Tyson Foods’ share price tumbles after bird flu reported

What are the costs of a few sick turkeys in north Arkansas? A little more than $4.19 million if you are Tyson Foods Board Chairman John Tyson, and almost $50 million if you are one of the largest institutional shareholders of Tyson Foods’ stock.

All told, the market value of Tyson shares fell more than $905 million this week.

Investors flew the coup after word broke Wednesday (March 11) that a pathogenic strain of Avian Influenza H5N2 was detected in Tyson Foods’ home state of Arkansas. The bird flu strain was found in a turkey flock in Boone County as part of a Butterball turkey growing operation. More than 16.1 million shares traded hands on March 11, almost four times the three-month rolling average of 4.4 million.

Shares of Tyson Foods (NYSE: TSN) closed Thursday at $37.56, down $2.22 from the March 10 closing price – the day before the avian flu news was made public. For the past 52 weeks Tyson Foods shares have traded from a $44.24 high to a $34.90 low.

Tyson wasn’t the only poultry company hit. Pilgrim’s Pride and Sanderson Farms saw share prices dip 7% and 6%, respectively on fears that export markets will remain closed. More than 40 markets already have bans in place since this strain was first discovered in the Pacific Northwest in January.

But for now, the losses are only on paper for those who held on to their Tyson shares. Spokesman for several poultry companies and some market watchers played down the exposure from the recent H5N2 detection saying there had been no link to their farms or chicken operations. Daniel Jones, analyst with Seeking Alpha and manager of Avaring Capital Advisors, said the market moves weren’t rational, especially given Tyson Foods’ diversified meat business. Jones said the $905.3 million market cap loss of Tyson Foods this week is likely “a drastic overreaction.” He said Tyson Foods is at the epicenter of what's going on, given that its headquarters are located in Arkansas. 

“While the source of the avian flu appears to be a flock of over 40,000 Butterball turkeys (which officials said will be culled and kept out of the food supply), Tyson processes around 40 million heads of chicken a week. Of its 106 food plants in operation in the U.S., 15 of these are located in Arkansas while one other seems to border Arkansas and Texas. Some 57 of its 106 food plants process chicken, 14 of which are based in Arkansas. Assuming that this data is correct and that each chicken processing plant produces the same amount of chicken per week, that's about 9.8 million chickens processed per week or 510.64 million chickens per year,” Jones concluded.

He said in the rare event that Tyson Foods’ chicken supply is negatively impacted by the avian flu, there could be up to $2.73 billion in sales lost if the company shuttered its Arkansas-based chicken plants for a full year.

“The probability of this happening is so slim, however, that it's not even worth considering since management attests that the business performs over 280,000 tests in its labs across the country on a monthly basis, covering microbial, chemical and serological topics. Even if the business is exposed to the avian flu directly, any loss would likely be relatively minor and short-term in nature,” he noted.

The more realistic threat is the loss of exports. Jones said $4.7 billion of Tyson Foods' $37.58 billion, or 12.5%, in sales came from countries outside the U.S. in 2014. This represents a 17.5% rise over the $4 billion reported two years earlier. Jones estimates that about $341.14 million is generated annually from Tyson’s Arkansas-based chicken facilities. He said a ban on Arkansas-based chicken exports would likely be temporary at best.

Another local chicken company, Simmons Foods, is privately owned. Simmons execs said the company maintains a program for the early detection of avian influenza as a part of its rigorous and ongoing commitment to biosecurity.

“Every flock is tested for avian influenza as a part of our standard processes. While no avian influenza has been detected in any of our operations at this time, we are supporting our ongoing biosecurity program with increased security measures during this time of heightened risk. We want the public and our local communities to know that all efforts are being taken by poultry companies to assist government agencies in containing and eliminating the disease,” said Donnie Epp, communications director at Simmons.

Tyson Foods also tests all of its flocks before they leave the farm. While the H5N2 strain poses no threat to humans, according to the USDA, it is deadly to poultry. Avian flu can spread rapidly through a flock, killing birds in as little as 24 hours.

Tyson shares began to tumble prior to the bird flu notice. The shares trended higher in early March and reached a closing price of $42.39 on March 3.