August 9, 2011

 

Tyson Foods posts Q3 profit drop on weak chicken unit

 

 

Tyson Foods Inc's third-quarter profit fell 21% on weak chicken prices and rising feed costs, expected to persist through most of the fourth quarter.

 

But the company beat analyst expectations and said the outlook for its beef and pork units remains strong.

 

While high feed costs have pressured meat producers generally, they have hit poultry producers especially hard, as chicken prices remain weak because of stubbornly large supplies and lacklustre demand.

 

"There appears to be improvement in market fundamentals on the horizon, but the next few months will be very challenging, and it is likely our chicken segment will experience a loss in the fiscal fourth quarter," said Tyson Chief Executive Donnie Smith.

 

The largest US meatpacker has focused on streamlining operations as a weak economy dampens consumer demand and as feed costs continue to soar, forcing Tyson to also raise its prices. The price of corn is up about 80% from a year ago.

 

Pork prices have climbed to all-time highs during the past couple of weeks, and beef prices are also historically high. Both markets have been bolstered by tighter supplies and strong export demand, which has eased worries about domestic consumption.

 

Tyson raised its normalised pork operating margins from 6% to 8%, up two percentage points.

 

For the quarter ended July 2, Tyson reported a profit of US$196 million, or 51 cents a share, down from US$248 million, or 65 cents, a year earlier. The most recent period included a 5-cent per-share tax expense related to a reversal of reserves for foreign uncertain tax positions.

 

Revenue increased 11% to US$8.25 billion, while gross margin narrowed to 6.4% from 10.1%.

 

The beef segment, the largest top-line contributor, saw revenue rise 12% as average prices rose nearly 14% but volume fell 1.7%. Earnings for the segment were down 20%.

 

At the chicken business, revenue rose 11% as volume rose 0.5% and prices were up 10%. Earnings were down 85%.

 

Its smaller pork business' revenue was up 13% as volume rose 3% and prices increased 9.4%. The unit's earnings decreased 0.8%.