Tyson plunges as food giant sees inflation eroding demand

(Bloomberg) — Tyson Foods Inc. shares fell. by the most since August after the company said persistent inflation eroded consumers’ appetite for branded and ready-to-eat offerings that account for most of the company’s profits.

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Melanie Bolden, who oversees Tyson’s prepared foods business, said in a conference call with analysts that high inflation and low savings rates have led consumers to prioritize basic goods over discretionary categories. The company, which produces sausages and snacks under brands such as Wright and Jimmy Dean, is likely to make lower profits in the second half of the current fiscal year than in the first half, the executive said.

“The consumer is under pressure, especially low-income families,” Bolden said. She added that cumulative inflation of 20% over the past three years had contributed to creating a “more cautious and price-sensitive consumer” in retail.

Tyson shares fell as much as 9.4% in New York, to their lowest level since March.

Consumer woes raise concerns about Tyson’s ability to regain profitability more quickly after last year’s decline. The prepared foods unit has generated more than half of the producers’ operating profits this year, as the Springdale, Arkansas-based company faces a significant decline in its beef business, the company’s largest, due to a shortage of cattle in the United States. While the chicken and pork business has improved, driven mostly by lower costs, margins remain relatively compressed.

The company also said U.S. poultry production growth was constrained by issues including poor egg fertility and high chicken mortality rates, echoing concerns raised by rival Pilgrim’s Pride Corp. last week. What’s more, the prices of grains used as fodder for birds and pigs. are rebounding, threatening to erode margins over the coming quarters.

“There are still some uncertainties,” Chief Financial Officer John Tyson said during the same call, citing concerns about consumer behavior, livestock supplies and commodity costs. The executive added that the fiscal third quarter, which is usually the company’s strongest, may be weaker than the fourth quarter this year.

Tyson’s better-than-expected second-quarter results were overshadowed by the somewhat bleak outlook set by executives. Adjusted net income in the three months ended March 30 was 62 cents per share, reversing a loss of 4 cents per share a year earlier, Tyson said in a statement Monday. This exceeded even the highest analyst estimates compiled by Bloomberg. The company also raised its adjusted operating profit forecast, citing improved performance in its chicken business.

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The earnings rebound was mostly driven by chicken trading. Tyson said actions to streamline its operations, including closing six poultry facilities last year, played a key role in restoring profitability. Meanwhile, operating income in the prepared foods unit declined 7.5% from a year earlier in the quarter. The beef unit posted a loss of $34 million as higher cattle costs offset improvements in volumes and prices.

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