Goldman Sachs downgrades Tyson Foods, says poultry stock's trajectory is uncertain after latest earnings

Published Tue, Feb 7 20236:46 AM ESTUpdated Tue, Feb 7 202310:41 AM EST

Goldman Sachs' enthusiasm on Tyson Foods has cooled. Analyst Adam Samuelson downgraded the food producer to neutral from buy after Tyson's latest quarterly report showed significant underperformance across the company — particularly its chicken segment. The company reported earnings per share of 85 cents for its first fiscal quarter, falling far below a StreetAccount consensus estimate of $1.21 per share. "Fundamentally, results revealed a sharp deterioration in profitability across the organization, most notably in Chicken, that undermines our confidence that the cumulative effect of recent operational and strategic changes could sustainability improve margins and earnings for the company," Samuelson wrote in a note to clients Monday. "Put together, we see a more uncertain trajectory for Chicken segment profitability into FY24 and have less confidence in the business returning to previously articulated 6-8% normalized margins," the analyst added. Goldman Sachs slashed its price target to $66 per share from $91. The new target implies upside of about 8% from Monday's close. Samuelson noted that he had previously anticipated broader headwinds in the market for Chicken, most notably higher feed costs and low commodity poultry prices. These hurdles could have been offset through changes such as automation investments, further processed mix, and cost-based price models over time, he said. "TSN management attributed the shortfall to higher aggregate domestic protein availability and specific surpluses of TSN retail tray pack production that needed to be diverted to more commoditized channels at significantly less favorable realized values," the analyst wrote. "Importantly, however, TSN's own significant increase in internal production (harvest volume +15% vs. segment sales volume +2.5%) represented a disproportionate share of industry growth," Samuelson added. "With increases in TSN's internal harvest set to remain well-above industry-average this year, the importance of TSN accurately forecasting demand by channel to avoid similar short-term mix pressures moving forward only grows, in our view, and with it, execution risk." The company also reported weaknesses in its Beef and Pork segments. The U.S. beef industry is anticipated to undergo sharper declines in domestic cattle slaughter and industry capacity utilization, also adding to the downside in Tyson's reduced revenue estimates. Tyson shares fell 4.6% on Monday after the company announced its quarterly earnings. The stock has plunged almost 39% in the past 12 months. TSN 1Y mountain TSN in past 12 months —CNBC's Michael Bloom contributed to this report.