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Tyson Profit Jumps 89 Percent on Higher Beef, Pork Prices

Monday, 09 Aug 2010 11:31 AM

Meat producer Tyson Foods Inc. posted an 89 percent jump in third-quarter net income, helped by higher beef and pork prices and a chicken business that's recovering.

The company has been working through an industrywide downturn brought on by a combination of higher production costs and slumping demand as shoppers cut back on trips out to eat.

The Springdale, Ark.-based company said its prepared foods unit struggled in the quarter because of rising ingredient costs but still made money.

The company reported net income of $248 million or 65 cents per share in the quarter ending July 3, up from $131 million, or 35 cents per share last year.

Revenue rose 11.6 percent to $7.44 billion.

Analysts expected earnings of 58 cents per share on revenue of $7.26 billion, according to Thomson Reuters.

Shares fell 63 cents, or 3.7 percent to $16.51 in morning trading Monday, and analysts focused on the company's planned production increase during a conference call with company executives. They are concerned that a jump in production could drive prices back down.

Meat producers have been cutting production to recover from the downturn because less supply means higher prices. But Tyson said it expects beef, chicken, pork and turkey production to rise in 2011 from this year. It also expects exports to rise in 2011.

But CEO Donnie Smith said the company expects demand to continue to rise, so there will be no excess meat on the market.

"I'm not at all pessimistic that we have oversupply of protein going into 2011 when I tie everything back together," he told investors on a conference call Monday.

Russia — a major chicken importer — banned U.S. imports last winter over safety concerns, and it's unclear when the market will reopen. The country has said it will reopen the market, though now it has more concerns, which may delay reopening.

Rising grain prices are also a worry. Russia recently banned wheat exports because of a drought. Russia is a major exporter of wheat, so analysts expect higher wheat prices will mean more demand for other grains, including corn — used as feed for livestock.

Smith told investors the company has locked in contracts for the next two quarters, so it should not be too affected by swings in grain costs. But overall, Tyson said its grain costs are likely to go higher in fiscal 2011.

The company is moving to shorter-term contracts with customers so it can change prices to reflect higher costs. But for now there is still a lag time for price increases, especially for the packaged foods unit. Tyson said all of this "makes it more difficult to absorb the rapidly rising raw materials costs" the company experienced in the third quarter.

Demand appears to be rising for all the company's products. The total amount of product Tyson sold in the quarter rose 1.2 percent, rising in every category except beef, which fell 5.1 percent.

Pork prices jumped 31.6 percent, while beef prices rose 19.5 percent. Chicken prices slipped 3.2 percent. Prepared foods prices rose 10 percent.

KeyBanc Capital Markets analyst Akshay Jagdale said he was impressed by both the beef and pork results, but chicken was below his expectations. Overall though, the quarter was strong, he told clients in a note.

Smith said Tyson was able to pay down about $400 million in debt because of the cash it received in the quarter.

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Meat producer Tyson Foods Inc. posted an 89 percent jump in third-quarter net income, helped by higher beef and pork prices and a chicken business that's recovering.The company has been working through an industrywide downturn brought on by a combination of higher...
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