Tyson Foods experienced a devastating fire at its beef processing facility in Holcomb, Kan. on Friday (Aug. 9). The company said the plant was partially destroyed and requires complete shutdown for an indefinite period. Company officials said it is too early to establish a timeline to re-open the plant, but work to clear damage has already started.
“This is a difficult time for our team members and their families, and we want to ensure they’re taken care of,” said Steve Stouffer, group president of Tyson Fresh Meats. “We have notified our full-time, active team members that they’ll be paid weekly until production resumes.”
Tyson Foods employs about 3,500 people at the Holcomb plant. Stouffer said the employees may be called on to help with clean-up and other projects, but regardless of the hours worked, all full-time active employees are guaranteed pay.
“We’re taking steps to move production to alternative sites,” Stouffer said. “Tyson Foods has built-in some redundancy to handle situations like these and we will use other plants within our network to help keep our supply chain full.”
Stouffer commended plant management for quickly and efficiently evacuating the building. Company officials said there were no injuries reported during the fire.
Tyson Foods operates six plants in Kansas, employing more than 5,600 people. In the company’s fiscal year 2018, it paid $269 million in wages in the state and estimated its total economic impact in the state to be more than $2.4 billion.
Shares of Tyson Foods (NYSE: TSN) continued to tumble on Tuesday (Aug. 13), despite the big rebound the major markets experienced on news of delayed tariffs on goods from China. Tyson Foods shares traded at $87.90 at midday Tuesday, down 37 cents on average volume. Meanwhile, the broader markets of the S&P 500 rose 1.58% and the Dow Jones Industrials were up by roughly 400 points to 26,301, erasing the deficits from the prior day.
Ben Bienvenue, an analyst with Stephens Inc., said he expects Tyson Foods to face some negative impact from the fire given the size of the plant, which had a daily slaughter capacity of 6,000 head. He said that’s an estimated 15% to 25% of Tyson Foods’ total beef processing capacity and roughly mid-single digits of total industry capacity.
“We would expect industry processing margins to expand on the news given a reduction in demand for cattle capacity and a reduction in beef output. That said, the magnitude depends on the amount of time the plant is closed. Higher margins are Tyson’s other beef plants should help to offset some of the negative impacts,” Bienvenue said.
Bienvenue is bullish on Tyson Foods overall, with an overweight rating on a one-year target price of $95 per share.
Ken Goldman, an analyst with J.P. Morgan, estimates the closure of the Holcomb plant could hurt the company’s earnings by as much as 50 cents a share for fiscal 2019. Tyson Foods is in its fourth quarter of fiscal 2019 which will end Oct. 1. He said taking 20% of the industry’s slaughter capacity caused cattle futures to trade lower this week.
Tyson Foods’ beef business produced a record operating margin of 6.1% in the first nine months of its fiscal year, up from 5.8% a year earlier. The company expects margins will reach 7% for the full year and be similar or higher in 2020 as supplies of cattle are ample, according to statements made by CEO Noel White during the recent earnings call.