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Tyson sinks with virus pushing up costs, cutting volumes

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While the pandemic has meant higher retail sales volume, that hasn’t been enough to offset food-service losses.

By Lydia Mulvany

Tyson Foods Inc. shares fell after the top U.S. meat supplier said unprecedented disruptions are reducing its output and pushing up costs, with the outlook so murky it couldn’t offer financial guidance for the year.

U.S. plant shutdowns and slowdowns in the past month are set to continue, resulting in higher operating costs and lower volume for the rest of fiscal 2020, Tyson said in a statement on second-quarter earnings, which missed estimates. While the pandemic has meant higher retail sales volume, that hasn’t been enough to offset food-service losses.

“Due to the uncertainty of the COVID-19 impacts to our operations, we are currently unable to provide segment adjusted operating margin guidance,” Chief Executive Officer Noel White said in a statement Monday.

Key Insights

  • With thousands of U.S. meat-plant workers falling ill and a dozen plants shutting down, processors are wrestling with ways to keep consumers supplied with protein while also protecting workers from coronavirus.
  • The shutdowns mean beef and pork prices are surging, and farmers are destroying tens of thousands of animals as oversupply pushes down livestock prices.
  • For meat processors, the disruptions mean lower volume but higher margins with share prices gaining since the havoc started. Not everyone is bullish, with Tyson cut to market perform at Bernstein on expectations that third-quarter output will be hurt by closures and absenteeism.
  • The U.S. government stepped in last week, with President Donald Trump invoking the Defense Production Act to keep plants running. But that won’t be a quick fix and unions say the measure puts workers in danger.
  • Agriculture Secretary Sonny Perdue said Thursday that slaughterhouses would reopen in a matter of days, although social-distancing measures will limit output, with a shortfall of as much as 15%.
  • Exposure to food service is a risk for Tyson, with about 40% of sales coming from that channel

Market Reaction

  • Tyson, down 34% this year, fell as much as 5.2% before the start of regular trading Monday
To contact the reporter on this story:
Lydia Mulvany in Chicago at [email protected]
To contact the editor responsible for this story:
James Attwood at [email protected]
© 2020 Bloomberg L.P.
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