Tyson Foods has been reeling for the past few years with scandal after scandal. Whether it’s how Tyson Foods treats its workers, or how in turn its workers treat the chickens they farm, every story coming out of the meat processing giant is distressing. On Friday Tyson Foods Inc. took a financial hit as shares ended the day trading at 8.9 percent lower. Part of the bad Friday for Tyson Foods is an antitrust lawsuit filed earlier this month in Illinois that claims that Tyson Foods, along with Koch Foods, Perdue and a handful of others have colluded for almost a decade in reducing chicken production in order to jack up the price.
Maplevale Farms, a New York food distributor, also sued Pilgrim's Pride, Sanderson Farms and others, on Sept. 2 in Chicago Federal Court.
Maplevale claims that since 2008 the wholesale price of broiler chickens has risen by nearly 50 percent while feed prices have dropped more than 20 percent — and not because of a free market.
"(B)eginning at least as early as January 2008 defendants conspired and combined to fix, raise, maintain, and stabilize the price of Broilers," Maplevale says in the 113-page lawsuit. "The principal (but not exclusive) method by which defendants implemented and executed their conspiracy was by coordinating their output and limiting production with the intent and expected result of increasing prices of broilers in the United States."
That means that, if true, Tyson and Koch and others have made consumers pay 50 percent more than they should have. The lawsuit itself is just one of many in a big pile of lawsuits against the largest producer of broiler chickens in the United States. The reason their stock tumbled last week was because Pivotal, a market analyst, said that the lawsuit was “powerfully convincing.”
Pivotal analyst Tim Ramey wrote Friday in a note that while he wasn’t alleging Springdale, Arkansas-based Tyson colluded on pricing, the "narrative of this suit fits the fact-pattern of poultry pricing and margins over the past seven years."
"If true, it explains a lot," he said. "It explains why Tyson can offer EPS guidance with remarkable precision; boasting of margins at record levels well into the future. The Tyson of old did not provide guidance."
It should be noted that other analysts have changed Tyson Foods stock from a “buy” stock to a “sell” stock. They claim that Tyson’s handling of the marketplace is fundamental. Ramey is saying quite the opposite.
"We have long wondered how an industry marked by such volatility and lack of discipline could morph to a highly disciplined industry where production remains constrained and pricing remains high," Ramey added.
Tyson Foods said it had not made any changes to its business practices in response to the complaint.
Sounds like a “smartest me in the room” scenario.