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Tyson Foods Slides As CEO Cautions On 'Substantial' Inflation Pressure

Tyson Foods CEO Dean Banks said "substantial inflation across our supply chain" will "create margin pressure during the back half of the year.”

Tyson Foods  (TSN)  shares slumped lower Monday after the world's biggest food producer posted stronger-than-expected second quarter earnings but cautioned that "substantial" inflation pressures would clip its profit margins over the second half of the year. 

Tyson Foods said adjusted earnings for the three months ending in March, the group's fiscal second quarter, were pegged at $1.34 per share, up 67.5% from the same period last year and well ahead of the Street consensus forecast of $1.12 per share. Group revenues, Tyson said, rose 4.4% to $11.3 billion, again topping analysts' estimates of a $10.9 billion tally.

Tyson Foods said improving demand allowed it to boost its full-year sales outlook, forecasting revenues of between $44 billion and $46 billion, but cautioned that rising costs would eat into its overall profit margins.  

“We’re seeing substantial inflation across our supply chain, which will likely create margin pressure during the back half of the year,” said CEO Dean Banks. “We will remain focused on the factors we can control and will continue to work diligently for a full recovery of our chicken business, while delivering strong results in other areas of our company."

"Our long-term outlook is bright as global protein consumption continues to grow, and we expect our investments in capacity expansion, product innovation and technology to create sustainable shareholder value,” he added.  

Tyson Foods shares were marked 2.5% lower in early Monday trading to change hands at $76.90 each, a move that trims the stock's year-to-date gain to around 18%. 

The Commodity Research Bureau's benchmark food stuff spot index is up 70% from last year while the United Nations main gauge of global food prices has risen for 11 consecutive months, the longest streak of advances in nearly a decade. 

BMO Capital Markets analysts warned last week that food service distributors "may be poised for a near-term pullback due to risk of upcoming gross margin pressures" linked to "a continued spike in food-related commodity prices and labor-related pressures".

"The key question related to food inflation, as with the broader economy, remains how transitory this is," said BMO analyst Kelly Bania. "Our understanding from speaking with companies is that some of the inflation (even in proteins) is being induced by COVID-related labor challenges, suggesting that the impact may be more transitory and could improve as we get to the fall."

"All this leaves us wondering if we are setting up for another food deflation cycle post this inflation, possibly in the late 2022 or 2023, as COVID-related volatility results in multi-year reverberations across the food retail landscape," he added.