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Tyson Foods lifts profit hopes, sending shares to record high

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Tyson Foods raised its hopes for annual earnings, after a forecast-beating start to the year, crediting boosts to its poultry operations from weaker grain prices, and to beef and pork divisions from greater animal supplies.

The announcement sent shares in the US-based meat giant, owner of meat brands such as Hillshire Farm and Jimmy Dean, soaring 13% in early deals to a record high, adding some $2.5bn to the group's stockmarket value.

Tyson Foods, owner of meat brands such as Hillshire Farm and Jimmy Dean, lifted to $3.85-3.95 per share, from $3.50-3.65 per share, its forecast for earnings in the year to the end of September.

The company said that the upgrade, which took the forecast well above the $3.63 per share which Wall Street has been factoring in, reflected a "positive outlook", and "strong results" in the first quarter of the financial year, for which it reported earnings up 52% at $776m.

The figure was equivalent to $1.15 per share, well ahead of market expectations of a $0.89-per-share result.

Meat prices to keep falling

"Fiscal 2016 is off to a very strong start in what we expect to be another record year," said Donnie Smith, the Tyson Foods chief executive, flagging "record earnings, record operating income, record margins and record cash flows" in the first quarter.

Revenues for the period, down 15.4% at $9.15bn, came in nearly $1bn short of market expectations, reflecting weaker prices in particular of pork, down 14.4%, and beef, which dropped 19.5%.

The lower pricing trend will continue for the rest of the financial year, Tyson said, flagging the pressure on the domestic market from 2-3% growth in output of beef, chicken, pork and turkey.

"Increased domestic availability could pressure protein pricing," the group said, cutting by $4bn to $37bn its forecast for full-year revenues.

Lucrative 'lag'

However, margins will be supported by, in poultry, lower grain prices, which knocked $60m from feed bills in the group's poultry division in the first quarter, a saving expected to grow to $200m for the full year.

While the benefit of lower feed prices, will ultimately be passed on to customers, "there may be a lag time for price changes to take effect", Tyson said, raising by 1 point to "more than" 11% its forecast for full-year operating margins in chicken.

For beef and pork divisions, margins have been helped by improved supplies of cattle and hogs for slaughter, lessening the need for processors to pay up for supplies.

In beef, in which Tyson returned $71m into the black in its first quarter, compared with a $6m operating loss a year before, the company flagged "more favourable market conditions associated with an increase in supply which drove down fed cattle costs".

In pork, "live hog supplies increased, which drove down livestock cost".

'Advantaged brands'

Weaker meat prices, meanwhile, proved a benefit to the prepared food division, which includes the lines, such as State Fair, bought with Hillshire Brands two years ago, and will continue to cut costs.

"We expect lower raw material costs of approximately $250m in fiscal 2016" in packaged foods, Tyson said.

Mr Smith said: "We have a consumer-relevant portfolio packed with advantaged brands in advantaged categories."

By Mike Verdin

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