Analysts Squawk, Balk After Record Tyson Quarter

Despite a record first quarter, Tyson Foods Inc. saw its stock continue to wallow below the $20 mark through the first of February. Even after it was announced Jan. 31 that Tyson’s first quarter earnings for fiscal 2000 showed a 2 percent increase, A.G. Edwards & Sons of St. Louis downgraded its rating of the stock.

Recent snow and ice storms across the Midwest damaged and destroyed about 275 of the Springdale company’s 6,500 chicken houses and killed more than 1 million of its birds. But analysts say the main culprit for the stock’s crummy performance — which included a drop from $17 per share in early January to $13.88 by the end of the month — is still a depressed meat market.

The good news is that, even in the middle of a meat glut, Tyson was able to increase its first quarter earnings from $55.8 million in fiscal 1999 to $57 million this cycle. That also brought a diluted first quarter earnings-per-share increase of 4.5 percent, from $0.24 a year ago to $0.25 for fiscal 2000.

Berry Summerour, an analyst with Stephens Inc. in Little Rock, says the overall undertone for the industry’s first quarter was low-market prices for poultry. That’s due entirely, he says, to a chicken surplus in the United States.

The company was able to improve earnings, however, based on several positive factors outlined by Summerour:

• Tyson Foods’ international sales increased by 23 percent due to greater consumer demand in Asia and a slight Russian-market rebound.

• The company’s attempted sale of its swine division, The Pork Group Inc., may have failed, but hog prices got better. During Tyson Foods’ first quarter in 1999, hog prices were around $10 per hundred weight. They rose to $30 in Dec. of 1999, helping the company cut its losses from that division by $20.9 million to only $1 million.

• Investors gained some confidence by the company following through with CEO Wayne Britt’s promise to cut poultry production by 3 percent compared to the same quarter in 1999. The hope is that an industry-wide dip in production, coupled with the recent losses to snow and ice damage, will help drive poultry prices back up to reasonable levels.

But Summerour warns that if producers don’t maintain the discipline to slow production, 2000 will see the same kind of surplus and cheap prices that made 1999 a tough year. Another expected bumper grain crop and projections announced Jan. 23 by the USDA — which estimated poultry consumption will only increase 5 percent in 2000 compared with a 6.4 percent increase in 1999 — could make for difficult market conditions.

“A reduction in poultry production would have a bigger impact if other companies like Con Agri Inc. and Pilgrim’s Pride Inc. would follow in Tyson’s footsteps,” Sommerour says. “Looking forward, I’d expect the chicken supply to come down in the latter half of Tyson’s fiscal year. But I also expect difficult conditions before then.”