Tyson Foods Earnings Hold Serve

The “transitory” inflation in commodity costs and store prices of which Federal Reserve Chief Ben Bernanke recently downplayed hit Tyson Foods and is likely to trickle down to consumers in coming months.

Springdale-based Tyson Foods reported Monday (May 9) that income in the second fiscal quarter was $159 million, unchanged from the same quarter in 2010. Earnings per share of 42 cents missed the 43 cents consensus of analyst estimates.

Revenue during the quarter ended April 2 was $8 billion, up an impressive 15.67%.

For the first half of the company’s fiscal year, net income totaled $457 million, 43.2% more than the 2010 period. First half revenue is $15.615 billion, up 15.2% compared to the 2010 period.

The company said higher product prices and increased sales were partially offset by higher commodity prices. The company said it expects grain costs to increase by almost $500 million in 2011 compared to 2010.

“Overall, it was a solid quarter, and I’m pleased with the results," Donnie Smith, Tyson Foods’ president and CEO, said in the earnings statement. "We produced record sales for the second quarter on substantially higher sales prices in addition to increased volume. … We will continue to face challenging and volatile market conditions in fiscal 2011, but we maintain our belief that earnings should be comparable to 2010 due to our on-going operational improvements and focus on execution.”

SEGMENT REPORTS


• Chicken segment sales during the first half of the fiscal year total $5.358 billion, up 8.99% with average price increases of 1.7%. Operating income in the segment during the first half was $218 million, up over the $192 million in the 2010 period.

“Operating results were positively impacted by an increase in sales volume and operational improvements, which included: yield and mix; additional processing flexibility; and reduced interplant product movement. However, during fiscal 2011, we were negatively impacted by an increase in other feed ingredient costs, freight and weather-related expenses,” the company noted.

• Beef segment sales during the first half of the fiscal year total $6.518 billion, up 18% with average price increases of 18%. Operating income in the segment during the first half was $210 million, down compared to the $245 million in the 2010 period.

• Pork segment sales during the first half of the fiscal year total $2.622 billion, up 28.27% with average price increases of 20.8%. Operating income in the segment during the first half was $323 million, well above the $131 million in the 2010 period.

• Prepared Food segment sales during the first half of the fiscal year total $1.584 billion, up 9.46% with average price increases of 11.9%. Operating income in the segment during the first half was $59 million, down from the $92 million in the 2010 period.

2011 OUTLOOK
Company officials expect increased exports to offset increased domestic production, meaning U.S. supply will be down compared to 2010. The decrease in supply should, the company says, support the increased prices necessary to recover higher grain and other input costs.

• Current futures prices indicate higher grain costs in fiscal 2011 compared to fiscal 2010 of nearly $500 million. The company will offset a portion of the increased grain costs and the impact of additional supplies with operational, pricing and mix improvements.

• Company officials expect to see a gradual reduction in fed cattle supplies of 1-2% for the remainder of fiscal 2011 as compared to fiscal 2010.

• Hog supplies in fiscal 2011 are expected to be comparable to fiscal 2010, with pork exports continuing to remain strong.

Fiscal 2011 sales should exceed $32 billion mostly due to price increases associated with the rising raw material costs.

Shares of Tyson Foods were down more than $1 in morning trading, hovering around $18. During the past 52 weeks the share price has ranged from a $20.12 high to a $14.59 low.

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Michael Tilley with our content partner, The City Wire, is the author of this report. He can be reached by e-mail at [email protected].