Tyson Foods (TSN) Serves Up Impressive Gains

Tyson Foods (NYSE: TSN) beat on earnings today and reported an 11.6 percent jump in revenues for the third quarter. The company earned $0.65 per share (diluted) on revenues of $7.4 billion. TSN earned $0.33 per share in the year-ago quarter.

Analysts estimated the company would earn $0.58 per share.

The 9-month numbers for TSN are impressive: $1.49 for net income compared to a loss of $0.24 for the first nine months of 2009. The 2010 figure includes write-offs of $0.11 per share net of insurance proceeds received.

“This was a fantastic quarter for Tyson Foods, with record earnings, sales and operating margin,” said Donnie Smith, Tyson’s president and chief executive officer. “With more than $600 million in operating cash flow, we were able to pay down debt by $400 million while continuing to invest in our business, bringing our debt to its lowest level since 2001.”

Shares of the company are down by almost 4 percent.

Comments: This quarter contained TSN’s intersegment sales for the first time. Intersegment sales track sales from one segment of the company to another, for example, sales of Tyson chicken to make Tyson prepared chicken dinners. Removing the intersegment sales from the total sales picture shows that sales volume increased 1.2 percent and avg prices increased 10.3 percent for the quarter. The highest price increases, however, went to intersegment sales: up 45.8 percent quarter-over-quarter and up 28.7 percent year-over-year (first nine months).

This is a tricky business as companies are supposed to report the fair value of intersegment sales. But the bottom line is that Tyson’s operating margins showed healthy increases. My overall impression is that Tyson is experiencing pricing pressures, particularly in the prepared food segment, with sales volume up only slightly. The company is trading at PEG of 1.04 and looks fully valued at its current sales price.

Disclosure: No positions.