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Tyson Foods (NYSE: TSN ) , the United States' largest meat processor, recently posted dull fourth-quarter numbers owing to inflationary pressures. The company witnessed growth in its top line, but the bottom line saw a steep fall, missing the Street's estimates.
Despite the diminishing profits, this company could still be strong. Let's dig deeper.
Compared to the same quarter last year, Tyson's net sales increased by 13% to $8.4 billion, mainly because of increased sales prices. However, the sales figure did not translate into significant profits.
Tyson earned $0.26 per share during the quarter, less than the market expectation of $0.32 and less than half of what the company posted last year. Higher grain and feed costs caused the steep 54% drop to $97 million in profits. Tyson doesn't expect the higher costs to change anytime soon.
Growing crop concerns
Animal feed, especially grains and beans, is vital to raise chickens, pigs, and cattle. Corn hitting record highs this summer has put meat processing companies in an uneasy situation. Tyson tried to offset this price increase by raising chicken, pork, and beef prices. However, the company could not pass on the entire cost burden because of weak demand.
Expensive agricultural products are hurting companies that use them as raw material. Coffee purveyor J.M. Smucker (NYSE: SJM ) recently posted disappointing quarterly numbers in the wake of higher prices of raw materials such as coffee and milk. Similarly, meat processor Pilgrim's Pride (NYSE: PPC ) also missed its profitability target in its last quarter because of higher feed prices.
Making a cut
Although Tyson can't do much about rising feed prices, there is a way to deal with this predicament. The company expects U.S. meat supplies to decline by 2% to 3% in the next year, giving it an opportunity to raise prices. A decrease in supply may fix the pricing problem, enabling companies like Tyson to charge more for their product.
The Foolish bottom line
Like many food producers, Tyson is struck by inflation right now. However, it will be interesting to see how it keeps a lid on the rising costs with its supply cut strategy. Click here to add Tyson Foods to your watchlist and receive all the Foolish analysis on it.