Tyson Foods Under Pressure Due To Rising Feed Costs


Tyson Foods Under Pressure Due To Rising Feed Costs

Meat processor Tyson Foods, Inc. (NYSE:TSN) missed on both revenue and estimates for its third quarter, and lowered its forecast for 2012 sales, as the company faced consumer resistance to rising meat prices and cost pressures, due to rising grain prices. At the time of writing, Tyson’s shares were down 4.48 percent to $14.71.

Net earnings were down to $76 million (21 cents a share) from $196 million (51 cents a share) in the year ago period. Excluding items, earnings for the quarter were 50 cents a share. Analysts on the other hand expected 54 cents. Though sales were up at $8.31 billion against $8.25 billion last year, they were short of market expectations of $8.72 billion.

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The company diluted its previous forecast for 2012 sales by $1 billion to $33 billion, and projected sales of $35 billion for 2013. Both the forecasts were off analysts’ estimates of $34.02 billion and $35.40 billion respectively.

“Grain costs have been increasing significantly and rapidly, largely as a result of the on-going U.S. drought. While we ultimately expect to pass along rising input costs, these costs, coupled with continued soft demand, are likely to pressure earnings in 2013,” Chief Executive Donnie Smith said.

Tyson is a global major in the processing and marketing of chicken, beef and pork. It also produces various food items for the retail and food service sectors.

The company lamented the higher feed prices due to the drought and the reduced corn availability, but nevertheless, expressed confidence that the chicken business would remain profitable next year. The same factor affected the beef and pork segments, which are expected to show pressure on earnings until next year amidst “very difficult market conditions.”

Competitor Hormel Foods Corporation (NYSE:HRL) will report quarterly earnings later this month, and analysts expect it to clock revenues of $2.01 billion and earnings of 41 cents per share.

The drought had an adverse impact on the performance of grain producer  Archer Daniels Midland Company (NYSE:ADM), as corn supplies remained tight. Grain processor Bunge Limited (NYSE:BG) also faced pressure on earnings. Reports have been received of pork producer, Smithfield Foods, Inc. (NYSE:SFD) resorting to imports of corn from Brazil due to domestic shortages and higher prices.

The impact of the drought has unexpectedly worked to the advantage of Brazil, which had a bumper crop of corn. Brazil could, therefore, get a major boost in its agrarian exports which are expected to contribute handsomely to the country’s export earnings in the near future.