Protein blues (TSN)
Tyson Foods reported a $.04 loss per share compared to $2.29 last year and consensus expectations of $.79. Revenue was flat YOY as overall volumes increased 3.3% while average prices decreased 3.2%.
The CEO said, “All three of our core protein categories, beef, pork, and chicken are experiencing market challenges at the same time.”
- Beef segment sales decreased 8.3% compared to record highs last year with all channels down. Price was down 5.4% while volumes were down 2.9%. Higher live cattle costs pressured margins. Operating margins were 0.2%, down from 12.7% last year.
- Pork segment sales decreased 9.2% with price down 10.3% and volumes up 1.1%. Exports were up, but retail, food service, and industrial were all down. Operating margins were -2.2% compared to 3.8% in the prior year.
- Chicken segment sales increased 8.4% with the export business being the drag on growth. Segment volumes increased by 6.4% while price increased by 2.0%. Operating margins were -3.7% compared to 5.0% last year.
- Retail brand sales increased by 1.2%. Segment volumes decreased by 0.4% while price increased by 1.6%. Retail performance was strong, but food service was weak.
Management lowered guidance for sales growth from 3-7% to flat to +1%. Chicken, beef, and pork margins are expected to be 2-3% lower than the prior guidance. We are calling for food deflation to be led by the perimeter of the grocery store. For the replay of our 2H food disinflation/deflation call: CLICK HERE.
CALIFORNIA GAS (GO)
WTI crude oil prices are near the lowest prices seen over the past year. The national average gasoline price at $3.54 per gallon, down 18% YOY, has for the most part tracked the price of crude oil and are close to the lows over the past year. Gas prices in California at an average of $4.82 per gallon, the highest state in the country, have followed a different direction and are near the highest price in the past six months. GasBuddy has predicted that gasoline prices could hit a national average of $4 per gallon before and during the summer. Prices in California my reach $7 per gallon at the largest metro areas.
High gasoline prices can be seen to encourage consumers to save in other areas of spending and to discourage shopping trips. Grocery Outlet’s same store sales track record has shown it benefits from the former despite the headwind from the latter.
SMALLER CHAIN DECELERATION (WMK, IMKTA)
Weis Markets, a chain of 197 supermarkets in the Mid-Atlantic, reported SSS growth of 3.1% YOY in Q1. SSS decelerated sequentially from 9.5% in Q4. Management said, “Higher product, supply chain, and operating costs had a significant impact on our income results compared to last year.” Net income fell 17.8%.
Ingles Markets, a chain of 198 supermarkets in the Southeast reported weaker Q1 results. SSS increased by 3.4% YOY. Grocery sales increased by 2.2%, non-food sales increased by 6.7%, perishable sales decreased by 2.1%, and fuel sales by 12.3%. Gross margins contracted 170bps YOY due to COGS inflation and raw material shortages. Operating expenses deleveraged 10bps excluding the fuel business. Income from retail operations decreased by 43%.
Both regional supermarket chains reported decelerating SSS and margin weakness in Q1. As far as the FTC is concerned, the current environment is not ideal for Kroger and Albertsons to report stronger trends than their smaller competitors.
