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Agriculture

UPDATE 3-Tyson Foods posts loss, sees better chicken results

* Q1 loss/shr ex-items 29 cts vs Wall St view of loss 23

* Beef unit breaks even, pork profit down

* Sees improved results at chicken unit

* Shares up 4 percent (Recasts with company comments, details)

By Bob Burgdorfer

CHICAGO, Jan 26 (Reuters) - Tyson Foods Inc TSN.N posted a deeper-than-expected quarterly loss on Monday, but said results at its chicken unit have improved due to higher meat prices and lower costs, lifting its shares 4 percent.

Tyson produces beef, pork, and chicken. Its chicken unit has been a drag on earnings due to high feed costs for much of 2008. It raises the chickens that it processes into meat, but buys the cattle and hogs for its beef and pork operations.

Interim Chief Executive Leland Tollett said the company in December cut chicken production by 5 percent, and input costs have decreased. The company also gave a positive outlook for its beef, pork, prepared foods, international trade and renewable products businesses.

The chicken unit, the second largest in the United States, lost $286 million on an operating basis, versus a year-earlier profit of $48 million.

For the fiscal first quarter ended Dec. 27, Tyson posted a loss of $112 million, or 30 cents per share, on sales of $6.52 billion, compared with a year-earlier profit of $34 million, or 10 cents a share, and sales of $6.48 billion.

Minus one-time items such as an inventory adjustment, Tyson reported a loss of 29 cents a share, compared with the average Wall Street expectation of a loss of 23 cents, according to Reuters Estimates.

The weakening economy has slowed restaurant dining and increased at-home eating. That has helped sales of Tyson’s bacon, ham, deli items and lunch meats; and its prepared foods unit, Tyson’s smallest, had a 10 percent increase in sales.

“The food service industry suffered in 2008 and will continue to suffer in 2009,” Donnie Smith, Tyson’s senior vice president of prepared foods and poultry, said during a conference call with Wall Street analysts.

PAST FEED PRICES STILL WEIGH

A sharp rise last year in prices for corn and soybean meal, important feeds, hurt all livestock producers. Tyson rival Pilgrim's Pride Corp PGPDQ.PK filed for bankruptcy protection in December as it was unable to raise chicken prices enough to offset costs.

Feed prices have since come down, but companies that hedged feed purchases when feed prices were high are still being hurt. During a conference call with Wall Street analysts, Tyson said such hedges will also lower its second-quarter results.

Springdale, Arkansas-based Tyson said grain costs were up $183 million in the first quarter versus a year before, plus it lost about $197 million during the quarter on such hedges.

“It can’t be worse, so it has got to be better. That should be the worst quarter,” Paul Aho, poultry economist at Poultry Perspective, said of conditions in the chicken industry. “But they will be working against the headwind of the recession.”

Tyson’s beef unit, the nation’s largest, broke even, versus a year-earlier loss of $68 million, while pork earned $55 million versus $79 million a year before.

Beef was helped by higher beef prices and lower average cattle costs, but as the economy weakened consumers have shifted to less costly items such as ground beef and away from steaks, Jim Lochner, Tyson’s senior vice president of fresh meats, said during the call.

Pork was hurt by higher hog costs and lower sales volume, which offset higher pork sale prices.

“Altogether, we expected to be wholly unimpressed by the quarter, and indeed we were,” Christopher Bledsoe, analyst at Barclays Capital, said in a note.

However, Bledsoe said the industry had expected a bad quarter and advised that investors should “utilize potential share price weakness” to add to positions.

Earlier this month Tyson CEO Dick Bond resigned and was replaced on an interim basis by former CEO Tollett. On Monday, Tollett said he will stay in that post until the company can find a suitable replacement from its in-house management team.

In afternoon trading, Tyson shares were up 35 cents at $9.01 on the New York Stock Exchange. (Reporting by Bob Burgdorfer, editing by Gerald E. McCormick)

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