Tyson Shares Rise on Narrower-Than-Expected Loss


Tyson Foods Monday posted a small loss for the quarter, but the results were better than expected due to stronger pork pricing, sending the U.S. meat company's shares higher.


Tyson -- the largest U.S. producer of beef, pork and chicken -- said its chicken and beef units posted operating losses for its fiscal second quarter on higher feed costs and charges related in part to plant closings.

The company did not provide an earnings outlook for the rest of the year, as the volatility in the feed grain markets is expected to continue, but said its beef unit should be better in the current quarter and its pork should do well, but not as well as the second quarter.

Its pork profits nearly doubled, helped by lower average hog prices and strong pork exports, the company said.

For the second quarter that ended March 29, the Springdale, Arkansas-based company reported a loss of $5 million, or 2 cents per share, compared with a year-earlier profit of $68 million, or 19 cents per share. The results included $47 million in charges, which translated to 8 cents per share.

Excluding those charges, earnings would have been 6 cents per share. On that basis, analysts on average expected a profit of a penny per share, according to Reuters Estimates.

"I think it was still a pretty ugly quarter, but modestly better than expectations," said Tim Ramey, a food company analyst at D.A. Davidson. "I think the stock trades up a little bit today."

Revenue for the period was $6.61 billion, compared with $6.50 billion a year earlier.

"We continue to believe the second quarter should be our most challenging, and we are pleased with the results," Chief Executive Officer Richard Bond said in a statement

Tyson raises the chickens it processes, but buys the cattle and hogs. The chicken unit lost $61 million on an operating basis due in part to a $102 million increase in feed costs.

The company has been raising chicken prices but those increases have not kept pace with the higher feed costs, Bond told analysts in a conference call.

Tyson, like other livestock producers, has been hurt by the high price of important feeds, such corn and soybean meal. Corn prices have skyrocketed due to strong demand for export, ethanol production and as a livestock feed.

"For the year, corn and soybean meal increases are likely to approach $600 million," Bond said in a statement. He added that costs for feed and other inputs may be up nearly $1 billion versus fiscal 2007.

No Plans to Cut Production

Demand for chicken remains strong and Tyson said it would not reduce production, as some competitors have done.

"Right now our demand is good. We do not have any plans to reduce (chicken) production," said Bond.

The beef unit was hit with higher operating costs, losses at the company's Canada plant, and charges related to a plant restructuring. Minus the charges, beef would have turned a small profit, which pleased some analysts.

"While it was widely believed beef had started to turn the corner, the modest profit will probably enliven protein bulls, particularly with potential tailwind from the reopening of South Korean export market and recent rationalization in the market," Wachovia analyst Jonathan Feeney said in a note.

The beef unit had an $11 million loss on an operating basis, compared with a $24 million profit a year earlier. That loss included $17 million in charges for restructuring at a Kansas beef plant and $8 million for packaging equipment.

Early in the quarter, the company ended cattle slaughter at its Emporia, Kansas, beef plant, due in part to excess processing capacity in the industry.

Conditions in beef should improve in the third quarter because of better seasonal demand and to news that South Korea will restart purchases of U.S. beef, Bond said.

South Korea, like other countries, had banned U.S. beef in late 2003 when the first case of mad cow disease was reported. Prior to the 2003 ban, South Korea was Tyson's third-largest export market for beef, taking about 15 percent of its beef exports, or $330 million worth.

The pork unit had an operating profit of $63 million, compared with $35 million a year earlier.

The chicken unit had an operating loss of $61 million, compared with a year-earlier $61 million profit.

Prepared foods' profit was $20 million, also unchanged from a year ago.

Tyson's shares were up 27 cents, or 1.49 percent, to $18.42 in morning New York Stock Exchange trading.