Healthy profits expected for Tyson Foods

Wall Street forecasts Tyson Foods Inc. will pocket about $163 million in net income from the meat giant’s fiscal fourth quarter ending Sept. 30. This compares favorably to the $95 million earned a year ago.

Despite a less-than-optimal operating climate analysts think Tyson management will report a consensus 44 cents a share on $8.49 billion in revenue in its earnings call first thing Monday morning (Nov. 19).

For the fiscal year, analysts are expecting earnings of $1.79 per share with revenue coming in at $33.35 billion.

While the company has been profitable for the last eight quarters, income has fallen year-over-year by an average of 39.7% over the past four quarters. The company was hit the hardest in the most recent quarter as it saw profit drop by 61.2%.

Discipline is the name of the game in the meat processing business and Tyson management has been very clear that it will not process chicken, beef or pork just to send to the freezer.

Steve Kay, of Cattle Buyers Weekly, expects Tyson to post solid numbers in its beef segment, despite the negative margin metrics reported by other trade magazines. He said packer behavior in the past few weeks indicate money is being made, but weaker exports are a concern going forward.

The pork business, a smaller portion in terms of size for Tyson Foods, has been a bit more challenging as slaughter numbers have been high and global demand weaker, which has driven prices lower.

“Pork provides more value per pound that chicken or beef either one in the retail meat case,” Kay said.

Tyson’s chicken segment has faced higher grain costs this entire year, which have a negative impact on margins. But analysts say constrained production and higher wholesale prices, with a plethora of value-added products have kept processors in the black for now.

J.P. Morgan analyst Ken Goldman noted Oct. 23 that processors had not yet pulled back production enough to hoist chicken prices as high as needed to combat higher grain costs going forward.

Tyson competitor Pilgrim’s Pride recently said boneless breast meat prices were still 10 to 12 cents below where they need to be for normal operating margins. That said, wholesale breast prices have already risen more than 10% this year, according to U.S.D.A.

Looking ahead analysts caution weaker exports, continued pressure on grain costs, and a consumer pushback on higher prices as hurdles that must be cleared before profits in 2013 will be realized.

Shares of Tyson Foods (NYSE: TSN) have traded between $15.26 and $17.11 in the recent quarter. On Friday (Nov. 16), ahead of Monday’s earnings, shares closed at $16.89, up 13 cents.