Tyson Stock Struggles

Despite a 50 percent increase in its third-period earnings per share, the stock of Tyson Foods Inc. is struggling.

Analysts say it’s because of a meat glut that’s affecting the entire industry, and not just the Springdale poultry producer, which has seen its stock drop from the $22 range in late July to $17 as late as Aug. 17. John McMillin, an analyst with Prudential Securities in New York, says the issue is not Tyson’s impressive third quarter.

“The issue is the prospects for the balance of calender 1999 and the fact there’s an abundance of chicken in the market,” McMillin says. “We were hoping supplies of competing meat, like poultry and beef, would drop, too. But that does not appear to be happening.”

In a press release, company CEO Wayne Britt said Tyson plans to re-evaluate its “sales/production balance” and cutback its chicken output. Mark Wiltamuth, an analyst with Morgan Stanley Dean Witter of New York, recently downgraded Tyson from a “strong buy” to “neutral.” He says the company’s 3.7 percent drop in third-quarter sales is the reason for concern.

“Wall Street likes to look ahead,” Wiltamuth says. “You can see in this quarter they posted strong margins because of strong grain costs. Tyson is doing a great job of managing in this current environment, but we think margins are peaking now and prices will come down in the months ahead.”

Tyson posted a net third quarter income of $64.4 million, or 30 cents per share, compared to $46.6 million (20 cents per share) during the same quarter last year. It had a revenue of $1.88 billion compared to $1.95 billion during the third quarter of 1999.

McMillin says Tyson’s recent stock drop has been too severe, given that its January change in management has been a catharsis for improved operating numbers. He says the company is in a prime position to make adjustments that will produce long term benefits for its shareholders.

“I’m surprised the stock has been taken down this much for what should be a short term issue,” McMillin says. “But Wall Street is looking for management to respond with aggression. If they’re not going to make a major acquisition, Tyson should be buying back some of its stock here.

“They may be working on one or both moves, but without any news the stock is drifting.”