Editorial

USDA Reacts Appropriately to Bovine Influenza-H5N1

On April 24th the USDA announced mandated testing for HPAI before interstate movement of dairy cattle. The Federal order became effective April 29th. Cattle to be moved across state lines must be tested to confirm freedom from influenza-A virus using approved sampling and assays at an accredited Animal Health Laboratory Network facility. The requirement for testing prior to interstate movement does not address the situation under which dairy animals can be assigned to an abattoir within state, representing the risk of horizontal transmission and possible exposure of workers to H5N1 virus from infected carcasses. It is noted that dairy animals represent seven percent of all beef produced in the U.S. predominantly in ground form.

The emergence of H5N1 in dairy herds with close to 40 identified herds in nine states, is based on the self-reported presence of clinically affected cows. Obviously at the present time the prevalence and distribution of bovine influenza-H5N1 is unknown. A recent survey detected 58 positive PCR assays out of 150 samples of commercial milk from ten states. This procedure identified H5 viral RNA but not viable virus. This finding suggests widespread infection with excretion of virus by clinically unapparent cases in herds. The saving grace for the milk industry and consumers is that pasteurization will effectively inactivate any H5N1 virus shed by viremic but clinically unaffected cows.

Wastewater assays* have indicated high levels of H5 influenza RNA in 59 out of 190 plants in Texas where bovine influenza H5N1 was initially confirmed. It would be instructive to determine whether discarded milk contains viable H5N1 since this factor might have contributed to the apparent spike in recovery.

The USDA has initiated investigations to monitor the presence of bovine influenza-H5N1 in beef. Paralleling the recovery of RNA sequences from milk, APHIS will assay ground beef from retail stores and FSIS will screen muscle tissue from culled dairy cows. It will be important to determine whether bovine influenza-H5N1 has spread to cow-calf and feedlot operations and if avian reservoirs have disseminated infection beyond dairy cows.

Predictably the USDA, CDC and production associations representing milk production have circled the wagons and have justifiably confirmed a low (or more realistically a negligible) risk of infection from consuming pasteurized milk. This is a scientifically supported position but release of data from intensive field and molecular epidemiologic investigations will be necessary to allow agencies to make valid and substantiated comments and recommendations.

Dr. Katelyn Jetelina, an epidemiologist with an extensive following, noted that, “A communication void will be filled with confusion, mistrust and misinformation.” Based on our collective experience during the COVID pandemic, she correctly notes that consumers have questions and if they can’t find authoritative answers, they will turn to less credible sources resulting in misinformation and malicious rumor. She noted, “During an outbreak top-down credible and consistent communication is necessary. Equally important is actively equipping trusted messengers including mass media, scientists, physicians and community leaders so that they can communicate from the bottom up.”

The emergence of bovine influenza-H5N1 has implications for exports. Columbia has imposed restrictions on both beef and poultry from entire states reporting bovine influenza-H5N1. Countries wishing to protect domestic industries or those intent on imposing embargoes for political purposes will soon follow the initiative of Columbia. It is hoped that concern over embargoes will not restrain surveillance to determine the extent and distribution of bovine influenza-H5N1 among both dairy and possibly the beef segments of production. At the present time, swineherds that have been tested have proven to be negative but surveillance in this industry is necessary given the susceptibility of hogs to avian and mammalian influenza viruses.

USDA has issued directives concerning detection of possible occupational exposure on both live animal operations and packing facilities. The current circulating H5N1 is susceptible to available antiviral medication that has been stockpiled. Candidate H5 vaccines could be rapidly produced using conventional or mRNA-nanoparticle technology. We may be a long way from a zoonotic infection but our recent experience with COVID and warnings regarding the potential for mutations in large susceptible (ie unvaccinated) poultry flocks should be heeded.

*Wolfe, M.K. et al Detection of hemagglutinin H5 influenza A virus sequences in municipal wastewater treatment plants with increases in influenza A in spring 2024. MedRx iv. doi.org/10.1101/2024.04.26.24306409

Poultry Industry News

Pilgrim’s Pride Corp. Reports on Q1 FY 2024

In a press release dated May 1st Pilgrim’s Pride Corp. (PPC) announced results for the 1st Quarter FY 202 ending March 31st 2023. The quarterly figures showed positive earnings for all three segments with higher revenue and operating profit across all three geographic areas. Earnings were appreciably above Q1 2023 and exceeded consensus estimates on both revenue and earnings for Q1 2024.

