Tyson Sinks With Virus Pushing Up Costs and Clouding Outlook

(Bloomberg) -- Tyson Foods Inc. shares tumbled after the top U.S. meat supplier forecast lower output and higher costs, with the meat-industry's outlook so murky it couldn't offer annual financial guidance.

An unprecedented wave of plant shutdowns and slowdowns because of the coronavirus is set to continue, resulting in higher operating costs and lower volume for the rest of fiscal 2020, Tyson said in a statement on second-quarter earnings, which missed estimates amid derivative losses. That may mean “short-term outages” in availability for some meat products at grocery stores.

While the pandemic has meant higher retail volume, that won't be enough to offset food-service losses. About 40% of Tyson's sales come from the restaurant business. Shares, which had held up fairly well amid the shutdowns, slumped as much as 8.5% Monday.

“Due to the uncertainty of the COVID-19 impacts to our operations, we are currently unable to provide segment adjusted operating margin guidance,” Chief Executive Officer Noel White said.

As thousands of U.S. meat-plant workers fall ill, and some die, processors are wrestling with how to keep consumers supplied with protein while also protecting their labor force. The closures mean beef and pork prices are surging, and farmers are destroying tens of thousands of animals as oversupply pushes down livestock prices.

The U.S. government stepped in last week, with President Donald Trump invoking the Defense Production Act to keep plants running. But that won't be a quick fix and unions say the measure puts workers in danger. Tyson said absent workers and closings of facilities were reducing what would otherwise be a strong margin environment.

“The major challenge we face is the availability of team members to operate our production facilities as our production facilities are experiencing varying levels of absenteeism,” the company said in commentary filed with the Securities and Exchange Commission.

Tyson, down 34% this year, fell as much as 7.5% before the start of regular trading Monday. Second-quarter adjusted earnings came in at 77 cents a share compared with the $1.04 average analyst estimate and $1.20 a year ago.

Upheaval in the markets are causing major disruptions for Tyson and its peers. Volatile commodity markets caused the company to lose $100 million in derivatives, impacting its beef, chicken and prepared foods segments, the company said in SEC documents. Unlike the fire the company experienced late last year at its Holcomb, Kansas beef plant, most Covid-19 losses won't be covered by insurance policies, it said.

Tyson also said its own supply chain was experiencing severe disruptions, raising costs for raw materials, with port closures shaking up the logistics of importing and exporting products.

The company said it has enough liquidity to weather the crisis for now.