Tyson Foods, Inc. (NYSE:TSN) faces its biggest test heading into the yearend despite reporting impressive results in the recent quarter. Rising labor costs amid the second wave of COVID-19 pandemics compounded by increasing costs for animal feeds threatens to derail the gains made in the aftermath of the pandemic.
Tyson Foods Tailwinds
While the company did report impressive fourth-quarter financial results, it is no longer a secret that the country’s highest-selling meat company core business is under pressure. Demand for the company’s meat and pork has contracted significantly, with orders from restaurants, hotels, and cafeterias drying up owing to the limited number of people visiting these places.
Surging corn and soy prices used in the animal feed also threatens to take a toll on the company’s margins heading into the year-end. The company has already warned that overall grain costs could edge higher in 2021 after remaining flat in 2020.
Supply chains have also taken a significant hit in the wake of the COVID-19 pandemic triggering a good number of slaughterhouses shutdown. Tyson Foods has had to resort to testing its employees on a regular basis to avoid more shutdowns that would take a significant toll on already suppressed operations.
Despite the regular tests, employee absence remains at elevated levels as most opt to stay at home on fears of contracting the deadly virus as the second wave of infection continues to pound the country. Likewise, Tyson Foods has already spent close to $540 million in COVID-19 related costs in 2020 alone.
Impressive Q3
Amid growing concerns about the beef and pork business, Tyson Foods managed to bounce back to revenue growth in the fourth quarter. Sales rose to $11.46 billion compared to $10.88 billion reported a year ago. Net income rose 88% to $692 million or 1.90 a share.
For fiscal 2021, the company expects domestic protein production to increase by 1% in fiscal 2021. Challenges attributed to COVID-19 disruptions could trigger an increase in operating costs and negatively impact volumes. However, liquidity should be enough to run operations and meet obligations. For the full year, the company expects revenues of between $42 billion and $4 billion.