The following table summarizes the results for Q1 2024 derived from the SEC 10-Q form and the Company release. Values are compared with the corresponding Q3 FY 2022 (Values expressed as US$ x 103 except EPS)

1st Quarter 2024 and 2023, Ending	March 31st 2024	March 26th 2023	Difference (%)
Sales:	$4,361,934	$4,165,628	+4.8
Gross profit:	$383,909	$173,047	+121.9
Operating income:	$250,274	$31,343	+698.5
Pre-tax Income Net Income*	$227,000 $174,421	$(3,209) $5,187	+7,173 +3,263
Diluted earnings per share:	$0.73	$0.02	+3,550
Gross Margin (%)	8.8	4.2	+109.5
Operating Margin (%)	5.7	0.8	+612.5
Profit Margin (%)	4.0	0.1	+4,100
Long-term Debt and other liabilities1:	$3,593,214	$3,584,369	+0.3
12 Months Trailing:
Return on Assets (%)	5.5
Return on Equity (%)	15.4
Operating Margin (%)	6.1
Profit Margin (%)	2.8
Total Assets (21.6% intangibles)	$9,768,340	$9,810,361	-0.4
Intraday Market Capitalization May 6th ‘24/ Dec 31st ‘23	$6,840,000	$5,490,000	+56.6

1. March 31st 2014/ December 31st 2023.

Q1 2024, $10.3 million interest income (Q1 2023, $36 million)
Q1 2024 $3.3 million miscellaneous income (Q1 2023, $22.7 million)
Q1 2024 $4.3 million gain in foreign currency transactions (Q1 2023 $22.7 million loss)

Operating income and sales posted by the three business segments during Q1 2024 were:-

U.S. 71.7 percent of company operating income on 59.1 percent of sales

Europe 12.4 percent of company operating income on 29.1 percent of sales

Mexico 15.9 percent of company operating income on 11.8 percent of sales

52-Week Range in Share Price of PPC: $19.96 to $36.99. 50-day Moving average, $34.05

Market Close: May 1st pre-release $35.54.

Close: May 2nd post-release $35.95.

Current Forward P/E 14.6 Beta 0.8

Equity held by insiders and holding Company: 82.6 percent, Institutions, 17.0 percent

In commenting on Q4 results Fabio Sandri, CEO stated “Although we experienced depressed market conditions and persistent consumer inflation throughout 2023, we saw this as opportunity to enhance our competitive advantage. To that end, we focused on consistent execution of our strategies, controlling what we can control, and maintaining investment in our operations. These efforts further strengthened our business, accelerating our profitable growth as market conditions evolved,”

Sandri continued “During the first quarter, the U.S. continued to improve as Big Bird realized significant benefits from enhanced operational efficiencies and market fundamentals. Case Ready and Small Bird continued to grow from increased distribution to Key Customers, promotional activity, and the value of chicken to consumers. Prepared Foods also drove significant growth in both retail and food service through branded offerings, further diversifying the portfolio.

Addressing Europe, Sandri noted “Consumer inflation and labor costs continue to be challenging. Nonetheless, the team secured additional business with retail Key Customers, drove branded growth above category averages, and identified further

In relation to Mexico, Sandri observed, ”We improved through a combination of enhanced supply and demand fundamentals in the commodity market, increased Key Customer partnerships, and further momentum of branded offerings”.

Sandri concluded, “Our strategies continue to demonstrate their effectiveness as we’ve grown ahead of the markets with our Key Customers. Similarly, our branded portfolio continues to gain acceptance throughout the market, further diversifying our portfolio. When these efforts are combined with our operational excellence initiatives to expand capacity, we can further drive our profitable growth,”

Tyson Foods Inc. Reports on Q2 of FY 2024

In a press release dated May 6th Tyson Foods Inc. (TSN) announced results for the 2nd quarter of FY 2024 ending March 30th 2024. TSN posted lower revenue than the $13,100 anticipated but was higher on adjusted earnings ($0.62 vs. $0.39).

The following table summarizes the results for the period compared with the values for the corresponding quarter of the previous fiscal year (Values expressed as US$ x 1,000 except EPS)

Second Quarter Ending	March 30th 2024	April 2nd 2023	Difference (%)
Sales:	$13,072,000	$13,133,000	-0.5
Gross profit:	$866,000	$527,000	+64.3
Operating income (loss):	$312,000	$(49,000)	+736.7
Pre-tax income (loss) Net income (loss)	$203,000 $145,000	$(130,000) $(91,000)	+256.2 +262.6
Diluted GAAP earnings per share	$0.41	$(0.28)	+246.4
Gross Margin (%)	6.6	4.0	+65.0
Operating Margin (%)	2.4	-0.4	+700.0
Profit Margin (%)	1.1	-0.7	+257.0
Long-term Debt and other liabilities:	$11,317,000	$9,189,000	+23.1
12 Months Trailing:
Return on Assets (%)	1.2
Return on Equity (%)	-4.5
Operating Margin (%)	4.7
Profit Margin (%)	-1.6
Total Assets*:March 30th ‘24/Sep.30th 2023	$37,465,000	$36,251,000	+3.4
Intraday Market Capitalization May 6th 2024/March 31st2023	$22,140,000	$21,100,000	+4.9

* Goodwill and intangibles 42.3 percent of total assets

52-Week Range in Share Price of TSN: $44.94 to $61.71. 50-day Moving average, $57.43

Market Close: Friday May 3rd $61.93. Monday May 6th Open post release, $61.02.

