November 23, 2009 / 12:53 PM / 10 years ago

Tyson beats, but investors fret over chicken

NEW YORK (Reuters) - Top meat producer Tyson Foods Inc (TSN.N) reported disappointing margins for its chicken business on Monday as market prices fell and grain costs rose, and its shares fell.

An undated image courtesy of Tyson Foods. REUTERS/Handout

The company reported a quarterly profit after one-time items that beat Wall Street expectations on the strength of its beef and pork businesses, but investors focused on the performance of its poultry operations, which came in well below that of rivals like Pilgrim’s Pride Corp. PGPDQ.PK

“People invest in this stock because of its exposure to chicken and the segment continues to underperform its peers significantly,” KeyBanc analyst Akshay Jagdale said .

“We prefer to direct investors to Sanderson Farms (SAFM.O) and not Tyson, because they clearly are having execution issues,” Jagdale said.

Tyson shares fell 1 percent midday.

Tyson veteran Donnie Smith, who became chief executive last week, said on a conference call that the chicken business should improve in 2010, but added that the company would need to increase volume and do a better job of managing inventory.

“It’s important to remember that we significantly reduced inventory in 2009, so to keep up with current domestic demand, we’ll have to produce this year what we took out of inventory last year,” Smith said. “We’ll be doing what we should be doing which is selling what we produce and not confusing the freezer with the customer.”

Earlier on Monday, Pilgrim’s Pride reported a quarterly profit, reversing a year-earlier loss.

OPERATING MARGINS BELOW INDUSTRY

Tyson reported a net loss of $455 million, or $1.22 a share, for its fiscal fourth quarter, ended on October 3, compared with a year-earlier profit of $48 million, or 13 cents a share.

Excluding a goodwill impairment charge for its beef business, Tyson earned 28 cents a share, beating the analysts’ average estimate of 26 cents, according to Thomson Reuters I/B/E/S.

Revenue at the Springdale, Arkansas-based company edged up to $7.21 billion from $7.20 billion. Analysts on average were expecting $6.88 billion.

Operating margins at the chicken segment came in at 1.2 percent, much below analysts’ forecasts. That compared with Jagdale’s estimate of 5.1 percent, Pilgrim’s Pride’s 7 percent and an industry average of 9 percent.

Tyson expects the strength in its pork and beef businesses to continue in its new fiscal year and said it saw a chance for the U.S. economy to improve in the back half of the year.

Editing by Lisa Von Ahn and Steve Orlofsky

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