Tyson Foods shares sink on worries over consumer demand, third quarter

Reuters – Tyson Foods TSN.N shares were on track for their worst one-day decline in a year on Monday after the U.S. meatpacker warned that consumers are under pressure from persistent inflation and high commodity costs could weigh on upcoming results.

The Arkansas-based meatpacker reported second-quarter sales that fell short of analysts’ estimates, though profits surpassed expectations.

Third-quarter results could be weaker than the fourth quarter due to performance in Tyson’s pork and prepared foods divisions, CEO Donnie King said on a conference call. Shares fell 7.9 per cent after tumbling earlier by more than nine per cent.

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“Historically, FQ3 is typically the strongest from a seasonal perspective,” said Arun Sundaram, analyst with CFRA Research.”The outlook was viewed as a disappointment.”

High commodity costs could weigh on third-quarter results in prepared foods, said Melanie Boulden, the unit’s president. She added that inflation is pressuring consumers, particularly those from lower-income households, at retail stores and food-service outlets.

“Uncertainties remain around consumer strength and behaviour,” Chief Financial Officer John R. Tyson said.

He later sought to calm investor concerns over the third quarter outlook as shares sank, saying executives “don’t want anyone to over-read into that.”

Tyson has shuttered six U.S. chicken plants since the start of 2023, eliminated corporate employees and announced plans to close a pork plant, in an attempt to boost results and rein in costs.

Improvement in the chicken business on Monday prompted Tyson to lift its estimate for total adjusted operating income in fiscal year 2024 to $1.4 billion to $1.8 billion from $1 billion to $1.5 billion.

The increased forecast and quarterly earnings were not overly surprising, Citi Research analyst Thomas Palmer said.

Adjusted second-quarter earnings were 62 cents per share, above analysts’ expectations for 39 cents, based on LSEG data.

Tyson has worked to turn around its chicken business for years but struggled with excess supply in 2023. Adjusted operating margins were 3.9 per cent in the latest quarter, compared to negative 3.7 per cent a year earlier, as feed costs fell.

Tyson raised the chicken unit’s income outlook in the first such increase after the second quarter in seven years, JP Morgan said in a note.

Quarterly sales slid 8.3 per cent while volumes dropped 6.1 per cent, largely due to reduced U.S. production, according to Tyson. Producers are grappling with elevated chicken deaths and disease, King said.

“We’re not where we need to be yet in our chicken business,” he said.