Tyson Lifts Sales View on Beef Demand, Sees Rising Cost Pressure

(Bloomberg) -- Tyson Foods Inc., the biggest U.S. meat company, reported better-than-expected quarterly earnings and raised its sales forecast while flagging “margin pressure” from rising costs in the second half of the year.

Adjusted earnings in Tyson’s fiscal second quarter ended April 3 were $1.34 a share, compared with the $1.12 average of analysts’ estimate, as the company raised prices across its businesses. Tyson expects full-year revenue of $44 billion to $46 billion, according to a statement Monday. In February, it said revenue would be at the upper end of $42 billion to $44 billion.

Tyson lifted its sales forecast as beef markets strengthen and the company increases prices to pass through higher expenses. Costs are on the rise after severe winter weather hit U.S. livestock and poultry farmers and dry conditions boosted grain prices. Tyson said feed costs for chicken increased $125 million. With the global economy reopening, companies are also struggling to find enough workers.

“We’re seeing substantial inflation across our supply chain, which will likely create margin pressure during the back half of the year,” Tyson Chief Executive Officer Dean Banks said in the statement.

Sales were $11.3 billion, up from the $11.2 billion analysts had expected. While prices of beef, pork, chicken and prepared foods all rose during the quarter, volumes declined.

Stephens Inc. analyst Ben Bienvenu said Tyson has “a very solid setup over the next year” with the company moving out of a trough and “squarely positioned to benefit from post-Covid reopening demand.”

Meat companies initially were slammed by the coronavirus as thousands of U.S. food-plant workers got sick and hundreds died, prompting shutdowns at factories as measures such as temperature scanners and plastic dividers were installed to protect workers. Meanwhile, retail sales of meat soared as consumers prepared more meals at home.

Now, with the global economy reopening, companies are struggling to find workers. Tyson said its pork plants were short-staffed, and a lack of skilled workers prevented the company from getting the most of each hog its slaughters. At chicken plants, elevated turnover and absenteeism made Tyson boost purchases of meat from other processors.

Pilgrim’s Pride Corp., the second-biggest U.S. chicken producer after Tyson, recently said it was installing more automation at poultry plants due to the worker shortage.

Still, prospects are for protein demand to increase in the short- and long-term. Tyson in April opened its first new poultry plant in 25 years and last week announced a new vegan burger and other plant-based foods as the company seeks to compete with vegetarian-friendly upstarts including Beyond Meat and Impossible Burger.

“Given the nature of our business, demand for food and protein may continue to shift amongst sales channels and experience disruptions, but over time we expect worldwide demand to continue to increase,” the company said.

Tyson shares, which have climbed about 22% this year, fell as much as 3.6% on Monday. The stock was down 2.3% at 9:52 a.m. in New York.

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