Tyson Foods, Inc. (NYSE:TSN) is grappling with a multifaceted market landscape, where tight beef supplies and persistent cost inflation are squeezing margins, even as robust performance from its chicken segment provides a critical counterbalance.
This dynamic highlights the company's intricate balancing act between immediate operational pressures and its long-term growth strategy. A recent analysis from Piper Sandler sheds light on this challenging environment, which is marked by supply constraints and rising costs.
Analysts, led by Michael S. Lavery, maintain a Neutral rating on Tyson with a $58 price forecast. While they hold a degree of cautious optimism for the long term, noting that beef supply stabilization could take two to three years, they emphasize that current headwinds are weighing on the company's fiscal 2026 outlook.
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A key challenge is the slow recovery in heifer retention, which is essential for rebuilding cattle herds. Piper Sandler notes that retention rates remain above historical averages, contributing to continued supply shortages.
Tyson’s anticipates that fiscal 2026 will be the supply “low point.” This dynamic, combined with ongoing margin pressures in the beef industry, corroborated by the HedgersEdge beef packer index, is expected to persist through the fourth quarter of fiscal 2025.
Beyond the beef segment, cost inflation is hitting Tyson’s Prepared Foods division, most notably due to soaring pork belly prices. The firm highlights a significant 41.9% year-to-date increase in pork belly prices in the third quarter, which has outpaced pricing adjustments and pressured margins.
Operational risks were further underscored by a recent recall affecting 58 million pounds of products, including its State Fair and Jimmy Dean brands, although analysts expect the financial impact to be adjusted out of fourth-quarter results.
Despite these challenges, Tyson’s chicken segment is a notable bright spot. Piper Sandler has raised its fourth-quarter fiscal 2025 chicken sales growth forecast to 2.5%, driven by improved operational efficiencies and a focus on value-added products.
The chicken division is also set to benefit from cost savings as the company phases out its owned cold storage facilities, a move projected to generate $200 million in benefits through 2028. These operational improvements have the potential to boost chicken margins, which are currently around 8%, toward historical levels of 10-11%.
Financially, Piper Sandler maintains its fiscal 2025 earnings per share (EPS) estimate at $3.90 and fiscal 2026 EPS at $4.20, reflecting stable core profitability.
Revenue is projected to see modest growth, rising from $54.7 billion in fiscal 2025 to $55.5 billion in fiscal 2026. The analysts stress that supply constraints remain the primary risk to their price forecast, alongside broader concerns about livestock pricing volatility and weakening consumer demand.
In sum, Piper Sandler’s analysis paints a picture of a company navigating significant but manageable challenges. The robust performance of the chicken segment is helping to mitigate margin pressures from beef supply issues and Prepared Foods’ cost inflation.
The company’s trajectory hinges on the gradual rebuilding of cattle herds and effective cost management, with Tyson poised to maintain steady profitability while positioning itself for long-term supply stabilization.
Price Action: TSN shares were trading higher by 0.76% to $54.37 at last check Tuesday.
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