Tyson Stock Is Failing Just Like the Food Supply Chain

In normal times Tyson Foods (NYSE:TSN) is a boring company, and Tyson stock is a boring investment.

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Sales growth in the meat packing industry is slow, usually in the mid-single digits. Profits are choppy, usually averaging 5%-8% of sales. The company carries substantial debt as the industry keeps consolidating in search of higher, steadier profits.

The reason to buy Tyson stock is the dividend. It was 10 cents per share five years ago. Most recently it was 42 cents. Until the novel coronavirus hit, this was accompanied by a stock price that, while volatile, had been averaging close to a 25% gain per year.

Then the virus hit. The share price was cut in half. It was just beginning to recover when Tyson stock got hit again. As in, the workers started getting sick.

Meat packing is dangerous at the best of times. In a pandemic, it’s not just the animals who are dying.

Tyson’s Dilemma

Chairman John Tyson put it bluntly, in a blog post that was also published as a newspaper ad.

“The food supply chain is breaking,” he wrote. “… We have a responsibility to feed our country. It is as essential as healthcare.”

But meat packers aren’t paid or treated like nurses, let alone doctors. Plant jobs are being advertised at $26,348 in salary on Glassdoor. Zip Recruiter has the average salary, including for supervisors, at $43,940.

It’s hard to find workers at those rates of pay. You can’t raise a family on it, let alone buy health insurance. Tyson does not offer paid sick leave. Many workers are recent immigrants.

For the coronavirus it’s a happy hunting ground. Infect one worker, maybe outside the plant, and you can infect dozens more inside. Temperature scanners at plant entrances are inadequate. Workers can carry the virus for days before any symptoms appear. “Thank you bonuses” of $120 million, spread among 116,000 workers, average a little over $1,000 per worker.

Tyson plants in Iowa, Illinois, Georgia and elsewhere have become virus hot spots. There have been dozens of infections and even deaths among the workforce.

No Easy Solution

The problems at Tyson aren’t unique to the company. The whole industry is feeling it.

Tyson is due to report earnings May 4. Analysts believe it earned $1.04 per share during the March quarter, on revenue of $10.96 billion. This is close to its average over the previous three quarters. The company averages $900 million in operating cash flow per quarter. That’s enough to pay the dividend and interest on what was $9.8 billion of debt at the end of 2019.

But with plants already shuttered in several states, and no easy solutions in sight, it’s hard to see a way forward. President Donald Trump said he would sign an executive order demanding that plants reopen. But workers say they won’t show up.

You can’t force people to do dangerous work for low pay and no benefits. Even a hefty raise, and hefty price hikes to match, may not be enough to get plants back online. Meanwhile, animals are being slaughtered in the fields.

The United Nations is predicting famines of “biblical proportions” as the problem trickles down onto countries in Africa and the Middle East.

The Bottom Line on Tyson Stock

Temperature scanners, face masks, tiny bonuses and charitable contributions won’t solve the problems Tyson is facing.

The U.S. Food and Drug Administration was created early in the last century after books like Upton Sinclair’s The Jungle portrayed industry working conditions. Tyson and other suppliers won a rollback on safety rules last year, replacing federal inspectors with plant employees. Tyson believed it would help profitability.

It looks now like a pyrrhic victory. Tyson will have to do a lot more to get back to operating — and do it quickly.

Avoid Tyson stock until it acts.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story. 

Article printed from InvestorPlace Media, https://investorplace.com/2020/04/tyson-stock-failing-food-supply-chain/.

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