Yet another meat peddler is getting ground into hamburger. The victim du jour is the biggest in the business -- TysonFoods (NYSE:TSN).
Although flat sales for the fiscal first quarter may not sound like good news, that's about as good as it gets on the macro level. Operating income fell 12%, and net income dropped 19%, primarily because of weak results in beef and pork.
Ironically -- at least given Pilgrim's Pride's (NYSE:PPC) challenges -- the chicken business looked OK. Sales were down by about 1.5%, but operating income rose by more than 18%. Of course, the year-ago period included a $23 million hedging loss, so it seems to me that "same-store" operating income performance was slightly negative on a year-over-year basis.
The beef and pork businesses, though, were ugly. Beef sales were up more than 4%, but poor utilization from low cattle throughput (in other words, operating below capacity) led to a wider operating loss. Also not helping matters for the future is that Japan has reimposed its ban on American beef after a small packer violated the terms of the reopening of the market. On the pork front, prices were weaker, sales dropped 6%, and operating income fell 27%.
One small bright spot was prepared foods, where sales were down more than 5% but operating income doubled. The company is doing well with bacon and case-ready beef and pork, but that good news is clearly going to get buried by the beef/pork/chicken stories.
Now, there's always the room for individual outperformance, but I'd be a little concerned if I were a shareholder in companies such as Hormel (NYSE:HRL), Smithfield (NYSE:SFD), or Gold Kist (NASDAQ:GKIS). Clearly, the meat business has gotten at least momentarily tougher.
That said, this could end up being good news for people who were watching these stocks with an eye toward buying in on bad news. Today's price action might push Tyson below a price-to-book ratio of 1, and that's not something that happens all too often. Backing that up, a cash flow model assuming just mid-single-digit growth would suggest that the shares are at least a little undervalued. Although things may well get worse before they get better, these are times when value investors get busy and look for bargains among the wreckage.
For more Foolish thoughts on food:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
