Tyson Foods reports $5M loss for 2Q

In this April 16, 2007 file photo, Tyson Foods, Inc. president and CEO Richard Bond listens to a question during a news conference in Houston. Tyson Foods Inc., the world's largest meat producer, on Monday, April 28, 2008 said it lost $5 million in its second-quarter as it faces high feed and fuel costs and absorbed charges for previously-disclosed plant closings. (AP Photo/Dave Einsel, file)

LITTLE ROCK, Ark.—Tyson Foods Inc. served notice Monday that its customers will be paying more for their food products because the world's largest meat producer foresees spending as much as $1 billion more than last year due to skyrocketing grain costs.

Tyson reported Monday it lost $5 million, or 2 cents a share, in the three months ended March 29, compared with a profit in the same period a year ago of $68 million, or 19 cents a share. The loss in this fiscal year's second quarter includes $47 million, or 8 cents a share, in charges for previously announced plant closings and asset impairments.

Analysts polled by Thomson Financial had projected Tyson would earn a penny per share on revenues of $6.69 billion.

The company did not offer earnings guidance for the coming quarter or the fiscal year because of the volatility in the grain markets.

"For the year, corn and soybean meal increases are likely to approach $600 million," said President and CEO Richard L. Bond. "Including other inputs such as cooking oil, breading and other feed ingredients, the increase in costs for the fiscal year may approach $1 billion compared to fiscal 2007."

Prices have not caught up to the added costs, and Bond said prices on the consumer end will continue to rise. The company is also offsetting the higher costs by cutting capital expenditures for the year to $400 million from between $425 million and $475 million.

Bond called for the government to change its ethanol policy to help bring down the price of corn.

"Higher food costs is only one of the many unintended consequences" of price supports for ethanol, Bond said. Tyson and other meat producers have cut jobs as they work to contain rising costs.

But Brian Hoops, president and senior market analyst at Midwest Market Solutions Inc. in Yankton, S.D., said there is more than ethanol behind high feed costs.

"We are increasing our ethanol usage, but exports and feed usage still account for 65-70 percent of our demand for corn," Hoops said. "Eliminating tax incentives is just a small Band-Aid on this problem."

The U.S. agriculture industry has to increase production, through improved yields or use of more acreage "to get supply and demand back into balance," Hoops said.

Tyson's sales were $6.61 billion compared with $6.50 billion in its second quarter a year ago. Bond said that, despite the increased costs, the company had a strong quarter.

"We continue to believe the second fiscal quarter should be our most challenging, and we are pleased with our results," Bond said.

As meat prices rise, Bond said Tyson's portfolio of chicken, beef, pork and prepared foods will keep the company in a strong position as consumers adjust what they buy.

"I think that chicken typically is one of your better values from the standpoint of protein. If there are trade-offs, oftentimes you will trade to chicken," Bond said.

He said Tyson's chicken and pork exports continue to be strong, and the company is moving forward with its strategy for international expansion. The weak dollar has helped increase international demand, and Bond said the reopening of South Korea to U.S. beef will help, starting in the third quarter.

Rich Nelson, director of research for Allendale, Inc., in McHenry, Ill., said corn supply will continue to be tight because demand is growing.

"Feed costs are a significant problem," Nelson said. "The underlying message is that this will not change in 2008 and it won't change for 2009."

Beef, which accounted for 45 percent of Tyson Foods' sales, lost $11 million in the quarter, in part because of higher operating costs at a unit in Canada and a $17 million charge for restructuring the company's Emporia, Kan., plant. The segment also sustained an $8 million charge for an impairment of packaging equipment.

Chicken accounted for 33 percent of the company's sales, $2.2 billion for the second quarter.

Pork accounted for 12 percent of Tyson sales for the quarter at $822 million, and the segment earned $20 million. Tyson's prepared foods segment earned $20 million and accounted for 10 percent of sales at $632 million for the period.

Tyson shares rose 9 cents to close Monday at $18.24.

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