Tyson Foods Route To Profitability

Can a business raise their prices on a product that consumers are buying less of and declare an increase in profits? A rational individual with a sense of economics will probably tell you no, but Arkansas-based, Tyson Foods Inc. (Public, NYSE: TSN), United States no. 1 meat producer defies economics and raises its prices on chicken anyway. What do you think the consequences will be for Tyson in the short-term and also, in the long-term?

Overwhelming since the demand for Tyson’s products are essentially a result of consumer spending and consumer spending is based on the needs and wants of the consumer and the availability of products that are substitutes, Tyson may be in for a future profit shock.

During periods of economic uncertainty and immeasurable volatility in the markets, business that have pent up cash are holding on to it, since interest rates are at historical lows. Most businesses are skeptical of hiring or expanding their enterprises until they feel better about the economic outlook.

Persistent unemployment, underemployment and chronic unemployment fuels the instability in the economy. The inability for many to sell their houses and move to an area where there is employment opportunities, continues to drag down the housing market as the number of foreclosures continue their tumultuous spiral.

Who competes with Tyson?

Cargill, Inc. (Private) based in Minnesota.

Pilgrim’s Pride Corp. (Public, NYSE: PPC) based in Colorado.


Smithfield Foods, Inc. (Public, NYSE: SFD) based in Virginia.


What is Tyson’s market share?

Tyson is the largest producer of meat products in America.


When will Tyson’s profits start declining?

Tyson may experience declining profits if grain profits rise in the future and is unable to pass on the increase costs to its consumers. Tyson’s future profitability is also threaten by a plentiful supply of chicken at a time when demand for chicken is uncertain. An oversupply of chickens is also a possibility if other major poultry producers expand their operations.


Where will Tyson produce an increase in volume?

Tyson had increases in pork sales. The question we have to ask is whether or not the increase in pork sales related to seasonal demand, that is the holidays? Americans generally indulge in traditional Labor Day, Thanksgiving and Christmas meals of pork, beef, chicken and turkey.


How will Tyson sustain profitability?

Tyson will counter the increase in grain costs in its chicken business by becoming more efficient in its operations and increasing prices.

Tyson is noted to have a very efficient pork processing model that rivals the industry. Demand for its pork products are expected to rise domestically and overseas against an already tight supply. Beef, Chicken, Pork and Prepared Foods are some of Tyson’s pillar products.

When a business seeks to remain profitable by raising its prices to counter the price increases of its inputs (commodities), if the public has no other alternatives or substitutes, then it is a business model that may be able to sustain itself. In a competitive industry such as Tyson’s, consumers have a choice and many will choose to exercise it, if they feel they can get better value somewhere else.

Increasing operational efficiency while admirable, may not be enough to sustain profitability at the same time you’re raising prices. Americans may decide to consume less meat and export demand is largely depended on the health of the economy, both domestically and internationally.