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Tyson Foods Inc. (TSN) rebounded in the fiscal fourth quarter from a prior- year loss driven by a $560 million write-down, as the meatpacker captured higher prices at most of its businesses.
Helping the latest results were lower grain costs Tyson had locked in ahead of a recent run-up in commodity prices and a jump in average sale prices, particularly in the pork business. The Springdale, Ark., company expects overall production to climb next year, while domestic availability of chicken, beef, pork and turkey should remain flat as exports grow.
Rising grain costs used for feed are a major concern for the chicken sector, yet Tyson executives expect to offset higher feed costs with higher prices, changes in the mix of products and operational improvements. The company in the fourth quarter realized a $78 million drop in grain cost from a year ago. Tyson executives said the company has "good (hedge) coverage" for the first quarter and did some additional locking in of prices for the second quarter.
Going forward, though, "inputs--especially corn--are going to be a challenge," Chief Executive Officer Donnie Smith said during a conference call Monday.
Shares of Tyson climbed on the earnings report, which on an adjusted basis surpassed analysts' expectations. The stock rose 60 cents, or 3.8%, to $16.24 in recent trading.
U.S. chicken supplies have been ballooning, threatening profits of large poultry producers that continue to expand their flocks. Analysts say cutbacks will be needed to keep prices from dropping sharply. Average chicken prices for Tyson fell 0.7% from a year earlier in the fourth quarter as sales volume dropped 0.5%.
Tyson is cutting back on chicken production in the near term after inventories grew above forecast levels, yet executives expect an overall, low-single-digit climb in production in 2011.
Companywide, with the first quarter slightly more than halfway complete, Smith said "it is shaping up to be a strong quarter and another good year." He added the aim of the coming fiscal year is to repeat the performance seen in 2010 and doesn't expect Tyson to make any major acquisitions.
Executives predict the company could offset higher commodities costs at its prepared-foods segment this fiscal year with price increases and operational improvement. While Tyson expects a gradual reduction in cattle supplies, it doesn't "expect a significant change in the fundamentals" of that business.
For the quarter ended Oct. 2, Tyson reported a profit of $213 million, or 57 cents a share, compared with a prior-year loss of $457 million, or $1.23 a share. Excluding the write-downs and other impacts, earnings jumped to 64 cents from 27 cents. Revenue increased 3.2% to $7.44 billion even as the prior-year period included an additional week.
Analysts polled by Thomson Reuters most recently forecast earnings of 56 cents on revenue of $7.75 billion.
Gross margin rose to 9% from 6.4%.
Revenue in Tyson's beef segment--its biggest on that basis--rose 1% as sales volume declined 12% and average prices improved 14%. Its smaller pork business saw revenue rise 30% as prices soared 42%, helping result in a 6.7% volume drop.
Analysts at J.P. Morgan in a note to clients described Tyson's earnings as a good quarter, yet they have concerns across the sector about whether companies will be able to raise prices to match cost inflation.
"We are not suggesting that prices cannot rise next year--indeed they may, and ex-feed the industry is in good shape--but this is a commodity industry," they wrote.
-By Mark Peters and Tess Stynes, Dow Jones Newswires, 312-750-4141; mark.peters@dowjones.com
(END) Dow Jones Newswires 11-22-101153ET Copyright (c) 2010 Dow Jones & Company, Inc.
