Tyson Foods third quarter revenue up, income down

Tyson Foods third quarter income beat analyst estimates but a $158 million operating income decline in the company’s chicken segment lowered overall net income compared to the 2010 period.

However, the company’s pork segment continues to be the financial leader, with net income for the first nine months of the year up more than 74% compared to the 2010 period.

Springdale-based Tyson Foods reported Monday (Aug. 8) third quarter net income of $196 million, down 20.9% compared to the third quarter of 2010. The company’s top line reached an impressive $8.247 billion, up 10.87% compared to the 2010 period.

Earnings per share for the quarter was 51 cents, beating the consensus estimate of 41 cents per share.

For the first nine months of the company’s fiscal year, net income totaled $653 million, up over the $567 million in the 2010 period. Total revenue for the first nine months reached $23.862 billion, up compared to the $20.989 billion in the 2010 period.

"We are pleased that our overall performance in the fiscal third quarter was about what we expected it to be," Donnie Smith, Tyson Foods president and CEO, said in the earnings report. "The Pork segment’s returns were above the new normalized range; the Beef segment was near the upper end of its range; and our Prepared Foods segment was just under its range.”

SEGMENT REPORTS
• Chicken segment sales during the first nine months of the fiscal year total $8.158 billion, up 9.6% with average price increases of 4.5%. Operating income in the segment during the first nine months was $246 million, down from the $378 million in the 2010 period. The third quarter operating income was $28 million, down substantially from the $186 million in the 2010 period.

"We feel good about our performance in the Chicken segment while experiencing extremely volatile input costs and market prices at or near historical lows. The fact that we remained profitable in such a difficult environment demonstrates how much our chicken business has improved in the past three years,” Smith noted in the report. “There appears to be improvement in market fundamentals on the horizon, but the next few months will be very challenging, and it is likely our Chicken segment will experience a loss in the fiscal fourth quarter.”

• Beef segment sales during the first nine months of the fiscal year total $10.033 billion, up 15.7% with average price increases of 16.3%. Operating income in the segment during the first nine months was $350 million, down compared to the $421 million in the 2010 period. Operating income during the third quarter reached $140 million, down from the $176 million in the 2010 period.

• Pork segment sales during the first nine months of the fiscal year total $4.030 billion, up 22.3% with average price increases of 16.4%. Operating income in the segment during the first nine months was $447 million, up 74.6% compared to the $256 million in the 2010 period. Operating income during the third quarter was $124 million, down slightly from the $125 million in the 2010 period.

• Prepared Food segment sales during the first nine moths of the fiscal year total $2.388 billion, up 8.54% with average price increases of 10.9%. Operating income in the segment during the first nine months was $89 million, down from the $114 million in the 2010 period. Operating income during the third quarter was $30 million, up over the $22 million in the 2010 period.

2012 OUTLOOK
The company said margins have been hurt by a $395 million increase in grain and feed during the first nine months of the fiscal year. Smith said he expects positive numbers for the company going forward, but expects the chicken segment to lose money during the fourth quarter.

The company issued the following outlook for its operating segments.
• Chicken segment
For fiscal 2012, industry production will decrease slightly from fiscal 2011 levels, which should gradually improve market pricing conditions. Current futures prices indicate higher grain costs in fiscal 2012 compared to fiscal 2011. The company expects to offset a portion of the increased grain costs with operational, pricing and mix improvements.

• Beef segment
The company expects to see a gradual reduction in fed cattle supplies of 1% to 2% in fiscal 2012. Exports will remain strong as compared to fiscal 2011. Despite reduced domestic availability, adequate beef supplies will be available in regions where Tyson has beef production plants. Based on these factors, the company expects strong fundamentals in the beef business to continue in fiscal 2012.

• Pork segment
Hog supplies in fiscal 2012 should be comparable to fiscal 2011 and will be adequate in the regions in which Tyson Foods has production plants. The company expect pork exports to remain strong in fiscal 2012. The company increased the normalized range for the Pork segment to a 6%-8% range.

• Prepared foods
Based on analysts’ estimates, raw material costs will likely increase in fiscal 2012. The company expects operational improvements and increased pricing to offset the likely increase in raw material costs.

• Overall sales
The company expects fiscal 2011 sales to exceed $32 billion mostly due to price increases associated with the rising raw material costs.

Shares of Tyson Foods (NYSE: TSN) were up more than 1.7% in morning trading, hovering around $16.60. During the past 52 weeks the share price has ranged from a $20.12 high to a $14.59 low.