Tyson Cuts Full Year Sales Estimates on High Inflation Concerns
Inflation effects are still being felt even on declining from four-decade highs of 9.1% to lows of about 5% on aggressive monetary policy tightening. Tyson Foods is the latest to cry foul of the current high inflation situation, warning that its revenues and margins would come under immense pressure. The largest meat company in the US has had to cut its full-year sales estimates on fear consumers will continue to spend less on meat and its products.
Tyson Food Soaring Losses
Tyson Foods reported a surprise second-quarter loss of $97 million, down from a net income of $829 million for the same quarter last year. In February, the company posted its biggest drop in quarterly profit to $316 million from $1.1 billion delivered last year. The losses have come as the company continues to pay much more on animal feed and plant worker wages, which is eating significantly on margins.
The company has since revised its full-year sales estimates to between $53 billion and $54 billion, down from an initial forecast of between $55 billion and $57 billion. The cut comes on the company affirming the challenging protein market with most consumers opting for cheaper foods on their finances being hurt significantly by the high inflation levels.
High Inflation Effects
Consumers are increasingly spending much less on steaks and burgers as part of an effort to reduce food costs. Likewise, the prices of meat have increased significantly on waning supply as drought-hit cattle ranchers slash herds, a move that has only pushed prices higher. Consequently, Tyson Foods’ cost to buy live cattle increased by $305 million in the second quarter. As a result, its sales for the three months that ended April totaled $13.1 billion, below consensus estimates of $13.6 billion.
The challenging economic condition is already forcing Tyson Foods into cost-cutting measures. As a result, the company plans to eliminate 15% of its senior leadership and 10% of its corporate roles. The company employs about 142,000 people worldwide, with about 124,000 in the US.
It has also confirmed plans to shut down two poultry plants and lay off nearly 1,700 workers as part of the restructuring drive. The cuts seek to ensure the meat company focuses on fewer initiatives with greater intensity and gets rid of work duplication.
Cost Cutting Push
Tyson is not the only company to embark on an aggressive restructuring drive amid fears of the softening economy exacerbated by high inflation levels. Tech giants led by Facebook, Twitter, and Google have also laid off staff to try and minimize operational costs to navigate the challenging business environment.
High inflation levels remain the biggest problem facing many companies, crippling consumer’s purchasing power. While it has come down significantly, it is still above the 2% recommended by the FED and continues to weigh heavily on purchasing power on fueling high prices for goods and services.
Amid the challenging economic and business conditions, Tyson Chief Executive Officer Donnie King has tried to downplay the effects, affirming that the company has a solid growth strategy. However, the market is hearing none of it going by the 8% sell-off of the stock on investors reacting to the full-year sales cut. The stock is also down by more than 20% for the year underperforming the S&P 500, which is up by about 7%