Better for chicken (PPC, TSN)
Tyson Foods reported FQ3 EPS of $1.94, below consensus expectations of $1.97. Sales growth of 8% YOY was 1.5% above expectations. Overall volumes decreased 1.9%, while average prices rose 8.1%. Beef volumes increased 1.3%, while chicken fell 2.1%, pork fell 1.7%, and prepared foods fell 8.5%. Beef prices dropped 1.2% in the quarter, while chicken rose 20.1%, pork dropped 3.9%, and prepared foods rose 13.8%. The CEO said, “In-home dining continues to increase in this environment, which we would have suspected. We’re also seeing some movement from quick service chain account type business to more on-premise dining as COVID wanes.”
The beef segment’s operating profits were cut in half, with slight volume growth more than offset by higher prices for cattle. Management noted softer consumer demand for premium cuts of beef. Management blamed supply and labor shortages for not being able to fulfill all the orders for prepared food or chicken. Management plans to increase chicken production to 40 million birds weekly, up from 37 million last year. Chicken volumes are expected to increase 1-2% for the year. Management lowered their expectations for pork margins with weaker exports
Shares fell 8% yesterday after reporting results. Pilgrim’s Pride has been on our long list partly due to the expectation of consumers trading down on protein. Tyson’s struggles to meet demand have been a tailwind for Pilgrim’s Pride, but the outlook for chicken remains favorable into 2023.
Lower gasoline provides modest traffic benefits (KR, SFM, ACI)
Traffic to the grocers has improved modestly in the last month, with gasoline prices falling ~$.50 per gallon to $4.20 last week compared with a month earlier. Weekly traffic to Kroger was 7% lower YOY in July, improving nearly 2% points from June. Weekly traffic for Albertsons averaged 5% lower YOY in July, improving nearly 1% from June. Weekly traffic to Sprouts Farmers Market was the weakest of the three grocers, down 10% YOY in July, nearly 2% points weaker than June. The higher gasoline prices had a notable impact on consumer spending as gasoline consumption is 9% lower YOY in recent weeks. Falling below $4 per gallon could be a modest boost to consumer confidence, but food prices are still increasing at rates not seen in decades.
On-premise trends (TAP)
According to CGA, on-premise channel sales velocity has increased 24% YOY in the 12 weeks ended July 23. Trends slowed for the most recent week ended July 23, with sales velocity +1%, check average +7%, and transaction count -6%. There continue to be notable differences among key states driven by pandemic comparisons. New York and Illinois, both driven by their largest cities, saw a 4% lift in sales velocity in the most recent week. In California, sales velocity increased 2% YOY. California was led by Los Angeles and San Diego, but San Francisco was down 10% YOY. States with few pandemic restrictions are up against more difficult comparisons. In Texas, sales velocity decreased 6% in the most recent week. In Florida, sales velocity fell 8% YOY. With significant price increases and additional consumer headwinds, on-premise trends are slowing.
