By Tom Polansek and Ananya Mariam Rajesh
(Reuters) -Tyson Foods Inc shares slumped 2% on Monday after the U.S. meat processor said declining demand for pork and premium beef contributed to lower-than-expected quarterly earnings.
Food companies like Tyson are grappling with increased costs for items ranging from livestock to labor. They are also assessing how much demand may fall as they raise prices for consumers.
The maker of Ball (NYSE:BALL) Park hotdogs projected full-year 2023 sales between $55 billion and $57 billion, compared with analysts' expectation for $53.6 billion, according to IBES data from Refinitiv. Its revenue outlook was "surprisingly strong," JP Morgan analysts said in a note.
Consumers are willing to pay for food to eat at home, Tyson Chief Executive Donnie King told reporters.
But analysts have raised concerns that higher prices will increasingly push shoppers to buy cheaper meat, denting processors' profits. Demand for premium cuts of beef declined in the quarter ended Oct. 1 compared with strong results a year earlier, Tyson said.
Quarterly operating income for Tyson's beef business, its largest segment, sank by 67% from a year ago to $375 million, while its average prices dropped by 8.2%. Tyson paid more for cattle, the company said, as a drought in western United States has pushed ranchers to reduce their herds.
"Beef margins are correcting rapidly amidst a declining cattle herd," Goldman Sachs (NYSE:GS) analysts said.
In pork, Tyson reported an operating loss of $55 million, compared with income of $78 million last year, as sales volumes and prices slipped. The company's chicken business swung to a quarterly profit, meanwhile, as sales volumes increased 1.1% and prices climbed by an average 18.2%.
Next year, "chicken prices likely will be down by a great degree and consumers will continue to trade down," JP Morgan said.
Tyson reported quarterly sales rose about 7% to $13.74 billion, topping analysts' estimates for $13.50 billion. The company posted an operating margin of 5.6%, compared with 14.9% last year. Excluding items, earnings were $1.63 per share, below estimates for $1.73.