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Why Tyson Foods Stock Fell 8% on Monday

By Jon Quast – May 4, 2020 at 5:23PM

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It wasn't that second-quarter results were that bad. Rather, it's the rest of 2020 that has investors worried.

What happened

Shares of Tyson Foods (TSN -1.68%) headed lower on Monday, after the company reported earnings for the second quarter of fiscal 2020. While sales remained strong, the company offered a glimpse into the ongoing ramifications of the COVID-19 pandemic for its business. Shares fell 8% during the session as a result.

So what

Tyson's overall quarterly sales grew 4% year over year, while earnings according to generally accepted accounting principles (GAAP) fell 15% to $1.00 per share. GAAP results often provide a more realistic pulse of the business, but in this case, they included a one-time gain that distorted results. Adjusted earnings per share fell 36%. Falling profitability is partly the result of lost productivity due to the coronavirus.

A man has his head down on a table with a down stock chart in the background.

Image source: Getty Images.

Investors are likely more concerned with Tyson's guidance. The company said it expects demand for meat to remain strong. But it's unsure how well it can handle the demand. There wasn't specific guidance, but management said it expects operating costs to climb and production volume to fall for the remainder of 2020.

Now what

One might be encouraged by Q2 sales growth, but it's logical to assume Tyson's results will get uglier in the third quarter. Consider that Q2 ended on March 28, a period that largely excluded the drag from stay-at-home orders but included the benefit of pantry packing. Since the quarter ended, the company closed its largest pork plant, as it has struggled maintaining a workforce large enough to do the job while still keeping everyone healthy. And other plants aren't operating at full capacity. 

Tyson offers essential consumer products that aren't likely to fall out of style, but the U.S. food supply chain is strained due to COVID-19. Tyson will likely remain challenged until the situation normalizes, something that's outside of its control.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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