(Adds details on beef demand and China; updates shares)
May 6 Tyson Foods Inc reported
weaker-than-expected quarterly profit as shoppers and
restaurants switched to cheaper chicken from beef, and cut its
full-year sales forecast, sending shares down 4.5 percent.
Still, executives at Tyson, the largest U.S. meat processor,
stuck by their outlook for higher adjusted profit this year,
saying results should improve over the balance of the fiscal
year due to lower feed costs and robust chicken demand, which is
pushing up prices per pound.
Chicken volumes rose just 0.1 percent in the second quarter
ended March 30, but beef volumes fell 3.9 percent, pork was down
2.2 percent and packaged foods dipped 0.8 percent, it said on
Gross margins declined to 4.85 percent from 6.47 percent a
"Our beef segment suffered margin compression as consumers
opted for the relative value of chicken," Chief Executive Donnie
Smith said in a statement.
The priciest beef products took the biggest hit,
particularly premium cuts and Angus varieties, executives said
on a conference call with reporters.
The company and its competitors are still feeling the
effects of the worst drought in 50 years last year in the U.S.
Midwest that pushed up feed costs and reduced cattle supplies.
Tyson stock was off 4.5 percent, or $1.12, to $23.82, while
rival Smithfield Foods Inc fell 0.5 percent, or 14
cents, to $25.48.
"The key question in our mind is can strength in chicken
(and sequentially lower grain costs) more than offset challenges
in other divisions?" KeyBanc Capital Markets analyst Akshay
Jagdale said in a client note.
SALES FORECAST TRIMMED
Tyson trimmed its fiscal 2013 sales forecast to $34.5
billion from $35 billion after second-quarter net income fell 43
percent to $95 million, or 26 cents per share.
On an adjusted basis, the company earned 36 cents per share,
9 cents short of analysts' average estimate, as complied by
Thomson Reuters I/B/E/S.
Quarterly sales were up nearly 2 percent to $8.42 billion,
but also missed analysts' estimate of $8.58 billion.
Agribusiness group Cargill Inc, another big beef
producer, said last month its quarterly earnings fell 42 percent
as the lingering effects of the U.S. drought affected both its
meat and grain operations.
Tyson said its international operations have improved
significantly from a year ago, driven by strength in Mexico and
And, while the new bird flu outbreak in China has devastated
demand, Tyson expects to eventually benefit as shoppers and
restaurants reject small independent producers and seek out
suppliers with better food safety records. Tyson uses modern
chicken houses and tightly controls access to the facilities by
humans and machines, it said.
Executives said the company "completely controls" the
sourcing of chicken feed there.
Late last year, Chinese consumers began avoiding U.S. chains
such as Yum Brands Inc's KFC and McDonald's Corp
after local government investigations found chemical residue in
chicken supplied by some local producers. The chemical residue
was believed to be linked to the animals' diets.
(Reporting by Lisa Baertlein in Los Angeles and Arpita
Mukherjee in Bangalore; Editing by Supriya Kurane and Jeffrey