Beef Margins
Vincent Andrews, an analyst at Morgan Stanley in New York, cut his full-year earnings estimate by 5 cents to $1.85 a share, partly because of the pressure on beef margins from the controversy. Andrews also reduced his projection for operating profit at Tyson's beef business by 53 percent to $87 million for the year through September, he said in a note yesterday.
Tyson fell 0.3 percent to $18.03 in New York at 10:49 a.m. It has dropped 13 percent this year while the Standard and Poor's 500 Consumer Staples Index has climbed 4.9 percent.
Tyson said April 2 it doesn't expect any plant closures following the decline in demand for lean, finely textured beef, also known as LFTB. While Tyson doesn't make the product, it sells trimmings to processors who do.
Gary Mickelson, a Tyson spokesman, declined to comment on the impact on Tyson's earnings and referred to Chief Operating Officer Jim Lochner's March 27 comments that the bad publicity had "an impact negatively on ground-beef demand, which will recover I think quite quickly."
Warm Weather
To be sure, U.S. beef consumption has been in decline for several years, according to the USDA, albeit at a slower pace than March sales data suggests. Americans will on average eat 55.4 pounds of beef in 2012, down 3.3 percent from last year, according to USDA estimates. Consumers have opted for cheaper cuts and reduced restaurant visits, said Heather Jones, an analyst for BB&T Capital Markets in Richmond Virginia.
The early arrival of warm weather across the U.S. this year may be a boon to margins in Tyson's beef unit, said Ann Gurkin, an analyst at Davenport & Co. who's also based in Richmond. Jones and Gurkin both recommend buying Tyson shares.
Cargill, Tyson and the USDA say the lean, finely textured beef is safe. The additive is treated with ammonium hydroxide, or sometimes citric acid, during its production to kill pathogens. Centrifuges separate the fat, yielding 94 percent to 97 percent lean meat, according to Beef Products Inc., the biggest producer.
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