While Tyson Foods (NYSE:TSN) recently switched over to producing more meat packed for grocery store sales and seemed to be avoiding the worst impact of plunging restaurant orders, problems may still be on the horizon for the food giant. Monday brought two pieces of bad news: The COVID-19 coronavirus compelled Tyson to shut one of its major Iowa meat-processing plants, and Credit Suisse issued a research note predicting that the company's chicken sales will falter in the wake of the earlier surge caused by people stocking up to prepare for quarantines.
The large pork slaughterhouse was closed Monday after more than two dozen workers at the location were diagnosed with the novel coronavirus, the company told reporters. The site in Columbus Junction, Iowa, ordinarily accounts for approximately 2% of the USA's daily pork production, slaughtering about 10,000 pigs every 24 hours. Now, Tyson says it will divert those pigs to other plants as it tries to maintain its usual production rate.
The cluster of infections erupted despite Tyson's efforts to keep the virus out of its production areas, using methods ranging from taking employees' temperatures to a greatly augmented sanitizing and cleaning regimen at all locations. Workstation dividers, social distancing rules, and the provision of as many masks as possible also failed to prevent the outbreak.
While Tyson grapples with its pork processing problem, trouble looms on another front. A research note from Credit Suisse observes that "consumers and grocers have filled their freezers with inventory" and, as a result, grocery demand for chicken products is slumping. In fact, the firm claims that grocery sector sales of processed fowl are no longer offsetting the 50% nosedive in restaurant sector chicken orders for Tyson.
Credit Suisse thinks chicken margins will soon drop below Tyson's normal levels but still maintains a $70 share price target for the company, more than 25% higher than it currently trades.