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Bear of the Day: Tyson Foods (TSN)

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Headquartered in Arkansas, Tyson Foods Inc. (TSN - Free Report) is the biggest U.S. chicken company, producing and distributing chicken, beef, and pork products. Its meat products are sold primarily to grocery retailers, wholesalers, distributors, chain restaurants, and industrial food processing companies.

Coronavirus Pandemic Impacts Profits

Covid-19 has hurt Tyson across the board. For its fiscal second quarter, earnings and revenue missed our consensus estimate, and its bottom line slumped 36% to $0.77 per share.

While beef and pork volumes were up 2.7% and 2%, respectively, for the period, chicken volumes fell 1.5% and prepared foods volume slumped 0.1%.

Operating margin tumbled by 1.5 percentage points to 4.6% despite average pricing gains for everything but beef; gross margin was down as well, falling two percentage points to 9.5%.

Additionally, per-unit production costs rose due to lower productivity.

The second half of 2020 looks just as grim for Tyson, and the company didn’t provide any firm numbers because of continued uncertainty related to the pandemic. It still expects high production costs, as well as issues stemming from a slowdown in demand, plant shutdowns, and employee shortages.

Even as the U.S. begins to reopen for business, Tyson must also deal with a resurgence of coronavirus cases at its processing facilities, like the one in North Carolina; 28.5% of its workforce there tested positive.

This, on top of the weak outlook for 2020, shows that Tyson has a long road ahead of them.

Bottom Line

TSN is now a Zacks Rank #5 (Strong Sell). Four analysts have cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen $1.50 from $5.94 to $4.40 a share; earnings are expected to decline well over 19% for the fiscal year.

Tyson has had the advantage of offering essential consume products during the pandemic, but the real damage from the coronavirus outbreak is still unclear.

Food supply chains will likely be strained for a while now, and Tyson will face an uphill climb until the situation returns to some degree of normalcy. Unfortunately, that is out of the meat producer’s control, and investors should probably stay clear until then.

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