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Tyson Foods: Tough Situation Here

May 05, 2020 10:03 AM ETTyson Foods, Inc. (TSN)5 Comments


  • The protein supply chain is temporarily broken.
  • Tyson, along with many other protein processing and production companies, has seen unprecedented closures, worker absenteeism, and high costs to ensure safety.
  • The shift to strong consumer grocery/retail demand has greatly offset the loss of foodservice demand, though the next few months will still be tough.
  • The stock has taken a bit of a bad beat, in that it has gotten crushed in a short term, though the long-term prospects are promising.
  • This idea was discussed in more depth with members of my private investing community, BAD BEAT Investing. Get started today »

Prepared by Stephanie, Analyst at BAD BEAT Investing

Tyson Foods' (NYSE:TSN) stock has been falling along with the market thanks to the COVID-19 crisis. Dealing in proteins, Tyson has been hit particularly hard as a company. Let us be clear, meatpackers and employees of protein processing plants have been hit hard with COVID-19 infections. Many producers have had to shut plants, sanitize, send employees on temporary furloughs, and more. Making matters worse, with big declines in restaurant demand, the space has been squeezed. Essentially, there will be limited supply of Tyson's products available in grocery stores until it's able to reopen its facilities that are currently closed. The supply chain is broken. Farmers across the nation simply will not have anywhere to sell their livestock to be processed. Millions of animals will be depopulated because of the closure of Tyson's and other protein companies' facilities. This Time Magazine article summarizes the issue nicely.

In terms of a stock, a better price approaches for Tyson as the just-reported earnings reflected pain, and it is likely Q3 will be even worse. Issues we once really dug into like feed and labor costs are now trivial in relation to the health and safety of workers, and the nation. Given the fear of product shortages, the main consumer concern would be a surge in prices. While we expect prices to rise a bit in the interim, Tyson is of the position that total protein volumes will actually be higher in both Q3 and Q4 in comparison to a year ago, despite the plant closings grabbing headlines at the moment. Obviously, we have to worry about the coronavirus completely impacting demand, and we continue to expect supply issues to continue for the coming weeks, though the full financial impacts are not known on the global business at this time.

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This article was written by

Quad 7 Capital profile picture

Quad 7 Capital is a team of 12 with a wide range of experience sharing investment opportunities for nearly 7 years. Quad 7 Capital as a whole has expertise in business, policy, economics, mathematics, game theory, and the sciences. They share both long and short trades and invest personally in the stocks they discuss within their investing group. They lead the investing group Bad Beat Investing include: daily market commentary and market briefing, 1-2 trade ideas per week, 5 chat rooms for a range of sectors, volatility screeners, unusual options activity alerts, and economic calendars.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TSN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

GarBooks profile picture
*culling the herd* is usually great news for any protein producer. Certainly the price is reflecting a massive, quick and sustained recovery as massive US food exports start to follow the already extant massive US energy exports.

Best start ever weather wise to the US farming communities and especially so after last year's disaster.

Hopefully *best practices* are Instituted as a result of Covid-19 as I am absolutely certain they will be. The US economy is far stronger as a result of Covid-19 than it was prior to as can be seen by the strength in the US Dollar despite record low bond yields and record high deficit finance of everything. Get the US Airline Industry stood up and employment will recover. Failure to do so will result in a massive impairment to US growth and a needless one at that.
JohnB Investor profile picture
People are turning away from the products and practices of Tyson. The foods are profoundly unhealthy for humans (not to mention the conditions of animals wallowing in their waste, and the poorly paid employees who are being asked to work in germ loving environments while ill) and people are looking for something better. This is not a short-term change, and it's been accelerated by this pandemic.
Not in my state.
mirekw profile picture
Johnny you are dreaming in Leftist Technicolor
Calvin Ott profile picture
Quads ... nice update and analysis ... This Q's beef segment will be very interesting ... while live cattle costs have dropped from the $1.20 range in January to the 90 cent ran here in May, wholesale / retail prices have been moving higher ... i look at the the live box spread daily and it is now $248 / cwt ... it is usually about $10 to $30 .... so for those packers that can get product to the stores, they should be getting good gross margins .... the question ... will it offset disruption costs?


I have to believe TSN, JBS, Cargill and other packers will eventually become better with safety ... and this wacky spread will return to normal... but i believe packers will enjoy good gross margins for quite some time.... operating margins not so sure ... JMO
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