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Tyson Foods to build on forecast-beating results, despite beef, pork headwinds

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Tyson Foods followed up the release of forecast-beating results by estimating a further increase in earnings, even as it allowed some scope for a retreat in pork and beef profits, in the face of rising animal numbers.


The US protein giant, whose brands include Hillshire Farm and State Fair, said unveiled earnings up 0.8% at $394m for the July-to-September period, equivalent to $1.07 per share, on sales up 10.8% at $10.15bn.


Excluding one-time factors, earnings for the period, the fourth quarter of the group’s fiscal year, came in at $1.43 per share, well ahead of the year-ago figure of $0.96, and exceeding market expectations of a $1.38-per-share result.


The result represented a “strong finish to another record year”, said Tom Hayes, the Tyson Foods chief executive.


‘Stronger export markets’


And Tyson Foods forecast a further rise in earnings for its newly started financial year, to $5.70-5.85 per share, compared with market expectations of a $5.81-per-share figure, and up from the $5.31 per share reported for the latest year.


The forecast of a rise in full-year profits comes despite an allowance for some decrease in margins at two of its main divisions, as the group flagged a USDA forecast of US production of beef, chicken, pork and turkey meat rising by 3-4% next year.


“Stronger export markets should partially absorb the increase,” Tyson said, but saw it was expecting an adjusted operating margin at its beef division of “above 5%” nonetheless, compared with 6.0% in the latest year.


The forecast was based an expectation of industry supplies of fed cattle rising by 1-2%.


The USDA foresees US cattle slaughter rising by 1.2% to 22.6m head in calendar 2018.


‘Great start’


In the pork sector, Tyson Foods forecast its underlying operating margin coming in “above 9%”, compared with a 12.4% figure in the latest year, factoring in an estimate of hog supplies growing by 3%.


The USDA sees overall swine slaughter growing over calendar 2018 by 3.7% to 127.1m head.


However, Tyson Foods saw margins rising in its chicken division, to “around 11%”, from 9.8% in the latest year, with the group forecasting a rise of 3% in sales growth, while feed costs remains “similar” to last year’s levels, and other costs are reduced thanks to synergies from the AdvancePierre acquisition.


“Fiscal 2018 is off to a great start,” Mr Hayes said, estimating at $200m cost cuts which will be achieved in the financial year from AdvancePierre synergies and other savings.


Cattle dynamics milked


In the latest quarter, operating profits grew particularly in the beef division, more than doubling to $305m, as the group milked a drop in feeder cattle prices, at a time when it raised by 6.0% the price of its products.


The group noted “more favourable market conditions as we maximised our revenues relative to the decline in live fed cattle costs”, against a backdrop of rising supplies of fattened animals.


In pork, operating profits rose by 12.0% to $121m, as it pushed through price rises of 11.7%, during a period when hog prices fell too.


“The average sales price increased as demand for our pork products and strong exports outpaced the increase in live hog supplies,” Tyson Foods said.


Profits in chicken rose by 19.5% to $263m, underpinned by the AdvancePierre purchase, and a $15m drop in feed costs to $65m.


Tyson Foods shares stood 1.1% higher at $74.94 in morning deals in New York.

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