PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 17:03 UK, 5th May 2014, by Agrimoney.com
Tyson Foods shares tumble, despite profits surge

Shares in Tyson Foods tumbled 9%, wiping nearly $1.3bn from its stockmarket value, after the protein giant unveiled earnings below market forecasts, hurt by weather setbacks and widening losses abroad.

The biggest US-based meat group said that earnings more than doubled, to $213m, in the three months to March 29, on revenues up 7.7% at $9.03bn.

The increase reflected a return to profit, of $35m, for its beef operation in which the group was more than able to make up in prices rises for the increased cattle costs prompted by a squeeze on supplies, with the US herd at its smallest since 1951.

A year before, the division achieved an operating loss of $26m.

Chicken profits double

But the main improvement was in chicken, in which operating profits soared 64% to $234m, on revenues up 4.0% at $2.84bn, with higher volumes more than making up for a small drop in prices.

Margins were boosted by a $175m windfall from lower grain prices.

"We're pleased with the performance of our chicken segment as sales volume grew on strong demand," Donnie Smith, the Tyson Foods chief executive, said.

He added that the group's pork operation, which raised operating profits by 49% to $107m, and the beef division "did a great job of managing tight supplies and maintaining margins through record high input costs".

'We're not satisfied'

However, group earnings, equivalent to $0.60 a share, fell short of the $0.63 a share that Wall Street had expected, with Mr Smith acknowledging "more issues than normal" delivering customer orders from the harsh US winter.

Profits in the group's prepared foods division dropped by 25% to $21m, despite higher sales, as the group found itself unable to pass on to customers in a timely fashion higher meat costs.

"We had strong sales volume, but the rapid run-up in raw materials in our formula pricing mechanisms created a pricing lag, although we expect to recoup the difference later in the year," Mr Smith said.

He added: "I don't want to leave you with the impression, however, that we're satisfied with these results, because we're not," flagging moves such as "product innovation".

'The worst is over'

Tyson's international operations, in their first broken out as a separate segment, saw losses rise 10-fold to $30m, on revenues down 0.9% at $328m, hurt by setbacks in Brazil and, in particular, China, where the group's ramp up in chicken production has run up against a downturn in the sector thanks to an outbreak of H7N9 bird flu.

Tyson slowed its pace of expansion in China in the quarter "as we wait for demand to return", Mr Smith said.

However, he  forecast that "we think the worst is over, and that it should get sequentially better from here," a comment which follows an observation from Soren Schroder, chief executive of Bunge, last week that poultry groups were leading a revival in demand for soymeal from its Chinese crushing operations.

Mr Smith added: "Some short-term sacrifices are worth the long-term earnings potential… We think it will get sequentially better from here, and we like the long-term opportunity."

Virus damage

Tyson also lowered to $500m the reduction in feed costs it expects for its chicken operations, and cut expectations for US meat production this financial year, thanks largely to the outbreak of porcine epidemic diahorrea virus (PEDv) in the hog herd.

"The impact of PED is expected to further affect our hog supplies beginning around June 1, peaking in August and then beginning to ease in October," Mr Smith said, forecasting a 4-5% drop in US volumes for the year to the end of September, the group's fiscal year.

"We'll need to adjust our operating hours accordingly."

Tyson shares fell to $38.90 in morning deals in New York, before recovering some ground to stand at $39.25 in midday trade, down 8.0%.

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