Tyson profits up in quarter 3

Company says pricing control, efficiency paying off

Posted: August 4, 2009 at 6:10 a.m.

— Tyson Foods Inc. reported a profitable third quarter Monday for every segment of its business and credited the turnaround from the first two quarters to tighter pricing control of commodities and improving operational efficiency.

Company officials were upbeat Monday during an analyst conference call to discuss third quarter financial statements.

All operating segments of the Springdale based meat processing company were profitable in the third quarter, including the chicken segment that pulled Tyson's earnings into negative numbers during the first two quarters of the year, according to a company news release.

Tyson reported a net income of $134 million, up from the $9 million reported in the same quarter of 2008.

In the first quarter of 2009,Tyson had a net loss of $112 million. One-time charges for taxes and plant closings helped force Tyson into the red by $104 million in the second quarter.

Earnings per share rebounded to 35 cents, up from the 3 cents in the same quarter of 2008 and more than doubling the average analysts estimates of 19 cents, according to The Wall Street Journal's Market Watch Web site.

Third-quarter revenue showed the only loss compared with last year. Tyson reported that third quarter earnings for 2009 were $6.66 billion, down 2.73 percent from the $6.85 billion reported in the same quarter of 2008.

Interim Chief Executive Officer and President Leland Tollett said that the most dramatic improvement occurred in the chicken business, although all the segments are beginning to perform to company standards.

"These figures show the efforts we've made over the past several months to turn that business around," Tollett said during the analysts' call Monday.

In a later interview, Tollett said Tyson Foods' search for a new chief executive officer was continuing but he declined to give a time frame for the hire, saying that was entirely within the board's discretion.

"The people we want to talk to are already inside the company," Tollett said. "There are a lot of people around here who have been preparing themselves for positions at the CEO level or a report to the CEO level."

In the chicken segment, revenue accounted for $2.4 billion, or 36.4 percent of net sales in the third quarter. Increased sales volume and higher average sales prices help push up the results, as did inventory reductions, said Donnie Smith, senior group vice president of poultry and prepared foods.

"But mostly, it is the result of improvements in the efficiencies of our operations," Smith told analysts. "We're doing a better job of running our business."

The chicken segment may face more volatility in the fourth quarter, Smith said, because of softening demand coupled with pricing pressures that will cancel out any benefit to falling grain prices.

The beef segment accounted for 41 percent of net sales in the third quarter, or $2.7 billion. Lower average live prices were partially offset by lower average sales prices.

Farha Aslam, analyst for Stephens Inc., called the beef segment's third-quarter performance "fantastic" and asked if Tyson Foods was expecting it to be repeated in the fourth quarter.

Tollett said that, absent any major disruption in export markets, the beef segment should stay in the same range during the fourth quarter.

James Lochner, senior group vice president of beef and pork, said the third quarter is usually the strongest for the beef segment, but this past quarter was down compared to the same quarter of last year because of softening demand for beef.

The pork segment's third quarter sales of $839 million accounted for the 12.6 percent of the company's net sales. Operating income was $28 million, the release stated.

Prepared foods segment sales were $673 million, or 10.1 percent of net sales in the third quarter. Operating income was $40 million.

Tim Ramey, analyst for D.A. Davidson & Co., said Tyson appears to be a more risk-adverse company in sticking to short term commodity and supply contracts.

"Until we get more stability in the commodity market - quarter on quarter, year on year - we will continue to do that," Tollett said.

The third-quarter market was positive for Tyson rival Pilgrim's Pride Corp. The chicken producer is reorganizing under Chapter 11 bankruptcy law reported a profit of $53.2 million, or 72 cents a share for its quarter that ended June 27. Sales fell to $1.77 billion from $2.2 billion in the same quarter of 2008.

Shares of Tyson Foods closed at $11.12 Monday on the NewYork Stock Exchange, down 31 cents or 2.71 percent. The stock has traded between $4.40 and $17.55 in the past year.

Pilgrim's Pride shares closed at $4.35 Monday in over-the counter trading. The stock has traded between 25 cents and $29.59 in the past year.

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Business, Pages 19, 20 on 08/04/2009