May 10, 2011

Tyson Foods reports flat Q2 net income

Tyson Foods reported flat second-quarter earnings because higher feed costs offset improving demand and higher meat prices.

The company raised prices for chicken, beef and pork, indicating that higher global grain costs are finally working their way to the grocery store meat counter.

The company on Monday (May 9) reported their net income was US$156 million, or US$0.42 per share, in the three months ended March 31. This is unchanged from US$156 million, or US$0.42 per share, a year earlier. The earnings were slightly below the average forecast from analysts surveyed by FactSet of US$0.43 per share.

Tyson Foods Inc.'s revenue climbed 16% to US$8 billion. Analysts expected US$7.52 billion. The company said it sold more chicken and pork, but operating income fell 12% to US$303 million as grain prices rose.

The company said beef prices increased by nearly 20% while pork prices jumped 18% and chicken prices rose 3.7% compared with last year. Prices for prepared foods rose 11%. Overall, prices rose 12% across the company's product lines.

The USDA predicts overall meat prices will rise between 6-7% this year.

Raising prices is key to Tyson's profitability, because the price of corn is trading near all-time highs. Feed costs are the biggest expense for raising chickens and livestock, and meat companies have been hard pressed to pass on those costs to struggling consumers.

But it appears the market is finally able to support higher prices, with sales volumes rising for chicken and pork, while beef sales fell less than 1% amid the price hikes.

Tyson said prepared foods sales fell 4.6% during the quarter, indicating that demand is still relatively weak for Tyson's more expensive and profitable products like precooked chicken nuggets. But the lower volumes were offset by an 11.1% price hike.

CEO Donnie Smith said Tyson expects to match last year's record net income of US$780 million as demand stays strong through the rest of the year.