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Profits rise lifts Tyson shares to five-year high

Tyson Foods shares hit their highest since 2007 after the meat giant unveiled better-than-expected earnings and said that it was "even more optimistic" about prospects in part, thanks to Cargill's closure of a beef plant.

The biggest US meat producer revealed a rise of 10.9% to $173m in earnings for the three months to December 29, the first quarter of its financial year, on revenues up 0.9% at $8.40bn.

The earnings, equivalent to $0.48 per share, beat Wall Street forecasts of a $0.42-per-share result.

And Tyson, which in November cautioned that it was beginning a "challenging" fiscal year, painted a more upbeat picture of its prospects, after making a "good start" in the first quarter.

'Preparing for growth'

"We are on our way to producing earnings this year better than fiscal 2012," said Donnie Smith, the Tyson chief executive.

"We knew we'd face headwinds, and that has certainly been the case. However, we're not simply holding our own. We're producing solid results while preparing for growth."

Mr Smith told investors: "We feel very good about our ability to produce solid earnings this year, and there are signs of strength in the back half that make us even more optimistic."

The group stuck by a forecast of revenues reaching about $35m for the full year, a little above the $34.6m that investors are expecting.

Margin vs market share

The earnings rise in the latest quarter reflected a tripling, to $107m, in operating profits at the chicken division which proved able to pass through in higher meat prices a $170m increase its feed bill caused by higher grain and soybean values.

"Since many of our sales contracts are formula based or shorter-term in nature, we were able to offset rising input costs through improved pricing and mix," Tyson said.

Beef profits rose 48% to $46m, as an 11.7% rise in prices more than offset a 10.0% drop in volumes, as the group withdrew from low margin business.

"We pulled back in the number of head we processed, in an effort to maintain prices," Jim Lochner, the Tyson Foods chief operating officer, said.

"In other words, we opted for margin, not market share."

Cargill cutback

The increases more than offset a drop in profits in pork and prepared foods, reflecting falls in prices.

However, Tyson forecast a recovery in margins in prepared foods, and a continuing ability in chicken to pass on higher feed costs, albeit potentially sometimes with a lag.

In beef, while margins, which came in at 1.3% in the latest quarter, would remain below typical levels for the business of 2.5-4.5%, it would "remain profitable".

The division would be helped by the boost to processors from Cargill's decision last month to close a factory in Texas, a move set to shift more volumes to other plants, including those run by companies other than Cargill.

'Favourable over the long run'

A company spokesman said: "It does a lot of good to try to adjust the excess slaughter capacity, particularly in that region," where drought has cut deep into herd numbers.

Cargill's move "will be favourable over the long run, and so we're optimistic", the spokesman said, if adding that he was "hesitant to put a number" on the extent of the boost to profits.

The restructuring by Tyson of a plant in Kansas in 2008 fuelled a rise in beef packer margins of some $60 per head, and created an industry boost which lasted for many months, the group's investor meeting heard.

Tyson shares hit $23.04 in early deals in New York, their highest since July 2008, before giving back some ground to closed at $22.80, up 3.1% on the day.

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