Tyson rows back on pledge of poultry profits

Tyson Foods ditched a forecast that its chicken division would remain in profit throughout the protein giant’s fiscal year, after an oversupply of US broiler meat hit harder than had been expected.

The group revealed smaller profits for all three main divisions – beef, chicken and pork – for the three months to July 2, leading the group to report earnings down 21% at $196m.

However, the decline was deepest in chicken, where operating profits plunged 85% to $186m, despite a small uptick, to $2.8bn, in divisional revenues.

The profits drop reflected a $250m uplift in feed costs during the quarter, compared with the same period a year before – an increase which Tyson struggled to pass on to consumers, with rich supplies of US broiler meat limiting the group’s ability to raise prices.

And the group warned that the dynamics of higher feed costs and weak pricing power look set to remain in place for now.

‘Weak pricing conditions’

"Current futures prices indicate higher grain costs in fiscal 2012," which starts in October, the group said.

However, in broiler meat "we expect weak market pricing conditions to continue as a result of an imbalance of available supply relative to customer demand".

While government data shows reduce numbers of eggs being set in incubators, signalling cutbacks by poultry groups in growth plans, "we do not expect to see a meaningful impact of the reduced supply in our results until late in our fourth quarter of fiscal 2011 and continuing into fiscal 2012".

"Because of these factors, we expect our chicken segment will likely experience a loss for the fourth quarter of fiscal 2011."

Donnie Smith, the Tyson chief executive, said: "The next few months will be very challenging, and it is likely our chicken segment will experience a loss in the fiscal fourth quarter."

‘Strong fundamentals’

The comments contrasted with assertions restated in May that Tyson would "remain profitable during the remainder of fiscal 2011".

However, the impact on Tyson shares was offset by a forecast of "strong fundamentals" for the group’s beef division and, in pork, of "strong exports" in 2012 and a lift to 6-8% in the estimate for the division’s typical operating margins.

Furthermore, the group’s earnings for the latest quarter were, at $0.51 a share, while lower than a year before, above the market estimate of $0.40 a share.

Tyson shares initially posted gains before being undermined by a dismal day for New York stocks to close down 3.9% at $15.68.

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