April 28, 2008 / 6:32 PM / in 9 years

UPDATE 4-Tyson posts small 2nd-qtr loss on charges, shrs up

(Adds capital expenditure forecast, analyst comment)

By Bob Burgdorfer

CHICAGO, April 28 (Reuters) - Tyson Foods Inc (TSN.N) posted a small loss for the quarter on Monday, but the results were better than expected due in part to stronger pork pricing, sending the U.S. meat company’s shares higher.

Tyson -- the largest U.S. producer of beef, pork and chicken -- said its chicken and beef units posted operating losses for its fiscal second quarter on higher feed costs and charges related in part to plant closings.

The company did not provide an earnings outlook for the rest of the year, as the volatility in the feed grain markets is expected to continue, but said its beef unit should be better in the current quarter and its pork should do well, though not as well as in the second quarter.

Its pork profits nearly doubled, helped by lower average hog prices and strong pork exports.

For the second quarter ended March 29, the Springdale, Arkansas-based company reported a loss of $5 million, or 2 cents per share, compared with a year-earlier profit of $68 million, or 19 cents per share.

The results included $47 million in charges, which translated to 8 cents per share.

Excluding those charges, earnings would have been 6 cents per share. On that basis, analysts on average had expected a profit of a penny per share, according to Reuters Estimates.

“I think it was still a pretty ugly quarter, but modestly better than expectations,” said Tim Ramey, a food company analyst at D.A. Davidson.

Revenue for the period was $6.61 billion, compared with $6.50 billion a year earlier.

“We continue to believe the second quarter should be our most challenging, and we are pleased with the results,” Chief Executive Officer Richard Bond said in a statement.

Tyson officials said capital expenditures this fiscal year have been trimmed to about $400 million, down from a previously budgeted $425 million to $475 million, as a conservative move based on the earnings profile.

“It is a never good sign. I think that is a signal they are planning for a really rough year,” Ann Gilpin, food analyst with Morningstar, said of the reduction.

Tyson raises the chickens it processes but buys the cattle and hogs. The chicken unit lost $61 million on an operating basis due in part to a $102 million increase in feed costs.

The company has been raising chicken prices but those increases have not kept pace with the higher feed costs, Bond told analysts on a conference call.

Tyson, like other livestock producers, has been hurt by the high price of important feeds, such as corn and soybean meal. Corn prices have skyrocketed due to strong demand for export, ethanol production and livestock feed.

“For the year, corn and soybean meal increases are likely to approach $600 million,” Bond said in a statement. He added that costs for feed and other inputs may be up nearly $1 billion versus fiscal 2007.

Demand for chicken remains strong and Tyson said it would not reduce production, as some competitors have done.

“Right now our demand is good. We do not have any plans to reduce (chicken) production,” said Bond.

The beef unit was hit with higher operating costs, losses at the company’s Canadian plant, and charges related to a plant restructuring. Minus the charges, beef would have turned a small profit, which pleased some analysts.

“While it was widely believed beef had started to turn the corner, the modest profit will probably enliven protein bulls, particularly with potential tailwind from the reopening of South Korean export market and recent rationalization in the market,” Wachovia analyst Jonathan Feeney said in a note.

The beef unit had an $11 million loss on an operating basis, compared with a $24 million profit a year earlier. That loss included $17 million in charges for restructuring at a Kansas beef plant and $8 million for packaging equipment.

Early in the quarter, the company ended cattle slaughter at its Emporia, Kansas, beef plant, due in part to excess processing capacity in the industry.

Conditions in beef should improve in the third quarter because of better seasonal demand and news that South Korea will restart purchases of U.S. beef, Bond said.

South Korea, like other countries, had banned U.S. beef in late 2003 when the first U.S. case of mad cow disease was reported. Prior to that, about 15 percent of Tyson’s beef exports went there, or $330 million worth.

The pork unit had an operating profit of $63 million, compared with $35 million a year earlier.

The chicken unit’s operating loss of $61 million, compared with a year-earlier $61 million profit.

Prepared foods’ profit was $20 million, unchanged from a year earlier.

Tyson’s shares were up 24 cents, or 1.32 percent, to $18.39 in afternoon New York Stock Exchange trading. (Editing by Gerald E. McCormick)

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