Tyson reports $26m loss for beef division

Tyson reports $26m loss for beef division

- Chicken division improves operational efficiencies and mix and raises prices. - Beef prices chase consumers to chicken. - Beef and p

TYSON Foods Inc. has reported decreased earnings for its fiscal 2013 second quarter as income was lower across all business segments, including a $26 million loss in its beef division.

Chief executive officer and president Donnie Smith noted that quarter two typically is the company's most challenging, "and this quarter was no exception."

He said the chicken division focused on operational efficiencies, an improved mix of products and increased pricing to offset $165 million in additional feed costs.

He said the beef division suffered margin compression as consumers opted for more relative value in chicken, and the pork segment was adversely affected by the loss of some export markets and periods of supply and demand imbalance.

Continuing demand softness in the foodservice sector negatively affected the prepared foods segment, Smith said.

Despite lower earnings for the quarter and six months, Smith said he remains confident that the company's results for fiscal 2013 "will be better" than they were in fiscal 2012.

Tyson's second-quarter results are shown in the Tables.

 

Operating results

For its chicken division, Tyson reported that sales volumes were down in the second quarter and six months because of decreased open-market chicken meat purchases and a mix of products that included rendered products.

However, the company said sales were up on an improving mix in the second quarter and increasing prices that were associated with increasing costs, especially for corn and other feed ingredients. (Tyson noted that many sales contracts are based on formulas or the short term, allowing it to increase prices in line with cost increases.)

The company said income was positively affected by higher prices and improvements in growout and plant efficiencies, as well as improvements in foreign operations. Tyson said this was partially offset by feed cost increases of $165 million and $335 million for the quarter and six months, respectively.

The company also included a write-down in the chicken division of $56 million related to certain operations in China.

For its beef division, Tyson reported a decrease in fed cattle supplies that drove up cattle prices and, therefore, livestock costs. The company said income slid hard on the decrease in cattle supplies and increase in operating costs as well as on the decrease in demand for premium beef products and market vulnerability.

For its pork segment, Tyson reported an increase in hog supplies that drove down hog prices and livestock costs. However, the company said sales volume and income were also down as increased pork supplies — due to increased hog supplies and reduced exports — forced it to lower pork prices.

For its prepared foods segment, Tyson said sales and income were down due to decreased demand for foodservice products, decreased raw material costs, a poor product mix and costs incurred for investments in luncheon meat operations.

 

Outlook

Tyson noted that the U.S. Department of Agriculture is projecting U.S. chicken production to increase 2-3% in fiscal 2013 (October 2012 to September 2013).

The company said current futures prices project an increase in fiscal 2013 feed costs of $450 million over fiscal 2012 feed costs, but it said the capital investments and operational improvements it has made in its chicken division "have better positioned us to adjust to these higher feed costs."

Tyson said fed cattle supplies are expected to decrease 2-3% in fiscal 2013, and there may be periods when regional supplies are not in line with processing requirements. Still, the company said it expects that its beef division will be profitable for the year.

Tyson noted that hog supplies are forecasted to be flat in fiscal 2013.

The company said both beef and pork exports likely will be lower for the fiscal year.

Tyson said it projects fiscal 2013 sales to total $34.5 billion.

The company added that it will continue its share buyback program, and as of March 30, 28 million shares remained authorized for repurchase.

Tyson, headquartered in Springdale, Ark., is the largest chicken integrator in the U.S. and the second-largest beef and pork processor. It reported fiscal 2012 sales that totaled $33.278 billion.

 

1. Tyson earnings and sales*

 

-Second quarter-

-Six months-

 

2013

2012

2013

2012

Sales (billion $)

8.419

8.268

16.821

16.597

Earnings (million $)

95

166

268

322

Earnings per share (cents)

36

44

84

86

 

2. Tyson operating results (million $)*

 

-Second quarter-

-Six months-

 

2013

2012

2013

2012

Sales

 

 

 

 

Chicken

3,094

2,911

6,050

5,673

Beef

3,447

3,369

6,932

6,836

Pork

1,311

1,372

2,674

2,847

Prepared foods

803

807

1,644

1,668

Operating income

 

 

 

 

Chicken

78

145

185

177

Beef

(26)

(1)

20

30

Pork

72

115

197

280

Prepared foods

28

44

61

95

*For the quarters ended March 30, 2013, and March 31, 2012.

 

Volume:85 Issue:19

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