Beef Is Hot, and Chicken Is Not for Tyson's Outlook
(Bloomberg) -- Tyson Foods Inc. has been in an uphill battle against sluggish meat markets, but the outlook for 2019 is diverging by protein.
Beef could be the meat to bet on in the coming year as Tyson expects robust global demand. On the other hand, the company sees chicken margins falling from last year. Pork is more of a wild card, partly dependent on what happens with a pig-disease outbreak in China, the world’s top consumer.
Here’s what America’s biggest meat company predicted for the year ahead in its earnings call:
- Tyson is expecting a “prolonged period of strong global beef demand” combined with “relatively constant global supplies,” said Chief Executive Officer Noel White.
- Cattle supplies will rise 2 percent, and there will be ample supplies near Tyson’s plants. Adjusted operating margins for beef were raised to near 7 percent.
- Hog supplies will increase 2 percent in 2019, and adjusted operating margins will be about 6 percent.
- The spread of African swine fever in China could be even worse than what’s being reported, White said
- Some analysts have predicted that China will eventually be forced to import more pork to meet demand as the disease shrinks domestic output.
- Tyson didn’t include any potential benefit from the outbreak in its guidance.
- Tyson expects “sizeable upside” to its pork business if China returns to the U.S. market for supplies.
- Chicken margins will be about 6 percent, and production will increase 1 percent.
- That compares with margins of 9.4 percent last year.
- Tyson’s “concession that the chicken segment will likely remain challenged by heavily supplied market conditions was a bit disappointing,” said Bloomberg Intelligence analyst Ken Shea.
- Domestic availability of U.S. beef, pork, chicken and turkey will be up 2 percent in 2019, with exports absorbing a part of 3 percent increase in production forecast by the U.S. government.
- “We continue to believe the risk/reward is skewed to the upside from here, given the continued strong momentum in the beef and prepared-foods segments,” Alexia Howard, an analyst at Sanford C. Bernstein & Co., said in a report.
- “Further, the African swine fever could provide potential upside to pork margins, which has not been embedded in guidance.”
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