January 30, 2007

 

Tyson Foods' Q1 profit climbs 46 percent, warns of higher chicken prices

 

 

Profit rose a thumping 46 percent in the first quarter for US meat producer Tyson as chicken sales improved and its cost cutting measures took effect, breaking three consecutive quarters of losses, the company reported Monday (Jan 29). 

 

Net income grew to US$57 million in the three months ended Dec. 30 2006 from US$39 million during the same period the year before.

 

Revenue was up 2 percent to US$6.56 billion from US$6.45 billion a year earlier beating expectations of US$6.38 billion.

 

The company said its chicken operations were profitable, and its pork and prepared foods segments performed within expected ranges.

 

In recent months Tyson began a corporate-wide cost-reduction programme that has led to plant closings and other consolidation efforts aimed at saving US$200 million annually. General and administrative expenses fell US$44 million the past quarter, due to the company's cost-cutting efforts.

 

Tyson's beef operations were affected by lower average selling prices plus operating losses at Tyson's Canadian operations while pork benefited from operating efficiencies and lower live-animal costs.

 

Although the beef sector is still unprofitable, posting a US$23 million loss compared to US$64 million a year earlier, it is showing signs of improvement, Tyson said.

 

President and Chief Executive Richard Bond said that while the current quarter would be "challenging", the company expects to have another profitable quarter.

 

However, the company warned that if corn continues to be diverted from animal feed into fuel production, consumers are likely to pay signficantly more for food.

 

The dramatic rise in corn prices has become a major issue for the food industry, Bond said in a news release.

 

Companies will be forced to pass along rising costs to their customers," he predicted.

 

Bond said that while Tyson supports efforts to increase the nation's supply of renewable energy, careful consideration must also be given to the negative and unintended consequences of over-using grains.

 

However, some analysts had predicted that soaring corn prices would not have the near-term impact many investors have feared. In a report last week, Merrill Lynch's Diane Geissler said that there is a significant lag between the time feed Tyson purchased and when chickens raised on that feed are sold.

 

Chickens sold during the current therefore would have been raised on feed purchased last summer, before the grain prices started going up. Hence Tyson's profits may not be severely impacted this quarter from corn.

 

Moreover, Tyson hedges the corn it buys, with such hedging activities having cut feed costs as much as US$36 million.

 

However, Credit Suisse analyst David Nelson felt that while chicken prices are rising and will provide some offset, it would not be able to keep pace with rising corn and soybean meal costs.

 

Tyson lost its ranking as the world's largest poultry producer this past quarter when Pilgrim's Pride Corp acquired the US's third largest poultry producer Gold Kist Inc.