Tyson results fall but top estimates on pork gains

CHICAGO (Reuters) - Tyson Foods Inc (TSN.N), the largest U.S. meat company, said on Monday quarterly earnings fell 40 percent as its beef and chicken businesses were weighed down by higher costs, but strength in its pork unit allowed it to top Wall Street estimates and its shares moved higher.

The company withdrew its fiscal 2008 earnings guidance and said it expects rough times ahead due to volatile grain prices. It said it would raise meat prices to offset higher feed grain costs.

For the fiscal first quarter ended December 29, Tyson earned $34 million, or 10 cents per share, down from $57 million, or 16 cents per share, a year earlier. The results included a gain of $18 million from an investment sale, and severance charges of $6 million.

Analysts' average forecast was 3 cents per share before one-time items, according to Reuters Estimates.

Revenue increased to $6.77 billion from $6.56 billion a year earlier.

Tyson said it expects feed costs for its chickens will be up by more than $500 million in fiscal 2008.

"We are raising prices because we cannot absorb these costs," Chief Executive Richard Bond said on a conference call with analysts.

Profit in the company's pork unit, the nation's second-largest, nearly doubled due to lower hog prices and strong pork exports.

"Pork was a bright spot, with near-record margins of 9.1 percent, well above our 4.6 percent estimate," Jonathan Feeney, Wachovia food analyst, said in a note. "Chicken and beef fell short by a whopping $60 million."

The pork unit earned $76 million, up from $39 million a year earlier.

"Our pork segment delivered one of its best quarters ever, with strong volume and operating income nearly double compared to the first quarter of 2007," Bond said in a statement.

U.S. beef processors, of which Tyson is the largest, struggled throughout 2007 as cattle prices rose, bid up by beef producers struggling with excess slaughter capacity. On Friday, Tyson said it was ending cattle slaughter at its Emporia, Kansas, beef plant.

Tyson raises the chickens it processes into meat, but buys the cattle and hogs for its beef and pork operations.

"There continues to be far more beef slaughter capacity than available cattle, and this is especially true for Emporia, as cattle production has moved from eastern to western Kansas," Bond said.

The Springdale, Arkansas-based company said its beef unit lost $85 million in the quarter, compared with a year-earlier loss of $23 million.

Its chicken unit, No. 2 in the United States, earned $35 million, down from $73 million a year earlier, largely because feed costs increased by more than $100 million.

"In November, we projected an additional $300 million in grain costs for fiscal 2008," Bond said. "We now think this year-over-year increase will exceed half a billion dollars. Because of these unanticipated and extraordinarily high corn and soybean meal costs, we have no choice but to raise prices substantially."

Tyson said it was withdrawing its fiscal 2008 earnings guidance because of volatility in the commodity market.

"In this erratic and unpredictable operating environment, it is virtually impossible to make meaningful earnings forecast assumptions," said Bond.

In November the company forecast fiscal 2008 earnings of 30 cents to 70 cents per share. At the time, analysts' average forecast was $1.10 per share.

Tyson shares were up 47 cents, or 3.5 percent, to $13.73 in morning trade on the New York Stock Exchange. The shares have traded in a 52-week range of $24.32 to $12.81.

(Reporting by Bob Burgdorfer; editing by John Wallace)