May 1, 2007

 

Tyson swings to profit on beef operations; raises view

 

 

Tyson Foods Inc, riding a huge rebound in beef earnings, reported a surprisingly strong turnaround in fiscal second-quarter earnings Monday (Apr 30).

 

The world's largest meat processor posted its best results in six quarters, benefiting as well from a series of wholesale price increases it initiated on poultry products in recent weeks and hedges on feed corn. Still, its net grain costs were up US$42 million from a year earlier, reflecting diversion of corn into ethanol production.

 

Tyson raised its full-year earnings range to 65 cents to 90 cents a share. The mean estimate on Wall Street was 73 cents a share, compared with a loss of 37 cents a share in fiscal 2006. For the full fiscal year, the company forecast revenue of US$26 billion to US$27 billion, capital spending of about US$300 million and net debt down to US$2.7 billion.

 

"Progress year-over-year is quite remarkable," Chief Executive Dick Bond said during a conference call. All segments were profitable in the latest quarter and "it was our strongest performance since the fourth quarter of fiscal 2005," he said.

 

"Our beef segment is back in the black and our pork business is well within our target margin objectives" while chicken also showed improvement, Bond said.

 

Net earnings totalled US$68 million, or 19 cents a share, compared with a loss of US$127 million, or 37 cents a share, a year earlier. Analysts' mean estimate had been 11 cents a share.

 

Sales for the quarter ended March 31 totalled US$6.5 billion, up from US$6.3 billion, although volume was down 2 percent.

 

Beef, Tyson's biggest business, made a significant recovery in the quarter, posting operating earnings of US$24 million compared with a loss of US$188 million a year ago. The company cited higher average selling prices on better volume, along with operating efficiencies.

 

The company said it expects to resume exports to South Korea soon, but that sales to Japan remain "severely limited" by that country's demand that meat be from cattle 21 months old or younger.

 

"We think that sound science eventually will lead to significantly more beef sales" in Asia, Greg Lee, Tyson's international president, said during the call.

 

Chicken pre-tax earnings jumped in Tyson's latest quarter to US$61 million from US$9 million previously. Much of that came as the company was able to pass along cost increases as it and others in the industry adjusted to bigger feed bills and fewer chicks.

 

By mid-April, prices for skinless, boneless breast meat were up 39 percent, leg quarters 69 percent and thigh meat 17 percent, Deutsche Bank reported, and the outlook remains sunny.

 

Bond said Tyson doesn't want to create an oversupply in poultry, "but we don't intend to give up market share, either." He said the company anticipates good demand for chicken into the fall, which should limit seasonal price declines after Labour Day.

 

He added that the full impact of rising corn prices will appear in current-quarter numbers.

 

Tyson's pork unit operating earnings also rose, to US$35 million from US$9 million a year earlier.

 

Management said it remains on track to beat its goal of reducing costs at least US$200 million in the current fiscal year. The sale of a corporate plane resulted in an US$8.6 million net gain in the second quarter.