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Tyson Foods slowed chicken processing after U.S. recalls, raising costs

(Reuters) - Tyson Foods Inc TSN.N slowed chicken processing after it recalled millions of pounds of poultry this year over concerns they contained extraneous materials like rubber and metal, Chief Executive Noel White said on Wednesday.

FILE PHOTO: Tyson Foods brand frozen chicken wings are pictured in a grocery store freezer in the Manhattan borough of New York City, U.S. May 11, 2017. REUTERS/Carlo Allegri

The slower processing led to higher costs that contributed to a $220-million cut to the company’s expected adjusted earnings for 2019 announced on Tuesday, White said at an investor conference. Almost half of the cut was linked to Tyson’s poultry business, he said, providing new details on the adjustment.

Consumer advocates say increased automation in meat processing plants has contributed to more machine parts breaking off and contaminating food, and they are concerned about the potential for fewer government inspectors in slaughterhouses.

Tyson is also grappling with a fire that shut a large beef slaughterhouse in Holcomb, Kansas, and volatility in prices for grain used to feed chickens, White said.

Shares of the company sank 5.5% to $88.14 after his comments.

“It was extremely unusual to have that number of events within one quarter,” White said.

Tyson recalled nearly 12 million pounds of frozen, ready-to-eat chicken strips in May and 40,000 pounds of chicken patties in August.

The company wanted to ensure its products were safe and implemented “corrective measures” to get its chicken plants back at full production, White said.

“They have to really assess where the problem is occurring,” said Tony Corbo, a senior lobbyist for Food & Water Watch.

Tyson said it also made a number of management changes to improve its chicken business. The unit’s operating income was $531 million in the nine months ending with the close of the third quarter on June 29, down 23% from the previous year.

“I think that by the time we get through Q1, perhaps into Q2, a significant portion of the opportunity will be corrected,” White said.

About 30% of the cut in Tyson’s earnings forecast was related to a drop in corn prices, which worked against positions Tyson held in grain markets, White said.

Tyson recorded a $40 million gain in its chicken unit in the quarter that ended on June 29 as a rise in corn futures benefited its market positions. The company warned last month that profit would likely be reversed.

The beef slaughterhouse damaged by a fire is expected to resume business as usual by the end of the year, White said.

The U.S. Department of Agriculture is probing beef markets for evidence of unfair practices among meat packers since the blaze.

Reporting by Tom Polansek in Chicago. Additional reporting by Vibhuti Sharma and Neha Malara in Bengaluru; Editing by Shinjini Ganguli, Bernadette Baum and Tom Brown