UPDATE 3-Tyson profit beats Street, stronger 2nd half seen

Mon May 10, 2010 11:33am EDT

* Q2 profit 42 cents/share vs year-ago loss 32 cents

* Rev $6.9 bln vs $6.3 bln

* Beef, pork, chicken prices increase

* Raises FY2010 capex $100 mln to $700 mln

* Better results seen in second half (Rewrites, adds company and analyst comment, share price)

By Bob Burgdorfer

CHICAGO, May 10, (Reuters) - Tyson Foods Inc (TSN.N) posted a better-than-expected quarterly profit as smaller meat supplies pushed up prices and the meat producer predicted a stronger second half helped by the summer grilling season.

Shares of the Arkansas-based company, which on Friday were up 52 pct year-to-date, rose as much as 4 percent early on Monday.

In a conference call with analysts, the company predicted meat supplies should remain tight for the "next couple of years." Moreover, it has seen evidence of increased consumer spending particularly at casual dining restaurants.

"You can not simply flip the switch and start to rebuild the infrastructure to grow the supplies back," Tyson Chief Operating Officer Jim Lochner told analysts.

Livestock and chicken producers slashed production beginning in 2008, first because of high feed costs and later as the recession slowed meat sales. Now, the smaller meat supply has helped push up prices.

"We think we'll do even better the second half of the fiscal year as our operational performance continues to improve. We are very pleased with how our third quarter is going, and the summer grilling season is just getting started," Chief Executive Donnie Smith said in a statement.

Tyson declined to say if it would ramp up chicken production to match increases planned by rivals Pilgrim's Pride Corp PPC.N and Sanderson Farms Inc (SAFM.O), but said it will match production with customer needs.

For the quarter, chicken prices at Tyson were up 10.2 percent from a year earlier, beef up 8.4 percent and pork up 15 percent.

"We think this will be a good day for Tyson," J.P. Morgan analyst Ken Goldman said in a note. "The strong earnings, healthy guidance and use of cash to clean the balance sheet are, in our opinion, good indicators as a whole for the direction of the entire industry."

Tyson shares rose 20 cents to $18.82 after trading as high as $19.40. Sanderson shares rose 3.8 percent and Pilgrim's gained 1.1 percent.

BEATING WALL STREET ESTIMATES

Tyson reported a profit of $159 million, or 42 cents per share, for the second fiscal quarter ended April 3, compared with a year-ago loss of $119 million, or 32 cents per share.

Earnings before charges amount to 46 cents per share. On that basis, Wall Street analysts, on average, expected 34 cents per share, according Thomson Reuters I/B/E/S.

Revenue was $6.92 billion compared with $6.31 billion a year ago.

Tyson raised its capital expenditure for fiscal 2010 by $100 million to $700 million, some of which will be earmarked for improvements in its chicken production.

Tyson's chicken unit, the nation's largest, earned $114 million, up from a year-ago loss of $46 million, helped by higher prices that offset a smaller export market.

Russia, the top overseas market for U.S. chicken, halted imports of all U.S. chicken early this year claiming a chlorine rinse used by U.S. companies violates its food safety policy.

Tyson's profit on beef, its largest segment, rose to $126 million from $28 million a year ago, due in part to strong exports to markets like South Korea and Mexico, while its pork unit earned $69 million versus $29 million a year ago.

The prepared foods unit earned $37 million, compared with $19 million a year earlier. (Reporting by Bob Burgdorfer, editing by Dave Zimmerman and Derek Caney)

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