Tom Polansek and Grant Vanaike
(Reuters) – Tyson Foods shares suffered their worst one-day drop in a year on Monday after the U.S. meatpacker warned consumers were being weighed down by persistent inflation and high commodity prices could weigh on upcoming results.
The Arkansas-based meatpacking company reported second-quarter sales that missed analysts’ estimates, although earnings beat expectations.
Third-quarter results could be weaker than the fourth quarter due to the performance of Tyson’s pork and processed foods divisions, CEO Donnie King said on a conference call. The stock closed down 5.7% after falling more than 9% earlier.
“The outlook was viewed as disappointing,” said Arun Sundaram, an analyst at CFRA Research, adding that the third quarter “is typically the strongest from a seasonal perspective.”
High commodity prices could impact third-quarter results for the prepared foods business, said Melanie Boulden, division president. She added that inflation is putting pressure on consumers, especially low-income households, at retail stores and food service outlets.
“Uncertainty remains regarding consumer strength and behavior,” said Chief Financial Officer John R. Tyson.
He later tried to assuage investor concerns about the third quarter when shares fell, saying executives “don’t want anyone to make a big deal about it.” After the call, the company said it does not issue quarterly guidance.
Tyson has closed six U.S. poultry plants since the start of 2023, laid off corporate employees and announced plans to close a pork plant as it tries to improve results and cut costs.
An improvement in its chicken business on Monday prompted Tyson to raise its estimate for total adjusted operating income in fiscal 2024 to $1.4 billion to $1.8 billion from $1 billion to $1.5 billion.
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The raised guidance and quarterly earnings weren’t too surprising, according to Citi Research analyst Thomas Palmer.
Second-quarter adjusted earnings were 62 cents per share, beating analysts’ expectations of 39 cents, according to LSEG.
Tyson has worked for years to improve its chicken business but faces a supply glut in 2023. Adjusted operating margin was 3.9% in the second quarter, down from negative 3.7% a year earlier as feed costs fell.
Tyson raised its chicken division’s earnings forecast beyond the second quarter for the first time in seven years, JP Morgan said.
Second-quarter sales fell 8.3% and volumes fell 6.1% due to lower U.S. production, Tyson said. Producers are struggling with increased mortality and illness rates in chickens, King said.
“We’re not where we need to be yet in our chicken business,” he said.