Shares of Tyson Foods Inc. took a significant hit on Tuesday, dropping as much as 9.4% in New York trading, marking the lowest point since March, as the company’s leadership expressed apprehension over inflation’s effect on consumer demand.
In a conference call with analysts, Melanie Boulden, who oversees Tyson’s Prepared Foods business, highlighted how rising inflation and low saving rates have compelled consumers to prioritize essential staples over discretionary spending. Boulden acknowledged that these market conditions are likely to translate into reduced profits for the company’s sausage and snack brands, including Wright and Jimmy Dean, during the latter half of the fiscal year.
“The consumer is under pressure, particularly lower-income households,” Boulden explained. A cumulative inflation rate of 20% over the past three years has resulted in a more cautious and price-sensitive retail environment, she added.
The concerns voiced by Tyson’s executives reflect broader worries about the company’s ability to swiftly restore profitability following last year’s downturn. Tyson’s prepared foods division has been a primary source of operating profits this year, compensating for significant challenges in the beef sector due to a shortage of cattle in the US. Although improvements have been noted in the chicken and pork businesses, margins remain under pressure.
During the conference call, Chief Financial Officer John Tyson emphasized ongoing uncertainties related to consumer behavior, cattle supplies, and key commodity costs. He noted that the fiscal third quarter, traditionally the company’s strongest, may not outperform the fourth quarter this year.
Despite the cautious outlook, Tyson reported better-than-expected results for the second quarter ending March 30. Adjusted net income reached 62 cents per share, a significant improvement from a loss of 4 cents per share during the same period last year. This surpassed even the most optimistic analyst estimates compiled by Bloomberg. The company also raised its adjusted operating profit forecast, citing improved performance in its chicken division.
The resurgence in earnings was predominantly driven by the chicken segment. Tyson attributed this recovery to operational streamlining efforts, including the closure of six poultry facilities last year. Conversely, the prepared foods unit saw a 7.5% decline in operating income compared to a year ago, while the beef division reported a loss of $34 million due to escalating cattle costs outweighing improvements in volumes and prices.
Tyson’s shares continue to face volatility amid broader market concerns surrounding inflationary pressures and their impact on consumer spending habits. The company remains vigilant in navigating these challenges while seeking to sustain profitability across its diversified portfolio of food products.
