Tyson Foods Inc. said Monday that gains in its beef and pork units helped fiscal fourth-quarter profit rise 50 percent, but the world's largest meat company said high grain costs hurt its c
The Associated Press | Posted: Sunday, November 9, 2008 6:00 pm
LITTLE ROCK, Ark. — Tyson Foods Inc. said Monday that gains in its beef and pork units helped fiscal fourth-quarter profit rise 50 percent, but the world’s largest meat company said high grain costs hurt its chicken business, the quarterly results were below expectationis and the company’s stock lost ground.
Tyson has a variety of operations in Nebraska.
The Springdale, Ark.-based company earned $48 million, or 13 cents per share, in the quarter, up from $32 million, or 9 cents per share, a year ago. Sales rose to $7.20 billion from $6.66 billion.
Analysts surveyed by Thomson Reuters expected, on average, a profit of 18 cents per share on revenue of $6.98 billion.
Tyson reported gains in its beef and pork businesses but continued to struggle with its poultry and prepared food units. Grain costs that climbed $230 million in the quarter accounted for a loss of $91 million in its chicken unit, the company said.
“Producing the three major proteins has proven to be a strategic advantage,” said President and Chief Executive Richard L. Bond. “The strong performance by our beef and pork segments supported the chicken segment as it struggled throughout the year due to low prices and high input costs.”
The meat industry has been hit by high input costs for key ingredients like corn and oil, as well as an oversupply of meat on the market that’s keeping prices down and slumping restaurant demand as consumers eat at home more often. Bond noted that fast-food restaurant sales are holding up, even as people are cutting what they spend when they eat out.
“People are still eating beef but they are eating less expensive cuts,” Bond said. “We expect this trend to continue in 2009.”
Tyson does not offer earnings guidance but Bond said he expects the company to “lose some significant dollars” for the first quarter of 2009 in its poultry segment. In the pork business, Bond said he does not expect any record-setting quarters in fiscal 2009 but expects the segment to still do well.
Rich Nelson, director of research for commodities broker Allendale Inc. in McHenry, Ill., said feed costs for poultry are improving.
“The worst is behind them now,” Nelson said. Industry-wide, Nelson said companies are cutting poultry production, which will bring higher prices as feed costs decline.
“Our guess is most guys will be profitable (in chicken) by December or January,” he said.
For beef and pork, Nelson said Tyson won’t have quarters as impressive in the year ahead.
The supply of cattle is to decline and customers are continuing to opt for cheaper cuts of meat.
“That should bring steady to negative margins for next two years straight,” Nelson said.
Tyson’s pork segment should return to average profits as the number of hogs declines, which will raise fixed costs because fewer hogs will be going through each plant.
The company is facing a number of challenges, Bond said, including the credit crunch, which he said is crimping overseas sales. Russia’s block on imports of dark meat is particularly affecting Tyson sales. Analysts on a conference call with Tyson executives expressed their dissatisfaction that Tyson won’t cut poultry production.
But Bond said it’s not so simple, because the company needs its current levels to sustain production of wings, tenders and chopped and formed products.
“You can’t look at a chicken and say this whole chicken is a commodity,” Bond said. A dozen years ago when Tyson was in a similar situation, executive Archie Schaffer summed it up by saying, “We can’t grow chickens that don’t have legs.”
Also, Bond said that Tyson has dark meat in storage but said that meat has been sold. With the credit crunch, customers are having trouble coming up with up-front cash so the meat can be shipped and that is causing delays.
For the fiscal year, Tyson earned $86 million, or 24 cents per share, compared to $268 million, or 75 cents per share, a year ago. Sales rose to $26.86 billion from $25.73 billion.
Tyson’s chicken unit lost $118 million in the fiscal year. Beef had a profit of $159 million in the quarter and $106 million in the year, while the pork unit made $75 million in the quarter and $145 million in the year. Prepared foods lost $5 million in the quarter and made $63 million in the year.
The company has been making overseas acquisitions and formed joint ventures in places like Brazil, India and China to continue its strategy of expanding internationally.
It is also working with customers in South Korea to improve sales there and hopes to have restrictions in Japan altered. Because of concerns about mad cow disease, Japan limits imports to cows 20 months or younger. Bond said he hopes to see that change to 30 months.