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Analysts see beef, pork risks for Tyson, better chicken
Story Date: 4/16/2012
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Source: MEATINGPLACE, 4/13/12
BMO Capital Markets analyst Kenneth Zaslow lowered his 2012 outlook for Tyson Foods, citing challenges in the beef and pork markets, but said seasonal improvement in the chicken market should help earnings at Sanderson Farms and Pilgrim’s Pride Corp.
The “pink slime” controversy shaved $5 off beef cutout values, and the United States remains a net importer of beef for the second month in a row, Zaslow said.
Meanwhile, chicken margins are showing seasonal improvement, brightening the profit picture for Sanderson and Pilgrim’s, Zaslow said. Even so, breast prices fell in early April, and egg sets are unlikely to decline by the same magnitude as the breeding flock due to higher productivity from the younger flock.
Overall, broiler production is expected to decline by 2 to 3 percent in 2012 as lower production in the first half of the year offsets expected flat to higher production in the second half, he said.
“The recovery may fall short of expectations,” he cautioned.
He also noted that turkey margins have fallen to their lowest level in a year.
Smithfield Foods, Zaslow said, is “experiencing a near-term hiccup in fresh pork until the industry adjusts for the derivative impact of ‘pink slime’ and lower exports.”
He maintained his 2013 earnings outlook for Smithfield, however, saying hog production margins, packaged meat profits and a recovery in international sales should more than offset weakness in fresh pork.
Deutsche Bank analyst Christina McGlone predicted beef margins will improve over the next several weeks and said recent weakness in Tyson’s stock should be viewed as a buying opportunity as Tyson outperforms the industry.
Longer term, however, “the looming tight cattle supply is a future hurdle,” McGlone said. In the chicken market, she said, the summer outlook is strong.
Analyst Ken Goldman of J.P. Morgan said beef production levels are still too high, while pork processing margins have fallen to levels not seen in seven years due to higher production and fallout from the controversy over lean finely textured beef.
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