Tyson Foods Beefs Up Bottom Line
Last updated Monday, April 30, 2007 7:13 PM CDT in Business
By Kim Souza
The Morning News
Beef sales and operating improvements pushed Tyson Foods Inc. to its best overall quarter since the summer of 2005, despite swings in both corn and live cattle prices.
The Springdale-based meat giant posted positive results in all four of its operating segments, earning net income of $68 million on sales of $6.5 billion in the three month period ending March 31.
"Our beef segment is the real turnaround story for the quarter," said Tyson Foods CEO Dick Bond.
Beef has been a dismal business for the world's largest meat packer amid sagging exports and protein oversupplies that pushed prices lower for 10 consecutive quarters. Those losses totaled $279 million in that time.
On Monday, the company reported operating income of $24 million in its beef segment, a shift of $212 million when compared to the year-ago quarter when the segment posted a loss of $188 million.
Beef sales came in a little more than $3 billion in the quarter, up $152 million from a year earlier.
While market conditions are somewhat improved from a year ago, Bond credited internal operating improvements and efficiencies for the progress he called "quite remarkable."
International beef exports to Japan are slightly less than 30 percent of pre-BSE (mad cow) levels and the company said it expects to start shipping beef to South Korea in a few weeks.
Industry analyst John McMillin, with Prudential Equities Group, said possible industry consolidations arising from the sale of Swift & Company -- the nation's third largest beef packer -- and the opening of South Korea, will help Tyson Foods.
Also, analysts predict stronger processing margins and adequate cattle supply in light of the winter storms that held cattle back. In the current quarter, cut-out beef values are up slightly more than the increase in the cost of live cattle. This positive margin and the 30 percent increase in hide values will likely help the beef processor's profits, said Farha Aslam, industry analyst for Stephens Inc. (Stephens Inc. provides investment banking services for Tyson Foods Inc. and is compensated accordingly.)
Chicken accounts for nearly one third of Tyson Foods' business. The segment saw slightly lower sales volume but increased revenue on higher pricing put in place earlier this year.
The net result was $61 million in operating income compared to a lackluster $9 million a year ago. International chicken sales were 20 percent higher in the period, the company said.
The company recently sold some of its poultry operations and in the last year has reduced supply by roughly 4 percent in an industry effort to bring supply in line with demand.
Higher price increases were initiated to help offset higher grain costs which Bond said the company will likely hit the company a little harder in the third and fourth quarters.
Bond said even with higher chicken prices, the meat is a good value for consumers.
Wholesale chicken prices for leg quarters have increased from 15 cents per pound last April to 40 cents last week, Aslam said. U.S. boneless skinless breasts have risen about 70 cents per pound in the same period.
Pork, about 12 percent of the company's sales, saw higher sale prices and strong export sales. The segment had operating income of $35 million, up from $9 million a year ago.
By The Numbers
$22.46: An eight-year high for shares of Tyson Foods shares (NYSE: TSN) hit Monday in early trading before the stock closed at $20.96, down 24 cents.
20%: The increase Tyson Foods made in its annual earnings guidance Monday, raising it to a range of 65 cents to 90 cents from its previous forecast of 50 cents to 80 cents.
Notable
"I had to look hard to find any negative news here."
John McMillin, analyst with Prudential Securities.
"We expect to feel the full impact from higher grain cost in the third quarter as the costs flow through the supply chain."
Dick Bond, CEO and president of Tyson Foods Inc.
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