(TSN) Tyson Foods Settles Wage Dispute with Workers

Tyson Foods Inc. (TSN), the world’s leading producer, distributor, and marketer of chicken, beef, pork, and prepared food products, has decided to give up $32 million in order to settle a wage dispute with workers who claimed that they were being paid less than they actually worked for.

The workers of meatpacking and food processing units claimed that they were deprived of thousands of dollars in lost pay for time they spent donning and doffing safety gear. The movement is backed by a U.S. Supreme Court ruling in 2005, in “IBP Inc. v. Alvarez” that stated that meat plant workers had to be paid for time required to put on and remove protective clothing and safety gear and for time required to walk to and from work stations.

More than 262 current and former workers at the Tyson Fresh Meats, Inc., facility in Holcomb, Kansas, have joined the lawsuit, alleging that they did not receive wages and overtime pay as required by the federal Fair Labor Standards Act  and Kansas state law.

The company had faced several such allegations regarding labor welfare and compensation. The company had changed its compensation policy to keep in tune with the requirements of Labor Department last year.

In September, 2010, the U.S. Department of Labor accused a Tyson Foods Inc. subsidiary of discriminating against women in its hiring at an Illinois plant. The Department of Justice had also accused Tyson’s Chicken of receiving “ill-gotten gains” by hiring undocumented workers to work in chicken processing plants around the country.

Tyson reported its third-quarter 2011 adjusted earnings of 56 cents a share, surpassing the Zacks Consensus Estimate of 40 cents. Profits were driven by higher sales as well as strong performance in all the segments, particularly Beef and Pork segments.

Tyson believes that the fundamentals of the Beef, Pork and Prepared Foods businesses will remain strong in the fourth quarter of 2011, while it expects weak market pricing conditions to continue in its Chicken segment due to an imbalance of available supply relative to customer demand.

Going ahead in fiscal 2012, Tyson anticipates export sales to continue, resulting in slight decline in total domestic availability of protein. In the Chicken segment, the company forecasts a slight decline in the industry production, whereas it expects increased raw material costs in the Prepared Foods segment, which will however be offset by the operational improvements and increased pricing. Tyson also anticipates strong fundamentals in the Beef segment, and expects strong export sales to continue in the Pork segment.

We are encouraged by Tyson Foods’ significant presence in the international market. The company is vertically integrated and has advanced processing capabilities. However, the company faces stiff competition from both national and regional players like Smithfield Foods Inc. (SFD) and Pilgrim’s Pride Corporation (PPC).

We currently have a Zacks #3 Rank on Tyson shares, which translates into a short-term Hold rating. On a long-term basis, we provide a Neutral recommendation on the stock.

PILGRIMS PRIDE (PPC): Free Stock Analysis Report

SMITHFIELD FOOD (SFD): Free Stock Analysis Report

TYSON FOODS A (TSN): Free Stock Analysis Report

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