Tyson Foods expected to report 65% earnings decline

Springdale-based Tyson Foods is expected to report a 65% decline in net earnings per share for the second quarter ending March 31. The consensus estimate is $285.68 million in net income on higher revenue of $13.62 billion, an annual gain of 3.8%.

The meat giant will report fiscal second-quarter earnings on May 8. Some analysts recently raised their earnings guidance for Tyson Foods based on better-than-expected performance in the company’s beef and prepared foods segment. That said, none of the segments are expected to outperform the year-ago period, with the exception of a small gain in the company’s international division.

Tyson’s chicken business continues to struggle, though margins have likely improved during the recent quarter. according to Ben Bienvenu, an analyst with Stephens Inc. He said margins would likely remain under pressure given elevated grain costs that should abate later in the year. Chicken prices also remain amid higher production and weaker consumer demand.

“We think Tyson will continue to make progress in operations improvements and should see some benefit from a continued recovery in commodity chicken markets. We think the current environment sets Tyson to deliver steadily higher margins as we move through the year,” Bienvenu noted on April 10. (Stephens Inc. conducts investment banking services for Tyson Foods on occasion as is compensated accordingly.)

The commodity chicken processing margin was negative for the recent quarter, down sharply from an average of 39 cents per pound a year ago. Most of Tyson’s business is not commodity-driven, but higher value for adding elements like deboning, flavoring or pre-cooking the chicken raises wholesale prices well above commodity levels. That said, the industry is still trying to reduce excess inventory, which puts downward pressure on pricing. The industry processed 1.3% more pounds of chicken in the quarter compared to the year-ago period.

Bienvenu expects Tyson’s chicken operating income of $21 million for the quarter, down from $203 million in the year-ago period. Chicken sales are estimated at $4.128 billion, up 1% from a year ago.

BEEF RESILIENCE
Tyson beef business is expected to report an operating income of $212 million for the quarter, down from $658 million a year ago. Beef sales are forecast at $5.31 billion, up 5.5% year over year.

Beef prices have remained more resilient than previously expected relative to rising cattle costs, according to Stephens. Industry production has come under pressure, and that is expected to continue for the balance of the year. Cattle prices rose 15% in the quarter, pushing beef prices up 10%, Stephens analysts noted.

Derrell Peel, livestock marketing analyst at Oklahoma State University, said beef prices have remained high since late 2021. The 12-month moving average of monthly retail beef prices has been above $7.25 a pound over the past year. That indicates strong beef demand given record beef production in 2022 and the highest beef consumption per capita at 58.9 pounds since 2010, Peel said.

Consumer demand has stayed strong for beef despite the higher prices but packers will remain under pressure given the higher live cattle costs, rising wages and freight costs that squeeze margins, according to Peel.

PORK, PREPARED FOODS
Tyson’s pork segment is expected to see operating income at $14 million, down from $59 million year over year. Pork sales are forecast at $1.4 billion, down 10% from a year ago. The pork processing margin averaged $20.39 per head in the quarter, down 25% from a year ago.

Pork prices are down 17% year over year, and Stephens expects margins will continue to be under pressure in the near term. Hog supplies remain tighter than expected and will have near-term implications on slaughter levels in the back half of the year.

Tyson’s diverse prepared foods segment uses meat from the other three business segments to process and make the products it sells. This segment is expected to report $218 million in operating income, down from $263 million a year ago. This segment is able to pass along the higher costs of the meat ingredients and is expected to see better margins in the back half of the year, according to Bienvenu.

ANALYSTS SAY
Stephens analysts said they recently increased their earnings guidance from 54 cents to 91 cents for the quarter because of the strong beef prices and continued improvement in the prepared foods business. For the full year, Stephens expects Tyson to earn $4.27 per share, up from $3.95. Stephens has a high estimate in the consensus for the quarter and also maintains a target price of $75 per share with a strong “buy” rating.

“We expect a solid beat from Tyson Foods on the quarter,” Bienvenu said.

Analysts polled by Reuters also remain largely bullish on Tyson Foods beating the 80-cent per share net income consensus when it reports next week. Of the 16 analysts polled by Yahoo! Finance, 11 rated Tyson Foods stock as a “buy,” five of them, including J.P Morgan and Credit Suisse, are neutral on the stock. Analysts with Zacks said, “Tyson appears a compelling earnings-beat candidate.”

The company is also expected to provide more information on the recent corporate office job cuts and the impact that will have on earnings.

Shares of Tyson Foods (NYSE: TSN) closed Wednesday at $60.56, down 38 cents on the day. Over the past 52 weeks, the share price has ranged between $55.81 to $94.77. Year-to-date the share price is down 2.7%.