Tyson Foods (NASDAQ: TSN) Q1 report has put the fear of shrinking margins into the Consumer Staples (NYSEARCA: XLP) market but the takeaway is clear. The issues impacting Tyson Foods are unique to the company and centered in the beef, pork and chicken markets so fear of contagion is limited. The worst the market may expect is that Hormel (NYSE: HRL), which is another very large meat producer, may experience some of the same headwinds but others won't. 

The takeaway from reports that have been released so far indicates margin strength, business strength and earnings strength to go along with their value and yields. In the case of Tyson Foods, the company also announced new plans to tackle efficiency and a target of $1 billion in cost savings by 2024. The market is down for Tyson stock now but it may not stay down for long. 

Tyson Foods Has a Tough Quarter

Tyson Foods had a good quarter in regard to business as both volume and prices increased on YOY basis. The $13.26 billion in revenue is up 2.6% versus last year but missed the Marketbeat.com consensus estimate by 185 basis points and the margin contraction was considerable.

Chicken, Prepared Foods and International segments all saw growth versus last year but were offset by declines in Beef and Pork. In regard to the margin, the company’s adjusted operating margin came in at 3.4% which is down double digits from last year and left adjusted income and earnings down and well below expectations.

The adjusted income fell by 68% and the EPS by 71% to $0.85 which is more than $0.50 short of the mark. 

The silver lining to this news is that guidance for revenue was reaffirmed in a range with the Marketbeat.com consensus at the low end. This leaves room for outperformance and it appears that at least some of the issues the company faced in Q1 are addressable in a near-term kind of way.

Assuming the company can make headway, margins may widen from the low-single digits in Q1 and drive earnings that are better than what the market is now pricing in. 

“We faced some challenges in the first quarter. Market dynamics and some operational inefficiencies impacted our profitability. We expect to improve our performance through the back half of fiscal 2023 and into the future, as we strive to execute with excellence and work to become best in class in our industry,” said CEO Donnie King in the press release. 

The Value And Yield Improve At Tyson Foods 

The stock price implosion that followed Tyson’s Q1 release have the value and yield improving. The stock is now trading for less than 10X its earnings outlook and paying more than 3.0% in yield. This is the best value in the consumer staples sector right now and among the highest yields. Kraft Heinz (NASDAQ: KHC) is still paying more than 4.0% but its value is slipping as the market drives it higher.

Tyson’s reduction in earnings is a concern but does not impact in the dividend outlook in a significant way. The quarterly payout is about 50% of the Q1 results which is a sustainable level for this company. The pace of distribution increases may slow, however, from 13.8% to a lower figure but it’s not likely the company will throw away its 11-year history of increases just yet. 

The analysis may be indicating a bottom for this stock and they’ve yet to utter a word that Marketbeat.com’s tracking tools have picked up. The consensus rating is a firm Hold despite a series of price target reductions in 2022. The price target implies about 22% of upside now but the important figure to watch is the low target. The low target is just below the current action at $58 and might be the floor for prices. The $59 to $60 level has been solid support in the past and it should produce a bottom now as well.