FISCAL FOURTH QUARTER: Tyson Optimistic For 2012

EXECUTIVES EXPECT STRONGER MEAT PROFIT DESPITE RECENT LOSSES

By Kim Souza

Posted: November 22, 2011 at 5:39 a.m.

Credit: FILE PHOTO
Tyson Foods CEO Donnie Smith, left, speaks with Don Tyson at the Tyson Corporate office in Springdale in 2010.

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SPRINGDALE — Tyson Foods expects stronger meat profit in 2012 because of recent improvements in its chicken segment, but jittery investors aren’t so sure.

Tyson executives held their chins high during Monday’s earnings call posting $97 million in fiscal fourth quarter profit, despite missing Wall Street projections of $118 million. A year ago company profit totaled $213 million during the same period, July through September.

The optimistic tone of the call did not keep investors from selling shares following the wider-than-expected earnings gap. The stock was approaching its 52-week high of $20.12 before the report. Tyson shares were heavily traded Monday. Prices fell 2 percent early in the day before rebounding to close flat at $19.45.

Tyson’s profit shortfall is directly linked to a 40 percent spike in corn prices, which is a key feed ingredient for its chicken business, in addition to surplus meat supplies.

Donnie Smith, chief executive officer, said the company overproduced the amount of chicken it could sell during July, forcing the company to unload the excess into the lower profit channels such as commodity markets.

Tyson Foods told analysts during Monday’s earnings call its chicken segment returned to profitability in September, after a disastrous July and early August.

Smith said the company cut its chicken production in excess of 6 percent to stem operating losses of $82 million in the recent quarter.

“We are back to making money in chicken, but expect the production cuts to stay in place through early 2012. We will stay on the short side of demand knowing we can buy chicken parts if necessary to fill certain orders,” Smith said.

Analysts applauded Tyson for showing disciplined restraint in taking excess chickens out of the industry’s supply glut.

Poultry cutbacks also equal less income for local growers who supply regional processing plants in Springdale, Berryville, Green Forest and Noel, Mo.

Some local growers said their poultry houses were completely emptied in late August into September to help the processor quickly scale back supply.

“A couple of months back we received an empty-house stipend from the company in lieu of birds. It was about a 30-day layout. The payment was unexpected and greatly appreciated. I actually netted more money with the empty house payment than I could have probably made with the rising cost of feed and propane,” said Casey Wilson, an independent contractor with seven broiler houses in Madison County.

Tyson said when extended layouts occur, the company may elect to make supplemental payments to growers.

“These payments are made in an effort to assist growers who experience unusually long out time, and not required by contract,” said spokesman Worth Sparkman.

The company would not disclose how many growers received the empty-house stipend and provided no details on the amount paid.

The meat giant pocketed $750 million in annual profit offset by $675 million in higher-than-expected grain costs throughout fiscal 2011, which ended Sept. 30. Annual sales revenue totaled $32.3 billion, up 13.5 percent from a year ago. The company achieved higher sales by raising meat prices across the board.

“We believe 2012 demand will be similar to 2011 and we continue to invest heavily in our chicken segment, which should pay off by the second half of the year. We feel good about our business model,” Smith said.

He told analysts Tyson is playing a cautious hand with its commodity grain purchases while also keeping a close eye on meat supplies.

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