What happened

Shares of Tyson Foods (TSN -1.12%) are soaring 12.5% this week after the protein producer's fiscal third-quarter earnings handily beat Wall Street expectations. Yet amid rising sales and profits, Tyson is facing soaring inflation, like the rest of the country.

CEO Donnie King told analysts on Tyson's earnings conference call that costs were exceeding its ability to match them with price hikes. While the poultry, pork, and beef processor had already raised prices for its foodservice customers, and retailer customers will be seeing price hikes next month, "Costs are hitting us faster than we can get pricing at this point," he said.

Beef prices were up almost 12% in the quarter, chicken was up nearly 16%, and pork was up a whopping 39%.

Tomahawk steak

Image source: Getty Images.

So what

Inflation is threatening to undo the economic recovery, and while the stock market recently cheered the latest numbers that reportedly came in better than expected, that's only when two of the most important categories -- food and fuel -- are removed from the equation. 

When they're included, inflation was worse than forecast and eliminated all the wage gains workers made. According to one analysis, wages are now worse than what they were at the end of December 2019.

It's important to Tyson, too, because it could cause significant headwinds in the coming quarters, especially as competitors are bulking up to take on its industry dominance.

Now what

Sanderson Farms (SAFM) is being acquired by Cargill and Continental Grain for $4.5 billion, which would give the chicken farmer more muscle even as Tyson struggles to get its own poultry operations profitable again. It was the only segment to report losses, with operating margins tumbling 8%, down from a negative 3.9% a year ago. King said, "Chicken is our top priority."

Still, Tyson lifted its full-year sales forecast because the recovering restaurant industry helped push beef demand higher. It now expects revenue to come in between $46 billion and $47 billion in fiscal 2021, up from its previous estimate of $44 billion to $46 billion. Chicken, though, is forecast to be lower, and if inflation continues on its runaway course, the restaurant industry and the bullish beef market might be endangered, too.