November 12, 2008
Tyson Foods has lost US$118 million in the chicken business over the past one year, but the company will not reduce production.
This decision is made despite that the chicken business will not make any money until April 2009, and is likely to further hurt rival businesses that are heavily or fully focused on the chicken sector.
Tyson chief executive Richard Bond said the demand supply balance is healthy, with fast-food companies expressing supply concerns and retail sales that are recovering. Bond added that the export market will rebound during the winter.
Tyson's losses in the chicken business have been offset by its beef and pork businesses, leading to a US$48 million fiscal fourth-quarter profit.
However, Timothy Ramey at D.A. Davidson & Co., cuts Tyson's stock rating to neutral and lowered his price target to US$7.50 per share from US$22.
"Because they feel like they were the ones who cut production in previous quarters - now it was time for others to feel the pain. Unfortunately those who have felt the pain acutely are Tyson shareholders," Ramey said in reference to Tyson's business decision.
On the other hand, Pilgrim's Pride is striving to secure large financing to avoid a possible bankruptcy filing. Tyson's announcement has made it worse for Pilgrim's Pride as its shares took a plunge.
In September, Tyson sold 20 million shares and convertible senior notes, raising more than US$700 million, some of which had been used to purchase three Brazilian poultry companies.
Tyson shares fell 13 percent, while Pilgrim's Pride dipped 18 percent in late afternoon trading.