(Bloomberg) — Tyson Foods Inc., the top chicken producer in the U.S., is getting a formidable new competitor as its own poultry unit continues to hemorrhage money.
The third and sixth biggest U.S. chicken companies, Sanderson Farms Inc. and Wayne Farms Inc., are combining in a $4.53 billion deal, according to a statement Monday from buyers Cargill Inc. and Continental Grain Co. The consolidation in the poultry market comes as Tyson’s chicken unit posted a loss amid a series of headaches including high feed prices, production challenges and millions in legal costs stemming from price-fixing lawsuits.
Still, booming demand for meat, especially beef, from restaurants reopening in the U.S. more than offset Tyson’s chicken woes, helping the company to beat third-quarter estimates for both sales and profits. Tyson reported adjusted third-quarter earnings per share of $2.70, compared to an average estimate of $1.63, while sales came in at $12.48 billion compared with estimates for $11.49 billion.
“We continue to be laser-focused and making progress in restoring the competitiveness of our chicken segment,” Tyson Chief Executive Officer Donnie King said in a call to discuss financial results with analysts.
The merger is striking because demand for meat has been growing globally, and sector is growing ever more concentrated, with companies arguing that only scale can provide the world with affordable meat. Legislators in the U.S. have begun scrutinizing the industry more than usual, and debating whether protein companies are too big and too few. In particular, the U.S. Department of Justice has charged several now-former executives of chicken companies with price-fixing.
High prices for corn and soybeans fed to chickens will hit results in Tyson’s poultry division during fiscal 2021, the company said Monday. That’s as demand has soared for spicy chicken sandwiches and wings, and after harsh winter weather killed thousands of birds earlier this year in the U.S. South.
Tyson last week became one of the first companies to require that all of its employees receive a Covid-19 vaccine. While the delta variant has been spreading in areas of the U.S. South where Tyson has plants, output of meat and poultry hasn’t been significantly impacted.
Shares for the meat giant rose as high as 6% to $75.39, while Sanderson Farms touched a record $195.97.
Other highlights in Tyson’s earnings include:
The company’s operating income declined due to higher legal fees, weather and Covid-19-related disruption and problems with hatching rates in the chicken unit.For fiscal 2021, Tyson estimates $325 million in expenses associated with the impact of COVID-19 with some becoming permanent over time.
(Updates shares in eighth paragraph.)
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