Stock of the Day
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Tyson Foods (TSN)
Tyson's Quarterly Loss is Nothing to Cluck About
Some industries are taking a hit during this prolonged recession and some are thriving despite tough economic times. The food industry falls somewhere in between. People still have to eat to survive, but the amount of cheaper competitors is growing every day. Tyson Foods is just one of the many companies feeling the impact from a downturn in the economy. The company reported a larger quarterly loss on Monday as a weak economy hurt meat sales and the company had additional income tax expenses. Tyson's loss widened to $104 million, or 29 cents a basic share, for the period ended March 28, from $5 million, or two cents a share, a year earlier. What factors led to the company reporting such a steep loss? Were they avoidable? What steps can the company take to ensure better profits in the future?
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Shares of Tyson Foods struggled last week as news spread of more outbreaks of swine flu. Investors were concerned that the additional outbreaks would cause panic among consumers and as a result overall meat sales would decline dramatically. The news was just one element of a growing list of problems that the company is experiencing. Since the start of the recession, the company has watched demand for its products dwindle. Tyson attributed its most recent loss to a decrease in demand for its beef products. Economic concerns caused both consumers and business owners to cut back on all expenses including food. Consumers started to seek out cheaper options and restaurant owners followed suit. Restaurants also decreased their demand for products because more people started avoiding going out to eat and opted for cheaper alternatives. Despite a decline in its products, former chairman and chief executive officer Leland Tollett appeared confident in the company's ability to rebound. He said, "We've experienced improvements in beef market conditions since December. Pork margins are expected to remain above normalized levels, and we believe our Prepared Foods business will continue to experience solid returns because of the demand for processed meats such as pizza toppings, hams, bacon and lunch meat."
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Declining sales and demand were not the only factors leading to the company's recent disappointing earnings. The company reported that some of the declines were a result of a change to the way some taxes are recorded and a plant closing. Similar to other companies, Tyson tried to eliminate some expenses by cutting its workforce and downsizing its operation. Tyson announced in March it would close an Oklahoma meat-processing plant. Unfortunately, most of the factors that led to bigger-than-expected loss were unavoidable. Some of these factors were unexpected and ended up hurting the company. During these uncertain times, companies are facing new challenges and are being forced to do other things to remain profitable.
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As previously discussed, the company is trying a number of different things to improve profits in the future. Tyson has closed or sold plants, cut costs, reduced production, and secured additional financing. Tyson will also need to focus on supplying cheaper alternatives for consumers. Budget-conscious consumers are seeking out the best value and if Tyson fails to deliver those options, the company is definitely setting itself up for another steep loss. The meat industry is starting to rebound in certain segments, so Tyson will definitely not be able to use that for an excuse if profits come in below expectations again.
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Tyson is facing a number of difficult factors. The challenge for the company will be to regain the confidence and support of cash-strapped consumers. The good news for Tyson is that the current economic recession may be coming to an end shortly. Tyson Foods shares, which have been trading between $4.40 and $19.07 in the past 52 weeks, closed Friday's trading session at $10.56, up 2 cents or 0.19% on a volume of 3.59 million shares.
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Profile |
Click here to view a detailed profile of Tyson Foods.
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