Tyson Foods stock surges more than 60%

 

 

Tyson's stock has soared more than 60% so far this year, outpacing both cattle futures (up 15%) and wholesale beef prices (up 20%).

 

Recently, however, cattle futures and Tyson shares have declined from multi-year highs, raising questions whether both have peaked, at least for the near future. While surging beef and pork prices have been a feast for Tyson's profit margins, some analysts wonder if the best news is already priced in.

 

Earlier, shares of Springdale, Arkansas-based Tyson traded around US$19.78, a drop of more than 3% from an April 15 close at US$20.40, the highest since September 2007.

 

Strength in wholesale meat markets is trickling down to the grocery store, with average retail beef prices rising each of the three previous months, according to government data.

 

Choice boxed beef values reached US$1.6711 a pound, the highest since July 2008. Pork carcass cutout values averaged 85.34 cents a pound at the end of last week, up 27% this year.

 

Retail beef and pork prices probably will climb further this month to reflect higher wholesale markets, analysts said. But with the economy still shaky and unemployment still high, some observers caution that buyers will start balking at pricier meat.

 

Beef and pork prices are rising as meat processors are competing for smaller supplies of slaughter-ready animals, after high feed costs the past two years prompted widespread herd reductions.

 

While retail meat prices are up from the end of 2009, they remain below year-ago levels.

 

Choice sirloin steak averaged about US$5.63 a pound nationwide in March, compared with US$5.77 during the same month a year earlier, according to US Labor Department statistics. Boneless pork chops averaged US$3.57 a pound, down from US$3.68 a year earlier.

 

In futures trading, April live cattle in Chicago today rose 0.2 cent to 98.95 cents a pound. A week ago, April cattle touched US$1.002 a pound, the highest price for a closest-to-expiration contract since September 2008.

 

Tyson, the nation's largest meat processor, benefitted this year as sales of beef, chicken and pork improved after the recession led to a deep industry-wide slump.

 

In the quarter ended January 2, Tyson posted net income of US$160 million, as sales rose 1.8%, to US$6.64 billion. In the same quarter a year earlier, Tyson had a loss of US$102 million. Tyson is scheduled to report its next quarterly financial results May 10.

 

During the that quarter, Tyson had a 4.4% operating margin in its beef business - reflecting the difference between the prices the company paid for cattle and the prices it got for the beef it sold.

 

Longer-term, Tyson will be hard-pressed to duplicate that kind of margin, considering its historical average is closer to 2% to 3%, according to analysts.