Tyson posts quarterly loss
5/5/09
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Meat processor braces for swine-flu fallout
The Associated Press
MILWAUKEE - Tyson Foods Inc. said Monday that it lost more than expected in its fiscal second quarter because of declining beef sales and one-time costs, while the world's largest meat processor noted that it expects a drop in demand for pork, amid worries about swine flu, to be short-lived.
The Springdale, Ark.-based company said it was too soon to assess the impact of the virus, which has sickened more than 1,000 people globally. Tyson said fears of the virus - also called H1N1 - have kept some shoppers away from pork even though there has been no evidence that eating it can lead to an infection.
Tyson said that in Mexico, a major market for U.S. pork producers and the likely source of the outbreak, pork consumption has declined dramatically. Some nations have banned imports of pork from parts of the United States where swine flu has been found, which has lowered prices by creating a drop in demand. But Tyson's leaders told investors on a conference call that none of its pork plants are affected by the bans, and that drops in consumption should not last long.
"Hopefully, demand for pork products will recover quickly as health officials disassociate the H1N1 flu with pork products," said Jim Lochner, who leads Tyson's pork and beef businesses.
In the most recent quarter, which ended March 28 and does not include any swine flu-related sales drops, beef sales were the weakest, signaling that consumers continue to limit their spending.
Sales of beef - which costs more than chicken or pork - fell 11 percent to $2.42 billion, while volume dropped 3.2 percent. Consumers are eating less expensive meats such as chicken and pork to save money, said Christopher Shanahan, a research analyst with Frost & Sullivan. But he said Tyson should not be hurt too much because it makes all three - and because consumers are not likely to trade down to private-label meat since they want to be assured of quality.
Pork revenue rose 2 percent in the second quarter to $844 million, while volume dropped 1.2 percent.
The chicken business - which accounts for more than a third of Tyson's quarterly sales and had been dragging the company down for at least a year as part of an overall industry slump - also improved. Tyson noted that its chicken business started to turn profitable in late February, as input costs tapered off and an industrywide production drop bolstered pricing.
Chicken sales rose 9 percent to $2.36 billion, while unit volume rose 14.7 percent in the second quarter. The company said it was "cautiously optimistic" about its chicken business.
"It's a fact that chicken supply is tightening, so prices should improve in the summer," said Donnie Smith, who leads the company's chicken division, though he said the economy and demand would play a role.
The company's spread of protein products will help it weather the current quarter's swine flu scare, Shanahan said. He also noted that the pork business typically sees demand drop in the third quarter, as consumers turn to chicken and beef for the grilling season.
Standard & Poor's analyst Joseph Aganese raised his rating on the stock to "buy" from "hold" and said profit margins should "improve significantly" by 2010 because the company is shrinking its inventory, which increases pricing, and other factors. He raised his 12-month price target by $2 to $14.
Tyson shares on Monday soared $1.14, or 10.8 percent, closing at $11.70.
Overall in the second quarter, Tyson's sales dipped 1 percent to $6.31 billion from $6.34 billion. The company lost $104 million, or 28 cents per share, compared with a loss of $5 million, or 2 cents per share, in the same period a year earlier.
Tyson reported a loss from continuing operations of $90 million, or 24 cents per share. Earnings from continuing operations were $3 million, or a penny per share, in the prior-year period.
Charges of 19 cents per share were related to a change in the way some taxes are recorded and a plant closing, the company said.
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