Tyson Foods Inc. (NYSE:TSN) shares witnessed their most significant drop since August as the company acknowledges that persistent inflation is dampening consumer demand for its branded and ready-to-eat products, which historically contributed to most of its profits in the second quarter.
According to Melanie Boulden, overseeing Tyson’s Prepared Foods business, high inflation rates, and low savings have led consumers to prioritize essential items over discretionary purchases. Boulden stated in a conference call with analysts that the business is anticipated to yield lower profits in the second half of the current fiscal year compared to the first.
“The consumer is under pressure, especially lower-income households,” noted Boulden. She highlighted a 20% cumulative inflation over the past three years, which has fostered a more cautious and price-sensitive retail environment.
These remarks cast doubt on Tyson’s ability to swiftly regain profitability following last year’s decline. While grappling with a significant downturn in its beef business, Tyson’s prepared foods unit, responsible for over half of the company’s operating profits this year, has been instrumental. Nonetheless, the company has revised its profit outlook for fiscal 2024, expecting improved margins in its chicken and pork businesses.
Tyson’s shares plummeted by up to 9.4% in New York, reaching their lowest level since March.
Chief Financial Officer John Tyson emphasized remaining uncertainties surrounding consumer strength and behavior, as well as US cattle supplies and key commodity costs. He noted that the third quarter might be weaker than the fourth quarter due to these factors and the seasonality of the pork and prepared food businesses.
In the three months ending March 30, adjusted net income stood at 62 cents per share, a turnaround from a loss of 4 cents per share a year earlier, as reported by Tyson in a statement on Monday. This figure exceeded even the highest analyst estimates compiled by Bloomberg.
The rebound in earnings was primarily driven by the chicken business, benefiting from reduced costs, including feed expenses. Tyson attributed the restoration of profitability to operational streamlining measures, including the closure of six poultry facilities last year. However, operating income in the prepared foods unit declined by 7.5% from the previous year in the quarter.
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