August 12, 2010

Tyson Foods Inc's earning will drop in 2011 from a peak this fiscal year as the biggest US meat processor faces a projected chicken glut and higher costs, analysts said.

Profit excluding one-time items will fall to US$1.93 a share in the 12 months starting in October, from $2.07 this year, according to the average estimates of 13 analysts.

Beef and pork operating margins likely will shrink and higher feed prices will increase the cost of raising chicken when production is expanding, analysts said.

Chief Executive Officer Donnie Smith, who took the helm in November, has cut costs and improved operating margins. Net income this fiscal year will be $776.2 million, compared with a loss of $537 million last year. Still, Smith's efforts may not be enough to overcome broader industry trends, analysts said.

"We believe fiscal year 2011 results are doomed to fall from here as competitors in the cyclical protein industry chase away excess returns by increasing capacity and as the chicken business absorbs higher feed costs," said Rob Moskow, a New York-based Credit Suisse analyst.

Exports to Russia will only provide a temporary boost for dark-meat prices because the country wants to become self-sufficient in protein production, said Moskow. Russia banned US chicken imports earlier this year and has said that it will restart shipments only after the US gives plant-inspection guarantees.

Tyson Foods said this week it expects chicken production to rise in fiscal 2011 while supplies of cattle decline 1%-2% and hogs remain stable.