Tyson's profit falls 40 percent; higher production costs cited

Arkansas Business, Feb 4, 2008

Tyson Foods Inc. said first-quarter profit dropped 40 percent amid higher production costs and added that it will raise prices to offset those costs.

The world's largest meat processor also withdrew earnings guidance for the year because of the "extremely volatile and fluctuating" commodity markets. The company reported earnings of $34 million, or 10 cents a share, during the quarter, down from $57 million, or 16 cents a share, during the same quarter last year.

The quarter included an $18 million one-time gain and a $6 million charge.

Tyson said revenue reached $8.8 billion in the quarter, up from $6.6 billion during the same quarter last year. But it said increasing grain prices ate into profit.

Tyson President and CEO Dick Bond said the company had projected an additional $300 million in grain prices but that the company is now facing about $500 million in additional expenditures.

"Because of the unanticipated and extraordinarily high corn and soybean meal costs we have no choice but to raise prices substantially," Bond said.

The increased grain prices affected the company's beef and chicken segment the most.

Tyson's beef segment accounted for 46.5 percent of the company's sales with $3.1 billion, but recorded $85 million in lost operating costs.

The company announced on Jan. 25 that it will shutter slaughtering operations at its Emporia, Kan., plant and eliminate 1,500 jobs. The company said the move was made in response to the continued decrease in available cattle.

The chicken segment had $2.1 billion in sales and $35 million in operating income for the first quarter. But grain prices increased by $107 million compared with the same quarter last year.

The company's pork segment reported $835 million in sales, 12.3 percent of the company's overall sales. The prepared foods segment brought in $676 million in sales.

Tyson also reported $8 million in severance charges and $18 million in non-operating gain on the sale of an investment.

Bond said he thought the company "delivered a solid first quarter" and noted that the market dynamics make the company's work "very challenging."

Last year Tyson posted a profit of $268 million, a substantial upswing from the net loss of $196 million reported in 2006.