Why Shares of Tyson Foods Inc. Slumped on Monday

The chicken, beef, and pork producer missed analyst estimates across the board.

Timothy Green
Timothy Green
Aug 3, 2015 at 11:30AM
Consumer Goods

What: Shares of Tyson Foods (NYSE:TSN) slumped on Monday after the company reported its fiscal-third-quarter results, falling short of analyst estimates for both earnings and revenue. At 11:30 Monday morning, the stock was down about 8.5%.

So what: Tyson reported quarterly revenue of $10.07 billion, up 4% year-over-year but $230 million shy of the average analyst estimate. Revenue from chicken products declined 2.5%, as a 2.9% increase in volume was overtaken by a 5.3% decline in average selling price. Beef revenue grew by 2.8%, driven by a 6.9% price increase, while pork revenue slumped 31.6%, with volume falling 4.8% and average selling price plummeting 28.2%.

Prepared foods was a bright spot for Tyson, with revenue more than doubling year-over-year on the back of both a big volume increase and a double-digit price increase. But with beef, chicken, and pork accounting for more than 80% of the company's revenue, growth in prepared foods wasn't enough to satisfy analyst estimates.

Tyson reported adjusted EPS of $0.80, up 6.7% year-over-year but $0.12 short of analyst expectations. While profitability in the chicken and prepared food segments soared, the beef segment posted an operating loss, and the pork segment saw its operating income cut in half-year-over-year.

Now what: Tyson expects its total domestic protein production to grow by 3% in fiscal 2016, with higher prices for grain likely to lead to increased costs for the company. Sales are expected to be $41 billion for both fiscal 2015 and fiscal 2016, while operating margin in the chicken segment is expected to decline to 7%-9% in fiscal 2016, down from an expected 12% margin in fiscal 2015.

Tyson is highly dependent on both the cost of inputs like grain as well as the price of chicken, beef, and pork, and the third quarter exposed some negative trends. Tyson's beef business has turned unprofitable on high costs, and the chicken business is expected to become far less profitable on lower chicken prices. While these swings in profitability should be expected for a company like Tyson, which sells largely commodity products, that didn't stop investors from punishing the stock.