TSN reported impressive Q3 results, beating consensus EPS by $0.09 and recording record sales of $8.7B. The company is seeing the tailwinds of consumers that prefer the relative value of chicken versus other proteins; it has been able to pass on higher input costs to the consumer alongside higher chicken prices, which enhanced its chicken operating margin to 7% in the quarter.
We like the stock on a pullback (it is up +4.2% intraday vs SPX -0.2%). Our quantitative set-up shows the stock in a bullish formation over the immediate term TRADE and intermediate term TREND durations.
Alongside our call for a stronger USD, we see consumption continuing to pick up in the back half of the year, and expect the company’s food service business to benefit from acceleration in meals consumed away from home, especially around QSR promotions. We continue to like its ability to offset price swings through its diversity in protein offerings and geographic exposures and believe that its portfolio plays well in health and wellness trends (proteins over carbs). We expect solid Q4 performance from the company.
Guidance: maintains FY2014 sales of +3-4%, EPS +10%, and expects $500MM of lower feed costs.