Tyson shares soar, boosted by higher meat prices. Should you buy in?
Price increases come amid growing scrutiny by Washington on market dominance in the meat industry.
Tyson (TSN) shares were one of the leaders today after a big earnings report with strong forecasts for the year. They hit a new high and might still have room to run.
Why? Inflation.
For the quarter, Tyson said beef prices jumped by 32%, with chicken up about 20% and pork 13%. Supplies were stagnant, demand strong, and despite supply chain constraints and cost issues, it translated to profits.
That means the protein-focused food company’s stock could keep running while inflation persists. But the Biden administration has been critical of meat producers, which could lead to increased regulation. So investors may remain wary.
Tyson beat earnings expectations
Tyson reported its first-quarter 2022 financial results Monday, and earnings were stronger than Wall Street had anticipated.
The company reported earnings of $2.87 per share on revenue of $12.93 billion, beating analyst expectations of $1.93 per share on revenue of $12.17 billion. Revenue was up 23.61% year over year. Earnings were up 48% from the same quarter a year ago.
The surge reflects the growing demand for beef, chicken and pork products, though Tyson has been struggling to produce at volumes sufficient enough to meet demand.
“Customer demand continues to outpace our ability to supply products,” Tyson CEO Donnie King said during an earnings call Monday.
Sales volume for the quarter decreased due to lower production volumes associated with continued labor shortages and increased supply chain constraints. But Tyson’s profits still grew considerably due to soaring meat prices.
The company said it raised meat prices to offset higher costs for cattle, labor, transportation and grains used for animal feed. Tyson’s cost of goods rose 18% in the quarter.
To offset inflationary pressures, the average price for Tyson’s beef surged 31.7%. The average price for its chicken jumped 19.9%, while its pork climbed 12.8%.
Tyson’s stock performance history
Following its earnings release, shares of Tyson rebounded from a one-month low of $87.82 on Friday to reach an all-time high of $99.27 Monday. The stock is currently up around 13% from the start of the year.
Tyson’s stock was trading at around its then all-time high of $93 in January 2020 before the onset of the pandemic. The stock tumbled to a low of $42.57 in early March 2020, a price it hadn’t seen since January 2016.
Washington critical of competition in US meat industry
The increase in meat prices and Tyson’s resulting profit growth may fan the flames of Washington’s already critical view of the US meat industry.
In July 2021, President Biden singled out the meat and poultry processing industries with an executive order to promote fairer competition across the economy.
Four companies — Tyson, JBS, Marfrig and Seaboard — control as much as 85% of the nationwide market for pork, beef and poultry, according to a White House estimate. The concern is that this allows these companies to dictate wholesale and retail pricing to profit at the expense of both farmers and consumers.
“Even as farmers’ share of profits have dwindled, American consumers are paying more — with meat and poultry prices now the single largest contributor to the rising cost of food people consume at home,” White House officials said in a statement last month.
As a part of Biden’s initiative to increase competition, government funds will be allocated to expanding independent processing capacity and supporting workers in the independent processing industry.
Is Tyson a buy?
The average American consumes more than 250 pounds of meat per year. By 2050, global meat consumption is expected to surpass 455 million tons.
These forecasts are favorable for meat companies, so the sector might be worth a look for investors interested in buying into food stocks.
Tyson, in particular, has noted that it’s taking steps to increase its capacity to meet the growing demand. In December, Tyson announced its plans to open 12 new plants over the next two years, allowing it to increase capacity by roughly 1.3 billion pounds. It’s also investing $1.3 billion over the next three years to improve its automation capabilities to help with labor costs and increase yields.
Tyson expects total 2022 revenue of between $49 and $51 billion, up between 4% and 8% from 2021. Of the 16 analysts covering the stock, 11 give it either a Strong Buy or Buy, versus five Holds and no Sells.
But investors should remain wary of future government actions that could limit Tyson’s profitability.
At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.
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