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Tyson Foods Inc. stock slid 4% Monday, after the meat processor and parent to brands including Jimmy Dean and Hillshire Farm missed consensus estimates for its fiscal first quarter by a wide margin.
“We faced some challenges in the first quarter,” Chief Executive Donnie King said in a statement. “Market dynamics and some operational inefficiencies impacted our profitability. We expect to improve our performance through the back half of fiscal 2023 and into the future, as we strive to execute with excellence and work to become best in class in our industry.”
Tyson
TSN,
posted net income of $316 million, or 88 cents a share, for the quarter to Dec. 31, down from $1.121 billion, or $3.07 a share, in the year-earlier period. Adjusted per-share earnings came to 85 cents, well below the $1.31 FactSet consensus.
Sales rose to $13.260 billion from $12.933 billion, also below the $13.515 billion FactSet consensus.
The Springdale, Arkansas-based company, the biggest U.S. meat supplier measured by sales, said beef prices fell by an average of 8.5% in the quarter, while chicken prices rose 7.1% and pork prices were up 1.4%. The company’s prepared foods division’s sales rose 7.6% and international and other food sales were up 4.9%.
“We went into Q1 with a good plan, but our overall results were impacted by a confluence of factors, including consumer and customer demand dynamics and the curve of the beef cycle, among other things,” King told analysts on the company’s earnings call, according to a FactSet transcript.
The company was expecting beef to come under pressure as higher cattle prices were expected to slow the overall harvest, he said. That’s hasn’t happened yet, and Tyson continues to draw on the herd, which continues to decline.
“This is putting pressure on spread margin in the business,” said King. “We tightened our outlook range for the year.”
In Tyson’s chicken segment, demand failed to emerge in those parts of the market where it was expected to, said King. The company “had to move things around, we experienced higher cost, a lower price environment and knock-on effects from a network standpoint.”
Beef sales rose 2.9% to $4.723 billion in the quarter, while pork sales fell 7.4% to $1.529 billion. Sales of chicken rose 2.5% to $4.263 billion, while prepared foods sales rose 1.2% to $2.538 billion. International and other food sales were up 6.4% to $612 million.
CFRA analyst Arun Sundaram reiterated his hold rating on the stock and cut his price target by $10 to $65.
“High cattle prices, the strong U.S. dollar, elevated feed costs, ineffective hedging strategies, and operational miscues in chicken were the primary drivers for the weaker-than-expected results,” the analyst wrote in a note to clients.
“While beef margins might be troughing in the near term, it could take a few quarters before we see chicken margins significantly improve, given unfavorable seasonality in the fiscal second aquarter, market factors, and continued operational challenges in chicken.”
Looking ahead, the U.S. Department of Agriculture is expecting domestic protein production — beef, pork, chicken and turkey — to be flat in fiscal 2023 versus year-earlier levels, said Tyson.
Tyson said it is expecting fiscal 2023 sales of $55 billion to $57 billion, while FactSet expects $55.2 billion. Tyson expects capex of about $2.5 billion and net interest costs of about $330 million.
The stock has fallen 30% in the last 12 months, while the S&P 500
SPX,
has fallen 8%.
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