Tyson Foods misses on income estimate, share price declines

Tyson reported adjusted net income of $1.94 per share, 3 cents short of estimates and 28% lower than a year ago. Without adjustments, Tyson had net income of $750 million, up from $749 million reported a year ago. Quarterly revenue was $13.495 billion, up 8.15% year over year.

The company’s shares tumbled more than 9% early Monday (Aug. 8) after it reported the mixed earnings results for its fiscal third quarter ending July 2.

For the first nine months of fiscal 2022, Tyson had revenue totaling $39.545 billion, up 15.37% from the prior-year period. Net income for the period totaled $2.7 billion, up from $1.692 billion a year ago.

“We delivered solid results during the third quarter, focusing on operational excellence and aggressive cost management,” said Donnie King, president and CEO of Tyson Foods. “The turnaround of our chicken business continues, and we continue to be the market share leader in many of our retail business lines, which include our Tyson, Jimmy Dean, Hillshire Farm and Ball Park iconic brands.”

King said Tyson maintained double-digit sales and earnings growth during the fiscal year and is progressing toward the company’s goal of delivering more than $1 billion in recurring productivity savings by the end of fiscal 2024.

“I’m optimistic about our ability to win with our team members, win with our customers and consumers and win with excellence in execution,” King said.

Analysts with Stephens Inc., said the earnings miss related to lower gross margin resulting from higher grain, labor and transportation costs which were only partially offset by higher meat prices resulting in revenue gains.

“Results in the quarter were a little light of what we were hoping to see, but again trended in the right direction in the recovery of chicken segment profitability. We reiterate our overweight (buy) recommendation for the stock which our future guidance predictions and price target are under review,” said Ben Bienvenu, an analyst with Stephens. (Stephens does investment banking work for Tyson and is compensated accordingly for those services.)

SEGMENT RESULTS
Tyson’s beef business had adjusted operating income of $506 million for the third quarter, down from $1.12 billion a year ago. Operating margin was 10.2%, roughly half of the 22.6% reported last year. King said beef demand remains strong despite higher prices. Beef sales totaled $4.959 billion in the quarter, up slightly from $4.954 billion a year ago.

The pork business had more challenges with sales revenue of $1.619 billion, down from $1.715 billion a year ago. Adjusted operating income totaled $25 million, down from $67 million year over year. The pork segment operating margin was 1.5%, down from $3.9% last year. The average sales price decreased in the third quarter due to reduced export and retail demand.

Improvement continues in the chicken segment with adjusted operating income of $269 million in the quarter, up sharply from the $27 million reported a year ago. Operating margin improved to 6.2%, up from 0.7% a year ago. Chicken sales were $4.366 billion, compared to $3.476 billion a year ago, with average prices rising 20.1%. Tyson said it experienced $145 million of higher feed ingredient costs and $23 million of net derivative losses as compared to $56 million of net derivative gains in the third quarter of fiscal 2021.

Tyson’s diverse prepared foods segment also saw growth from a year ago with adjusted operating income of $186 million, compared to $150 million last year. Operating margin rose to 7.6% and sales grew to $2.447 billion, up 16.9% and 5.3%, respectively. Average prices rose 13.8% in the prepared foods segment from a year ago. The segment also had $135 million in increased raw materials costs as well as continued supply chain and labor expenditures.

Tyson’s international business had adjusted operating income of $12 million in the quarter, up from $8 million a year ago. International sales revenue rose to $602 million, up 23.3% from a year ago. The revenue gains related to 21.9% more volume than was sold a year ago.

CAUTIOUS OUTLOOK 
King told Talk Business & Politics during the media call that the biggest threat to higher net income is the cost of labor, cost of goods and fuel and utilities inflation. He said Tyson is doing a better job with plant efficiency rates from higher staffing percentages and more automation designed to improve yields.

“We are getting more efficient every day and we are working to restore volumes which are better, but not where they could be,” King added.

He said Tyson has passed along some price increases but not nearly all of them. He also said the consumer is still showing signs of resilience amid persistent inflation. With respect to demand, he said retail demand remains high even as restaurant demand returns.

King said there has been some shifts in food service with customers moving from quick service pickup to more casual dine in. He said many consumers are cooking at home and there has been a little trade down in that segment from higher cuts of beef to perhaps ground meat, pork or chicken. He said overall beef demand remains high.

King said Tyson remains on track with its productivity saving plan expected to meet the $1 billion goal by 2023, capturing $400 million this fiscal year. Tyson expects fiscal 2022 sales revenue between $52 billion and $54 billion, and refrained from giving forward-looking guidance given uncertainty in the macro economy. When asked about the stock price decline on Monday following the earnings miss, King said he was disappointed, given the solid financial results reported.

“We have to stay focused on growing our company and we realize there is more work to do to restore sales volume which will lead to higher profits,” King said.

Shares of Tyson Foods (NYSE: TSN) traded 9% lower in the morning session and down around 8% in the early afternoon at round $80.50. The stock recorded a high price of $100.72 and a low price of $74 all within the past 52 weeks. Year-to-date the shares are down 8.81%.