaurants, industrial food processors and military commissaries. However, the industry is extremely competitive and is seeing tremendous amounts of volatility / demand. To fully understand the strengths and weaknesses of the firm requires carefully examining three financial outcomes with the statements submitted to the Securities and Exchange Commission. This will be accomplished by looking at: the findings from these reports and discussing the effects on the organization. Together, these elements will highlight the company's opportunities, strengths, weaknesses and competitive position. ("Tyson Foods," 2013)

The Findings from Tyson Foods and the Most Likely Outcome

In the last few quarters, Tyson Foods has been facing tremendous challenges with their chicken division. This is because prices of feed have been increasing much more than expected. At the same time, beef and pork sales have remained stagnant. However, despite these challenges both segments realized an increase in prices. The results were that the earnings per share for the company came in at $36 cents versus $.50 cents a year ago. Moreover, sales have declined from $16.57 billion in March 2012 to $8.49 billion. ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013)

These figures are illustrating how the firm is facing tremendous challenges from the higher costs associated with feed and a slowdown in consumer spending. What has helped to offset these declines is an increase in the cost of pork and beef prices. This has provided some stability in the price of the stock with shares trading near their 52-week high (despite these concerns). ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013)

At the same time, management's message to shareholders is that these challenges are temporary. They are predicting that the costs for feed will begin declining towards the end of the year. While demand for their products will begin to rise and prices will see an increase on the world markets. They believe that these factors will help the firm to see an improvement in earnings and strong momentum going into 2014. ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013)

Three Potential Financial Outcomes for Tyson Foods

Three potential financial outcomes for Tyson Foods include: continued amounts of volatility with their earnings, a turnaround in sales / earnings and a sharp decline in their market / financial position. The continued amounts of volatility will cause the price of the stock to go from the 52-week high to the annual low. This is because the company is seeing higher costs for feed prices and consumers are still purchasing their products selectively. When this happens, the company will not realize an increase in their bottom line results. Instead, earnings and sales will increase for a few quarters and then experience larger than expected declines. This will cause the price of the stock to enter a trading range. That is going between its annual highs and lows. ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013)

A turnaround in the earnings and sales will take place with feed prices starting to stabilize. At the same time, whole costs for chicken, beef and pork will see an increase on the world markets. This is a sign that a turnaround is taking place and how there will be more demand for Tyson Foods' products. This is based upon the sharp rises in demand for these products from a larger segment of consumers around the world. These events are different, by showing how the increased amounts of volatility in wholesale prices will stabilize. This is what management believes will happen and is the primary message they are telling to investors about the current challenges they are facing. ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013)

A sharp decline in their market and financial position is when sales will not increase. Instead, they begin to steadily decline from higher retail costs. This is from the world markets driving up demand so high that consumers will begin making adjustments in their eating habits (surrounding how much chicken, beef and pork they are consuming). Moreover, the higher costs of feed are sign of a larger trend of inflation which is occurring. If this were to happen, there is a realistic possibility that Tyson Foods will see their sales and earnings implode. This is based upon much more optimistic projections about what was happening from management and the realization that they were incorrect. It is at this point when the price of the stock will fall through the 52-week low and continue to decline further. Moreover, there is a probability that the company could lose market share during this process (which will take time to recover from). ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013)

This is scenario is more pessimistic in comparison with other two, as it is illustrating the challenges impacting the firm and management's inability to adjust to them. Realistically, the odds of this occurring are small, based upon the company actively using hedging strategies to protect against sharp increases in wholesale costs (such as: feed). At the same time, the company will benefit from higher prices on the world markets. This is because there is strong demand for their products overseas. ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013)

As a result, the most likely outcome is the first scenario. As the price of the stock will continue to remain range bound. This is because there is no clarity in earnings going forward and investors are unsure about when there will be a turnaround in the earnings and sales. Until there is more transparency, these factors will place added pressure on the price of the stock. ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013)

Calculations to Support the Different Financial Outcomes and their Effect on the Organization

The first scenario is indicating that the price of the stock is a valuation trap. This is because the firm has low forward PE ratio of 9.96. However, analysts believe that it will not remain volatile in the future, with Wall Street projecting the company to earn $.58 cents in the next quarter. Given the fact that they had trouble meeting $.45 cents in the last quarter, is a sign that investors are too optimistic about the future. This means that shares will more than likely disappoint and begin to decline towards their lows (in order to bring down these expectations). The financial effect this will have on the organization; is it will result in more analysts becoming bearish on the firm by reducing their ratings. This will make it difficult for them to maintain their current levels in the stock price, with investors and Wall Street losing confidence in management's ability to run the company. ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013) (Graham, 1976)

The second scenario (which management is supporting) is indicating that shares are undervalued. This is from the low forward PE ratio of 9.96 and the company having $2.28 per share in cash. Moreover, executives feel that the current challenges they are facing were temporary setbacks and that they will be able to overcome them in second half of the year. This will give the firm earnings momentum to beat the Wall Street estimates. When this happens, there will be a positive effect on the company and their ability to deal with a host of challenges they are facing. It is at this point when shares will break their 52-week high from improved confidence in management's ability to deal with these challenges. ("Tyson Foods 10K," 2013) ("Tyson Foods 10K," 2012) ("Tyson Foods," 2013) (Graham, 1976)

The third scenario is showing…[continue]

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