Tyson shares fall 9.9 percent

Third-quarter earnings miss estimates; ’15 outlook shorn

This graphic shows that Tyson Foods' earnings increased over the same period last year. However, the stock declined because the company missed analysts’ estimates and lowered its financial expectations for the 2015 fiscal year.
This graphic shows that Tyson Foods' earnings increased over the same period last year. However, the stock declined because the company missed analysts’ estimates and lowered its financial expectations for the 2015 fiscal year.

Tyson Foods Inc. reported income and sales growth Monday for the third quarter, but its stock declined $4.39 per share after the company missed analysts' estimates and lowered its financial expectations for the 2015 fiscal year.

The nation's largest meat processor reported net income of $343 million, or 80 cents per share, for the quarter, which ended June 27. Both income and earnings per share were up from a year ago, but analysts were predicting 92 cents per share for the Springdale-based company.

Shares of Tyson stock fell to $39.96, down 9.9 percent. Sales for the quarter were $10.07 billion, up 4 percent from the same three-month period last year.

Tyson, which reported a ninth consecutive quarter of earnings-per-share growth, lowered its earnings guidance for the year by 20 cents per share. Fiscal 2015 guidance is now between $3.10 and $3.20 per share, the result of losses in beef sales.

Still, Tyson CEO Donnie Smith said the company is well positioned and he remains "confident in our ability to achieve" earnings-per-share growth of at least 10 percent next year.

"Although we never expect a perfect operating environment, most things are going very well and we're positioned for long-term growth," Smith said during a call with analysts. "We're excited about what's ahead."

Financial guidance for the year was lowered by Tyson largely because of struggles in its beef division. Tyson reported an operating loss of $7 million in its beef division. Sales volume was down 4 percent and what Smith described as "export market disruptions" cost the company about $84 million.

Beef delayed to Asia because of West Coast port labor stoppage was sold at lower prices in other markets. Smith said the company also was hurt by fewer cattle being available during May and June, causing Tyson to miss out on an anticipated "summer push of cattle."

With fewer cattle available, prices went up. Smith said the company wasn't willing to pay what it viewed as overinflated prices for cattle.

Smith said the struggles will likely continue into 2016, though he said the company still believes "in long-term viability of our beef business." Pressed by analysts to explain how Tyson's beef struggles compared with competitors, Smith declined.

"I don't know what other people are doing in the industry or how they're dealing with it," Smith said. "I think I can safely say our market share in Asia is historically pretty large. Maybe we were impacted on this issue greater because of that, but I don't have any comment on how it might be affecting us versus the rest of the industry. I can just tell you how it impacted our business."

Tyson continued to see the benefits of last year's Hillshire acquisition, increasing prepared foods sales from $901 million in 2014 to $1.81 billion. Smith said the company is continuing to look for new product offerings in prepared foods that could further drive sales.

Cost-cutting associated with the Hillshire merger will save the company about $300 million this year, Smith said. Cutting costs by eliminating duplicated efforts and other cost-saving initiatives could yield another $400 million in 2016.

Chief Financial Officer Dennis Leatherby said the company is still expecting earnings-per-share growth of around 10 percent for fiscal 2016 as the company continues its transition from the $8.5 billion Hillshire acquisition into what executives call "Tyson 2.0."

"We are very focused on finishing the year strong. Our team has been remarkable in coming together and successfully integrating the largest acquisition in our history to deliver another record year," Leatherby said. "Overall, I am personally proud of the results our team has accomplished to propel us into 2016 and beyond."

Chicken also performed well for Tyson, which reported a slight decline in sales compared to the third quarter of 2014. Tyson sold $2.75 billion in its chicken segment for the third quarter of 2015, compared to $2.82 billion last year.

Tyson spent $125 million less on feed costs, further aiding the performance of its chicken business.

Declines in sales volume largely related to the sale of Tyson's operations in Brazil and weak demand in China, leading to a nearly 8 percent drop in international sales. Tyson's international division reported $255 million in revenue for the third quarter.

Smith said during Monday's earnings calls with reporters and analysts that he remained confident in Tyson's ability to close the year strong and said the company remains a "great value" for shareholders. Tyson executives are set to begin a stock buyback program a quarter earlier than originally planned, a move aimed at rewarding shareholders and increasing the value of outstanding shares.

Shares of Tyson stock have been trading between $36.12 and $45.10 over the past 52 weeks.

"So we've got a lot of things going for us," Smith said. "We just really want to see this beef thing play itself out."

Business on 08/04/2015

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