When it comes to drawing conclusions about the state of the economy, it’s often tempting to stick to the established economic metrics — from unemployment, to labour force participation, to CPI — as a basis for your opinions.
But at FT Alphaville, we also believe something can be gleaned about the economy from looking at company data, particularly of those who play such an important role in their local economies.
Speaking of which, $32bn Tyson Foods — America’s largest producer of chicken, pork and beef — announced its first-quarter results before the bell Monday morning. And they were blow out.
Revenues grew 24 per cent year-on-year, coming in at a shade under $13bn, versus analyst’s expectations of $12bn. While earnings per share tripled to $3.70, comfortably exceeding the $1.94 Wall Street’s finest had pencilled in. In early trading, the shares are up 12 per cent at $98.64.
However, what piqued our interest wasn’t Tyson’s top or bottom line growth, but how it got there and, more importantly, what it says about the effect of inflation on some American businesses.
It feels obvious to state but for commodity product producers such as Tyson, revenues are simply what you get when you multiply the number of goods sold (aka the volume) by the prices its customers pay.
So how did that break down for Tyson and its Amazon-esque 24 per cent revenue growth?
Well, here’s the key table from its earnings release:
Cast your eyes over to the second last row in the table — volumes were muted across all its key operating segments bar its international business. The number of beefy goods sold even declined 6 per cent. The reason? Well, for both cow flesh and things that cluck, Tyson cited a “challenging labour environment”. Or, in layman’s terms, it was struggling to get the bodies needed to produce.
Now, a decline in a volumes sounds bad, until you look at those price increases in the final row. Holy cow!
The average price charged per customer for beer was up 32 per cent year-on-year, pork 13 per cent, and chicken 20 per cent. While wages, along with meat and logistics prices have risen substantially, Tyson’s pricing power more than made up for those higher production costs. The company recorded an operating profit margin of 11.3 per cent — only the fourth time since 1990 that this figure has been in the double digits, according to data from S&P Global.
Of course, as the largest company in one of the most consolidated industries in the US, Tyson is in an enviable position where it can use price increases to ameliorate any supply chain issues it might be suffering from.
But it is a reminder that in an economy where both wage growth and supply chain bottlenecks are driving inflation, businesses that sell things that people want cannot only deal with the higher costs, but thrive from them.
Just don’t tell Elizabeth Warren.
Chicken collusion? Charted! — FT Alphaville