Tyson Foods Jumps as Forecast for Earnings Tops Estimates

November 25, 2015 08:45 AM

Tyson Foods Inc., the largest U.S. meat processor, jumped the most in three years after forecasting higher-than-expected full-year profit as its chicken business benefits from rising demand and a decline in feed costs.

Tyson rose 10 percent to $48.09 in New York after earlier climbing 10 percent, the biggest gain since November 2012.

Earnings per share excluding one-time items will be $3.50 to $3.65 in fiscal 2016, the Springdale, Arkansas-based company said in a statement Monday. The midpoint of that range exceeds the $3.53 average of 11 analysts’ estimates compiled by Bloomberg. Full-year sales will be little changed at about $41 billion, Tyson said, in line with the average estimate.

“I’m very positive about our chicken business for 2016,” Chief Executive Officer Donnie Smith said on a conference call with analysts.

Chicken feed is typically made up of corn and soybeans, both of which have declined in price in 2015 amid bumper crops. Tyson’s chicken segment, its second-biggest unit by sales, saw operating income rise to $344 million in the fiscal fourth quarter that ended Oct. 3 from $206 million a year earlier.

Tyson’s net income was 63 cents a share in the quarter, compared with 35 cents a year earlier. Profit excluding one-time items was 83 cents a share in the three months through Oct. 3, trailing the 88-cent average estimate. Sales rose 4 percent to $10.5 billion, beating the $10.2 billion average estimate.

Beef Loss

Tyson’s beef business, the company’s largest segment by revenue, posted a $33 million operating loss, compared with operating income of $153 million a year earlier. It cited the effects of lower beef prices and a disruption in export markets for the poor performance. The unit also recorded a $70 million loss after marking down the value of hedges and inventories to reflect the drop in cattle futures in September.

The beef unit had a negative operating margin of 0.4 percent for the full fiscal year. For fiscal 2016, projecting a margin of 1.5 to 3 percent and saying it expects to be at the lower end of the new range amid tight cattle supplies and an “imbalance of processing capacity” in the U.S.

Analysts will want to know why the beef business isn’t turning around and its margins haven’t improved even though live cattle futures prices have been declining, Ken Shea, a Bloomberg Intelligence analyst, said in an interview.

“Analysts were expecting a little bit better performance,” he said. “The one sore spot is beef.”

Tyson, which acquired Hillshire Brands Co. in 2014, is investing in new products and strengthening its brands as it tries to reduce its reliance on the commodity-meat market.

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