Tyson Foods, the US-based meatpacking empire, finds itself in a critical juncture as its nine decades of legacy and dominant market position are under fire due to economic headwinds, succession issues, and a delicate relationship with farmers.
The company continues to be a major force in the country’s food industry as it produces approximately one out of every five pounds of chicken, beef, and pork sold. Its annual sales as of 2023 stood at $53 billion and its influence in the American diet and agriculture is undeniable.
However, its latest financial results portray that the situation is far from ideal at a point when the United States is fighting with persistently high inflation and American consumers are struggling to make ends meet.
Tyson Foods Q3 2024 Earnings Report Was a Mixed Bag
According to its latest quarterly financial report, Tyson’s chicken business is suffering as sales retreated by 2.7% in the first nine months of the 2024 fiscal year. Meanwhile, beef sales stood nearly unchanged with a 0.9% advance during this same period, aided primarily by a 5.5% increase in the average price of the product.
The pork business – the smallest among the four segments covered by the financial report – saw its sales advance by 4% while the prepared foods unit also delivered positive growth of 1.7%.
Despite this mixed bag of performance, the company’s operating results showed a remarkable improvement as operating income advanced from $68 million during the first nine months of the year to $884 million. The beef business was heavily impacted though as it moved from $232 million gains last year to an operating loss of $310 million.
The chicken business, however, performed oppositely, posting operating gains of $579 million compared to a $503 million loss it delivered last year.
CEO Donnie King commented in the company’s quarterly press release: “Our disciplined actions and focus on the fundamentals have resulted in a positive turnaround of our business.”
He added: “In Q3, we delivered the highest adjusted operating income in the last seven quarters while also generating strong free cash flow. Looking ahead, we will continue to strive to be best-in-class operators, drive efficiencies, value-up our portfolio, win with customers and consumers, and be disciplined in our capital deployment.”
In response to recent financial pressures, Tyson Foods embarked on a significant cost-cutting strategy. The company closed eight meat-packing plants in 2023 alone, including six chicken processing facilities and two beef processing plants.
These closures resulted in the layoff of more than 4,200 workers across all its plants last year. The company has also reduced its capital expenditures for fiscal 2024 to approximately $1 billion in an effort to reduce debt. Meanwhile, Tyson recently issued $1.5 billion in senior notes to pay off some of its short-term loans and retire a $1.25 billion bond maturing in August.
Tyson Foods is also grappling with a shifting consumer landscape. Melanie Boulden, who oversees Tyson’s Prepared Foods business, noted during a conference call with financial and industry analysts that high inflation and low saving rates have prompted consumers to prioritize essential staples over discretionary categories.
This trend has particularly affected Tyson’s branded and ready-to-eat offerings, which account for a significant portion of the company’s profits.
“The consumer is under pressure, especially the lower-income households,” she stressed.
The Tyson Family Legacy is Under Fire Amid Alcohol Addiction Issues
The history of Tyson Foods started in 1931 when John W. Tyson started a chicken transportation business. However, the company expanded rapidly under the leadership of Don Tyson who adopted a “grow or die” philosophy.
The firm became the largest chicken-packing business in the late 80s when Don had the reins. Meanwhile, in 2000, John H. Tyson took over the top leadership role and diversified Tyson Food’s interests to pork and beef.
The Tyson family is by far the most influential shareholder in the company as it controls 70% of voting rights. This has allowed the Tysons to control the strategic direction of the business but has also raised questions about its endurance as succession issues have emerged lately.
Alcohol addiction within the family has been a pressing issue for many decades. Don Tyson, the pioneer who managed to push the business to new heights, was known for organizing lavish parties and had his driver’s license suspended on various occasions after being pulled over for driving under the influence of alcohol.
Meanwhile, John Randal Tyson, the most obvious candidate to take over the company’s leadership, has been arrested two times already for alcohol-related incidents. John Randal will turn 34 years old this year and was Tyson’s Chief Financial Officer until June this year when he was suspended after his second arrest.
In regards to the succession, Arun Sundaram, an equity analyst for CFRA told the Associated Press recently that there were already “legitimate concerns about his [John Randal] ability to continue as an executive officer.”
Farmers Were Affected by Tyson’s Plan Shutdowns and Were Left Holding the Bag
A shortage of cattle in the United States has been pressuring meat packers like Tyson as costs are rising and have shrunk margins. The beef segment, the most profitable for the company historically, just delivered operating losses in the first nine months of the 2024 fiscal year and Tyson said it expects to generate a total loss of up to $400 million during the entire year.
Meanwhile, even though the chicken segment has seen an improvement in its profitability, sales were sluggish amid egg fertility issues and higher-than-average mortality rates.
Finally, raw material costs have also been on the rise. Even though inflation has been slowing down lately, these costs remain higher than they were before the pandemic.
Also, farmers have been facing significant distress after the company decided to shut down eight plants. They claim that they were encouraged by Tyson to take on a significant amount of loans – often exceeding $1 million – to upgrade their facilities.
However, the abrupt closures are threatening to bankrupt them as their contracts have been canceled and they have been left in the cold with highly specialized facilities that cannot be used for other purposes.
Meanwhile, Timothy Bundren, a farmer who amassed $1.4 million in debt as a result of his dealings with Tyson, portrayed the severity of the situation: “I stand a chance of losing everything. Every [chicken] house I got, all my land, everything. It’s throwing me and my family in the street. Tyson ain’t thinking about that, and I guess they don’t care.”
“The model is designed to put that debt load external to the company, so that if the company decides to shut down a facility, they are not left holding the bag. The contract growers are,” said Aaron Johnson from the Rural Advancement Foundation International in regard to the situation.
Can Tyson Foods Maintain its Leadership in the Food Industry?
A handful of issues are plaguing Tyson’s growth and endangering its future including doubts about the company’s succession plan and changing consumer preferences and habits amid the most recent headwinds that have been affecting the United States economy.
Meanwhile, doubts started to emerge last week that the Federal Reserve managed to pull off a ‘soft landing’ as most thought. A disappointing jobs report last week plunged the stock market as only 114,000 new positions were added in July compared to 175,000 analysts expected.
For some, the Fed was too slow to cut rates, and that may have resulted in a catastrophic mistake for the economy that could have tilted it into a recession if no changes were made until the next meeting of the Federal Open Market Committee (FOMC) in September.
Aside from macroeconomic issues, Tyson has to navigate the complexities that the cattle cycle has brought onto its operations and the latest spike in chicken deaths that they have been facing.
As Tyson Foods works to address these challenges, its ability to adapt, innovate, and rebuild investors’ and consumers’ trust will be crucial to determine if it will be able to maintain its leading position in the American food industry for generations to come.