Today, Tyson Foods (NYSE:TSN) reported weak results for the second quarter of fiscal 2020, which ended on March 28. Temporary plant closures, supply chain disruptions, and workforce issues due to COVID-19 have been hurting the company. Tyson Foods and other meat processors, like Smithfield Foods, have temporarily closed certain facilities since COVID-19 has spread among their workers.
Recently, President Trump invoked the Defense Production Act. He ordered meat processing plants to stay open to ensure food supplies. However, unions are concerned about the risks for workers at the meat facilities.
Tyson Foods’ second-quarter sales grew 4.3% YoY (year-over-year) to $10.89 billion. The company, which sells protein under brands like Jimmy Dean and Aidells, missed analysts’ sales estimate of $10.96 billion. Tyson Foods stock has fallen by 7.7% as of 11:43 AM ET today. The stock had fallen 34.1% year-to-date as of May 1.
Volume growth of 2.6% and a 1.6% rise in average prices boosted the company’s second-quarter sales growth. Tyson Foods experienced higher beef and pork volumes, which were partially offset by lower volumes of chicken and prepared foods.
Tyson Foods’ Q2 earnings declined
The company’s second-quarter adjusted EPS fell by about 36% YoY to $0.77. The adjusted EPS lagged analysts’ forecast of $1.04. Higher sales growth was offset by a lower gross margin and increased taxes. The company’s gross margin declined to 9.4% in the second quarter of fiscal 2020 compared to 11.4% in the second quarter of fiscal 2019. Meanwhile, the gross margin contracted due to higher raw material and other input costs, higher live hog costs, increased feed ingredient costs and other costs in the Chicken segment, and higher derivative losses. Also, soft chicken pricing and the impact of COVID-19 pandemic hurt the earnings.
COVID-19 to impact business
Tyson Foods has faced several challenges amid the COVID-19 outbreak. The company experienced a spike in retail sales as stay-at-home restrictions emerged. However, sales from foodservice channels fell due to social distancing requirements and lockdowns. The company also had to temporarily shut down some facilities. Some workers have contracted the virus.
The company expects COVID-19 related challenges to increase its operating costs and have a negative impact on its volumes. Tyson Foods also expects workforce shortages and short-term idling of facilities to hurt the business. The company cautioned that it expects lower volumes in the second half of fiscal 2020. Notably, the company doesn’t expect higher volumes in the retail channel to offset the loss of business in the foodservice channel. The foodservice channel generally accounts for 40% of the company’s sales.
Meanwhile, Costco (NASDAQ:COST) has temporarily limited fresh meat purchases. The company will only allow three fresh beef, pork, and poultry purchases per customer. Recently, Tyson Foods Chairman John Tyson warned about supply chain disruptions amid COVID-19.