Beef, pork buoy Tyson Foods' outlook

by FoodBusinessNews.net Staff
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SPRINGDALE, ARK. — While commodity market volatility, particularly for feed grains, continues to bedevil protein processors, Richard L. Bond, president and chief executive officer of Tyson Foods, Inc., is taking solace in market developments that may help the company improve its third- and fourth-quarter results.

"Beef improved $74 million over the first quarter of this year," Mr. Bond said during a conference call with financial analysts on April 28 following the release of the company’s second-quarter earnings. "Excluding charges of $25 million for plant closings and asset impairments, beef would have had almost $100 million quarter-to-quarter improvement. That is even more significant considering Q2 is usually our most difficult for beef."

For the quarter, Tyson Foods recorded a loss of $5 million. The loss compared with net income of $68 million, or 19c per share, the company earned during the same period during the previous year.

Mr. Bond added that while difficult, the restructuring of the company’s Emporia, Kas., beef facility was "definitely the right thing to do."

"I think beef will continue to improve and our capacity utilization should move into the 80s (it was 77% during the second quarter)," he said. "We’re resuming exports to South Korea and heading into grilling season."

A focus on efficiency by Tyson Foods and a weak U.S. dollar that fueled exports combined to drive strong earnings for Tyson’s pork business. With capacity utilization at 90% during the quarter, Mr. Bond noted the company’s cost spread for hogs was better than the industry average. The fact Tyson Foods also was named the exclusive pork supplier for U.S. military commissaries in the U.S. and Puerto Rico has opened new avenues of opportunity.

The positive news in the company’s beef and pork segments was offset by the news emerging about the company’s chicken business.

"The chicken segment has been difficult," Mr. Bond said. "We are getting pricing but it isn’t keeping pace with inputs. We need some help from the underlying markets. For example, breast meat and leg quarters. We believe this will happen, but it could be near the end of the fiscal year before we have a positive run rate in chicken."

To illustrate the impact of feed cost increases on Tyson Foods, Mr. Bond said the company’s annual cost of corn and soybean meal expenditures have doubled from $1 billion to $2 billion since 2006.

"We can’t raise prices fast enough to keep up with the rising cost of our inputs," he said. "Consumers are concerned about the prices they’re paying now, but the cost we and other producers in all proteins are currently incurring are only beginning to be passed on to the consumer. It’s going to get much worse if we continue down this path of diverting corn to ethanol production."

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