Tyson Foods expects to profit from hog fever in China, warns it may hit U.S.

(Reuters) - Tyson Foods Inc said on Monday that the U.S. meat processing industry could reap significant financial gains from a global shortfall in pork as an incurable hog disease spreads rapidly across Asia.

FILE PHOTO: Tyson Foods brand frozen chicken wings are pictured in a grocery store freezer in the Manhattan borough of New York City, U.S. May 11, 2017. REUTERS/Carlo Allegri/File Photo

Tyson projected its U.S. pork, chicken and beef units could all benefit from increased demand linked to outbreaks of African swine fever, after the Arkansas 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 hog producer, about 5 percent of the global protein supply has disappeared as demand is rising, Tyson Chief Executive Noel White said.

China is expected to import more protein to make up for its hog 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 rose 2.6 percent at $77.05 in afternoon trading and reached their highest price since early 2018.

The company could start benefiting from African swine fever outbreaks late in fiscal year 2019, White said.

The disease is already boosting U.S. pork and beef exports and tightening domestic supplies, chicken producer Pilgrim’s Pride Corp said last week.

So far, though, U.S. hog 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 United States represents a risk to Tyson and its rivals, such as WH Group Ltd’s Smithfield Foods. U.S. cases would kill hogs 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 United States,” 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 percent to 12 percent return on sales, from closer to 12 percent 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.

Last year, sales in Tyson’s prepared foods segment reached about $8.7 billion, compared with $4.9 billion in pork, $12 billion in chicken and $15.5 billion 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,” J.P. Morgan analyst Ken Goldman said.

Profits 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 $10.44 billion, above expectations for $10.29 billion.

Reporting by Tom Polansek in Chicago; Additional reporting by Nivedita Balu and Aishwarya Venugopal in Bengaluru; Editing by Bill Trott and Lisa Shumaker