Despite fears about the furloughing of U.S. Agriculture Department (USDA) inspectors that could shut down meat plants for around two weeks, meat giant Tyson Foods Inc. (TSN - Analyst Report) has declared that it doesn’t see an immediate threat to its business.
Media reports say that the company does not expect the furloughs of inspectors to begin until April. However, Tyson intends to develop contingency plans after the sequester process advances.
The spending cut and tax increases to cover the deficit by the U.S. government was scheduled to begin in Jan 2013, but was eventually pushed back to Mar 2013. This was because the differences between President Obama and congressional Republicans were still to be resolved.
Up to 8,400 inspectors appointed by the USDA will be furloughed for the equivalent of 15 days to effect the savings required under the automatic cuts.
According to Agriculture Secretary Tom Vilsack, the impact of the furlough of inspection personnel may amount to 15 days of lost production costing over $10 billion. However, Vilsack has assured meat processing giants that they will not have to shut down the plants very soon. That is on account of the inspectors being allowed 30 to as many as 120 days, or four months’ notice of layoffs.
Tyson’s chicken competitor Sanderson Farms Inc. (SAFM - Snapshot Report) apprehends a huge loss during the 15-day furlough of inspection personnel and consequent shutdown of plants.
The company also said that live chickens would suffer from higher mortality as a result of the furlough. This is because chickens gained weight as a result of the company postponing chicken processing, which would in turn lead to their earlier death. This would in turn affect supply to grocery chains like Supervalu Inc. (SVU - Analyst Report) and Kroger Company (KR - Analyst Report) .
Tyson last week said that it expects sales to grow by 3% to 4% annually in fiscal 2014. Value-added sales are expected to rise in the range of 6% to 8% in 2014. Moreover, international production is expected to grow at an annual rate of 12% to 16%.
The company expressed that its second-quarter loss was attributable to contracting margins in the beef and pork segment. The chicken segment is however improving due to favorable demand shift from red meat.
In April 2013, the company is geared to boost the segment by introducing NatureRaised Farms(TM) brand including natural chicken reared without use of antibiotics or added hormones. Currently, Tyson Foods carries a Zacks Rank #1 (Strong Buy).