Market watchers predict improved second-quarter earnings for Tyson Foods

by Kim Souza ([email protected]) 680 views 

Higher beef margins and an improving chicken segment from strong consumer demand are the catalysts expected to push Tyson Foods’ second quarter earnings 45% higher from a year ago, according to the consensus of analysts who follow the company.

On Monday (May 10) the Springdale-based meat giant is expected to report earnings of $1.12 per share for the second quarter ending March 31. Net income for the quarter is forecast at $406 million on revenue of $11.19 billion. A year ago Tyson earned 77 cents per share with net income of $281.8 million on revenue of $10.89  billion.

Ben Bienvenu, an analyst at Little Rock-based Stephens Inc., recently increased his earnings estimate for Tyson Foods to $1.08 per share, just below the consensus average that has come up from $1.02 in the past month. Bienvenu said the continuation of rising grain prices is pushing meat prices higher. He said the second quarter should begin to offer evidence of an improved operating backdrop for Tyson Foods and its competitors.

“With a solid setup on supply/demand for chicken ahead of us in April/May, we expect to see continued pricing momentum in the chicken cutout, and steadily improving demand with the rollout of vaccinations should help to absorb production growth in back half of this year. Demand for red meat is quite strong with strong exports, domestic stimulus and improving foodservice demand supporting cutout prices. We remain optimistic about the fundamental setup for Tyson Foods and competitors Pilgrim’s Pride and Sanderson Farms,” Bienvenu recently noted.

Higher grain costs present opportunities to push prices higher, but there is a lag time for Tyson to be able to collect against the higher grain expenditures with its customers. Tyson negotiates its contracts in the fall and corn and soybean meal prices have risen sharply in the past year, according to analysts. Corn and soybean meal are the two major ingredients Tyson feeds its chickens. Corn prices are up 133% from a year ago this week and soybean meal is 47% more expensive this week than a year ago, according to reports from the U.S. Department of Agriculture.

Improving restaurant demand has also pushed up chicken prices as chicken companies struggle to increase processing capacity. Stephens reports chicken wing prices are up 161% year-over-year and boneless breast meat prices are up 104% from a year ago because demand is outpacing supplies. Stephens recently increased its chicken estimate for Tyson Foods’ second quarter after noting that the company was able to obtain higher prices amid higher grain costs, tightening supplies and product disruption and improving demand from food service (restaurants).

Tom Super, corporate spokesman for the National Chicken Council, said broiler chicken production was down 4% in the first quarter because of pandemic effects on production, freezing temperatures and snow in the deep south, and power outages across Texas. He said the pendulum has started to swing the other way in recent weeks. Broiler production increased steadily in April.

“Chicken producers are doing everything they can to overcome the devastating impact of Mother Nature when she inflicted the once in a lifetime winter storm on Texas and nearby states – major chicken producing regions,” Super said. “It will take time and effort to eventually replace the impacted hatchery supply flocks in that region, but supply should catch back up to demand soon.”

Tyson’s pork business is also seeing reduction in margins because of higher live hog costs. Stephens expects pork margins to remain in line with historical averages. Stephens said a new strain of Asian Swine Fever has led to 20% of China’s herd liquidation in the northern part of the country. Stephens said this could increase the country’s appetite for imported pork, particularly if the situation worsens.

The U.S. Meat Export Federation reported in March that red meat demand around the world was surging. U.S. pork exports for March set a record for value, increasing 4% over last year at $794.9 million as volume also established a record-high 294,724 tons (up 1% from last year).  U.S. beef exports totaled 124,808 metric tons in March, up 8% from a year ago. Export value broke the $800 million mark for the first time at $801.9 million, up 14% year-over-year, the federation said.

“It’s very gratifying to see such an outstanding breakout month for US beef and pork exports,” said Dan Halstrom, USMEF president and CEO. “Exports were off to a respectable start in 2021, considering the logistical and labor challenges the industry is facing and ongoing restrictions on the foodservice sector in many key markets.”

USMEF noted that U.S. beef accounted for 3.4% of China’s first quarter imports, up from less than 1% this time last year, making the U.S. the largest supplier of grain-fed beef to China. USMEF said the prospect for further growth in the coming months was raised as additional U.S. plants were approved in April for export to China.

Tyson’s beef business has been strong during the recent quarter with processing margins well above historical averages, Stephens reported. The business is supported by robust demand even as cattle prices rose on higher feed costs. Across the sector, Stephens said beef production was up 1.1% in the second quarter on higher cattle weights and fewer head slaughtered.

“Data from the latest Cattle on Feed report suggests supplies are more front end loaded (more market ready cattle). We reiterate our overweight (buy) rating on Tyson Foods and increase our price target to $90 (from $80 prior),” Bienvenu said. (Stephens conducts investment banking services for Tyson Foods and is compensated accordingly.)

Of the 16 Wall Street analysts polled by Yahoo! Finance this month, 11 rate Tyson shares a “buy,” and five others were neutral on the stock.

Shares of Tyson Foods (NYSE: TSN) closed Thursday at $78.39, up 52 cents. Over the past 52 weeks Tyson shares have traded between a high price of $79.77 and a low of $55.28. Since the first of this year, Tyson shares are up 21%.