Wall Street Outlook For Tyson Foods Weakens

Wall Street analysts trimmed expected earnings for Tyson Foods in fiscal 2012, citing hefty beef losses and a slow-to-improve chicken segment.

While a few firms are scaling back profit expectations in the first half of 2012, Ann Gurkin, with Davenport & Company, was the first to downgrade Tyson shares to a “neutral – hold position.”

“We believe there is more downside risk potential to earnings at this time given the unfavorable trend in beef margins,” Gurkin noted Monday in an investor report.

Shares of Springdale-based Tyson (NYSE: TSN) fell 1.13% to close Monday at $20.09. During the past 52 weeks the share price has ranged from a $21.06 high to a $15.60 low.

Although Tyson Foods expects its beef segment to normalize in the near term, the U.S. Department of Agriculture estimates the industry lost an average $87 per head processed in the recent quarter ending Dec. 31. The losses continued in the first two full weeks of production this calendar year.

Tyson’s fiscal 2012 earnings guidance of $2 per share is too optimistic according to Gurkin, who recently lowered her annual estimate by 7.3%. She expects Tyson to earn $1.95 per share in fiscal 2012 with the bulk of those profits realized in the back half of the year.

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.

Gurkin expects Tyson will report 40 cents per share in its first quarter, compared to 75 cents earned a year ago. Tyson will report its fiscal first quarter earnings Feb. 3, ahead of the company’s annual shareholder meeting in Springdale.

Davenport noted Tyson is already trading close to its $22 target price and still faces a volatile ride in its beef segment.

Farha Aslam, an analyst with Stephens Inc., also recently shaved her first quarter earnings estimate for Tyson to 32 cents a share, 3 cents below the street consensus. In mid-December, Stephens Inc. reiterated a positive rating for Tyson Foods with a $24 target price.

Indeed, Tyson shares enjoyed a nice ride in 2011. The biggest 2011 share price gain among the 15 publicly held companies based in Arkansas — in percentage terms — was with Tyson. Shares of the global protein processing and distribution company began the year at $16.42 and closed Dec. 31 at $20.64, a 25.71% gain.

Aslam said Tyson made money in its chicken segment during the recent quarter, although the industry lost an average 6 cents per pound processed. She expects Tyson’s beef segment will see normalized profits by March.

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