2007 Offers More Challenges for Tyson Foods
Last updated Saturday, January 13, 2007 4:17 PM CST in Business
By Kim Souza
The Morning News
Tyson Foods Inc. CEO Dick Bond said the best thing about 2006 is that it's over.
But will 2007 be any better for the world's largest meat company?
Analysts agree that while Tyson Foods' future holds promise, it's not without a few challenges -- higher grain prices and constrained export conditions that could continue to drag margins lower.
Bond predicted in the November earnings call a positive first quarter, sluggish second period and stronger back half of fiscal 2007 for the Springdale-based company.
The company's 2007 earnings guidance is conservative at a range of 50 to 80 cents per share. Farha Aslam, analyst with Stephens Inc., predicts the company will earn 55 cents in fiscal 2007 and $1.32 in 2008. (Stephens Inc. conducts investment banking services for Tyson Foods and is compensated accordingly.)
Twelve analysts polled by Thomson Financial at Yahoo! Finance have an average estimate of 62 cents for fiscal 2007, compared to a 37 cent loss from a year ago. The group predicts 2008 earnings of $1.13.
Wade Miquelon, chief financial officer for Tyson Foods, said in November the guidance estimate was conservative because the last thing the company wanted to do is cut expectations in the middle of an earnings period.
In 2006, Tyson Foods slashed its earnings forecasts five times amid deep losses related to protein oversupplies amid bird flu fears and closed beef exports. The company posted an annual revenue loss of $196 million.
Looking ahead, escalating grain prices will impact Tyson Foods to the tune of $155 million in 2007, Aslam wrote in a Dec. 15 research note. Aslam said Tyson will need to see chicken prices increase 4 to 8 cents per pound to offset rising feed prices.
Beef margins are still sluggish. Exports are a mere fraction of their pre-mad cow levels -- roughly 24 percent. A December 2003 case of mad cow in Washington state closed many international markets to U.S. beef.
"Exports need to grow to 70 percent of (pre-mad cow) levels for beef margins to normalize," Aslam said.
Tyson predicts its pork segment will improve in 2007 based on good export demand and internal efficiencies made during the past six months. Aslam agrees that Tyson's pork business will likely see positive margins return in 2007.
John McMillin, analyst with Prudential Equity Group, said most of the bad news has already been baked into Tyson's stock price, which has not appreciated in four years.
McMillin estimates 2007 earnings of 60 cents and he doesn't see the company realizing normalized annual earnings of more than $1 before fiscal 2009.
"One year its a Russian poultry ban, another it is Mad Cow and a Japanese beef ban and now it is higher corn prices and its impact on poultry, pork and beef," McMillin said. "There are still plenty of risks and roadblocks ahead."
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disappointed wrote on Jan 15, 2007 5:33 PM: