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Soaring profits lift Tyson shares to record high

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Shares in Tyson Foods hit a record high after the group, the biggest US-based meat processor, unveiled results ahead of expectations and forecast a $600m boost from lower grain prices.

Tyson unveiled earnings of $254m for the October-to-December period, up 47% year on year and equivalent to $0.72 a share, ahead of Wall Street expectations of a $0.63-a-share result.

The profits rise, on revenues up 4.7% at $8.76bn, reflected a rise in chicken volumes, at a time of falling grain costs, and an increase in volumes and prices of beef, which allowed the group to pass on the hit from higher cattle costs.

"I'm very pleased with our strong first quarter results," Donnie Smith, the Tyson chief executive, said.

'Confident in outlook'

And Mr Smith said that he was "confident in my expectations for the full year", with Tyson restating a forecast of revenues of about $36bn, up from $34.4m in the last financial year.

The group has also guided to earnings per share this year of about twice the $1.39 a share it achieved in the second half of 2012-13.

Tyson forecast pork margins of about 6-8%, an average level, with beef profitability "similar to" that last year, despite foreseeing a drop of 2-3% expected for US supplies of fed cattle.

Lower feed bill

In chicken, the group foresaw full-year margins coming in about the typical 5-7%, with the impact of lower grain prices on chicken values taking some time to work through.

"Many of our sales contracts are formula based or shorter-term in nature, but there may be a lag time for price changes to take effect," Tyson said, estimating at $600m the saving to its feed bill over the full financial year from the slide in grain prices.

The company added that US chicken output looked likely to rise by about 3% in the full fiscal year, but said that demand for chicken looked set to "remain strong" thanks to its cheapness compared with red meat.

'New bird flu concerns'

One disappointment from the results was a $28m loss in the international chicken business, which Tyson is attempting to ramp up in China, India and South America, on top of existing operations in Mexico, to exploit emerging market growth.

Most of the loss was attributed to the Chinese operation, which is suffering from concerns about a return of bird flu.

"China certainly wasn't the only source of the negative returns, it was the largest," Mr Smith told investors, adding that the division looked like missing previous expectations of breaking even by the end of this fiscal year.

"There's been a change in the market dynamics in China over the past year following widespread food safety concerns, an avian influenza outbreak, and the economic slowdown.

"Previously I told you that demand would return about three months after the initial avian influenza problem was over, but I was wrong.

"Demand hasn't recovered which has led to a substantial oversupply of chicken. And now there are new concerns about avian influenza."

Market reaction

Nonetheless, the results pleased both share investors - who sent Tyson shares soaring 10.1% to a record high of $37.97 in New York, adding $1.2bn to the group's stockmarket value - and analysts at credit rating agency Fitch.

Fitch upgraded its short-term issuer default rating on Tyson from F2 to F3, and affirmed a "positive" outlook on the more important long-term rating.

"Tyson's financial and business risk has lessened over the past several years, due to significant debt reduction and structural improvements," the agency said, noting that Tyson had paid off $1.5bn in debt over the past four years.

"The firm also has fewer fixed-price customer contracts, is matching its production with its demand, is more measured in its use of financial derivatives and benefits from being diversified across multiple proteins."

Tyson shares had eased back to $37.75 in lunchtime deals, up 9.5% on the day.


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