Tyson Foods Reports Earnings
Last updated Monday, November 10, 2008 4:55 PM CST in Business
By Kim Souza
THE MORNING NEWS
SPRINGDALE -- Tyson Foods Inc. management told investors and analysts Monday the company will push ahead with a multinational business strategy, despite one of the most challenging business climates in recent history.
Tyson Foods said it will spend roughly $630 million in fiscal 2009 -- $430 million reinvesting in its core businesses, $120 million to acquire chicken operations already underway in China and Brazil, and $80 million in connection with the company's renewable fuel venture under construction in Geismar, La.
Tyson Foods CEO Dick Bond said the company will spend more in 2009 despite a weak first half of the year. He said the company has ample liquidity, with $250 million in free cash, and expects to pick up another $139 million in fiscal 2009 from the sale of its Lakeside Canadian Beef operation.
"In past tough times we have pulled back on expansion plans, especially internationally, and it has slowed our forward progress. Not this time," Bond told investors and analysts during the company's earnings call Monday.
The Springdale-based meat giant reported lukewarm warm fourth-quarter earnings, posting a $91 million operating loss in chicken offset by record pork operating profit of $75 million and robust beef operations of $159 million.
In the quarter, Tyson Foods earned 13 cents per share, or $48 million, in net income, including a $10 million one-time impairment charge. The net income was 44 percent higher than a year earlier, when Tyson reported 9 cents per share, or $32 million.
The quarterly results fell short of Wall Street expectations -- 18 cents per share on deeper-than-expected losses in chicken. The tepid report sent Tyson Foods shares down 10 percent in heavy trading Monday to close at $6.69, down 77 cents.
Bond said the company's multi-protein platform has allowed it to stay afloat while most pure poultry companies are drowning in red ink.
In fiscal year 2008, Tyson's net income results fell $182 million short of profit reported in fiscal 2007.
Losses in chicken accounted for $118 million of the year-over-year earnings shortfall, amid $900 million in added grain and other input costs the company faced in 2008, Bond said in the earnings call.
Despite the solid quarterly performances of both beef and pork, analysts taking part in the call were far more concerned with losses the company has taken in its chicken segment. This was especially true after Bond said the company will report a "significant loss in the first quarter of fiscal 2009 in chicken," while pork and beef should produce profit.
A few analysts pressured Bond to rethink his optimism and statement that weaker demand is not really to blame for dismal chicken prices, at least on the international stage.
Leg quarter prices are expected to drop as much as 30 percent from 50 cents per pound to 35 cents per pound in the next few weeks on weaker exports because of tighter global credit and the strengthening dollar, said Farha Aslam, analyst with Stephens Inc. (Stephens Inc. conducts investment banking services for Tyson Foods and is compensated accordingly.)
Bond said short-term trade disruptions with Russia are the main reason leg quarter exports have fallen in recent weeks. He said Tyson Foods is not building inventories and has seen decent demand for its meat products, despite the questions from analysts.
Tim Ramey, analyst with D.A. Davidson, questioned Bond's optimism, saying demand for chicken is down and supplies are still too high. He told Bond that the so-called strong demand cry is not helping Tyson's profitability or stock price, which slid 10 percent while Bond was discussing the chicken segment problems during the call.
Ramey said Tyson Foods is trading $1 bills for 90 cents, selling chicken in this market -- a losing proposition.
Tyson Foods has not been one of the major processors to announce production cuts this year, taking the stance that they cut more than its fair share in past years.
"Our plan has been to match supply with the demand from our customers," Bond said.
Bond said low prices will not and cannot continue indefinitely.
"We are staying with the program we are on. Profits are not years away, but likely a quarter or two from now the production cuts and lower grain inputs will bring the chicken segment back to normal returns," Bond said.
Poultry economist Paul Aho of Poultry Perspective also agreed profit is likely two quarters away for chicken integrators.
"We are six weeks into the new fiscal year, and we are facing multiple challenges," Bond said. "Tight global credit is affecting exports in the short-term, but we believe the underlying demand for our products is still strong."
He said if input cost for grains and oil stay at present-day levels, the company will see significant cost savings over the 2008 expenditures, and chicken profit will return a little sooner.
By The Numbers
Tyson Foods Inc.
$274 million: The commodity risk gains Tyson Foods made in fiscal 2008 over 2007 with respect to grain hedges as well as hog and cattle futures.
1,250: The number of full containers booked by South Korea for Tyson beef products between August and November.
43.4: The percentage Tyson Foods' beef segment contributed to the total sales in fiscal 2008. Beef operating profits were $106 million in 2008, compared to $51 million a year ago -- up 107 percent.
33.1: The percentage Tyson Foods' chicken segment contributed to the total sales in fiscal 2008. Chicken operating losses totaled $118 million, compared to profits of $325 million a year ago -- down 136 percent.
13.9: The percentage Tyson Foods' pork segment contributed to the total sales in fiscal 2008. Pork operating profits totaled $280 million, compared to $145 million in fiscal 2007 -- up 93 percent.
Source: Tyson Foods Inc.
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