Chicago — Accusations of collusion that have dogged the US chicken industry in recent months, took a new turn after Tyson Foods, the country’s largest producer, said the US Securities and Exchange Commission was investigating the allegations and had sent it a subpoena.
The company said in a filing on Monday that based on the limited information it had, Tyson believed the investigation was related to the allegations contained in antitrust litigation involving broiler chickens.
The company and its largest competitors have been named as defendants in a series of lawsuits in recent months that claim the industry has colluded since 2008 to drive prices higher, allegations denied by Tyson and the other producers.
Tyson said in the filing it was co-operating with the investigation, which was at an early stage. CEO Tom Hayes declined to comment further except to say the company wanted to defend itself in court.
Tyson shares fell 3.5% to close at $63.13 in New York on Monday while rival producers Sanderson Farms and Pilgrim’s Pride also declined.
Poultry producers’ shares had fallen because of the scrutiny of industry pricing practices and the commission’s subpoena, Zain Akbari, a Chicago-based analyst for Morningstar Investment Services, said in a report.
The charges detailed in the recent lawsuits "are difficult to prove" but, because of their gravity, "I suspect that there is indeed a valuation overhang on Tyson’s equity", Ken Shea, a Bloomberg Intelligence analyst, said in an e-mail.
Over several decades, the US chicken industry has transformed itself from being made up mostly of family-owned farms into a heavily consolidated sector controlled by several multibillion-dollar companies. Per-capita chicken consumption in the US has more than doubled in 40 years and consumers spent about $90bn on chicken products in 2016.
As those companies’ market share and power has grown, they have drawn scrutiny for their production practices, such as their use of contract farming to raise birds for slaughter.
There have been some changes to the chicken industry amid the recent legal complaints. The Georgia department of agriculture, which gathered and disseminated the benchmark Georgia Dock prices that are the focus of some of those complaints, discontinued its widely used pricing index in December, citing the changes in the industry.
From February, the department began collecting data for a new index, although a lack of contributions has delayed the publication of the new measure.
Hayes said on a conference call with analysts that issues surrounding the Georgia Dock index were a "tempest in a teapot" and that the company had not changed its
Despite the chicken controversy, Tyson had record profit in its fiscal first quarter. Net income rose to $1.59 a share for the three months to December 31, from $1.15 a year earlier, beating the $1.27 average of 12 estimates compiled by Bloomberg.
"We capitalised on favourable market conditions in our beef and pork segments and the cash generated is providing fuel for growth in our value-added chicken and prepared foods segments," Hayes said.
Earnings excluding one-time items would be $4.90-$5.05 a share in the 12 months to September, the company said in a separate statement. That compares with a December forecast of profit at $4.70-$4.85.
The higher guidance was primarily because margins were far stronger than expected in the quarter, David Palmer, a New York-based analyst for RBC Capital Markets, said in a report on Monday.
The increase "suggests some degree of overearning this quarter relative to the remaining three quarters".
Hayes said the company’s goal was for long-term earnings per share growth to be in the high single digits as it invested back into its businesses.
Tyson has in the past targeted growth above 10%.