Shares of Tyson Foods Inc. dropped by more than 10 percent in a 24-hour period as investors reacted to an analyst's warning that an industrywide price fixing allegation could do "substantial" damage to the Springdale-based company.
Tyson stock opened Friday at $70.48 and dipped as low as $65.85, causing the company to issue a response to Timothy Ramey, an analyst for Pivotal Research Group. The stock closed Thursday at $74.38.
Ramey dropped his target price for Tyson stock from $100 per share to $40 per share, writing that he wasn't accusing Tyson of collusion, but "[T]he narrative of this suit fits the fact-pattern of poultry pricing and margins over the last seven years. If true, it explains a lot. It explains why Tyson can offer [earnings per share] guidance with remarkable precision; boasting of margins at record levels well into the future."
As its stock price plummeted, Tyson issued the response to the report. The company disputes the allegations and said it did not plan to change its business practices as Ramey suggested in his research note.
"An analyst report has been issued this morning commenting on pending antitrust litigation which was filed over a month ago," the statement read. "While we don't normally make substantive comments regarding pending litigation, we dispute the allegations in the complaints as well as the speculative conclusions reached by the analyst, and we will defend ourselves in court. Contrary to what the analyst assumed, we have not made any changes to our business practices in response to the complaints."
Shares of Tyson stock ended trading at $67.75.
Maplevale Farms Inc. of New York filed the lawsuit against Tyson Foods Inc. and 14 other companies on Sept. 2 in the Northern Illinois District of U.S. District Court. The suit alleges that companies used nonpublic information through Agri Stats to fix prices on broiler chickens from Jan. 1, 2008, "until the present."
Agri Stats, according to the lawsuit, provides "sufficient detail for an informed subscriber to determine with reasonable accuracy producer-specific production cost, and general efficiency data." That information, according to the lawsuit, was used by companies to generate "an unprecedentedly steady increase" in prices for broiler chickens.
"Our thesis is that the class action suit has merit and will lead to intense scrutiny in the broiler sector," Ramey wrote. "The sustainability of chicken margins could logically be questioned."
Also named in the class action lawsuit are 15 companies, including privately held Simmons Foods of Siloam Springs, George's Inc. of Springdale and O.K. Foods of Fort Smith. Mountaire Farms is headquartered in Delaware, but owned by an Arkansan, also was named.
Representatives for those companies were not immediately available for comment on the lawsuit.
Pilgrim's Pride stock opened Friday at $20.79 per share and ended at $20.16. Sanderson Farms, the other publicly traded company named in the lawsuit, had its shares drop from $92.89 per share to $89.15 per share.
Reaction from investors appeared to be knee-jerk, said Bob Williams, senior vice president at Simmons First Investment Group in Little Rock. Information about the lawsuit included in Pivotal Research Groups report on Tyson was a month old and should not have caused the sort of reaction it did, Williams said, noting that allegations of collusion are generally difficult to prove in court.
"A 10 percent drop in the stock price with no concrete proof being provided of price fixing would indicate an overreaction," Williams said. "That lawsuit has been hanging over the stock for 30 days. Nothing has changed since the lawsuit was filed. It's an overreaction."
In a separate class action lawsuit involving worker pay, Tyson was denied a new trial Thursday. The company was arguing that unaffected workers might receive payment in a $5.8 million judgment related to the time it took employees to put on or remove protective clothing at the beginning and end of shifts.
U.S. District Judge John A. Jarvey of the Southern District of Iowa said the company is protected from paying workers who were "uninjured." He upheld a payment method proposed by Lisel Fox.
"[H]is method of distribution reasonably resolves any uncertainties in favor of upholding the jury's verdict," Jarvey wrote. "This distribution method satisfies the Supreme Court case by ensuring no uninjured class members receive damages."
Tyson lost an appeal of the case before the U.S. Supreme Court in March. A jury awarded workers for unpaid time on the clock in Sept. 2011.
A Tyson spokesman did not respond to a request for comment on the company being denied a new trial.
Business on 10/08/2016