Tyson shares fall as the food giant sees inflation eroding demand

(Bloomberg) — Tyson Foods Inc. shares fell. by the most since August after the company said persistent inflation eroded consumers' appetite for branded and ready-to-eat offerings that accounted for most of the company's second-quarter earnings.

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High inflation and low savings rates have pushed consumers to prioritize basic goods over discretionary categories, Melanie Bolden, who works overseas at Tyson Prepared Foods, said on a conference call with analysts. The executive said that the company is likely to achieve lower profits in the second half of the current fiscal year compared to the first half.

“The consumer is under pressure, especially low-income families,” Bolden said. She added that cumulative inflation of 20% over the past three years had contributed to creating a “more cautious and price-sensitive consumer” in retail.

The comments raise questions about Tyson's ability to regain profitability more quickly after last year's decline. While the company absorbs the significant decline in its beef business, the company's largest, the prepared foods unit generated more than half of the producers' operating profits this year. However, the company raised its earnings forecast for fiscal 2024 as margins for its chicken and pork businesses continue to improve.

Shares fell as much as 9.4% in New York, to their lowest level since March.

John Tyson, chief financial officer, said “uncertainties remain about consumer strength and behavior” as well as about U.S. livestock supplies and “commodity costs.” Combining these variables with the seasonality of the pork and prepared foods businesses, he said the third quarter could be weaker than the fourth quarter.

Adjusted net income in the three months ended March 30 was 62 cents per share, reversing a loss of 4 cents per share a year earlier, Tyson said in a statement Monday. This exceeded even the highest analyst estimates compiled by Bloomberg.

The earnings rebound was mostly driven by the chicken business, which benefited from lower costs, including feed costs. Actions to streamline its operations, including closing six poultry facilities last year, also helped restore profitability, Tyson said. Meanwhile, operating income in the prepared foods unit declined 7.5% from a year earlier in the quarter.

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(Updates with stock movement and details from earnings call)

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