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Birds of a Feather

It seems like everywhere you look, costs are rising. And they aren't just pinching shoppers at the grocery stores; higher commodity costs are also putting pressure on companies' margins. So it shouldn't have been too surprising that Tyson Foods' (NYSE: TSN  ) third-quarter numbers were hurt by higher fuel and feed costs. Its fourth-quarter guidance isn't much to look at, either.

Chicken producers are just one group of companies feeling the effects of expensive inputs. Grain and corn prices have been rising rapidly, making it more costly to feed these firms' fine feathered fowl. Tyson was able to offset the increased costs earlier in the year by hiking prices. Yet there's a tipping point you reach when prices rise so much that consumers begin to cut back. We saw that two weeks ago, when beer-and-chicken wings chain Buffalo Wild Wings (Nasdaq: BWLD  ) reported its third-quarter results.

The share price of Pilgrim's Pride (NYSE: PPC  ) , the United States' largest chicken producer, has also taken a beating. Leg quarters and breast meat prices are up 41% and 25%, respectively, which is favorable to the company. However, rising fuel and freight costs led Pilgrim's Pride to miss expectations. While Pilgrim's Pride also has been largely successful in passing along increased costs, corn prices were up 62%, while soybean meal was up 22%.

Though one analyst has provided a temporary boost to Tyson's stock price by suggesting that all of the negative news about rising costs is priced into the shares, the chicken producer is looking around the globe for a cozier coop. It plans on expanding in Brazil, China, and Mexico to take advantage of high demand for poultry worldwide. Together with the U.S., Brazil accounts for 70% of the global trade in poultry, and it's home to one of the biggest chicken exporters, Motley Fool Hidden Gems recommendation Sadia (NYSE: SDA  ) .

Although they're as jumpy as a tom around Thanksgiving, investors can take comfort that all four of Tyson's segments reported profits, and three reported rising sales. Only the prepared-foods segments experienced a greater-than-5% drop in revenue, falling to $656 million.

Still, the company isn't sure how 2008 will play out, and it provided a fairly wide range of estimates for the year -- $0.30 to $0.70. That uncertainty sent the stock tumbling before the analyst upgrade. Forecasts had called for the chicken and beef producer to earn as much as $1.01 per share. With Tyson saying it might earn only a third of that next year, it's not surprising that investors, uh, chickened out.

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Related Tickers

10/24/2016 4:00 PM
PPC $20.96 Up +0.34 +1.65%
Pilgrim's Pride CAPS Rating: **
TSN $69.83 Up +0.29 +0.42%
Tyson Foods CAPS Rating: ****
BWLD $141.20 Up +0.90 +0.64%
Buffalo Wild Wings CAPS Rating: *****
SDA.DL $0.00 Down +0.00 +0.00%
Sadia CAPS Rating: *****