Beef segment expected to lower quarterly numbers for Tyson Foods

Tyson Foods will report its second-quarter earnings early Monday (May 4). Consensus estimates call for the meat giant to report net income of $279 million, down 15% from $329 million a year ago. Revenue is forecast at $13.8 billion, up 5.5%, and fueled by higher meat prices.

Tyson’s chicken business is expected to report operating income of around $416 million, up from $411 million reported a year ago. Revenue for the segment is expected to be $4.24 billion, up 2.5% year over year. The operating margin is pegged at 9.8% for the quarter, driven by strong execution and favorable competitive dynamics, according to Pooran Sharma, Stephens Inc. analyst.

“We think that recent industry disruptions, including a fire at the Wayne-Sanderson plant in Union Springs, Ala., and some capacity cutbacks at Pilgrim’s, create an incremental opportunity for Tyson Foods in the quarter,” Sharma noted in his report. “Also, the downturn in commodity big bird prices should be beneficial for Tyson’s chicken business, given its higher-margin business.”

Chicken processing margins averaged 10 cents per pound, down from a 16-cent average a year ago, but higher than the 5 cents reported last quarter.

Tyson’s beef segment faces an estimated operating loss of $154.3 million in the quarter. Losses are expected to have widened from the $113 million deficit reported a year ago. Beef sales are expected to have totaled $5.611 billion, up 8% year over year, thanks to higher prices. Pounds processed were up fractionally year over year.

Sharma said a Tyson beef plant closure could result in $200 million of annual fixed-cost savings, but packer margins have continued to deteriorate to an average loss of $18.57 per head due to tight cattle supplies in the quarter. Live cattle prices increased 16.3% during the quarter compared to a year ago. Pounds processed fell 6.6%, and there were 9.2% fewer heads slaughtered compared to a year ago.

Tyson’s pork segment is expected to report operating income of $66 million, down 4.4% from $69 million a year ago. Sharma said packer margins were weaker than expected in the quarter, down 19.8% from the previous quarter, though they were flat year over year. Pork sales are expected to total $1.256 billion, up 1% year over year.

The prepared foods segment is expected to report operating income of $311.1 million, down 5.4% from a year ago. Sales are estimated to increase 6% to $2.539 billion in the quarter. Tyson’s international business is expected to report sales of $566 million, flat with a year ago. Operating income is pegged at $42.5 million, down 21% from a year ago.

While Tyson still has some challenges to overcome in its beef segment, five analysts have an overweight rating on the shares of Tyson Foods year to date. Two others continue to maintain a neutral position, including Sharma, who has a target price of $65 with his equal weight rating.

Shares of Tyson Foods (NYSE: TSN) opened Thursday at $63.50. Over the past 52 weeks, the stock has traded between $50.56 and $66.41. Year to date, the stock value is up 8.46%.