Tyson Foods,
the largest meat processor in the U.S., is finally making profits on its chicken business after losing money for three consecutive quarters, according to the company’s latest earnings report released on Monday. But its beef segment continued to lose money despite rising prices. The company expects the trend to continue in 2024.
The stock went up as much as 5% in Monday’s early trading, but the gains but retreated to about 2.4% by late afternoon.
For the quarter ended in December, the Springdale, Ark.-based meatpacker posted $13.32 billion in sales, marginally up from a year ago but below the $13.34 billion estimates from analysts polled by FactSet. Adjusted per-share earnings came at 69 cents, 19% below the year-ago period, but ahead of the consensus estimates of 41 cents by Wall Street.
The shrinking earnings were mainly driven by lower profitability in the beef segment, which makes up nearly 40% of its total revenue, says the company.
The count of cattle in the U.S. has been declining for five years in a row. Dry weather has reduced the land available for grazing, and ranchers have been slashing their herds as feeding costs went up. The Department of Agriculture said last week that the U.S. cattle inventory has dropped to 87.2 million at the start of this year, the lowest level since 1951.
The tightening supplies means beef has become more expensive for both meatpackers and consumers. In the fiscal first quarter, Tyson’s sales price for beef rose by an average of 10.5% compared with a year earlier. Despite a 4.1% decline in volume, sales value increased 6.5% from a year ago to slightly above $5 billion.
Still, the rising retail prices weren’t enough to cover the costs for the meatpacker. Tyson’s beef segment posted a $206 million operating loss for the December quarter, following a loss of $323 million in the previous three months. That’s a sharp contraction from the $166 million profit a year ago. For the full year of fiscal 2024, the company expects a loss of as much as $400 million.
On the other hand, the average price for Tyson’s chicken products dropped 3.9% from a year ago, marking the third quarter of falling prices following sharp spikes in 2022 and early 2023. Operating income came in at $177 million, the first positive reading since the $69 million profits in the December quarter in 2022. Chicken makes up about 30% of the firm’s total sales.
The positive earnings in the chicken business can be largely attributed to the company’s efforts to cut costs and improve operational efficiency over the past year. In 2023, Tyson announced plans to close six of its inefficient poultry plants and lay off thousands of workers. Management said it is already seeing the benefits of those actions.
Demand for chicken will likely be stronger in 2024 as consumers switch to cheaper meats amid rising beef costs. Tyson anticipates the segment’s adjusted operating income to come between $500 million and $700 million this year. With all sectors combined, including beef, pork, and packaged foods, operating income is expected at $1 billion to $1.5 billion for fiscal 2024.
Write to Evie Liu at evie.liu@barrons.com
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