July 29, 2008


Tyson 3Q net down 92 percent on feed costs


Tyson Foods Inc. reported a 92-percent plunge in fiscal third-quarter net income as grain prices continue to rise and the chicken segment posted a loss.


Both top and bottom line results were lower than expected, pushing the stock down 11 percent premarket to US$14.50.


Feed grains make up half of the costs of raising a chicken and higher grain prices also affect the cost of cooking oil, flour and other ingredients used to produce the processed and pre-cooked products that Tyson specializes in. The costs have forced Tyson, the world's largest meat processor, to raise prices, shutter plants and lay off workers. But it still suffered a loss in its chicken segment.


For the quarter ended June 30, net income was US$9 million, or 3 cents a share, down from US$111 million, or 31 cents, the prior year. From continuing operations, Tyson reported a 1-cent loss.


Revenue rose 3.5 percent to US$6.85 billion.


The mean estimates of analysts according to Thomson Reuters were for earnings of 12 cents a share on revenue of US$7 billion. Gross margin slipped to 3.78 percent from 6.46 percent.


In the company's two biggest markets, beef sales decreased 1.4 percent to US$2.98 billion, while chicken sales rose 8.9 percent to US$2.25 billion. Pork and prepared foods climbed 8.6 percent and 2.6 percent, respectively.


The chicken segment swung to a quarterly loss, while the beef segment eked out a profit. The other two divisions were solidly profitable.


Even without the cost increases, the past three months have been tumultuous for the food processor, with a bird-flu scare in its Arkansas chicken operations, floods affecting plants in the Midwest and the sale of its Canadian beef operations. Earlier this year the company closed a Kansas factory and cut 1,500 jobs.


The company was also forced by the USDA to pull a "raised without antibiotics" label off some of its chickens, which had been selling well. The USDA said antibiotics were in fact used before the hatching of the eggs, but Tyson is suing the administration over the decision.

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