(Reuters) - Tyson Foods Inc (TSN.N) said on Monday it would sell its Mexican and Brazilian poultry businesses to JBS SA (JBSS3.SA) for $575 million and use the proceeds to pay down debt from its pending $7.7 billion purchase of Hillshire Brands Co. HSH.N
Tyson, the world’s second-biggest meat processor behind Brazil’s JBS, also reported a 4.4 percent increase in third-quarter profit and forecast sales for the fiscal year ending September 2015 above Wall Street analysts’ estimate.
Shares in Tyson were up 2.7 percent in midday trading.
Tyson in June outbid JBS’ Pilgrim’s Pride with a $63 per share offer for Hillshire, the maker of Jimmy Dean sausages and Ball Park hot dogs, in what would be the biggest deal yet for the global meat business.
Tyson has been laying out plans to quickly pay off debt from the planned Hillshire purchase after some critics said its offer price was too high. Pilgrim’s Pride declined to raise its bid from $55, saying that paying more was not in the best interest of shareholders.
Tyson’s purchase of Hillshire is expected to close before September 27.
The Mexico and Brazil poultry operations being sold were good businesses for Tyson but lacked “the necessary scale to gain leading share positions,” Chief Executive Donnie Smith said on a conference call with analysts.
Pilgrim’s Pride is buying Tyson’s Mexico business. Pilgrim’s is majority owned by a subsidiary of JBS SA, which also owns JBS Foods, the buyer of Tyson’s Brazil business.
Springdale, Arkansas-based Tyson also reported net income of $260 million, or 73 cents per share, for the quarter ended June 28.
Revenue rose 10.9 percent to $9.68 billion from $8.73 billion, helped by higher demand for chicken and pork products.
During the quarter, Tyson’s supplies of fully cooked chicken products fell because its existing factories were at capacity and unable to compensate for problems at two plants.
“We’ve endured long, sizable production shortfalls in one of our highest revenue, most profitable business during a time when high priced beef and pork accelerated the demand for chicken,” said Smith, who expects the business to fully recover next fiscal year.
Smith said demand for beef was “robust” during the summer grilling season. Strong demand also helped drive pork prices higher in the latest quarter, Smith said.
Tyson forecast 2015 net sales of $42 billion, above the average analyst estimate of $38.75 billion, according to Thomson Reuters I/B/E/S.
Tyson on Friday said it was shuttering three of its U.S. factories that make processed meat products such as sausages and hot dogs. The closures were due to changing product needs, an aging Cherokee, Iowa factory and the distance of the Buffalo, New York and Santa Teresa, New Mexico plants from their raw material supply base, the company said on Friday.
Tyson’s shares rose $1.06 to $40.60 in afternoon trading on the New York Stock Exchange.
(Corrects July 28 story to show two different JBS SA-owned businesses were buyers; adds new eighth paragraph to show Pilgrim’s Pride will buy Tyson’s Mexico poultry business and JBS Foods will buy Tyson’s Brazil business)
Reporting by Lisa Baertlein in Los Angeles and Shailaja Sharma in Bangalore; Editing by Maju Samuel, Saumyadeb Chakrabarty and Meredith Mazzilli