Tyson Foods warns African swine fever may reach the US
The disease has been detected in China, Vietnam, Cambodia, SA and parts of Europe
Chicago — US meat processor Tyson Foods said on Monday that it could reap significant financial gains from African swine fever, an incurable pig disease, that is spreading rapidly across Asia and expected to lift global pork prices.
Tyson projected its pork, chicken and beef units could all benefit from increased demand linked to outbreaks of African swine fever, after the company reported quarterly profits above analysts' estimates.
The disease, which is fatal to pigs but harmless to humans, has been detected in China, Vietnam, Cambodia, South Africa and parts of Europe.
With African swine fever in China, the world's top pork producer, about 5% of the global protein supply has disappeared as demand is rising, Tyson CEO Noel White said.
China is expected to import more protein to make up for its pig deaths, which White estimated at 150-million to 200-million pigs. The losses could help Tyson by pushing up pork prices and prompting consumers to buy more chicken and beef as alternatives, he said.
"African swine fever has the potential to impact the global protein industry on a level that we have never experienced," White said.
Tyson shares were up 2.4% at $76.90 in afternoon trading and reached their highest price since February 2018.
The company could start benefiting from African swine fever outbreaks late in fiscal year 2019, White said.
The disease is already boosting US pork and beef exports and tightening domestic supplies, chicken producer Pilgrim's Pride said last week.
So far, though, US pig prices have climbed faster than those for pork on expectations for increased Chinese demand, crimping processors' margins.
The potential for African swine fever to enter the US represents a risk to Tyson and its rivals, such as WH Group's Smithfield Foods. US cases would kill pigs and reduce exports.
"The rate in which it has spread over the course of the last 12 months makes it very plausible that it could come to the US," White said.
African swine fever also could hurt Tyson by raising input costs for pork used in prepared food products.
Tyson tempered an annual outlook for its prepared foods unit to a range of 10% to 12% return on sales, from closer to 12% previously.
The company plans to raise prices for prepared foods over the next six months to compensate for more expensive raw materials, White said. He said higher meat costs will reduce demand among some consumers.
In 2018, sales in Tyson's prepared foods segment reached about $8.7bn, compared with $4.9bn in pork, $12bn in chicken and $15.5bn in beef.
"We do not yet understand how pork and prepared food margins will be anything but impaired under the weight of higher hog costs," JP Morgan analyst Ken Goldman said.
Profit in the quarter ended March 30 benefited from higher sales in beef and prepared foods.
Excluding certain items, Tyson earned $1.20 per share, beating the average analyst estimate of $1.14. Quarterly sales were $10.44bn, above expectations for $10.29bn.