Stock of Tyson Foods, the world's second largest processor and marketer of chicken, beef, and pork after Brazil's JBS S.A., is soaring 9%, hitting an all time high and is one of the S&P's best companies this morning...
... after the company reported blowout earnings (thanks to passing on surging food prices) and announced that it is raising prices even more as it grapples with a tight labor market and smaller livestock herds. According to the report, beef prices jumped by 32% in the quarter, with chicken up ~20% and pork 13%.
This helped Tyson's operating margin grow to 11.3%, up from 6.7%, a year earlier. The higher meat prices has, however, had the Biden administration scrambling as profits continue to mount at meatpackers, while runaway inflation continues to crush Biden's collapsing approval rating.
This is what the company reported:
- Beef: Sales volume decreased due to the impacts associated with a challenging labor environment and increased supply chain constraints, partially offset by strong global demand Average sales price increased as input costs such as live cattle, labor, freight and transportation costs increased and demand for our beef products remained strong
- Pork: Sales volume was up slightly as strong global demand was offset by the impacts associated with a challenging labor environment. Average sales price increased as input costs such as live hogs, labor freight and transportation costs increased and demand for our pork products remained strong partially offset by unfavorable mix associated with labor shortages
- Chicken: Sales volume increased primarily due to increased live production and a strong demand environment. Average sales price increased due to the effects of an inflationary cost environment
- Prepared Foods: Sales volume decreased due to the divestiture of our pet treats business in the fourth quarter of fiscal 2021 as well as lower production throughput primarily associated with a challenging labor and supply environment Average sales price increased primarily due to the effects of revenue management in an inflationary cost environment
Overall sales for beef rose about 25% to $5 billion, helping Springdale, Arkansas-based Tyson's sales rise 23.6% to $12.93 billion in the first quarter ended Jan. 1. Analysts on average were expecting revenue of $12.18 billion; net income attributable jumped to $1.12 billion and excluding items, Tyson earned $2.87 per share, also beating estimates of $1.95 per share.
As Bloomberg's Felice Maranz notes, consumer goods companies keep showing they can boost how much they charge customers, who bizarrely don’t seem too stretched to pay up despite complaining about inflation at every possible opportunity (and hammering both Joe Biden and the Democrats' approval ratings). That’s easing margin worries and lifting share prices for some of the biggest U.S. companies.
And speaking of food inflation, brace for more, much more: recent data showed the American cattle herd shrank more than expected, signaling consumers faced more sticker shock. Amazon’s stock jump last week was a notable example. The rally came with an increase in the price of Prime membership.
The sustainability of such gains, according to Maranz, is an open question. Consumer goods maker Kimberly-Clark raised prices too, but faces soaring costs of its own, along with supply-chain problems - leading to a plunge in its stock price. And, while Friday’s jobs report showed average hourly earnings rose, wages have failed to keep pace with inflation. That’s likely to weigh on how far companies can keep raising prices... and will eventually weigh on risk assets.
Meanwhile, an even bigger risk for stocks is that yields are climbing, too, with U.S. Treasuries lower from belly to long-end, steepening key yield-curve spreads from lowest levels in months. Yields on 10-year Treasuries are topping 1.93% with inflation jitters spurring bets on the Fed, while European peripheral bonds are getting taken to the woodshed as discussed earlier.