Tyson Foods pares down earnings guidance amid multiple market challenges

Tyson Foods said late Tuesday (Sept. 3) it was experiencing short-term challenges related to grain prices, a plant fire and continued sluggishness in the chicken business. The Springdale-based meat giant lowered its earnings guidance for the fiscal year ending Oct. 1. The new fiscal year earnings guidance range is $5.30 to $5.70 per share, down from $5.75 to $6.10.

“The discrete challenges we’ve encountered this quarter now lead us to believe we will fall short of our previously stated guidance,” said Noel White, Tyson Foods’ president and CEO. “But our outlook for fiscal 2020 remains positive as we believe some of the challenges we’re experiencing are not expected to repeat, and we’re expecting more favorable market conditions as well.”

The announcement was made in a filing with the Securities and Exchange Commission on Tuesday afternoon after the market closed. Tyson Foods shares (NYSE: TSN) traded down more than 6% in the after market hours with the last trade at $87.35, down $5.94.

White said in the filing the company’s portfolio is structurally sound and generating strong sales volumes, but the margin compression related to a reversal of a gain on mark-to-market grain derivatives recognized in the third quarter and continued commodity market volatility were problematic.

Tyson Foods hedges its grain exposure with forward contracts that have mark-to-market prices at the end of each quarter for accounting purposes. Any volatile swings in grain prices can inflate a gain or loss when the positions are marked to market prices at the end of the quarter. White said Tyson hedges grain only for the sake of locking in prices for its needs.

White said the recent fire that shuttered a beef processing plant in Holcomb, Kansas and the slower-than-expected recovery in the company’s chicken segment are each weighing on margins, too.

“Our volumes are strong in the back-to-school season while our case-ready beef and pork business continues to grow. Our international business is exceeding expectations as our legacy business outperforms the prior year, and we continue to integrate Keystone and the newly-acquired Thai and European assets,” White said.

“Our diversified portfolio is uniquely suited to respond to dynamic and challenging market conditions, and we continue to expect better performance in fiscal 2020. We’re very optimistic about our long-term potential as we focus on prepared foods growth, international growth and serving our customers,” he said.

Stephens Inc. analyst Ben Bienvenue said he is looking for additional details from company executives on Wednesday as chief financial officer Stewart Glendinning is participating in the Barclays Global Consumer Staple Conference in Boston.

“While the magnitude of the guidance down will likely weigh on the stock tomorrow given the outperformance we have seen recently, we see many of these issues as transitory in nature and remain positively inclined on the stock moving into fiscal 2020 given the backdrop of African Swine Flu-driven protein inflation. Tyson remains our top pick and we reiterate our overweight rating and $95 price target,” Bienvenue noted.

Stephens conducts investment banking services for Tyson Foods and is compensated accordingly when doing so.