Stocks closed slightly lower yesterday after giving up earlier as traders await inflation numbers later this week…they know what the numbers are going to say. Bond yields continue to climb as investors prepare for an aggressive Fed.
Priceless! Inflation and the fear of an overzealous Fed are on the brain of traders these days…and nights. Yesterday, Tyson Foods announced earnings with a Revenue that beat analysts’ estimates by +6.21% and EPS that beat targets by…wait for it…+48.84%! Wow, it is safe to say that the meat/packaged foods manufacturer had a solid quarter. The stock responded with a +12.23% rally in yesterday’s session which is a relatively sizable daily move for a stock with a Beta of 0.73. The positive surprise is good news for holders of the stock, which had already turned in a +33% trailing twelve month return through last Friday. Tyson’s superlative performance may not be such a good thing for us ordinary consumers, however. Yes, yes, I know that a growing number of Americans have warmed up to the vegetarian lifestyle, but vegetarians still only make up some 2% of the population. That said, the price of meat is a factor in most Americans’ daily life. Let’s take a closer look, starting from the top. In the 4th quarter, Tyson increased beef prices by +32%, chicken by +20%, and pork by +13%. I could easily just end my note with that fact, but I am not known for my brevity, so let’s continue. How could the price of protein jump so steeply? Was it caused by some sort of natural calamity, such as an illness like the African Swine Fever that plagued China in 2018 causing pork prices to skyrocket? No, thankfully. You may recall earlier in the pandemic when there were massive outbreaks in the closed quarter facilities of meat producers, causing crimps in the supply chain. While those challenges appear to be in the past, companies are certainly having to pay higher wages in order to incent workers, as we have witnessed in recent economic numbers. However, those wage increases were nowhere near the magnitude of those price gains cited above. Meat producers have cited higher transportation costs as being a factor as well. We have certainly witnessed price increases in trucking as that industry too, deals with salary hikes and higher fuel prices. Once again, I point you to those quarterly gains in meat prices. The price of diesel fuel rose by +2.03% in the 4th quarter and +10.06% in the 3rd, so it cannot be fuel cost alone. Further, the trucking industry has had quite a healthy run since the start of the pandemic. The S&P500 Trucking Sub-sector Index rose by +70.68% in 2021. That is the index’s largest annual growth in 20 years, making it apparent that the trucking companies have managed to navigate the challenges of rising input costs. Now back to Tyson, which reported an impressive quarterly Revenue beat, with an even more-impressive EPS beat. Clearly, the company was able to grow revenues by increasing prices to consumers, claiming that the hikes were necessary to cover increased input cost. Looking closely at Tyson’s report we note that operating margins for its Beef, Pork, and Chicken offerings were 19.1%, 10,1%, and 3% respectively, which were higher than analysts’ estimates by +23.21%, +50.38%, and +85.93% respectively. To sum it all up, consumers are paying more for meat, producers are charging more for meat, producers are paying more for transportation, trucking companies have done incredibly well in the past 2 years, and producers’ margins are significantly higher than expected. I could have just said, consumers are paying more for meat. This is classic inflation with the consumers bearing the brunt of it. Will Fed rate hikes cause fuel companies to charge less for diesel, trucking companies to lower their prices, and Tyson to lower its prices? Not likely. The only way to fix that problem is for consumers to lower demand. Increased costs of borrowing may eat into consumer spending. Fear of recession may decrease consumer confidence and ultimately decrease demand. Maybe. Tyson’s shareholders are happy this morning while some consumers may consider joining the ranks of the growing number of vegetarians.
WHAT’S SHAKIN’
Peloton Interactive Inc (PTON) shares were lower by as much as -13% in the pre-market after it announced misses on both EPS and Sales. The company further announced that its CEO would be stepping down and that 2800 jobs would be cut. This, after reports surfaced after last Friday’s close that the company was being eyed by the likes of Amazon, Nike, and Apple as a possible acquisition candidate. That speculation caused the stock to rally by +20.93% in yesterday’s session. In pre-market trade, the stock has since erased most of the early losses and is nearly back to last night’s close. The session ahead is likely to be a volatile one. Potential average analyst price target upside: +47.9%.
Pfizer Inc (PFE) shares are trading lower by -4.32% after it announced that it had beaten EPS estimates by +22.97% while it missed Revenue targets by -1.37%. The company further offered 2022 guidance that was below analyst estimates. Dividend yield: 3.00%. Potential average analyst price target upside: +10.3%.
ALSO, THIS MORNING: DuPont (DD), Aramark (ARMK), Carrier Global (CARR), KKR & Co (KKR), Fiserv (FISV), Virtu Financial (VIRT), and S&P Global (SPGI). Coty Inc (COTY) missed on Revenues while TransDigm (TDG) missed on both EPS and Revenues.
YESTERDAY’S MARKETS
Stocks gave up early gains for a soft close as higher treasury yields and a fear of Fed failure overshadowed the markets. The S&P500 slipped by –0.37%, the Dow Jones Industrial Average broke even, the Nasdaq Composite Index lost -0.58%, the Russell 2000 rose by +0.51%, and the S&P500 ESG Index slid by -0.36%. Bonds rose and 10-year Treasury Note yields gained +1 basis point to 1.91%. Cryptos gained +8.26% and Bitcoin advanced by +5.79%.
NXT UP