Forward P/E 27.0 Beta 0.8

The Chicken Segment attained sales of $4,065 million ($4,430 million in Q2 FY 2023) representing 31.1 percent of Company revenue. GAAP operating income attained $158 million in Q2 representing 50.5 percent of net Company operating income. Operating loss in Q2 FY 2023 was $(258) million. For the Chicken Segment the report stated:- “The USDA projects chicken production will be up 1.0% in FY 2024”. Anticipated adjusted operating income for the segment was forecast at $700 to $900 million for FY 2024. Improvement in the Chicken Segment is attributed to lower feed cost estimated at $190 million for Q2 and reduced operating expenses with consolidation following closure of six plants in four states.

For comparison among Tyson Foods’ business segments the adjusted operating income (loss) in Q1 2024 were respectively:- Pork, $(1) million; Beef, $(35) million; Prepared Foods $230 million and International $(40) million.

In commenting on results Donnie King, president and CEO stated, “During the second quarter, we continued our positive momentum and made progress on our key initiatives. The strategies we have implemented are delivering tangible results, as evidenced by our return to year-over-year bottom line growth." He added, "Looking to the back half of the year, we will continue to focus on executing the fundamentals and leveraging our multi-protein portfolio. We are energized by our progress to-date and laser-focused on driving long-term value."

Despite improved Q2 earnings TSN fell on negative comments during the investors’ call suggesting headwinds in Q3.

Guidance for FY 2024 included Revenue unchanged from FY 2023. Adjusted operating income for the Company was raised to $1.4 to $1.8 billion with Prepared Foods contributing $850 to $950 million. Capital expenditure was projected at $1.2 to $1.4 billion. In the Q2 2013 report Tyson Foods projected $1 billion in savings from the “Productivity Program” by the end of 2024 although this prediction was not confirmed as a quantitative value in the most recent quarterly report.

Pittman Family Farms to Pay Additional Sewer and Water Fees to Sanger City

Following the expansion of Pittman Family Farms, in 2017, water consumption and effluent discharge increased proportionally to production. The expansion represented an apparent additional requirement of 700,000 gallons of water per operating day. The City of Sanger is now requiring payment for the additional water and sewage fee amounting to $1 million to be paid by October of 2025.

Strange how they missed 700,000 gallons per day for six years! Pittman Family Farms is a significant employer in Sanger City and the adjustment was negotiated amicably.

Wingstop Reports on Q1 FY 2024

On May 1st Wingstop Inc. (WING) reported on Q1 ending March 30, 2024. Results exceeded consensus estimates on revenue by 7.2 percent and on earnings by 27 percent. For the period, total revenue including royalties and advertising fees attained $145,789 million. Net income was $28.8 million with a diluted EPS of $0.98. For Q1 FY 2023, total revenue was $108.7 million with net income of $15.7 million and a diluted EPS of $0.52.

Comparing Q1 FY 2024 with Q1 2023, revenue was up 34.1 percent and operating margin was 31.6 percent compared to 26.4 percent.

For Q1 growth in same-store sales attained 21.6 percent and digital orders represented 68.3 percent of systemwide sales. At the end of Q1 Wingstop operated 2,279 locations of which 98 percent were franchised including 305 international units. The chain was extended by 65 locations during Q1.

In commenting on Q1, Michael Skipworth CEO stated, “Our fiscal first quarter 2024 showcased the momentum behind the Wingstop brand and the continued strength of our strategies, delivering same-store sales growth driven almost entirely by transaction growth,” He added, “Our domestic average unit volume exceeded $1.9 million, further strengthening returns for our brand partners and is strengthening our development pipeline, which gives us confidence in our ability to scale Wingstop into a Top-10 Global Restaurant Brand.”

Guidance for FY 2024 included low double-digit growth in domestic same-store sales.

The company posted total assets of $412.3 million of which $167.8 million comprised intangibles including goodwill, trademarks and ‘relationships’. The company carries long-term debt of $730.8 million.

Wingstop has a market capitalization of $11,410 million and has traded over 52-weeks in a range of $150.08 to $396.00 with a 50-day moving average of $368.85. The company generated a twelve-month trailing operating margin of 29.3 percent and a profit margin of 16.8 percent. The return on assets attained 19.1 percent. Shareholding is held almost entirely by institutions, but on April 15th, 6.9 percent of the float was short.

USDA posted a wholesale price of $2.31 per pound for cut wings for the week ending April 19th. According to the April 24nd USDA Cold Storage Report, there was a 19.6 percent decrease in inventory of wings on March 31st 2024, compared to the corresponding date in 2023 with a stock of 51.8 million pounds. During March 2024, inventory fell 1.7 percent reflecting stable demand despite sports events associated with consumption of chicken wings.

Arizona Enacts Meet Labeling Bill

The State Senate of Arizona has enacted a more moderate version of the State House Bill requiring labeling of cell-cultured meat and poultry products. The House version would have banned the terms “meat” and “poultry” on cell-cultured products. The amended version will require labeling that specifies that the product was not derived from a live-animal. As a result of the modification, the bill has been transformed from protectionist to informative in intent.

USDA-AMS Purchases

On May 1st, the USDA Agricultural Marketing Service announced purchase of chicken products for child nutrition and related food assistance programs to be delivered during June 2024.