Credit Speculation Tramples Tyson Stock
Last updated Wednesday, October 29, 2008 6:11 PM CDT in Business
By Kim Souza
THE MORNING NEWS
SPRINGDALE -- Tyson Foods Inc. shareholders have experienced a roller coaster ride this week as shares dipped to new annual lows. The drop is tied to speculation the protein giant would violate debt covenants related to its $1 billion credit facility, as well as concerns regarding potential underfunding of its pension plans, analysts said.
Stephens Inc. analyst Farha Aslam said Wednesday that Tyson Foods is well-positioned to weather the storm over the long run, given its ample liquidity. (Stephens Inc. conducts investment banking services for Tyson Foods and is compensated accordingly.)
Aslam expects the company will also generate adequate cash flow from its overall operations to prevent debt covenant violations in the coming quarters.
Also raising concerns are the recent downturn in equity markets and the $31 million underfunded status of Tyson Foods' pension benefits as reported by the company in an annual federal filing, Aslam said.
Aslam noted that in each of the last three years, Tyson Foods has made small adjustments and contributions to its retirement plans without material changes to its earnings.
Like other chicken processors, Tyson Foods has posted substantial losses this year -- $70 million in three quarters -- because of record grain expenditures and excess supplies of chicken that have kept breast-meat prices low. But, because Tyson Foods has a multiple protein business with beef and pork as well as growing retail marketshare in its prepared foods segment, analysts said the company is better equipped to handle the steep loses in the poultry segment than some its competitors.
Tyson Foods has declined public comment, invoking its "30-day quiet period" rule that precedes earnings announcements. Tyson Foods will report its annual earnings Nov. 10.
A recent government report on reduced crop estimates also weighed heavy on chicken company stocks this week. Corn and soy bean prices are not expected to drop as much as previously estimated by the U.S. Department of Agriculture. Corn is expected to settle around $4.75 a bushel and soybeans at $10.50 a bushel given the latest harvest calculations.
Deutsche Bank-North America analyst Christina McGlone said the corrected crop report would likely hurt shares of meat producers like Pilgrim's Pride Corp., Smithfield Foods Inc. and Tyson.
Tyson shares reached a low of $5.71 Tuesday as more than 21 million shares changed hands -- nearly four times the normal volume. Tyson's stock has recovered about 38 percent of its value in the last two sessions, closing Wednesday at $7.90, down 10 cents on the day.
Competitor Sanderson Farms' shares hit a $25.20 low on Tuesday before recovering to close Wednesday at $28.12, up 63 cents. Pilgrim's Pride shares continue to slide on credit concerns, closing at $1.26, down 14 cents Wednesday.
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