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What to Expect from Tyson Foods’ Q2 Results

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Tyson Foods (NYSE:TSN) has faced a lot of uncertainty amid the COVID-19 pandemic. In a newspaper ad on April 27, John Tyson, the company’s chairman, expressed his concern about the supply chain disruption caused by COVID-19. Tyson Foods and other meat processors like Smithfield Foods are closing their US facilities. So far, the coronavirus has spread among many of the workers. Temporarily closing facilities could lead to the culling of livestock. Farmers won’t be able to sell them.

On Tuesday, President Trump invoked the Defense Production Act to ensure that meat processors keep their plants open amid the pandemic. However, the executive order didn’t go down well with workers and unions. They’re concerned that unsafe conditions in the plants might put workers’ lives at risk. About 900 out of 2,200 workers at Tyson Foods’ Indiana plant have tested positive for the coronavirus.

On Thursday, Tyson Foods announced its partnership with Matrix Medical Network to provide on-site healthcare services to its workers. The company will likely report its results for the second quarter of fiscal 2020 on May 4. Investors expect the company to provide more details about how COVID-19 has impacted its business.

Analysts’ Q2 growth expectations for Tyson Foods

Analysts predict a 5.0% rise in Tyson Foods’ sales to $10.96 billion. Meanwhile, analysts expect the company’s second-quarter adjusted EPS to decline by 13.3% YoY to $1.04. A spike in retail demand since the COVID-19 outbreak started might boost the company’s top-line growth. However, a loss of sales to foodservice channels amid the pandemic will likely be a drag.

On April 29, Piper Sandler lowered its rating for Tyson Foods stock to “neutral” from “overweight.” The firm cited the impact of the plant closures, a decline in foodservice channel sales, and higher costs due to COVID-19 as the reasons for the rating downgrade. Piper Sandler also downgraded Hormel Foods (NYSE:HRL) to “neutral” from “overweight” for the same reasons.

Tyson Foods’ first-quarter sales grew by 6.1% to $10.82 billion. However, the sales lagged analysts’ forecast of $11.04 billion. The company’s sales growth was impacted by lower beef volumes due to a fire at a Kansas slaughterhouse. The first-quarter adjusted EPS rose 5.1% YoY to $1.66 and was in line with Wall Street’s expectations.

Analysts’ recommendations

Aside from Piper Sandler, Bernstein also downgraded Tyson Foods stock last month. Bernstein lowered Tyson Foods’ rating to “market perform” from “outperform.” Notably, Bernstein expects plant closures and absent workers amid COVID-19 to impact the company’s performance over the short term.

On April 29, Piper Sandler lowered its target price for Tyson Foods stock to $66 from $100. Bernstein lowered its target price to $65 from $88.

Most of the analysts covering Tyson Foods stock have a “buy” recommendation. As of April 30, 11 analysts recommend a “buy,” while two recommend a “hold.” Currently, none of the analysts recommend a “sell.”

Over the long term, Tyson Foods is positioned to capture the growing demand for protein. The company plans to expand its presence in the alternative meat or plant-based market. Last year, the company entered into the alternative meat space through the launch of Aidells Whole Blends and Raised & Rooted nuggets. Tyson Foods aims to expand its alternative meat products in more channels. Meanwhile, leading alternative meat maker Beyond Meat (NASDAQ:BYND) has entered the Chinese market through its partnership with Starbucks.

With an average 12-month target price of $79.09, analysts expect a 27% upside in the stock. As of April 30, Tyson Foods stock had fallen 31.7%, while Hormel Foods had risen 3.9% year-to-date.

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