It's been the same story for all of the protein producers -- oversupply and avian influenza fears continue to drag down revenues. Tyson Foods' (NYSE:TSN) latest results reflect these challenges. But there may be some cause for optimism.
Before addressing the potential positive, let's take a closer look at the company's second-quarter performance. In the earnings conference call, CEO John Tyson described the period as a very "difficult" one that was more challenging than previously expected. An overabundance of protein supply on the market, the avian influenza, and higher fuel and energy costs all continue to be significant challenges for Tyson Foods.
Revenues for the period declined 1.7% compared to the same period a year ago. Oversupply and higher operating costs negatively affected the bottom line for both beef and pork. Revenues from pork declined by double digits to 12%, as average sales prices were driven down by an overabundance of the protein. The most pronounced effect of rising costs can be seen with beef. While sales climbed marginally by 2.9% versus the year-ago period, operating results in this segment saw a loss of $124 million, excluding the impact of antitrust litigation. Chicken prices are down on two fronts. Again, oversupply is weighing on average selling prices. And the discovery of the avian influenza in some of the international markets is weakening demand and resulting in lower export prices.
While the company continues to battle an overabundance of protein on the market, Tyson Foods does expect results to improve in the second half of the year. As it moves into the latter half of the third quarter, a pick-up in demand should lessen the impact of oversupply. One example that should help, provided in the conference call, was Taiwan's reopening of its border to U.S. beef in the second quarter. Additionally, management indicated that they believe commodity chicken prices appear to have bottomed out, and pricing is expected to improve in the third and fourth quarters.
Is this enough cause for optimism regarding Tyson Foods' stock? When chicken prices were bottoming out, it's possible that this stock did, too -- despite very poor results this quarter, recent trading hasn't pushed the price any lower. While that alone is certainly no buy signal, it may be reason enough to at least take a closer look at the company.
Related Foolishness:
- Smithfield Farms (NYSE:SFD) is also struggling with weaker meat prices.
- The avian flu is negatively impacting Sanderson Farms (NASDAQ:SAFM).
- Is Hormel (NYSE:HRL) too pricey?
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
