Can Tyson profit by reversing its antibiotic policy on chicken?

Avian influenza (H5n1) is making headlines again as it spreads through livestock, including cattle and chickens, and humans are also contracting the disease. The nation’s egg supply is facing a reduction due to the depopulation (cessation) of laying hens captured during the outbreak. As a deterrent, the nation’s largest poultry and beef producer, Tyson Foods Inc. New York Stock Exchange: TSN, repealed the pledge made last year not to take antibiotics to fight the spread of avian flu. Investors are wondering whether this will be good or bad for the consumer staples giant, especially during the carnivorous diet trend that is driving demand for beef and poultry as a side effect of the weight loss trend of Ozempic.

CDC issued bird flu health advisory

On April 5, 2024, the US Centers for Disease Control (CDC) issued a health alert after identifying a second case of human avian influenza (H5n1) contracted from contact with infected dairy cows. The first human infection was also reported in 2022 through dairy cattle. The CDC recommends personal protective equipment (PPE) when in contact with people exposed to sick or dead livestock or wild animals that may be infected with the virus. The CDC still says it has not changed its risk assessment that it is low risk to humans. The infected person’s only symptom was eye inflammation.

The cackle heard around the world

Tyson dropped its “no antibiotics ever” label in July 2023. Much of this may have gone unnoticed by the public until popular fast food chain Chick-fil-A announced on March 24, 2024 that it was reformulating the his “No Antibiotics Ever”. (NAE)” to “No antibiotics of importance to human medicine (NAIHM)” starting in spring 2024. This means the company will serve chicken treated with antibiotics for chickens, not humans.

Due to the avian flu epidemic, Chick-fil-A was apparently having difficulty sourcing chicken without antibiotics, especially since Tyson recanted its policy and Pilgrim’s Pride Co. admitted to using “some” antibiotics as well. Tyson supplies 20% of all chicken in the United States, so Chick-fil-A found itself between a rock and a hard place. While Perdue still claims to be antibiotic-free (for now), Panera Bread also quietly rescinded its promise to be antibiotic-free in 2023.

Why the concern about antibiotics in chicken?

The original concern about antibiotics in chicken stems from the idea that they will increase the risk of exposure to humans of antibiotic-resistant bacteria, also known as superbugs. The World Health Organization (WHO) estimates that this could lead to 10 million deaths each year by 2050. Other effects of antibiotics include nephropathy, carcinogenicity and bone marrow toxicity. This is a hotly debated topic, as other experts argue that it poses little risk to humans.

Meat giant in charge of recovery

Tyson’s policy adjustment took effect in the second quarter of 2024. As a result, its recent earnings show minimal negative impact on its bottom line and bottom line. Tyson reported first-quarter 2024 earnings per share of 69 cents, crushing analysts’ estimates of 41 cents by 28 cents. Revenue rose 0.4% year over year to $13.32 billion versus $13.34 billion. Margins fell 30 basis points to 3.1%, still an improvement over the previous three quarters.

Tyson also recovered from the previous two quarters of negative year-over-year revenue, led by improving average selling prices. The carnivorous diet trend may have helped boost beef sales 6.4% year-over-year to $5.02 billion, thanks to a 10.5% increase in average price even as volume fell 4%. ,1%. Beef is its largest segment. Full-year 2024 revenue estimates held steady at $52.81 billion versus consensus estimates of $53.08 billion.

Daily ascending triangle

TSN stock took a nosedive in the 2023 Q4 earnings report, but has recovered since swinging lows of $50.69 on February 13, 2024. This illustrates an ascending triangle pattern. The ascending trend line started at $52.11 on March 4, 2024, catching and wrapping each higher low against the resistance of the flat upper trend line at $60.65. The daily relative strength index is moving just below the 70 band.

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