Tyson Foods, Inc. (TSN Quick QuoteTSN - Free Report) has been benefiting from robust growth efforts like focus on protein-packed brands and capacity expansion endeavors. The company is also gaining on rising demand in its retail channel.

Thanks to these upsides, shares of Tyson Foods have increased 22% so far this year compared with the industry’s growth of 5.1%.

Let’s delve deeper.

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What is Driving Growth?

Tyson Foods is focused on higher protein production to cater to rising demand for protein-packed food. The company boasts a rich portfolio of protein-packed brands that is growing rapidly across the globe. It is steadily expanding its fresh prepared foods offering owing to consumers’ rising demand for natural fresh meat offerings without any added hormones or antibiotics.

The company’s nationwide launch of the Raised & Rooted brand that includes three new products bodes well amid rising demand for plant-based protein options. In June 2021, Tyson Foods announced that it is rolling out a range of plant-based products in the chosen retail markets and on digital platforms in the Asia Pacific under the First Pride brand. In January 2021, the company launched its alternative protein offerings under the Jimmy Dean Label.

Tyson Foods is undertaking operational and supply-chain efficiency programs to place itself better for the long run. In this regard, the company is investing in capacity expansion and automation technology. Its Humboldt production facility in Tennessee recently came online. The company is solidifying its case-ready meats business by reusing its plant capacity in South Carolina. It intends to reopen an idle facility in Columbia and transform it into a meat-cutting hub. Also, this meat products company plans to introduce a facility in Utah soon.

Retail Channel: Key Driver

Tyson Foods delivered growth in the retail channel across all the segments in the third quarter of fiscal 2021. Management, on its last earnings call, highlighted that retail contributed more than $1 billion to the overall sales improvement year to date and more than $300 million in the quarter. The fiscal third quarter marked the company’s 12th consecutive quarter of retail share gains in core business lines, thanks to solid brands. In fact, strong retail sales aided the company’s overall results for the fiscal third quarter with the top and the bottom line increasing year over year as well as surpassing the Zacks Consensus Estimate. Also, Tyson Foods’ foodservice business saw a rebound as the restaurant industry started to reopen.

Cost Hurdles

During the third quarter of fiscal 2021, Tyson Foods incurred nearly $55 million of direct incremental expenses associated with COVID-19, which dented its results to an extent. The company encountered indirect COVID-19 costs, which included expenses associated with raw materials, transportation, underutilization and reconfiguration of plant, premiums offered to cattle producers as well as discounts on pricing. Management anticipates expenses associated with COVID-19 worth nearly $325 million for fiscal 2021. The company on its quarterly earnings call highlighted that it saw a tough availability of labor, massive inflationary pressures on raw material costs, global supply-chain problems as well as an evolving demand backdrop.

That being said, we believe the aforementioned upsides are likely to help the Zacks Rank #3 (Hold) company keep its growth story going.

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