Tyson 4Q profit rises 50 percent, looks to future

NORTH LITTLE ROCK — Tyson Foods Inc. had a bad year with its chicken segment, but pork and beef finished strong as the company announced Monday that it will push forward with expansion projects.

The world's largest meat company earned $48 million, or 13 cents per share, in its fiscal fourth quarter, up from $32 million, or 9 cents per share, a year ago. Sales rose to $7.20 billion from $6.66 billion.

Analysts surveyed by Thomson Reuters expected, on average, a profit of 18 cents per share on revenue of $6.98 billion.

"In past tough times, we've pulled back from plans to expand ... and it has slowed our progress," Tyson President and Chief Executive Richard L. Bond said. "Not this time."

A key part of the Springdale-based company's strategy is to expand internationally, which it is doing in Brazil, China and India. The company said it expects to devote up to $95 million to its investment in plants in Brazil and up to $115 million in China once a joint venture is approved.

Also, the company is investing $138 million in an alternative fuel plant in Louisiana, a joint venture that will use inedible fat and grease to make fuel for vehicles.

The company lost $91 million in its chicken segment for the fourth quarter, capping a year in which Tyson struggled with astronomical increases in feed and fuel prices while the company was stuck filling contracts that customers signed before the price shocks — limiting the increases Tyson could pass on.

Tyson's diversification helped.

"Producing the three major proteins has proven to be a strategic advantage," Bond said. "The strong performance by our beef and pork segments supported the chicken segment as it struggled throughout the year due to low prices and high input costs."

Worsening the sales environment has been an oversupply of meat that's keeping prices down and slumping restaurant demand as consumers eat at home more often. Bond noted that fast-food restaurant sales have held up, because people are looking to eat at less expensive outlets when they eat out.

"People are still eating beef but they are eating less expensive cuts," Bond said. "We expect this trend to continue in 2009."

Tyson does not offer earnings guidance but Bond said he expects the company to "lose some significant dollars" for the first quarter of 2009 in its poultry segment. In the pork business, Bond said he does not expect any record-setting quarters in fiscal 2009 but expects the segment to still do well.

Shares in Tyson fell 77 cents, or 10.3 percent to end at $6.69 Monday. A government commodity report that reduced estimated yields for corn and soybeans drove Tyson and other stocks in meat companies down on Monday.

Rich Nelson, director of research for commodities broker Allendale Inc. in McHenry, Ill., said feed costs for poultry are improving.

"The worst is behind them now," Nelson said. Industry-wide, Nelson said companies are cutting poultry production, which will bring higher prices as feed costs decline.

"Our guess is most guys will be profitable (in chicken) by December or January," he said.

For beef and pork, Nelson said Tyson won't have quarters as impressive in the year ahead.

The company is facing a number of challenges, Bond said, including the credit crunch, which he said is crimping overseas sales. Russia's block on imports of dark meat is particularly affecting Tyson sales. Analysts on a conference call with Tyson executives expressed their dissatisfaction that Tyson won't cut poultry production.

But Bond said it's not so simple, because the company needs its current levels to sustain production of wings, tenders and chopped and formed products.

"You can't look at a chicken and say this whole chicken is a commodity," Bond said. A dozen years ago when Tyson was in a similar situation, executive Archie Schaffer summed it up by saying, "We can't grow chickens that don't have legs."

For the fiscal year, Tyson earned $86 million, or 24 cents per share, compared to $268 million, or 75 cents per share, a year ago. Sales rose to $26.86 billion from $25.73 billion.

Tyson's chicken unit lost $118 million in the fiscal year. Beef had a profit of $159 million in the quarter and $106 million in the year, while the pork unit made $75 million in the quarter and $145 million in the year. Prepared foods lost $5 million in the quarter and made $63 million in the year.

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