Tyson Foods, Inc. (TSN - Free Report) continues to grapple with rising labor and freight expenses. These factors dragged the company’s operating profits in most segments in second-quarter fiscal 2018. Further, the company’s Pork sales volumes have been sluggish lately. Owing to such deterrents, shares of the company have declined 8.6% in the past three months compared with the industry’s 3.7% slip.
Fretting Over Rising Costs
Tyson Foods has been increasing employee investments to improve productivity, which has been raising cost burden. Such factors were a headwind in the company’s Chicken, Beef and Pork segments during the second quarter of fiscal 2018. Also, the company has been witnessing higher freight expenses. Evidently, higher freight expenses affected operating income in most of the company’s segments during the second quarter. Going ahead, this Zacks Rank #4 (Sell) company expects these hurdles to linger, which is likely to increase overall expenses in fiscal 2018.
Pork Volumes Look Dismal
Although Tyson Foods’ has been witnessing growth in the Chicken, Beef and Prepared Foods segments, sales volumes in the Pork category has been slipping lately. In fact, during the fourth quarter, the segment’s sales volume declined 1.1% year over year. This was largely due to the company’s efforts to reduce volumes to match production with consumer demand. Additionally, adverse weather conditions and staffing issues were a headwind in this category during the quarter.
Further, China’s recent tariff hikes on pork have caused dark clouds to hover on the meat industry. The raised tariff rate is likely to cause significant loss of market in China for several meat exporters, including Tyson Foods. This might dampen the company’s revenues in the Pork segment during the forthcoming periods.
While the aforementioned factors have made investors apprehensive, there are several bright spots that are encouraging. Notably, booming sales in the company’s Chicken, Beef and Prepared Foods categories has been aiding performance for a while. In fact, this, combined with cost savings from the Financial Fitness program and positive synergies from the AdvancePierre’ buyout, bolstered the company’s second-quarter fiscal 2018 performance. Encouragingly, management expects such upsides to sustain in the forthcoming periods. We hope that these factors will aid the company to achieve a turnaround in its price performance and raise investors’ optimism in the stock.
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