The Arkansas-based meatpacker reported second-quarter sales that fell short of analysts’ estimates, though profits surpassed expectations.

Third-quarter results could be weaker than the fourth quarter due to performance in Tyson’s pork and prepared foods divisions, CEO Donnie King said on a conference call. Shares fell 7.9 per cent after tumbling earlier by more than nine per cent.

“Historically, FQ3 is typically the strongest from a seasonal perspective,” said Arun Sundaram, analyst with CFRA Research.”The outlook was viewed as a disappointment.”

High commodity costs could weigh on third-quarter results in prepared foods, said Melanie Boulden, the unit’s president. She added that inflation is pressuring consumers, particularly those from lower-income households, at retail stores and food-service outlets.

“Uncertainties remain around consumer strength and behaviour,” Chief Financial Officer John R. Tyson said.

He later sought to calm investor concerns over the third quarter outlook as shares sank, saying executives “don’t want anyone to over-read into that.”

Tyson has shuttered six U.S. chicken plants since the start of 2023, eliminated corporate employees and announced plans to close a pork plant, in an attempt to boost results and rein in costs.

Improvement in the chicken business on Monday prompted Tyson to lift its estimate for total adjusted operating income in fiscal year 2024 to $1.4 billion to $1.8 billion from $1 billion to $1.5 billion.

The increased forecast and quarterly earnings were not overly surprising, Citi Research analyst Thomas Palmer said.

Adjusted second-quarter earnings were 62 cents per share, above analysts’ expectations for 39 cents, based on LSEG data.

Tyson has worked to turn around its chicken business for years but struggled with excess supply in 2023. Adjusted operating margins were 3.9 per cent in the latest quarter, compared to negative 3.7 per cent a year earlier, as feed costs fell.

Tyson raised the chicken unit’s income outlook in the first such increase after the second quarter in seven years, JP Morgan said in a note.

Quarterly sales slid 8.3 per cent while volumes dropped 6.1 per cent, largely due to reduced U.S. production, according to Tyson. Producers are grappling with elevated chicken deaths and disease, King said.

“We’re not where we need to be yet in our chicken business,” he said.

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The weaker than expected results indicate cash-strapped shoppers are cutting back on meat spending in a high-inflation environment, while a shrinking cattle herd forces Tyson to pay more for livestock. Tyson also continues to struggle with increased feed costs.

CEO Donnie King, who is seeking to cut costs, said Tyson is in the unusual position of facing simultaneous challenges in its beef, pork and chicken businesses.

The company lowered its forecast for full-year sales to US$53-$54 billion, down from $55-$57 billion, after adjusted operating income for the first half of the fiscal year sank 80 per cent to $518 million.

“This quarter was definitely a tough one,” King said on a conference call.

Tyson hiked meat prices last year to offset inflation, but average sales prices for its beef and pork fell 5.4 per cent and 10.3 per cent, respectively, in the quarter ending April 1. Reduced demand for beef is making it difficult for Tyson to pass on higher costs to consumers, the company said.

Sales volumes in Tyson’s beef segment also fell, putting overall sales down 8.3 per cent at $4.62 billion.

Tyson’s costs to buy live cattle increased $305 million and its beef unit’s operating margins fell to 0.2 per cent from 12.7 per cent a year earlier. The company pegged full-year beef margins at negative one to one per cent, compared with its previous forecast of two to four per cent.

Beef margins were Tyson’s worst since 2015, while pork margins were the worst in more than two decades at negative 2.2 per cent, JPMorgan analyst Ken Goldman said.

In Tyson’s chicken business, margins were negative 3.7 per cent as feed costs jumped by $145 million. The unit’s adjusted operating income swung to a loss of $166 million, compared to profits of $203 million a year earlier. Tyson recorded $92 million in charges related to the planned May closure of two processing plants.

Higher chicken feed costs were a “particular disappointment,” Goldman said, as grain prices have moderated.

Tyson posted an overall adjusted loss of four cents per share, below analyst expectations for an 80-cent profit. A year earlier, earnings were $2.29 per share.

“Many of the headwinds experienced are likely to persist for the remainder of the fiscal year,” company chief financial officer John R. Tyson said.

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