UPDATE 4-Tyson Foods' profit falls 92 pct on feed costs

Mon Jul 28, 2008 4:17pm EDT

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(Recasts, adds closing share price)

By Bob Burgdorfer

CHICAGO, July 28 (Reuters) - Tyson Foods Inc (TSN.N), the leading meat producer in the United States, said on Monday its quarterly profit fell 92 percent because of the price of poultry feed, and warned that rising grain costs could lead to more losses in its chicken unit.

The chicken unit had a $44 million loss in the fiscal third quarter, compared to a $95 million profit a year ago, as prices for corn and soybeans skyrocketed after flooding damaged crops and delayed plantings in the U.S. Midwest.

Tyson said it paid $140 million more for grain during the quarter to feed its chickens compared to a year ago, and that it expected grain costs to be up $550 million this fiscal year.

The company said in a statement that its chicken unit was still under pressure from higher costs.

Tyson buys cattle and hogs for its beef and pork operations, but it raises its chickens and consequently has to pay to feed them.

During Tyson's third quarter, corn soared to $7.60 per bushel in Chicago futures trading compared with $4.26 per bushel a year ago. Prices were pushed higher by demand from biofuel producers and the worst flooding in 15 years in agricultural states.

Chief Executive Richard Bond said in a conference call with analysts that overall fourth-quarter results should be better than the third quarter because the company expects profits in its beef, pork and processed food segments to offset losses in the chicken unit.

Tyson, based in Springdale, Arkansas, said its profit for the third-quarter ended June 28 was $9 million, or 3 cents per share, compared with $111 million, or 31 cents, a year earlier.

The results included $13 million, or 2 cents per share, in charges for flood damage at a Wisconsin prepared foods plant and impairment of unimproved property in Tennessee.

Analysts on average had expected net earnings of 12 cents per share, according to Reuters Estimates.

Revenue for the quarter was $6.85 billion, compared with $6.62 billion a year earlier.

Wachovia analyst Jonathan Feeney said the results were not particularly bad because some of the pressure on earnings was due to hedging-forward pricing losses in beef.

The company said it would add provisions to sales contracts to pass on higher costs to its customers because previous increases had not completely offset higher grain costs.

Paul Aho, an economist with Poultry Perspective, said that Tyson and other chicken companies were also affected by chicken breast meat prices lagging seasonal norms.

On average, breast meat is selling wholesale at about $1.05 per pound, while chicken companies need $1.50 or more to break even, he said.

Aho speculated that there was too much beef, pork, and chicken on the market and that consumers were buying less because of higher food prices and overall increases in the cost of living.

Tyson's beef unit, its largest unit, earned $3 million versus $36 million a year ago. The decline was largely due to $75 million in losses on cattle hedging activity and forward beef sales.

Earlier this year, Tyson ended cattle slaughter at its Emporia, Kansas, beef plant because it was not operating at full capacity.

During the call, Bond said Tyson had begun shipping beef to South Korea and that more shipments were scheduled. South Korea, once a major importer of U.S. beef, had banned it because of concerns over mad cow disease. It only recently started buying U.S. beef again.

The pork unit earned $54 million, up from $37 million a year earlier, due in part to lower hog prices, higher pork sale prices, and exports.

Bond said pork exports were very strong, especially to Japan and Mexico.

Tyson's prepared foods unit earned $6 million, down from $26 million a year ago, partly because of higher costs for wheat, dairy products and other cooking ingredients.

Tyson shares closed down $1.14, or 7.02 percent, at $15.09 on the New York Stock Exchange. (Editing by Toni Reinhold)

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