SPRINGDALE — Wall Street expects a 100 percent turnaround in profit from Tyson Foods when it reports fourth quarter and fiscal 2009 earnings Monday. But analysts don’t predict any real bounty for shareholders following the release.
At $13 per share, Ken Goldman of J.P. Morgan said the upside from Tyson’s turnaround is likely already priced into the stock. Tyson shares closed Friday at $13.07, unchanged on the day.
Tyson is expected to profit $98 million or 26 cents per share for the quarter ending Sept. 30, under the direction of Leland Tollett, interim chief executive officer. This compares to lukewarm earnings of $48 million a year ago, behind losses of $91 million in Tyson Foods’ chicken segment.
The strong quarter should propel Tyson from its nine-month $82 million loss to annual profit of $16 million, or 10 cents a share, analysts said.
Tollett assumed the day-to-day management of Tyson in January, as the poultry industry grappled with its worst losses in a decade. Tollett handed over the leadership reigns to Donnie Smith on Thursday saying the company had returned to profitability.
Poultry Plight
Roughly 33 percent of Tyson’s revenue is generated from its poultry segment.
Tyson’s poultry and related operations employ roughly 8,000 people in Benton and Washington counties, according to spokesman Gary Mickelson.
Through three quarters of this year, Tyson’s poultry segment lost $189 million, which is an improvement from a $286 million first quarter loss.
Production cutbacks industrywide helped stabilize chicken prices and Tyson profit by the early spring, but they were offset by a $248 million commodity trading loss, as grain and energy prices fell, said Judi Rossetti, analyst with Fitch Ratings.
Chicken operating profit of $87 million is expected in the fourth quarter, reducing the company’s fiscal year poultry losses to $102 million, according to Farha Aslam, analyst with Stephens Inc. (Stephens Inc. conducts investment banking services for Tyson and is compensated accordingly.)
Chicken processors made an average of 1 cent per pound during the three-month period of Tyson’s fourth quarter, according to Aslam.
That does not account for higher profit relating to Tyson Foods’ value-added products, where the company has trimmed fat, cut-up, marinated or cooked the meat in order to charge a higher price.
Boneless, skinless breast meat prices ranged from $1.40 to $1.10 per pound in the recent quarter, comparable to last year. But grain prices to feed those birds were roughly half the cost in 2009, which helped Tyson see more profit.
Tyson’s chicken sales are expected to top $9.28 billion this year, despite a 10 percent dip in sales to foodservice customers, Aslam notes. In 2008 Tyson’s chicken sales totaled $8.9 billion.
Beef Bounty
Analysts expect beef operating profit of roughly $52 million in Tyson’s fourth quarter, about $35 per head slaughtered, said Steve Kay of Cattle Buyers Weekly.
“I expect Tyson to show a pretty decent profit in its beef segment,” he said.
Kay added other beef packers have reported good results on cheaper live cattle prices and Tyson should do the same.
For the full year Tyson’s beef profit is expected to hit $161 million, up 14.3 percent from the previous year.
U.S wholesale and retail beef prices are down sharply from a year ago, on waning consumer demand. Analysts expect Tyson to report beef sales worth $10.35 billion for 2009, down 11.2 percent from a year ago.
Beef accounts for about 40 percent of Tyson’s overall sales and profit.
Leaner Pork
Tyson should see pork operating profit of $34 million for its fourth quarter, adding up to $146 million for the full fiscal year, Aslam noted.
While Tyson is expected to make money in its pork segment, the profit could be as much as 50 percent lower than a year ago.
Pork packers such as Tyson made about $21.60 per head in the recent quarter, down from $34 in the same period of 2008.
Kay said Tyson benefits from its lineup of higher margin pork products, suhc as pre-cooked bacon, which should help boost its overall profit.
Despite Tyson’s well-run pork business, the swine industry continues to face export headwinds relating to H1N1 flu virus concerns.
China has banned U.S. pork since May hurting export sales for U.S. packers such as Tyson Foods. China was Tyson’s fourth largest international pork customer in 2008, accounting for $67.59 million of Tyson’s international pork sales.
Pork accounts for about 13 percent of Tyson’s overall sales and profit.
Prepared Foods
Tyson’s tortilla and prepared food business is expected to report $57 million in fourth quarter operating profit. This adds up to $151 million for fiscal 2009, soaring 105 percent over last year.
This segment includes pepperoni, beef and pork pizza toppings, pizza crusts, deli meats, sauces and tortillas. Tyson is the largest supplier of pepperoni and pizza toppings to the foodservice industry, including Pizza Hut, a division of Yum! Brands.
Tyson’s Mexican Original Tortilla plant in Fayetteville is one of three in the nation. The Fayetteville plant employs 900 and produces 3.5 million pounds of tortillas and chips sold exclusively to its restaurant and foodservice customers.
While the casual dining sector has experienced slower traffic this year, the quick-serve segment is holding its own, according to NPD, an independent market research provider on consumer-related issues.
Analysts say Tyson’s diversified food offerings give the company opportunities to capture more of consumer’s food budget whether eating at home or eating out.
“There was a lot of speculation last year as to how our eating behaviors changed as a result of the economic crisis. The truth is that consumer behavior changes slowly, said Harry Balzer, analyst at NPD Group.
He said after observing America’s eating patterns in good and bad economies the constant is “there is no recession in eating.”
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