Tyson Foods, Inc. (TSN - Analyst Report) second-quarter fiscal 2015 adjusted earnings of 75 cents per share exceeded the Zacks Consensus Estimate as well as the prior-year earnings of 73 cents by 2.7%. Year-over-year improvement in sales and improved operating margins drove earnings and made up for the higher input costs.

Tyson Foods Inc. - Earnings Surprise | FindTheCompany

Revenues and Margins

Net sales increased 10.5% to $9.979 billion on the back of sales growth in beef and prepared foods business segments. Sales missed the Zacks Consensus Estimate of $10.002 billion by 0.22%.

Tyson's adjusted operating income increased 53.2% to $553 million in the quarter driven by higher sales and lower feed costs. Adjusted operating margin increased 50 basis points (bps) to 5.2%.

Segment Details

Chicken:Sales in this segment decreased 0.5% year over year to $2.829 billion due by 0.2% decline in volume and 0.3% lower average sales price (ASP). Sales volume declined due to negative sales mix change.

Operating income margin grew 350 bps to 11.7%, backed by lower feed ingredient costs, which decreased $75 million during the second quarter of fiscal 2015.

Beef: Sales in this segment climbed 7.97% year over year to $4.130 billion. ASP went up 8.8% due to lower domestic availability of fed cattle supplies, while sales volume decreased 0.8% due to a reduction in live cattle processed.

The segment suffered an operating loss 0.5% of sales. The loss was due to higher fed cattle costs and reduced consumption of beef products, along with increased input costs, as well as lower sales volumes and increased operating costs.

Pork: Pork segment sales decreased 19.03% year over year to $1.204 billion due to 4.4% decline in volumes and a 15.4% decrease in ASP. Operating margin inflated 100 bps to 8.2%.

Prepared Foods: Prepared Foods’ sales went up significantly to $1.87 billion from $861 million in the year-ago quarter. This was backed by 70.6% rise in volumes as well as ASP increase of 27.4% due to better product mix and increased prices owing to higher input costs.

Operating margin increased 600 bps to 8.4% due to an increase in sales volume and average sales price, as well as profit improvement initiatives and Hillshire Brands synergies.

International: Sales declined 32.3% to $222 million on volume decline of 30.5% due to the sale of the Brazil operation in the first quarter of fiscal 2015. ASP declined 2.7% due to supply imbalances associated with weak demand in China and currency devaluation in Mexico.

Operating loss margin was $15 million compared with loss $30 million in the prior-year quarter. The lower loss margin was due to the sale of the Brazil operations.

Guidance for Fiscal 2015

For fiscal 2015, the company anticipates sales to be approximately $41 billion as the company integrates Hillshire Brands and continues to accelerate domestic value-added chicken sales and Prepared Food sales.

Tyson also expects overall domestic protein production (chicken, beef, pork and turkey) to increase approximately 2% in fiscal 2015. Also, the company expects grain supplies to go up in fiscal 2015.

Tyson carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the consumer staple sector include Hain Celestial Inc. (HAIN - Analyst Report), Post Holdings Inc. (POST - Snapshot Report) and Smart&Final Stores Inc. (SFS - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).