Tyson Posts Profit, But Offers Weak Outlook

Filed at 2:52 p.m. ET

LITTLE ROCK, Ark. (AP) Tyson Foods Inc., the worlds largest meat company, announced Monday it plans to expand its foreign business. The news came as the company reported a return to profit for its fourth quarter but forecast earnings for this year below what analysts were expecting.

Tyson shares fell 4 percent in early afternoon trading.

The company cited cost-cutting for the improved performance in the July-September period but said cost pressures will rise this fiscal year.

Tyson pledged to improve revenues in its international business from $3 billion to $5 billion. The expansion will focus on Latin America and China.

While holding back many details, Tyson says it has signed a letter of intent to purchase a mid-size poultry company in Brazil, an acquisition that could be complete by the end of the calendar year.

The company says it is looking for ways to increase its Mexico subsidiary. Tyson already has joint-venture businesses in China to supply pork and chicken.

Our global strategy is to target countries where we see the consumption of protein growing rapidly, said Rick Gruebel, president of Tysons international division. This includes gaining access to new markets as well as expanding business with our existing international customers.

Further, Tyson announced it would open a biofuel plant at an existing industrial site in Louisiana as part of a previously announced joint venture with Tulsa, Okla.-based Syntroleum Corp. to produce fuel from animal fat. Tyson would not say where in Louisiana the $150 million plant will be built, but said construction would start in 2008 and be completed in 2010.

The plant is to produce 75 million gallons of fuel each year, using animal fat, grease and vegetable oil, all supplied by Tyson Foods.

The company also said it is moving forward with a project with ConocoPhillips to convert animal fat into diesel fuel. Production is to start next month, with Tyson providing fat from an Amarillo, Texas, beef plant to a ConocoPhillips refinery in Borger, Texas.

Tyson earned $32 million, or 9 cents per share, in the three months ended Sept. 29 versus a loss of $56 million, or 17 cents per share, a year ago.

Revenue rose 6 percent to $6.88 billion from $6.47 billion in the year-ago quarter.

Analysts polled by Thomson Financial expected a profit of 10 cents per share on revenue of $6.73 billion. The earnings estimates typically exclude one-time items.

The company projected it will earn between 30 cents per share and 70 cents per share for fiscal 2008. Analysts polled by Thomson expected earnings of $1.05 per share.

Its shares fell 61 cents, or 4.1 percent, to $14.14 in morning trading Monday after sinking earlier to a 52-week low of $13.50.

For the coming year, Tyson said it expects to pay $300 million more for grain for its chicken segment and that the beef market will be challenging.

Tyson Foods President and Chief Executive Officer Richard L. Bond said too many cattle are being processed and the beef market will be volatile in the coming fiscal year.

I do believe at some point in time we will get trade re-established, Bond said.

Bond said the company is well-positioned for the long term, in beef and other segments.

Not only are we back on course, Tyson is a stronger, more streamlined company, Bond said in a conference call with analysts.

Capital spending was $285 million last fiscal year, but the company plans to spend up to $475 million in the coming fiscal year, in part to put in place further cost-saving measures, Bond said.

For its 2007 fiscal year, Tyson had profits of $268 million, or 75 cents per share, compared with a loss of $196 million, or 58 cents per share last year. Revenue was up 5 percent on the year to $26.9 billion from $25.6 billion.

We made tremendous progress in fiscal 2007, Bond said. All four segments were profitable for the quarter, as anticipated, and profitability improved year over year for each segment. Bond noted that Tysons $2.8 billion debt balance is the lowest since Tyson acquired meatpacker IBP Inc. in 2001 for $4.7 billion. Tyson had debt of $4.1 billion immediately after the acquisition.

JP Morgan analyst Pablo Zuanic, who rates Tyson as underweight, said in a research note that Tyson was able to stave off some higher grain costs last fiscal year due to hedging, but now the higher prices are catching up.

Moreover, while pure chicken companies may recover as the much shorter chicken industry cycle improves, (Tyson) has significant exposure to the much longer beef cycle and is less directly leveraged to the commodity chicken cycle, as 70 percent of chicken sales are value added/further processed, Zuanic wrote.

Analyst Jonathan P. Feeney of Wachovia Securities wrote in a research note that Tysons outlook may be improving, but that he wants to see the evidence in the companys profits.

Given significantly reduced debt levels, the risk/reward is improving, in our view, particularly since valuation now recognizes difficult near-term earnings challenges. We would remain on the sideline until there is evidence that recent management initiatives are improving the earnings trajectory, Feeney wrote.

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