Tyson targeting profit within next two quarters

 

 

The company said it cut chicken production 5 percent in December amid a domestic glut, and is leaving output at that level.

 

Tyson, which replaced its chief executive earlier this month, is also changing its product mix and pursuing productivity measures.

 

"We got away from the fundamentals," said Leland Tollett, a former Tyson CEO who returned to the job this month. "I like the place we are right now," he added during a conference call with analysts.

 

The company's decision to cut production is a reversal in strategy after resisting pressure from investors and analysts to shrink its poultry output to deal with the economic slowdown.

 

Tollett replaced Richard Bond as CEO amid internal tensions over how to navigate the industry downturn. He said he would stay for as long as was needed to turn the chicken business around.

 

The company had long sought to keep expanding its chicken business. But slowing purchases by restaurants that sell Tyson products pushed inventory up so quickly in December that the company was forced to cut production in order to avoid cutting prices.

 

US meat processors have been grappling with depressed demand and pricing for chicken, and the lingering impact of high commodity prices on animal-feed costs.

 

This has forced one market leader – Pilgrim's Pride Corp. - into bankruptcy and led to talks across the industry to restructure debt accumulated through expansion and acquisitions.

 

Tollett said on the call that the outlook for beef – Tyson's largest segment by revenue - remained positive, and was upbeat about the prospects for chicken and the smaller pork unit, as well as the exports that had driven growth.

 

He said the company had been slow to maximize earnings from utilizing every part of a chicken.

 

"We have a saying here: When a bird dies, it dies all over", he said on the call.

 

Tyson reported a fiscal first-quarter loss of US$112 million, or 30 cents a share, for the period to December 27. This compared with year-earlier net income of $34 million, or 10 cents a share. Revenue increased 0.7 percent to US$6.52 billion.

 

The company warned in November that it could swing to a loss in its fiscal first quarter amid the weakening global economy, the strengthening dollar and the volatile commodity markets.

 

Analysts polled by Thomson Reuters most recently expected a loss of 23 cents a share on revenue of $6.82 billion.

 

Gross margin fell to 0.3 percent from 4.9 percent.

 

Chicken sales rose 6.3 percent as the segment swung to a loss on a US$197 million hedging loss and US$183 million in increased grains costs.

 

Beef sales slid 6.9 percent on an 11 percent volume decline as the segment clawed back to break-even. Pork and prepared-food revenue rose 5 percent and 10 percent, respectively, as profits fell 30 percent and were flat.

 

In November, Moody's Investors Services cut its ratings on Tyson further into junk territory due to concerns the company wouldn't be able to turn around its chicken operations in the short term. Tyson has bought time by securing eased debt covenants from lenders.

 

Tyson shares rose 6.2 percent to US$9.20 in early trade Monday (January 26).