August 10, 2010

Tyson reports 89% in Q3 net income

Tyson Foods Inc. posted an 89% increase in third-quarter net income despite the difficulties of higher production costs.

The Springdale, Ark.-based company said its prepared foods unit struggled in the quarter because of rising ingredient costs but still made money. The company reported net income of US$248 million or 65 cents per share in the quarter ending July 3, up from US$131 million, or 35 cents per share last year. Revenue rose 11.6 % to US$7.44 billion.

Meat producers have been cutting production to recover from the downturn because less supply means higher prices. However, Tyson said it expects beef, chicken, pork and turkey production to rise in 2011 from this year. It also expects exports to rise in 2011.

CEO Donnie Smith said the company expects demand to continue to rise, so there will be no excess meat on the market. "I'm not at all pessimistic that we have oversupply of protein going into 2011 when I tie everything back together," he said.

Smith told investors the company has locked in contracts for the next two quarters, so it should not be too affected by swings in grain costs. Overall, however, Tyson said its grain costs are likely to go higher in fiscal 2011.

The company is moving to shorter-term contracts with customers so it can change prices to reflect higher costs. However, for now there is still a lag time for price increases, especially for the packaged foods unit. Tyson said all of this makes it more difficult to absorb the rapidly rising raw materials costs the company experienced in the third quarter.

Demand appears to be rising for all the company's products. The total amount of product Tyson sold in the quarter rose 1.2%, rising in every category except beef, which fell 5.1%. Pork prices jumped 31.6%, while beef prices rose 19.5%. Chicken prices slipped 3.2%. Prepared foods prices rose 10%.

Smith said Tyson was able to pay down about US$400 million in debt because of the cash it received in the quarter.