Tomahawk, WI 03/17/2014 (Basicsmedia) – Tyson Foods, Inc. (NYSE:TSN) stock has been rising relentlessly having nearly doubled in price in the last one year. It produces and distributes chicken, beef, pork and other related products. It also supplies to branded lunchmeat producers.

Market Leader

It enjoys a marketing leading position in the meat industry and leverages that position well to increase its profitability. The company had a strong showing in 1Q2014 with sales of $8.8 billion, a YoY increase of 4.7% over 1Q2013 and increase in operating income by 36% to $412 million. Donnie Smith, the president and CEO of the company, had a confident outlook for the current year and beyond.

Market Dynamics

The contemporary meat industry is modern, efficient and technology-intensive. It’s also an industry that is highly centralized with three or four players controlling a huge chunk of the total market — 85% of America’s beef and 65% of the pork. “Tyson Foods owns the breeding company that determines which birds are raised, the hatcheries where chicks are born, and the chickens that it delivers to contract farmers who raise them. It owns the feed mills that fatten the birds up, the slaughterhouses where the birds are processed, and the trucking lines that deliver the meat,” according to a book excerpt in Slate.

Hence meat producers are able to control the prices of chicken, beef, and pork products. Since the major meat producers control the lion’s share of the supply, they are keeping a tight control on the total supply ensuring good prices. By increasing chicken and pork prices almost every year, the company has been able to make handsome profits and improve its operating profit margins.

Future Plans

However, Tyson Foods, Inc. (NYSE:TSN) is content at present with its role of being a supplier and won’t enter the branded packaged lunchmeat market. The company feels there is no point in entering that market right now when the top two branded companies are battling it out in a declining market category with overproduction. That seems a smart decision considering that the company is doing pretty well, as things stand now.

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