Tyson shares close lower as pinched consumers get choosy about meat

Stretched consumers are getting pickier in the grocery aisles, leading to a weaker third quarter expectations from meat giant Tyson Foods (TSN).

On Monday, the company posted mixed earnings results and projected a weaker Q3, as executives signaled a more challenging environment for consumers, who are "a little bit under pressure," CEO Donnie King told Yahoo Finance.

"The consumer is experiencing inflation, for housing, for utilities, for virtually everything in the economy, and one that is really concerning is around consumer debt," King said over the phone.

Other factors that led to weaker guidance include limited beef cattle availability that could bleed over into next fiscal year and higher commodity costs.

While King tried to attribute part of the projected numbers on seasonality within pork and prepared foods and said the company may have "overcooked" the weaker guidance to Yahoo Finance, investors are not buying it.

Tyson's shares closed down nearly 6% after dropping as much as 9% during the trading session. Year to date, shares up more than 7%, trailing S&P 500's (^GSPC) 10% gain.

"It's pretty clear that the lower-income consumer is feeling more stretched than others right now," CFRA analyst Arun Sundaram said. Other companies, like McDonald's (MCD), have also pointed to pullbacks in spending.

Sundaram said the third quarter is "usually the strongest quarter" when it comes to Tyson's margins. "We thought next quarter would be a strong one, but ... their tone is a bit cautious."

For Tyson, overall volumes dropped 1.5% in the second quarter, with a 2.8% increase for beef, 2.9% increase for pork, and 6.1% decline for chicken, as it closed a chicken facility and "retooled" its demand model, per King.

Sundaram added, "We're not seeing that corresponding uptick in the retail channel ... consumers are utilizing more leftovers, winding down their pantries, cooking larger-batch meals, as opposed to single-serve meals, things like that."

Prepared foods saw a 0.7% volume growth in Q3.

"If you look at the consumer ... [there is a] move away from fine dining or trade down from fine dining to casual dining, or QSR," King said, adding that diners are also moving to making meals at home.

Melanie Boulden, who oversees the prepared food segment, said on the earnings call that the company is losing slight market share to private labels among lower-income households.

King said the company is positioned to match that demand too. But Sundaram warned that selling its own product is typically a boost to margins, versus manufacturing and selling private label.

But certain shoppers may completely pull back on protein, Sundaram predicts: "Some consumers are essentially saying, I can't afford protein right now. "

For fiscal year 2024, the company revised its outlook. King said the team feels "good about the back half of the year."

The company now expects total operating income to come in between $1.4 billion and $1.8 billion, compared to previous guidance of $1.0 billion and $1.5 billion, driven by improved outlook for chicken. For the chicken segment, adjusted operating income is expected to come in between $700 million to $900 million, compared to previous guidance of $500 to $700 million.

King said in Q2, the company saw "better operational execution which led to better profitability," which includes closing some of its underperforming meat plants and moving the volume into more efficient locations.

"We're not done yet," King said, as the company continues to evaluate its operations.

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.