Tyson Hopes You Feel Like Chicken Tonight

When you buy amid wreckage, you've just got to accept that rebuilding takes time.

Investors in Tyson Foods (NYSE: TSN  ) might do well to keep that in mind as they wait for this large food company to work through an industrywide glut in protein.

For now, results are both depressed and depressing. Sales fell 5% to about $6.4 billion, and once again the company missed the analyst consensaguess -- though this is a particularly hard sector to accurately forecast. Margins continued to fall apart and the company reversed a year-ago operating profit into a loss this quarter.

For the most part, the weakness was widespread. Chicken revenue was down 8% on a nearly 14% drop in prices, while beef revenue fell 2% on a price drop of 8%. Unfortunately, costs are not easing off -- corn prices have been volatile, but generally rising, and costs for things like freight and packaging have been up as well.

If there's good news, it's that volumes continue to be pretty solid. Only pork saw a volume decline, and so long as folks continue to eat meat, there's a chance that prices can recover. What's more, while export sales aren't a huge part of the story, there's always the chance that the company can focus on growing this business.

Only time will tell how long it will take for producers like Tyson, Smithfield (NYSE: SFD  ) , and Pilgrim's Pride (NYSE: PPC  ) to navigate their way out of this mess. And while the company was optimistic about a poultry price recovery, the strong recent pace of chick placements still leads me to question whether the industry is really cutting production or just talking about cutting production.

I'd like to see Tyson do more with prepared foods (similar to Hormel (NYSE: HRL  ) ), and there's certainly more opportunity for case-ready product expansions, particularly since Wal-Mart (NYSE: WMT  ) is a major fan of case-ready meat. Barring firmer pricing and more success on cost-cutting, though, these shares seem likely to stay cheap for a while.

For more Foolish food for thought:

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Fool contributorStephen Simpsonhas no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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