Are you too chicken to buy Tyson Foods (NYSE:TSN) stock after Monday’s rout? The prepared-food producer delivered some solid quarterly results for buyers to chew on. However, concerns about the U.S. consumer’s resilience amid sticky inflation evidently prompted fear and loathing in the market.
In case you didn’t notice, meat prices are quite elevated nowadays. It’s an unfortunate knock-on effect of supply shortages and a broad-based rally in commodity prices.
Consequently, some American consumers are opting for store-brand meat products instead of Tyson Foods’ offerings. That’s problematic for the company and its shareholders, but for bold dip buyers, there’s still plenty of meat left on the bone.
Tyson Foods stock tanks despite pivot to profitability
When it comes to quarterly earnings reports, the bottom line is supposed to be the bottom line. Lately though, the market has disregarded bottom-line data when investors have other concerns on their minds.
In the second quarter of its fiscal 2024, Tyson Foods pivoted to positive operating income of $312 million, versus an operating loss of $49 million in the year-earlier quarter. Furthermore, the company shifted from an adjusted earnings loss of 4 cents per share in the year-earlier quarter to adjusted earnings of 62 cents per share in Q2 FY2024.
Another negative-to-positive flip occurred with Tyson Foods’ free cash flow (FCF). It increased by $884 million from the year-earlier period to $556 million in the first six months of FY2024.
Much of Tyson’s financial success can be attributed to impressive growth in its chicken segment. Specifically, this segment delivered a profit of $158 million in Q2 FY2024, versus a loss of $258 million in the second quarter of fiscal 2023.
Understandably, CEO Donnie King celebrated Tyson Foods’ excellent bottom-line results.
“During the second quarter, we continued our positive momentum and made progress on our key initiatives. The strategies we have implemented are delivering tangible results, as evidenced by our return to year-over-year bottom-line growth,” King declared.
However, the market apparently didn’t see eye-to-eye with King. Tyson Foods stock dropped 7% as of midday on Monday after perusing those results and management’s forward guidance.
It was among a few falling large-cap stocks on a day when the market was in a positive mood overall. Did Tyson Foods commit a cardinal sin despite its encouraging bottom-line results?
Uncertainties about consumer resilience
Since the market tends to obsess over forward outlooks and ignore actual results nowadays, it’s not difficult to figure out why investors dumped their Tyson Foods shares. The reasons might not be rational, but at least they’re identifiable.
Regarding the company’s near-term outlook, Tyson Foods Chief Financial Officer John R. Tyson admitted, “Uncertainties remain around consumer strength and behavior.”
If there’s one thing the market can’t tolerate, it’s uncertainty. However, it’s important to acknowledge the reality of the situation for Tyson Foods. Commentators like to say that the American consumer is strong and resilient. However, with meat prices being as elevated as they are, cash-strapped consumers can only stay strong for so long.
Melanie Boulden, president of Tyson Foods’ prepared-foods unit, also gave investors a much-needed reality check. According to Reuters, Boulden warned that “high commodity costs could weigh on third-quarter results in prepared foods.” To that, Boulden added that “inflation is pressuring consumers, particularly those from lower-income households, at retail stores and food-service outlets.”
Struggling Americans know this, but Wall Street often conveniently overlooks the reality on Main Street. Thus, short-term stock traders may have found it unacceptable that Tyson Foods guided for sales to be “relatively flat in fiscal 2024 as compared to fiscal 2023.”
“Flat” is forbidden
In 2024, only optimistic forward guidance is acceptable; “flat” is a four-letter word. Investors want to see relentless, explosive growth forecasts. Whether companies actually live up to those expectations is of secondary importance.
Again, any mention of uncertainty is forbidden, so it appears that Tyson Foods’ management crossed an invisible line. The bar has now been set fairly low, and the company could clear that bar if its full-year sales are better than flat.
For now however, jittery stock traders are rejecting Tyson Foods like a bad piece of chicken. It’s a knee-jerk reaction and is probably irrational market behavior, but it’s surprisingly commonplace in 2024.
Thus, if you’re hungry for a consumer-goods investment in a well-known American brand, feel free to put some Tyson Foods stock shares in your shopping cart today.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
