May 7, 2012 / 12:10 PM / 6 years ago

Tyson beats estimates despite weak beef demand

(Reuters) - Tyson Foods Inc’s (TSN.N) quarterly profit beat Wall Street estimates even after the controversy over so-called pink slime decimated U.S. beef demand, sending the meat processor’s shares up 4 percent on Monday.

Tyson, which sells beef, pork, chicken and prepared foods, was one of the companies injured by a wave of unflattering news reports about a ground beef filler that critics called “pink slime,” made from beef scraps sprayed with ammonia gas to kill bacteria.

The controversy “temporarily destroyed demand for ground beef and beef in general virtually overnight,” said Jim Lochner, Tyson’s chief operating officer. He said that caused a rapid decline in cattle prices.

“Personally, I don’t recall a revenue decline that steep,” Lochner said.

Looking ahead, Tyson said it expects industrywide domestic production of chicken, beef, pork and turkey to decrease by about 4 percent this year, which should continue to support better pricing.

But executives are keeping a cautious eye on the economy and gasoline prices, which could curb consumers’ appetite for meat if they climb further.

“What’s $4 gas going to do to disposable household income?” a company executive said on a conference call. Executives also said they felt that meat consumption on Memorial Day weekend -- the United States’ unofficial start of summer at the end of May -- should outpace last year’s holiday.

And with momentum expected to pick up in the third and fourth quarters, the nation’s largest meat processor stood by its full-year forecast.

“We still think we have the potential for earnings per share of $2 for the year if we execute as planned,” said Tyson Chief Executive Officer Donnie Smith.

Tyson had earlier forecast a profit for fiscal 2012 of more than $2 per share, but tempered its view in February, saying profit would likely come in “around the $2 mark.”

“The fact that $2 is still in the picture and was highlighted by management in its written comments probably will be seen as a positive,” said JP Morgan analyst Ken Goldman.

    Goldman added that Tyson’s beef segment, which posted an operating loss of only 0.1 percent, was much better than many investors feared.

    In the second quarter ended on March 31, overall volume fell 4.3 percent, pulled down by a 10.7 percent drop in the beef segment.

    Tyson’s quarterly net income rose to $166 million, or 44 cents per share, from $159 million or 42 cents per share a year earlier.

    Analysts on average were expecting 39 cents per share, according to Thomson Reuters I/B/E/S.

    Sales rose to $8.27 billion from $8.0 billion, missing analysts’ estimate of $8.49 billion.

    Tyson shares were up 4.1 percent at $18.78 at midday on Monday on the New York Stock Exchange.

    Reporting By Martinne Geller in New York; editing by John Wallace, Maureen Bavdek, Dave Zimmerman and Matthew Lewis

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