|
Analysts downgrade protein processors on weather, crop concerns
Story Date: 7/10/2012
| |
Source: Chris Scott, MEATINGPLACE, 7/9/12
Hot weather and higher feed prices are affecting the outlook of three protein companies, resulting in earnings estimate adjustments and ratings downgrades.
Tyson Foods
Analyst Heather Jones of BB&T Capital Markets is raising the firm’s estimate for Tyson Foods Inc.’s fiscal 2012 third-quarter net income to 51 cents a share from 47 cents, but is lowering the estimate for full-year profits to $1.93 from $1.99.
Jones notes that fundamentals in the third quarter “played out better than we had anticipated,” with beef rebounding strongly from deep losses in April and chicken margins remaining strong for much of the period.
The longer-term outlook for Tyson is much more muted, she adds, with concerns about a poor corn crop negatively affecting feed costs and tightening chicken margins. Jones’ pork outlet remains relatively unchanged with packers likely to benefit from an anticipated increase in the hog supply in late 2012 into 2013.
In a note to investors, Jones said the short-term outlook for Tyson’s beef operations should be very good, noting supplies are ample due to reduced kill in early 2012 and the movement of more cattle in the Tyson regions to feedlots due to increased drought in those regions. The drought, however, is likely to cause tighter beef supplies in 2013, sparking a reduction in BB&T’s beef margin projection, which already was below the “normalized” range.
BMO Capital Markets analyst Kenneth Zaslow echoed concerns regarding Tyson Foods, noting that the health of the corn and soybean crops and lackluster chicken prices will offset the company’s substantial recovery in beef margins.
He downgraded Tyson to market perform in anticipation of higher feed costs and lackluster foodservice demand that is likely to limit chicken breast prices.
Pilgrim’s Pride
Jones also reduced the estimate for Pilgrim’s Pride Corp.’s earnings in the second quarter of fiscal 2012 to 30 cents a share from 32 cents because of the combined effects of a drop in prices for specific chicken parts in June and the surge in chicken feed late in the quarter.
The estimate for all of fiscal 2012 has also been reduced to 55 cents a share from 90 cents and the earnings estimate for 2013 now stands at 65 cents a share from $1.07 earlier.
Jones says the “skyrocketing” price of feed and lack of a break in precipitation to offset recent record heat and dry weather in the Midwest do not bode well for prospective yields for corn as well as for soybeans. She adds that feed costs have risen by more than seven cents a pound since June 1 and future increases cannot be ruled out.
Smithfield Foods
Concerns about the corn and soybean crops also prompted BMO Capital Markets to downgrade Smithfield Foods Inc. to market perform from outperform.
Zaslow cites the recent hot weather that’s negatively affecting corn fundamentals and a subdued hog price outlook based on ample supply, lower hog demand and seasonality.
He also said these factors are likely to offset Smithfield’s strength in packaged meats, increasing its near-term risk despite structural improvements on the company’s balance sheet.
For more stories, go to http://www.meatingplace.com/.
|
|
|
|
