Tyson Foods expected to report lower third quarter net income

Tyson Foods, like many food companies, is expected to report mixed earnings Monday (Aug. 8) for the company’s fiscal third quarter ending June 30. Analysts expect the Springdale-based meat giant will post earnings per share of $1.95, down 28% from the same period a year ago.

Sales revenue is expected to rise 6% to $13.305 billion behind higher wholesale prices for chicken and beef. Analysts expect Tyson improved its overall operating margin to 8% in the quarter, up from 6.5% in the year-ago period.

Market watchers expect Tyson’s chicken segment will see improvement with operating income of about $275 million, up sharply from the $27 million reported a year ago. While corn prices were up 18.1% higher than the same quarter of 2021, and soybean meal prices up 11.8% year-over-year, Tyson has been able to pass along the higher input costs with chicken prices up 67.6% for boneless breast and 38% for chicken tenders.

Strong consumer demand helped Tyson and other chicken processors achieve an average of 45 cents per pound, up 11 cents from a year ago. Wholesale boneless chicken breast prices averaged $3.31 in the quarter, and tender prices averaged $3.19 in the period.

Ben Bienvenu, an analyst with Stephens Inc., said processors have been able to manage the higher grain costs as consumer demand and increased pricing will be accretive to earnings in the quarter. (Stephens Inc. occasionally conducts some investment banking services for Tyson Foods and is compensated accordingly.)

“Pricing has trended well above historical averages during the quarter as foodservice demand remains higher year over year. This has also coincided with substantially lower cold storage levels of breast meat over the past several months,” Bienvenu noted.

Chicken sales are expected to reach $3.93 billion, up 13.1% from the same period last year.

“We think Tyson will continue to make progress on improving hatchability … we also think the industry will grapple with breeder flock backlogs and higher grain costs. We continue to think the current environment sets up Tyson to deliver meaningful higher margins this year into fiscal 2023,” Bienvenu said.

Tyson’s large prepared foods segment is expected to report operating income of $217 million in the quarter, up from $150 million reported a year ago. Sales are forecast at $2.555 billion, up 10% year over year. The prepared foods segment will likely see pressures from higher input costs such as rising meat prices through the rest of this year. That said, the segment will also be in a position to raise contract prices this fall to recoup some of the previous losses.

Tyson Foods is expected to report operating income of $533 million in its beef segment, down 52% from a year ago, but still a healthy business. Beef sales are expected to top $5.077 billion, up 2.5% from a year ago behind steady demand.

The beef processing margin for the quarter was $345 per head, down 61.6% from record levels last year. The wholesale beef cutout value (sum of all the parts) was $275 per head, down about 13% from a year ago. Tyson’s beef margin was also hurt by higher live cattle costs expected to continue into next year.

The pork business is expected to report operating income of $15 million, down from $67 million a year ago. Stephens said while hog cutout values and lean hog prices have increased from the previous quarter, price changes in live hogs continue to outpace that of the cutout. Pork margins in the quarter are expected to be lower at $14.01 per head down 22.5% from a year ago. Cutout values averaged $106.66 in the quarter, down 8.9% year over year. Pork sales are forecast at $1.54 billion, down 10% from the previous-year period.

Stephens analysts recently raised their earnings forecast for Tyson Foods. The new third-quarter earnings forecast is $2.04 per share, better than the consensus $1.95 and Stephens’ previous guidance of $1.83. Bienvenu reduced his price target for Tyson Foods to $100 from $115 saying shares are likely undervalued by the market relative earnings potential this year and next.

Tyson Foods is rated a “buy” from a majority of analysts who follow the company, according to Yahoo! Finance. Analysts at Zacks Equity Research said they expect Tyson to beat the street estimate, though earnings will be substantially lower than a year ago.

Shares of Tyson Foods (NYSE: TSN) closed Thursday (Aug. 4) at $86.57, down 99 cents. During the past 52 weeks, shares have traded between $70.04 and $100.72.