Strong Jump in Tyson's 3Q Income

August 9 /New York/Associated Press Financial Wire -- Tyson Foods Inc. posted an 89% jump in third-quarter net income, helped by higher beef and pork prices and a chicken business that is recovering.

The company has been working through an industrywide downturn brought on by a combination of higher production costs and slumping demand as shoppers cut back on trips out to eat.

The Springdale, Ark.-based company said its prepared foods unit struggled in the quarter because of rising ingredient costs but still made money.

The company reported net income of $248 million or $0.65 per share in the quarter ending July 3, up from $131 million, or $0.35 per share last year.

Revenue rose 11.6% to $7.44 billion.

Analysts expected earnings of $0.58 per share on revenue of $7.26 billion, according to Thomson Reuters.

Analysts focused on the company's planned production increase in a call with executives because they are concerned that a jump in production could drive prices back down.

Meat producers have been cutting production to recover from the downturn because less supply means higher prices. But Tyson said it expects beef, chicken, pork and turkey production to rise in 2011 from this year. It also expects exports to rise in 2011.

However, CEO Donnie Smith said the company expects demand to continue to rise, so there will be no excess meat on the market.

"I'm not at all pessimistic that we have oversupply of protein going into 2011 when I tie everything back together," he told investors on a conference call.

Russia, a major chicken importer, banned U.S. imports last winter over safety concerns, and it is unclear when the market will reopen. The country has said it will reopen the market, though now it has more concerns, which may delay reopening.

Rising grain prices are also a worry. Russia recently banned wheat exports because of a drought. Russia is a major exporter of wheat, so analysts expect higher wheat prices will mean more demand for other grains, including corn used as feed for livestock.

Smith told investors the company has locked in contracts for the next two quarters, so it should not be too affected by swings in grain costs. Overall, Tyson said its grain costs are likely to go higher in fiscal 2011.

The company is moving to shorter-term contracts with customers so it can change prices to reflect higher costs. However, for now, there is still a lag time for price increases, especially for the packaged foods unit. Tyson said all of this "makes it more difficult to absorb the rapidly rising raw materials costs" the company experienced in the third quarter.

Demand appears to be rising for all the company's products. The total amount of product Tyson sold in the quarter rose 1.2%, rising in every category except beef, which fell 5.1%.

Pork prices jumped 31.6%, while beef prices rose 19.5%. Chicken prices slipped 3.2%. Prepared foods prices rose 10%.

Smith said Tyson was able to pay down about $400 million in debt because of the cash it received in the quarter.

Graves maintained his 12-month share price of $23 and boosted his fiscal 2010 earnings per share expectations to $2.02 from $1.83. Analysts, on average, expect the company to earn $1.93 per share this year, according to Thomson.  

From the August 10, 2010, Prepared Foods' Daily News
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