Tyson Foods shares suffer worst one-day decline in a year over demand concerns

By Tom Polansek and Granth Vanaik

(Reuters) -Tyson Foods shares suffered their worst one-day decline in a year on Monday after the U.S. meatpacker warned that consumers are under pressure from persistent inflation and high commodity costs could weigh on upcoming results.

The Arkansas-based meatpacker reported second-quarter sales that fell short of analysts' estimates, though profits surpassed expectations.

Third-quarter results could be weaker than the fourth quarter due to performance in Tyson's pork and prepared foods divisions, CEO Donnie King said on a conference call. Shares ended down 5.7% after tumbling earlier by more than 9%.

"The outlook was viewed as a disappointment," said Arun Sundaram, analyst with CFRA Research, adding the third quarter is "typically the strongest from a seasonal perspective."

High commodity costs could weigh on third-quarter results in prepared foods, said Melanie Boulden, the unit's president. She added that inflation is pressuring consumers, particularly lower-income households, at retail stores and food-service outlets.

"Uncertainties remain around consumer strength and behavior," Chief Financial Officer John R. Tyson said.

He later sought to calm investor concerns over the third quarter as shares sank, saying executives "don't want anyone to over-read into that." Following the call, the company said it does not issue quarterly guidance.

Tyson has shuttered six U.S. chicken plants since the start of 2023, eliminated corporate employees and announced plans to close a pork plant, in an attempt to boost results and rein in costs.

Improvement in the chicken business on Monday prompted Tyson to lift its estimate for total adjusted operating income in fiscal year 2024 to between $1.4 billion and $1.8 billion from between $1 billion and $1.5 billion.

The increased forecast and quarterly earnings were not overly surprising, Citi Research analyst Thomas Palmer said.

Adjusted second-quarter earnings were 62 cents per share, above analysts' expectations for 39 cents, based on LSEG data.

Tyson has worked to turn around its chicken business for years but struggled with excess supply in 2023. Adjusted second-quarter operating margins were 3.9%, compared to negative 3.7% a year earlier, as feed costs fell.

Tyson raised the chicken unit's income outlook after the second quarter for the first time in seven years, JP Morgan said.

Second quarter sales slid 8.3% while volumes dropped 6.1% due to reduced U.S. production, according to Tyson. Producers are grappling with elevated chicken deaths and disease, King said.

"We're not where we need to be yet in our chicken business," he said.

(Reporting by Granth Vanaik in Bengaluru and Tom Polansek in Chicago; Editing by Devika Syamnath, Kirsten Donovan, Nick Zieminski and Aurora Ellis)