There was a common theme in the earnings reports from both JBS SA and Tyson Foods – the world’s largest and second largest meat processors respectively – which were published this week.
Tyson lost money this year, with the company reporting an operating loss of $395m (€368m), compared to a profit for the year ended September 2022 of $4.4bn (€4.1bn). Looking into the details of the report, it is clear that margins are under pressure in many parts of the business, but the huge reversal in the beef division stands out.
Operating margin for Tyson’s beef business plunged from a whopping 12.6% in 2022, to minus 0.5% in 2023.
JBS reported third quarter earnings which showed a similar outrun for its North American beef business. Margin in the business segment dropped from 8.7% in the third quarter of 2022 to 1.7% in the three months to September this year. Adjusted earnings in the division were 80% lower than the same period last year.
In commentary of the earnings, JBS said the “turn of the cattle cycle” in North America reduced the availability of animals for processing and, therefore, increased costs. The report said live cattle prices are 28% higher than a year ago.
Tyson forecast that it would, at best, break even from processing US beef in 2024; putting its earnings estimates between zero and minus $400m for next year.
Both of the processors cite US Department of Agriculture projections, which point to a 5% reduction in US production in 2024. JBS also highlighted the knock-on effect higher costs and reduced supply are having on exports, with USDA data showing beef exports from US 19% lower than a year ago. The company said the top three destinations for the country’s beef continue to be South Korea, Japan and China. JBS said it was experiencing lower demand from those key markets. However, JBS did point to the relatively strong performance of its Australian business, which is seeing strong cattle supply. Unfortunately for JBS, it’s Australian business is about a quarter the size of the US operation, so a strong performance there is not nearly enough to make up for the US disappointment.
Tyson, in its projection for the coming year highlighted reduced export opportunities and also warned that the timing of the rebuilding of the US cattle herd remains uncertain.
Shares in both meat processors were lower in the wake of the disappointing earnings.