Tyson Shares Plunge as Food Giant Sees Inflation Eroding Demand

(Bloomberg) — Tyson Foods Inc. shares plunged the most since August after the company said persistent inflation has eroded consumers’ appetite for the branded and ready-to-eat offerings that accounted for most of the company’s profits in the second quarter.

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High inflation and low saving rates have prompted consumers to prioritize essential staples over discretionary categories, Melanie Boulden, who overseas Tyson’s Prepared Foods business, said in a conference call with analysts. The executive said the business is likely to deliver less profits in the second half of the current fiscal year than in the first.

“The consumer is under pressure, especially the lower-income households,” Boulden said. A 20% cumulative inflation over the past three years has contributed to create a “more cautious, price-sensitive consumer” in retail, she added.

The comments raise questions on Tyson’s ability to more quickly restore profitability after last year’s plunge. As the company grasps with a major downturn in its beef business, the company’s largest, the prepared foods unit has generated more than half of the producers’ operating profits this year. Still, the company raised its profit outlook for fiscal 2024 as margins at its chicken and pork business continue to improve.

Shares plunged as much as 9.4% in New York, to the lowest level since March.

Chief Financial Officer John Tyson said “uncertainties remain around consumer strength and behavior” as well around US cattle supplies and “key commodity costs.” Combining these variables with the seasonality of the pork and prepared food businesses, he said the third quarter could be weaker than the fourth quarter.

Adjusted net income in the three months ended March 30 was 62 cents a share, reversing a loss of 4 cents a share a year earlier, Tyson said in a statement Monday. That exceeded even the highest of analyst estimates compiled by Bloomberg.

The earnings rebound was mostly driven by the chicken business, which is benefiting from lower costs including from feed. Tyson said measures to streamline its operations, including the shutdown of six poultry facilities last year, have also helped restore profitability. Meanwhile, operating income at the prepared foods unit shrank 7.5% from a year earlier in the quarter.

(Updates with stock move and details from earnings call)