Tyson Foods Expects Brighter 2010

By Kim Souza

Posted: November 24, 2009 at 4:36 a.m.

• Print item
• E-mail
• Share
• Tweet

SPRINGDALE — Tyson Foods Inc. expects a larger payday in fiscal 2010, which began Oct. 3, as the company begins to reap the benefits of a leaner chicken segment while anticipating the return of global meat demand.

The Springdale meat giant earned $23 million, or 6 cents a share, in fiscal year 2009. The company deducted from its earnings $560 million in the beef division to refinance debt. This compared to $86 million earned in 2008.

Chicken was Tyson’s biggest challenge in 2009.

The company’s ongoing efforts to stop the losses in its chicken segment are beginning to pay to dividends, Tyson CEO Donnie Smith said during Monday’s earnings call. Smith expects Tyson’s chicken production will increase in 2010 even if demand is stagnant. A ramp up in production should help the company increase its efficiency in its plants, which are deemed average industrywide, according to Agri Stats, a statistical research and analysis firm based in Fort Wayne, Ind.

A major difference in 2010 is the lack of frozen chicken inventory, which Tyson Foods sold off in 2009. The company will have to produce more chicken in 2010 because of the lack of frozen inventory, Smith said

He did not dispute the U.S. Department of Agriculture expectations for a 1 percent overall increase in 2010 chicken production.

Looking ahead, Smith said the company is not exempt from the usual industry challenges of unpredictable spikes in grain costs or fickle export markets. But nearly eight weeks into the company’s fiscal 2010 year, he said all segments are profitable and running ahead of target projections.

Tyson expects a strong second half of 2010, anticipating some pricing power and improvements in demand as the global gross domestic product tracks higher.

“In November 2010 Tyson Foods should be a lot happier with their chicken segment than this year,” said Paul Aho, poultry economist with Poultry Perspective. He said the biggest hurdle in 2010 will be getting the economy going.

Aho agreed with Smith’s assessments that 2010 will start slow but should hit full stride by the summer grilling season.

Tyson Foods hopes to strengthen its balance sheet as cash flows improve throughout 2010. Total debt at the end of fiscal 2009 was just more than $3.5 billion, an increase of about $650 million from a year ago.

Judi Rossetti, debt analyst with Fitch Ratings, said Tyson and its competitors Smithfield and JBS are sitting on excessive debt levels given volatile earnings in recent quarters. Fitch revised Tyson’s outlook to “stable” in February 2009, but said the company should work toward reducing its overall debt balances in 2010.

Tyson Foods said it has reduced its net debt level to roughly $2.4 billion to start 2010. (Net debt equals short term debt, plus long term debt, minus cash and cash equivalents.)

“We bought back $293 million of our bonds in early 2009, although we have not made much progress recently as bond prices are pretty high,” said Dennis Leatherby, chief financial officer for Tyson Foods.

Comments

To report abuse or misuse of this area please hit the "Suggest Removal" link in the comment to alert our online managers. Please read our comment policy.

Use the comment form below to begin a discussion about this content.