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Tyson Foods shares plunge as chicken, foods sap profits growth

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Shares in Tyson Foods plunged 17% after the meat giant, besides revealing the departure of Donnie Smith as chief executive, unveiled a smaller-than-expected rise in earnings, thanks to setbacks in chicken and foods.

Shares in US-based Tyson, the world's second-ranked meat group after JBS, tumbled to a nine-month low of $55.92 in New York, wiping more than $4bn from the company's stockmarket value, before recovering a little to stand at $56.58 in late morning deals, a drop of 15.5% on the day.

The tumble followed the release by the company of results showing earnings of $391m for the three months to October 1, its fourth fiscal quarter - a rise of 51% year on year, but a result below market expectations.

Tyson's earnings per share, of $0.96 on an underlying basis, compared with a market forecast of a $1.17-a-share result.

Revenues, down 12.8% at $9.16bn, also fell short of the $9.38bn that Wall Street had expected.

The weaker-than-expected result overshadowed Tyson's announcement that Donnie Smith was at the end of next month to step down as chief executive, after six years, to be replaced by Tom Hayes, chief commercial officer, who has been in charge of areas including retailed packaged brands, and global growth.

'Maximised our revenues'

Tyson Foods in the latest quarter returned to the black in beef, reporting an underlying operating profit of $139m compared with a $20m loss a year before, as it exploited strong margins for meat processors encouraged by tumbling cattle values, which last month hit a six-year low.

Profitability "increased due to more favourable market conditions as we maximised our revenues relative to the decline in live fed cattle cost," Tyson said, also flagging "reduced losses from mark-to-market open derivative positions".

In pork, underlying operating profits rose 23% to $108m, "as we maximized our revenues relative to the decline in live hog cost".

Chicago lean hog futures last month hit a 14-year low of 40.70 cents a pound, undermined by a quicker-than-expected rebuild in the US herd from losses caused by a two-year outbreak of porcine epidemic diahorrea virus (PEDv).

'Temporary operational disruption'

However, in chicken, the group reported a 36% slump to $220m in operating profits, reversing strong performances seen earlier in the financial year.

Besides a $20m rise in feed grain costs, the division was also hit during the quarter by a "temporary" production decrease, and the near-term impact of a move towards selling more premium products rather than "commodity" items.

And in prepared foods, Tyson's underlying profits dropped by 22% to $133m, hurt by "increased marketing, advertising and promotion spend, higher operational costs and a temporary operational disruption in a food service business unit".

Change at the helm

The setbacks overshadowed the announcement of Mr Smith's departure as chief executive, after seven years, a tenure marked in particular by Tyson Foods' acquisition of Hillshire Foods, in 2014, in a strategy to shift away from commodity foods towards higher-margin, processed foods.

"Donnie is leaving the company in great hands, having developed an impressive pipeline of management talent while positioning us for continued growth and change," said John Tyson, the group's chairman.

Mr Smith said that the "hybrid" business model Tyson had adopted in taking over Hillshire "has been a success in no small part thanks to Tom [Hayes'] strategic, operational and commercial accomplishments.

"I am confident that Tom is the right chief executive to continue the transition we have started and lead Tyson in the next phase of its strategic development and growth."

Mr Hayes himself, who joined Tyson with the takeover of Hillshire, and was initially an employee of Hillshire's forerunner Sara Lee, said that the company "has a solid strategy that leverages compelling market dynamics and an experienced and highly capable management team".

Mr Hayes, who was chief supply chain officer at Hillshire, has at Tyson been "overseeing all North American sales, in addition to the food service prepared foods business", the group said.

By Mike Verdin

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