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Tyson Foods Profits Soar as Meat Prices Climb

Tyson Foods Inc.

TSN 2.22%

reported soaring profits as the company raised prices for beef, chicken and pork, citing higher costs.

Tyson,

TSN 2.22%

the biggest U.S. meat processor by sales, said it increased prices for beef by an average 23.8% over the three months ended April 2, while its chicken prices increased 14.4% and 10.8% for pork. Tyson said its cost of goods sold increased by 15% over the quarter as the company paid more for animal feed, freight and labor expenses.

Tyson Chief Executive Officer

Donnie King

said Tyson’s price increases are consistent with inflation. “We do not ask the customer to pay for our inefficiencies,” Mr. King said on a call with reporters. “We are asking customers to pay for inflation we see throughout the supply chain.”

Meatpackers, including Tyson, have said that because many of their processing plants remain short-staffed, they can’t process as many cattle, hogs and chickens, constraining meat supplies. Demand from grocery stores and restaurants hasn’t let up, executives have said, pushing meat prices higher over the past year.

U.S. inflation surged to a new four-decade high of 8.5% in March, according to the Labor Department, driven by surging energy and food costs, supply constraints and strong consumer demand. Food globally is becoming more expensive, with Russia’s invasion of Ukraine disrupting one of the world’s top grain-producing regions, a key ingredient of animal feed.

Rising food prices are beginning to alter some consumers’ shopping habits, industry executives have said, leading some to switch to less expensive cooking oil, frozen food and meat products. Inflation is eroding brand loyalty among some consumers, as price becomes a bigger factor determining what shoppers put into their carts at supermarkets, and some executives have warned that consumers’ inclination to pay higher prices could decline as the year goes on.

The meat industry’s rising profit margins have drawn criticism from the White House, lawmakers and regulators, which have accused the industry of using its scale to inflate Americans’ food bills. Meat companies have said their results reflect market forces that have arisen from persistent supply-chain problems and labor shortages.

On Monday, White House press secretary

Jen Psaki

said in response to a question about Tyson’s earnings that the Biden administration is concerned about major meat companies’ abilities to raise prices on consumers. She said that she didn’t have any comment on specific companies’ earnings.

Tyson’s volumes of pork and prepared foods sold both fell about 5% in the quarter, while beef and chicken sales volumes increased slightly.

“Every part of our business has been impacted by inflation,” Tyson’s Mr. King said on a conference call with analysts. “We experienced higher costs across our supply chain.”

Arkansas-based Tyson said net income for its second quarter rose to $829 million from $476 million a year earlier, propelled by higher profit margins in its beef and chicken divisions. The company reported $13.1 billion in quarterly sales, compared with $11.3 billion a year earlier. The results surpassed Wall Street analysts’ expectations.

Airlines, gas stations and retailers use complex algorithms to adjust their prices in response to cost, demand and competition. WSJ’s Charity Scott explains what dynamic pricing is and why companies are using it more often. Illustration: Adele Morgan

Tyson said it expects full-year sales of $52 billion to $54 billion, compared with its prior estimate for the upper end of a $49 billion to $51 billion range.

Shares settled 2.2% higher at $92.84 Monday.

The company said that tight supplies of meat, strong demand from restaurants and supermarkets and its own efforts to cut costs were making its operations more profitable.

Operating income margins in Tyson’s beef business grew to 13% in the most recent quarter, compared with 11% in the same period a year ago. Chicken margins increased to 5% from a flat second quarter last year. Sales volumes in its pork unit declined about 5%, shrinking its margins slightly, as the company struggled to staff its plants to keep up with higher demand, company officials said.

The company said it expected a stronger performance from its chicken unit in the second half of the year and continued to project strong margins in its beef operations, though cattle are becoming more expensive for Tyson to purchase from feedlots as ranchers reduce herd sizes.

“Drought conditions and grain costs are certainly impacting supply,” said Mr. King. “While it’s not going to be a record back half, we think it will be a very good one.”

Tyson received a subpoena in April from the New York Attorney General’s Bureau of Consumer Frauds and Protection seeking information regarding its sales, prices and production costs of beef, pork and chicken products, according to its quarterly filing with the Securities and Exchange Commission. Tyson said it is reviewing the scope of the subpoena and will respond appropriately.

Meatpackers, including Tyson, have faced accusations of price fixing in recent years. Tyson has said it is cooperating with the Justice Department under a corporate leniency program after discovering that some employees were implicated in the alleged scheme. The government’s high-profile case against several poultry executives ended in a second mistrial in March. Prosecutors intend to try the case a third time.

The Justice Department separately opened a civil investigation into human-resources practices at chicken companies earlier this year. Tyson said in its quarterly filing that it is cooperating with the probe.

Despite ongoing labor challenges, Tyson said that staffing in its operations has improved in recent months and that the company had lower turnover and absenteeism in the most recent quarter. The company said it has invested in higher wages for its workers and other workplace benefits, such as flexible schedules, child care and transportation. Tyson said it is also working to boost its processing capacity, with four new plants expected to come online in the fourth quarter of its 2022 fiscal year.

“We are in a better position today than we have been in a long time,” Mr. King said, referring to Tyson’s staffing levels.

Tyson and other poultry companies are on alert as an outbreak of avian influenza this year has led to the death of nearly 40 million egg-laying chickens, turkeys and other birds, the worst toll since 2015. The bird-flu outbreak in the U.S. is contributing to a surge in egg prices and threatens to raise prices on other poultry products as deaths continue to mount. Tyson officials said the disease has had minimal impact on its operations.

Write to Patrick Thomas at [email protected]

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