Income and revenue likely lower for Tyson Foods in third quarter report

Tyson Foods is expected to report leaner third-quarter net income and revenue amid challenging poultry fundamentals, ongoing pressures from COVID-19 and its impact on meatpacking plants and weak demand from restaurants.

The Springdale-based meat giant’s third-quarter results will be reported ahead of the market opening on Monday (Aug. 3). Wall Street analysts expect Tyson Foods to report net earnings of 78 cents per share, down 88% from the $1.47 per share earned a year ago. Net income should total about $242.8 million, according to the consensus.

Ben Bienvenu, an analyst with Stephens Inc., recently raised adjusted earnings per share to  $1.45 and reiterated a neutral overall rating with a price target of $60. Stephens had previously estimated earnings of 67 cents per share but raised the prediction based on strong beef margins during the quarter.

Stephens said the biggest challenge in analyzing earnings this period is determining how much of the record commodity margin will be offset by poor fixed-cost absorption at the plants. Bienvenu said the loss of foodservice demand – primarily restaurants – resulted in low chicken pricing and although margins began to improve in the quarter, they still remain well below the year-ago levels.

“We have lowered our pork estimate in light of incremental costs associated with COVID-19, and weak fixed cost absorption on significant volume declines, which we estimate to be 20% during the period. While pork margins showed strength during the quarter, the pork industry was the most impacted by COVID-19 related disruptions among the U.S. protein industry as many facilities were forced to operate below optimal capacity levels. Supplies remain burdensome in the near and intermediate-term and likely support segment margins for the balance of the year; however, the latest hogs and pigs reports indicated that live hog supplies may trend lower in 2021,” Bienvenu noted in a recent investor report.

The smaller pork segment is expected to report gross profits of $24.3 million, down from $42 million in the same period last year. Tyson’s beef segment is the shining star for the quarter. Stephens said it raised the third quarter beef estimate to reflect very strong margins.

“As foodservice demand fell the demand for cattle from slaughterhouses fell, which caused the price of cattle to drop significantly; however, at the same time the demand for beef at retail rose in light of strong food-at-home consumption trends,” Bienvenu stated.

He said while the beef industry faced disruptions related to the pandemic, the extent of the disruptions were not as significant as the pork industry, and “we estimate Tyson only saw volume declines of 5% during the period.”Bienvenu noted there are ample supplies of cattle in the near to intermediate-term as the pandemic has led to congested feedlots due to a back up in slaughter.

Stephens pegs beef profits at $686.4 million, more than double the $271 million reported a year ago. While challenges remain in Tyson’s international and prepared foods segments, Stephens estimates prepared foods will produce gross earnings of $154.5 million, down from $236 million in the prior-year period. International is expected to see gross profits $4.6 million, half of the $10 million reported a year earlier.

Despite Tyson’s ongoing challenges, Wall Street is pleased with the company’s performance amid the pandemic. This month 11 of the 16 analysts covering Tyson Foods were bullish on the shares and five were neutral. Credit Suisse maintained its outperform rating in June and Bernstein upgraded Tyson Foods to outperform. Stephens remains neutral on the stock.

Tyson’s share price (NYSE: TSN) is down 30% year-to-date. Over the past 52 weeks shares have traded between $42.57 and $94.24.