PREVIEW-Chicken should lift profit at Tyson Foods

Thu Jul 30, 2009 1:17pm EDT

 * Lower feed costs should lift chicken
 * Beef profit may be higher, pork down
 * Recession, H1N1 bans may have hurt sales
 By Bob Burgdorfer
 CHICAGO, July 30 (Reuters) - Chicken may be the tastiest
item on Tyson Foods Inc's (TSN.N) quarterly results menu next
week, as the company should report a larger profit versus a
year ago even as the recession and export bans due to the H1N1
flu have hobbled meat sales.
 The world's largest meat company is scheduled to report
third-quarter results on Monday.
 Tyson produces beef, pork, and chicken. Its chicken unit,
the nation's largest, has hurt earnings for nearly a year due
to high feed costs and weak demand for the meat.
 Tyson and other chicken companies responded by cutting
production, and the results of that effort should be evident in
the earnings report. These companies also have been helped by a
sharp drop in feed prices, particularly corn.
 "The primary reason for the strong earnings is our
anticipation of excellent results in the poultry business as
the company's higher cost grain largely ran through the P&L in
the second quarter and chicken pricing improved significantly
in the third quarter," Stephens Inc analyst Farha Aslam said in
a research report.
 Tyson produces the chickens it processes into meat, but
buys the cattle and hogs for its beef and pork operations.
 Wall Street analysts on average expect Tyson to report
earnings of about $74 million, or 22 cents per share, for the
quarter that ended June 27, compared with $9 million or 3 cents
a share a year earlier, according to Reuters Estimates.
 Excluding one-time items, Wall Street expects earnings of
$75.56 million or 20 cents a share.
 A third-quarter profit would be the first for this fiscal
year for Tyson, which, like other meat companies, has been hurt
by slow sales of all meat due to the global recession.
 The weak economy has had consumers eating less at
restaurants, a trend that has slowed sales of such things as
beef steaks, pork chops and chicken breasts. Also, at-home
dining has featured lower-cost foods such as hot dogs, lunch
meats and pasta.
 Tyson's beef unit, the nation's largest, should post better
results versus a year ago largely because in 2008 there were
losses due to cattle hedging and forward beef sales.
 Pork earnings should be down from a year ago, hurt by too
much supply and weak demand.
 The outbreak of H1N1 flu, commonly called swine flu, this
spring prompted some countries to ban pork from several U.S.
states even though the disease is not spread by hogs or pork.
 "Beef margins have been adequate, but they are not rolling
in money," Doug Harper, an analyst at Brock Associates, said of
that industry. "The pork complex has really been hurting. It
has been a combination of too much supply and not enough
 On Monday, analysts will be alert for comments from Tyson
regarding the recession and swine flu as well as the company's
outlook for meat supplies and operating margins.
 Pork producers have reduced production, but supplies remain
 "We are having difficulty selling as much pork as we are
producing. We have too much pork to get the prices we need,"
Glenn Grimes, an economist at the University of Missouri, said
last week.
 Tyson said this month that poor economics will have it
reducing its hog breeding herd by 28 percent.
 Smithfield Foods Inc SFD.N, the nation's largest hog
producer, reduced its breeding herd by 10 percent and in June
announced an additional 3 percent reduction.
 (Reporting by Bob Burgdorfer, editing by Matthew Lewis)

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