Tyson Foods’ earnings expected to improve with better chicken numbers

Tyson Foods appears to be climbing out of recent net losses thanks to better chicken margins and improving pork pricing during the second fiscal quarter that ended March 31. The Springdale-based meat giant will report second-quarter results on Monday (May 6).

Market watchers project Tyson Foods will report net income between 35 and 38 cents per share, much better than the 4-cent loss reported a year ago. Net income is expected to total about $134 million, and around $600 million on an adjusted basis. Revenue is expected to reach $13.13 billion, flat to a year ago.

The big story in the turnaround comes from better chicken processing margins. The company was also helped by lower corn costs year over year. Soybean meal, the other main feed ingredient for chickens, is also on a downward trajectory with ample South American supplies entering the supply chain.

Tyson Foods CEO Donnie King has been adamant about the company’s efforts to improve its chicken business which was hurt by company missteps and made worse by declining market conditions. The company streamlined some chicken operations by closing several older plants and transferring production to automated and efficient facilities.

Analysts with Stephens Inc. said Tyson is also benefiting from higher wholesale chicken prices for boneless, skinless breast meat and leg quarters during the quarter. Stephens analyst Ben Bienvenu expects production to moderate this year, which should add some price support.

“We think Tyson will continue to make progress on operation improvements and should see some benefit from an ongoing recovery in commodity chicken markets. … The current environment sets up Tyson to deliver steadily higher chicken margins as we move through the year,” he wrote in an investor note.

The chicken segment is expected to see quarterly operating income of $239 million, which would be much better than the $166 million loss a year ago. The operating margin is expected to be 5.5%, also better than the 3.7% margin loss reported a year ago. Segment revenue is expected to be $4.346 billion, down 1.9% from a year ago.

Tyson’s beef business could be the drag on the earnings in the quarter. The beef segment is expected to report an operating loss of $233 million in the quarter thanks primarily to higher live cattle costs. Quarterly live cattle prices were up 12%, and beef prices rose 10%. Packer margins were down 52% year over year. Beef revenue is expected at $4.54 billion, down 1.6% from a year ago.

Bienvenu said he expects packers like Tyson will see margin compression for the near term given ongoing cattle cycle dynamics and continued herd contraction.

Tyson’s smaller pork business is expected to report operating income of $67.1 million, which would be down 316% from a year ago. Pork sales are forecast at $1.492 billion, up 5% compared to prior year. The pork margin averaged 4.5% in the quarter and overall considered in line with industry results.

Tyson’s prepared foods business is expected to see operating income of $203 million, down 19% from a year ago. Sales revenue is expected at $2.45 billion, up 1.3%. The international business is expected to see a net income of $18.2 million, compared to just $2 million a year ago. Sales are forecast at $672.04 million, 6% from the prior-year quarter.

Stephens expects Tyson to outperform the 35-cent consensus at 38 cents per share. Barclays recently upgraded Tyson shares to a “buy” position given the better results expected in the chicken segment.

Shares of Tyson Foods  (NYSE: TSN) closed Thursday at $60.95, up 66 cents. Shares have ranged between $61.71 and $44.94 in the past 52 weeks.