Tyson Sees Profits Slip On Rising Sales

US - US poultry processing giant Tyson Foods saw record sales of $8.2 billion in the third quarter of the company's financial year - up by 10.9 per cent on the same quarter in the previous year.
calendar icon 9 August 2011
clock icon 4 minute read

However, net income was down from $242 million in 2010 to $188 million for the quarter, with operating income down from $507 million to $312 million.

For the full nine months of the company's financial year, operating profit was reduced from $1.165 billion to $1.113 billion.

In the third quarter, the chicken sector saw operating income of $28 million, or one per cent of sales, while the beef sector had operating income of $140 million, or four per cent of sales. The pork sector has an operating income of $124 million, or 8.8 per cent of sales and prepared Foods reported an operating income of $30 million, or 3.7 per cent of sales.

Tyson report that the results for the third quarter and nine months for the financial year included a $21 million reduction to income tax expense, which was related to a reversal of reserves for foreign uncertain tax positions.

The results for the nine months in the 2011 financial year included an $11 million gain related to a sale of interests in an equity method investment.

"We are pleased that our overall performance in the fiscal third quarter was about what we expected it to be," said Donnie Smith, president and chief executive officer of Tyson Foods.

"The Pork segment's returns were above the new normalized range; the Beef segment was near the upper end of its range; and our Prepared Foods segment was just under its range.

"We feel good about our performance in the Chicken segment while experiencing extremely volatile input costs and market prices at or near historical lows. The fact that we remained profitable in such a difficult environment demonstrates how much our chicken business has improved in the past three years.

"There appears to be improvement in market fundamentals on the horizon, but the next few months will be very challenging, and it is likely our Chicken segment will experience a loss in the fiscal fourth quarter.

"My outlook for Tyson Foods remains positive. Our diversified business model, including our outstanding Beef and Pork segments, along with our strong balance sheet, will allow us to continue serving our customers through insights and innovations as we help them succeed in this economic environment, reinvesting in our business and buying back stock."

In the fourth quarter, the company said it does not expect a significant change in the fundamentals of our Beef, Pork and Prepared Foods businesses.

For Chicken, the company says it expects weak market pricing conditions to continue as a result of an imbalance of available supply relative to customer demand. Current USDA data indicates reduced broiler egg sets and placements in the fourth quarter of fiscal 2011.

"However, we do not expect to see a meaningful impact of the reduced supply in our results until late in our fourth quarter of fiscal 2011 and continuing into fiscal 2012. Because of these factors, we expect our Chicken segment will likely experience a loss for the fourth quarter of fiscal 2011," the company said.

"Our operational improvements and lower interest expense will continue to benefit us as we finish fiscal 2011 and head into fiscal 2012. In fiscal 2012, USDA data indicates overall domestic protein (chicken, beef, pork and turkey) production is expected to slightly decrease.

"Because exports are likely to remain strong, we forecast total domestic availability of protein to be down slightly compared to fiscal 2011, which should continue to support pricing. The following is a summary of the fiscal 2012 outlook for each of our segments, as well as an outlook on sales, capital expenditures, net interest expense, debt and share repurchases."

In the chicken sector in 2012, Tyson said it expects industry production will decrease slightly from fiscal 2011 levels, which should gradually improve market pricing conditions. Current futures prices indicate higher grain costs in fiscal 2012 compared to fiscal 2011.

"We expect to offset a portion of the increased grain costs with operational, pricing and mix improvements."

In the beef sector, the company said that it should see a gradual reduction in fed cattle supplies of one to two per cent in fiscal 2012 as well as exports to remain strong as compared to fiscal 2011.

"Despite reduced domestic availability, we expect adequate supplies in the regions we operate our plants. Based on these factors, we expect the strong fundamentals in our Beef business to continue in fiscal 2012."

For pork the company has forecast that hog supplies in fiscal 2012 will be comparable to fiscal 2011 and to be adequate in the regions in which we operate.

"We expect pork exports to remain strong in fiscal 2012. Additionally, we increased the normalized range for the Pork segment to six to eight per cent."

In prepared foods the company said that based on analysts' estimates, raw material costs are likely to increase in fiscal 2012.

"We expect operational improvements and increased pricing to offset the likely increase in raw material costs.

"Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through increased pricing. However, there is a lag time for price increases to take effect."

The company expects 2011 sales to exceed $32 billion mostly due to price increases associated with the rising raw material costs.

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