Tyson Foods Stays Strong Despite the Inflation Punch

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

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.

The quarter
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.

Navjot Kaur does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1750042, ~/Articles/ArticleHandler.aspx, 10/21/2016 9:50:22 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,069.28 -93.07 -0.51%
S&P 500 2,131.64 -9.70 -0.45%
NASD 5,232.86 -8.98 -0.17%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 9:34 AM
TSN $69.25 Down -0.56 -0.80%
Tyson Foods CAPS Rating: ****
PPC $20.13 Down -0.06 -0.30%
Pilgrim's Pride CAPS Rating: **
SJM $129.32 Down -0.47 -0.36%
J.M. Smucker CAPS Rating: *****