Strangely, America is facing a chicken shortage. The Washington Post reports that fast-food purveyors cannot get enough wings and breasts for fried meals.
Business Insider lists chicken as one of many consumer goods in short supply in the USA in summer 2021. Business Insider blames increased demand, COVID-19, and winter storms that disrupted chicken farms for the shortage.
Therefore, Tyson Foods Inc. (NYSE: TSN) could be a victim of its own success. To elaborate, Tyson is the company that helped make chicken America’s favorite meat by making chicken cheap and plentiful.
The average American consumes 201 pounds of chicken a year, Taste Inc. Estimates. Chicken consumption has risen every year since the 1960s.
Unfortunately, chicken producers cannot keep up with the demand for fried chicken, wings, and chicken sandwiches. Notably, Popeye’s, McDonald’s (MCD), and KFC have introduced new chicken sandwiches in recent years. KFC’s Nashville Chicken sandwich is so popular that Kentucky Fried Chicken is running out of hot sauce.
Tyson Foods Burns Cash
The COVID-19 pandemic has hit Tyson Foods (TSN) hard. Notably, Tyson is burning cash.
Tyson reported a negative quarterly operating cash flow of -$36 million on 31 March 2021. That is a dramatic drop from the $1.385 billion quarterly operating cash flow it reported on 31 December 2020. A year earlier, Tyson reported a $366 million quarterly operating cash flow on 31 March 2020.
Moreover, Tyson Foods reported a quarterly ending cash flow of -$1.529 billion on 31 March 2021. That quarterly ending cash flow is down from $2.406 billion on 31 December 2020. In contrast, Tyson reported a -$60 million quarterly operating cash flow on 31 March 2020.
The only good cash flow number I could find at Tyson was the -$1.172 billion on quarterly financing flow reported on 31 March 2021. That means Tyson paid off $1.172 billion in debt. The quarterly financing cash flow fell from -$173 million on 31 December 2020 and $168 million on 31 March 2020.
Is America’s consumer products bubble bursting?
I have to wonder if Tyson’s cash flow numbers show that America’s consumer products bubble could be bursting.
To explain, American consumer spending has been exploding in recent years while average incomes have and not grown and income inequality widens. For example, the Economic Policy Institute (EPI) estimates that ordinary Americans’ wages only grew for 10 of the 40 years between 1979 and 2019. Moreover, half of America’s workforce earns less than the median wage $19.33 an hour or $40,000 a year, the EPI claims.
Thus, half of Americans and half of Tyson’s customers earn less than $19.33 an hour. Hence, any interruption in their work hurts Tyson because those people have no savings to pay for food.
Essentially, ordinary Americans have been financing consumer spending with debt; credit cards, auto loans, mortgages, home equity loans, payday loans, etc because wages are not growing. Predictably, when an economic downturn such as the COVID-19 Depression hits, people rely on debt more when they cannot pay.
Is Tyson Paying its Debts?
Similarly, companies such as Tyson (TSN) which have been using debt to finance expansion and production to keep up with consumer demand get hit. Any interruption in consumer demand means those companies cannot pay their debts.
Importantly, Tyson is paying its debts. Tyson’s Total Debt shrank from $12.661 billion on 31 March 2020 to $10.364 billion on 31 March 2021. Thus Tyson paid $2.297 billion in debts during the pandemic year.
Tellingly, Tyson has a small amount of cash in comparison to its total assets. Tyson had $877 million in cash and short-term investments and $34.474 billion in Total Assets on 31 March 2021. The Total Assets grew from from $33.89 billion on 31 March 2020 and the cash and short-term investments grew from $439 million on the same day.
Thus, Tyson added cash and value during the pandemic. Notably, Tyson’s cash and short-term investments rose to $2.406 billion on 31 December 2020. Tyson can pay debts and generate cash but it cannot keep cash.
How Much Money is Tyson Making?
Tyson Foods (TSN) makes money. For instance, Tyson’s quarterly revenues grew from $10.888 billion on 31 March 2020 to $11.3 billion on 31 March 2021.
Similarly, Tyson’s quarterly gross profit grew from $1.48 billion in March 2020 to $1.363 billion on 31 March 2021. Additionally, the quarterly operating income grew from $515 million on 31 March 2020 to $720 million a year later.
Therefore, Tyson made more money during a pandemic. However, Tyson is having trouble keeping that money.
One problem I see at Tyson is that the company cannot maintain its growth. Stockrow estimates Tyson experienced a revenue growth rate of 3.78% in the quarter ending on 31 March 2021.
Conversely, the revenues shrank by -3.28% in the quarter ending on 31 December 2020 and grew by 5.29% in the quarter ending on 30 September 2020. Finally, Tyson’s revenue growth fell by -7.93% in the first quarter of the pandemic that ended on 30 June 2020.
Is Tyson Foods (TSN) a value trap?
I consider Tyson Foods (NYSE: TSN) a value trap because it has a low margin of safety. I think the lack of cash and the shifting revenue growth rate make Tyson unsafe.
Moreover, Mr. Market overpriced Tyson Foods at $77.35 on 14 June 2021. The share price grew from $68.67 on 8 June 2020.
I suspect Tyson’s share price is growing because it resembles a value investment. The value case for Tyson is obvious, it’s an unsexy and political incorrect company that supplies most people buy – meat.
However, I consider Tyson inherently unstable because its business depends on volatile commodities markets and cheap labor. For instance, Tyson depends on cheap grain to feed its poultry, cheap electricity to run its factory farms and meatpacking plants, and cheap fuel to power trucks and trains to haul that poultry.
Tyson is a dangerous value trap
Any fluctuation in the electricity, fuel, or grain prices can hurt Tyson. In addition, any increase in labor prices harms Tyson. Notably, the EPI estimates that wages for the lowest paid workers rose slightly in 2019.
Thus Tyson has no margin of safety. Hence, Tyson is not a value investment because it is incapable of permanent growth.
I consider Tyson Foods (NYSE: TSN) a dangerous value trap because it has some attract features. In particular, a growing dividend and a rising share price.
For example, Tyson will pay 44.5¢ quarterly dividends on 15 June 2021 and 15 September 2021. Overall, Tyson Foods offered a $1.78 annual dividend and a 2.31% dividend yield on 14 June 2021.
I advise investors to avoid Tyson Foods because it is a dangerous value trap. My prediction is that Tyson Foods will collapse because it not consistently make money or generate cash.