UPDATE 4-Tyson profit led by chicken, sees tough Q4

* Q3 share $0.35, vs $0.03 cents year earlier

* Revenue $6.66 billion vs $6.85 billion

* Warns of soft demand for meat in current quarter (Recasts, adds company and analyst comments)

By Bob Burgdorfer

CHICAGO, Aug 3 (Reuters) - Tyson Foods Inc (TSN.N) reported its first profit in three quarters on Monday, which surpassed analysts' expectations, as lower feed and fuel costs had its chicken unit, the nation's largest, leading the way.

The shares started about 5 percent higher, but turned lower amid the company's warning of weaker results in the current quarter due to the recession.

Tyson is the world's largest meat company and its beef and prepared foods units also had better profits, while pork's were down, hurt by a lower exports due in part to the H1N1 flu.

For the third quarter ended June 27, Springdale, Arkansas- based Tyson had a profit of $134 million, or 35 cents per share, compared with a year-ago profit of $9 million, or 3 cents.

Wall Street, on average, had expected 22 cents, according to Reuters Estimates.

Revenue declined 2.8 percent to $6.66 billion.

"As we had expected, Tyson handily beat third quarter consensus estimates but outlook commentary was cautious on chicken margins for the fourth quarter," wrote Akshay Jagdale, a KeyBanc analyst.

Tyson, like other meat companies, is recovering from a difficult 2008 caused by high feed and fuel costs and slow meat sales. It responded by cutting production, plus it negotiated shorter-term food service contracts to more quickly pass on higher costs.

"Outstanding performance in chicken," JPMorgan analyst Ken Goldman wrote in a research note. "Tyson reported a 5.9 percent margin in its important chicken segment, above the 4.9 percent we expected."

Chicken is Tyson's second largest unit, behind beef.

Goldman also said beef and pork did better than expected and he raised his rating for Tyson to "overweight" from "neutral" and forecast shares could reach $15 by December, up from his previous $13 target.

CHICKEN SALES SOFTEN

On a conference call, company officials warned of lower chicken profits in the current quarter, which runs through September, with weak sales offsetting benefits from lower feed costs as the weak economy continues to hurt demand.

"We are not seeing the demand recovery that we expected," said Donnie Smith, head of poultry and prepared foods. "I think its likely our fourth quarter return on sales for the chicken segment will be softer than what we saw in Q3."

Tyson and other chicken companies cut chicken production in 2008 and early 2009 in response to high feed costs and slow meat sales. Since then they have benefited from a sharp drop in feed costs, particularly for corn, and an increase in chicken prices.

Tyson's beef profits were helped by lower cattle prices. During the call Jim Lochner, head of Tyson's fresh meats unit, forecast that cattle supplies should remain adequate, but that demand for beef should remain under pressure.

Pork earnings, as expected, decreased, slipping to $28 million from $57 million a year before.

The recession has hurt meat sales as consumers shy away from restaurants and eat lower-cost foods at home. During the call, Tyson officials confirmed that business at full-service restaurants remained slow.

In afternoon trading on the New York Stock Exchange trading, Tyson shares were down 29 cents, or 2.5 percent, at $11.14, after hitting $12.05 earlier. (Reporting by Bob Burgdorfer, editing by Gerald E. McCormick and Andre Grenon)