Tyson Foods has given its shareholders plenty to cluck about. The US meat producer has managed to stave off inflationary pressures and labour woes. In its latest quarter, the company behind Jimmy Dean sausages and Ball Park hot dogs delivered sales and profits that topped analysts’ expectations. Better, it raised its full-year sales range outlook by a few billion to between $52bn and $54bn.
Tyson can thank America’s legions of meat lovers. Customer demand has remained resilient despite higher check out bills. During the quarter, average prices for beef and chicken increased 24 per cent and 14 per cent respectively year-on-year. Volumes for both held up, increasing 0.6 per cent.
Tyson thus easily offset soaring costs for everything from animal feed to wages and transport. Underscoring its pricing power, gross profit margin for the period rose 210 basis points to 13.2 per cent. Net income jumped three-quarters to $829mn.
To say things are going well is an understatement. The meatpacker’s return on equity is more than 23 per cent for the past 12 months through April, a near record. Analysts estimate the company will generate a hefty $2bn of free cash flow annually through 2024, not bad for a $33bn company. No wonder Tyson shares have managed to climb 5 per cent this year, trading on a multiple of about 12 times forward earnings. That is in line with its three-year average.
Yet flexing its pricing muscle may well provide added ammunition for regulators. The meat industry has come under criticism as consumer price inflation soars. The White House blames excessive market concentration among the Big Four meatpackers for galloping food bills. In January, the Biden administration outlined plans to support smaller ranchers and meat processors in an attempt to inject more competition into the sector.
Investors like companies which can pass through rising costs to customers. They do not like regulatory threats. To keep its share price sizzling, Tyson will need to manage inflation without further provoking White House watchdogs.
