Tyson Foods Inc., the largest U.S. meat producer, dropped the most in five years after an outbreak of bird flu in China cut its international chicken sales.
The shares fell 9.9 percent to $38.44 at the close in New York, the most since December 2008, after Tyson reported a 10-fold increase in operating losses from its international unit for the fiscal second quarter.
The latest outbreak of avian influenza in China, the biggest poultry consumer after the U.S., has killed at least 39 people. It was the biggest factor in the $30 million loss at Tyson’s international business, the company said today.
“We dialed back a little bit on our growth” in the international segment, Chief Executive Officer Donnie Smith said today on a conference call. “We have to work through this.”
More than 120 people in China have been infected by the H7N9 strain of bird flu this year, Xinhua News Agency said on April 21. The first laboratory-confirmed human infection was reported in March 2013. Almost all the victims have had known exposure to live poultry.
Tyson’s per-share profit in the quarter ended March 29 was 60 cents, the Springdale, Arkansas-based company said today in a statement. That trailed the 63-cent average of 10 analysts’ estimates compiled by Bloomberg for EPS excluding some items.
In the U.S., more than 5,000 cases of porcine epidemic diarrhea virus, or PEDv, have been reported. The disease that kills piglets has spread to at least 27 states, according to the National Animal Health Laboratory Network. U.S. hog production may drop the most in three decades this year, Rabobank International has estimated.
The impact of PEDv is expected to further reduce hog supplies starting in June and peaking in August, before easing in October, Smith said. Hog weights are expected to be higher and offset some of the head reduction. Tyson expects the industry’s pork production to decline as much as 4 percent for the year, he said.
Consumers have seen the cost of beef and pork surge. The wholesale price of pork has jumped 35 percent in 2014 after PEDv reduced hog supply, while beef is up 14 percent as drought and high feed costs shrink the U.S. cattle herd.
The company said today that second-quarter sales rose 7.7 percent to $9.03 billion. That exceeded the $8.82 billion average of nine estimates. Tyson also said fiscal-year sales will be about $37 billion, up from a January forecast of about $36 billion.
“They beat current expectations but the company’s expectations for the back year are a bit softer than what the Street predicted,” Liang Feng, an equity analyst at Morningstar Inc., said by phone today. “Plus, pork exports have come down a little bit, and that’s one of the most profitable segments.”
Still, Tyson has managed to increase margins even as diseases threaten sales, Craig Sterling, the global head of equity research at EVA Dimensions in New York, who has a buy recommendation on the stock, said by phone.
“The company’s economic profit is growing based off of improving operating margins and better use of the capital,” Sterling said. “Plus, the stock is cheap, it’s one of the cheapest stocks among peers.”
Shares at about 14 times earnings per share in the past 12 months compare with a ratio of 17 times earnings for Hillshire Brands Co. and 11 for Sanderson Farms Inc., data compiled by Bloomberg show.