Tyson Foods (NYSE:TSN) exceeded analyst projections for its second-quarter earnings, demonstrating the early returns from its strategic closure of select U.S. chicken processing facilities to mitigate expenses.
Stocks of the Springdale, Arkansas-headquartered corporation climbed by 2.4% during premarket trading.
To curb expenditures, the leading meat producer in the United States has ceased operations at six chicken processing plants across four states since the beginning of the previous year. Additionally, it has downsized its corporate workforce and announced intentions to shutter a pork processing facility.
This initiative facilitated Tyson’s delivery of adjusted earnings of 62 cents per share for the quarter, surpassing the consensus estimate of 39 cents derived from LSEG data.
Tyson revised its anticipated total adjusted operating income for fiscal year 2024 to a range of $1.4 billion to $1.8 billion, an increase from the previous projection of $1 billion to $1.5 billion.
Although the heightened earnings and revised forecasts were somewhat anticipated, they are likely to bolster investor confidence, according to Citi Research analyst Thomas Palmer. Tyson previously outperformed expectations in the first quarter subsequent to the closure of processing plants.
Despite years of efforts to revitalize its chicken division, Tyson encountered challenges stemming from oversupply in 2023. Nonetheless, adjusted operating margins rebounded to 3.9% in the latest quarter from negative 3.7% in the corresponding period the previous year.
Tyson adjusted its forecast for adjusted operating income in the chicken segment to $700 million to $900 million, up from the previous outlook of $500 million to $700 million.
However, sales in the chicken division declined by 8.3% in the quarter, attributed to a 2.1% drop in prices and a 6.1% decrease in volumes primarily due to reduced U.S. production, as noted by Tyson.
The company continues to grapple with waning demand from budget-conscious consumers who are scaling back on premium purchases amid persistently high food prices and borrowing expenses. Tyson’s total net sales for the second quarter dipped by 0.5% to $13.07 billion, slightly below estimates of $13.16 billion, with sales expected to remain relatively stagnant in fiscal 2024.
On a positive note, volumes in Tyson’s beef segment, its largest division, registered growth for the first time in five quarters, marking a 2.8% uptick as cattle producers raised animals to heavier weights, mitigating tight inventories.
Nevertheless, the operating margin in Tyson’s beef business decreased by 0.7% during the quarter.
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