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Tyson 2012 outlook to suffer from continuing beef woes: analysts
Story Date: 2/7/2012
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Source: Chris Scott, MEATINGPLACE, 2/6/12
Tyson Foods Inc. is likely to be negatively impacted by poor beef margins, even if its pork and chicken businesses are in recovery mode, according to several protein industry analysts.
Tyson, which reported higher-than-expected earnings in the first quarter of 2012 , will continue be pressured by negative results in its beef operations, says Farha Aslam of Stephens Equity Research in a report released today. Beef earnings are expected to be in the red in the second quarter, she says, adding that she is “far more cautious than Tyson management regarding the recovery of beef margins,” which were negative in the final months of fiscal 2011 as well.
Separately, Kenneth B. Zaslow at BMO Capital Markets expressed little optimism on the outlook for beef margins based on publicly available information. Zaslow is concerned that a lack of discipline throughout the beef industry will lead to continuing lackluster profitability as cattle supplies tighten over the next year.
Heather Jones of BB&T Capital Markets echoed that view, adding that the “very challenged beef environment” is suffering from a “temporary period of irrationality” with regard to beef supplies. Jones and her team believe that the beef industry will soon respond to price pressures with lighter kills, noting that the slaughter has come down slightly in recent weeks.
Finally, analyst Christina McGlone at Deutsche Bank noted that weaker-than-expected demand for beef in January caught Tyson and others off guard as they had planned slaughter levels based on higher demand expectations. Now that the industry has backed off slaughter, McGlone wonders how long it will take the industry to get back to positive margins and then to normalized profitability.
Some of the analysts reduced their fiscal year earnings estimates for Tyson from between $1.85 on the low side to $2.07 a share, consistent with a move by the company to revise 2012 earnings expectations to “around $2” from “in excess of $2” a share after releasing the quarterly results.
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