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Tyson Foods: Third Quarter and Nine Months Results

by 5m Editor
29 July 2008, at 9:11a.m.

US - Tyson Foods Inc. reports third quarter 2008 sales of $6.8 billion compared to $6.6 billion for the same period last year. The Chicken segment remains under pressure from high input costs.

Operating income for the third quarter of fiscal 2008 was $45 million compared to $212 million, and net income was $9 million compared to $111 million, for the same period last year. In the third quarter of fiscal 2008, operating income included $13 million of charges, or $0.02 per share after tax, related to asset impairments and excluded $18 million of pre-tax income related to the discontinued Lakeside operation. Results of the continuing operations were a loss of $0.01 and earnings of $0.32 in the third quarter of fiscal years 2008 and 2007, respectively. Results of the discontinued operations were earnings of $0.04 and a loss of $0.01 in the third quarter of fiscal years 2008 and 2007, respectively.

Diluted earnings per share for the nine months of fiscal 2008 were $0.11 compared to $0.66 in the same period last year. Sales for the nine months of fiscal 2008 were $19.7 billion compared to $19.2 billion for the same period last year. Operating income for the nine months of fiscal 2008 was $193 million compared to $511 million, and net income was $38 million compared to $236 million, for the same period last year. In the nine months of fiscal 2008, Tyson Foods recorded an $18 million non-operating gain on the sale of an investment, and $66 million of charges related to plant closings, asset impairments and severance. Results of the continuing operations were earnings of $0.12 and $0.66 in the nine months of fiscal years 2008 and 2007, respectively. Results of the discontinued operations were a loss of $0.01 and $0.00 in the nine months of fiscal years 2008 and 2007, respectively.


*
"The Chicken segment remains under pressure from higher input costs"
Richard L. Bond, Tyson Foods president and chief executive officer

On 25 June 2008, the Company entered into a letter of intent with XL Foods Inc. to sell the beef processing, cattle feedyard and fertilizer assets of Lakeside Farm Industries Ltd in Alberta, Canada. The transaction remains subject to government approvals, the receipt of commercially reasonable financing by XL Foods and the execution of a definitive agreement between Tyson and XL Foods. It is hoped to complete the sale by the end of fiscal 2008. The results for Lakeside, current and prior periods, are reported as discontinued operations.

"In the third quarter of fiscal 2008, Tyson Foods' diversified business offset the losses incurred by our Chicken segment, which is experiencing more difficult market dynamics," said Richard L. Bond, president and chief executive officer. "Our Beef, Pork and Prepared Foods segments were profitable, while our Chicken segment suffered a loss.

"Beef performed better than expected, although results were masked by a negative $75 million impact from application of mark-to-market accounting treatment related to our unrealized derivative losses for forward cattle purchases and forward boxed beef sales," Mr Bond said. "Although we will profit from this risk management activity over the coming months, it disguises an otherwise solid performance in our beef operations this quarter.

"For the third consecutive quarter, our Pork segment achieved a margin above the normalized range. Sales were up for the quarter as well. Prepared Foods sales and volume were up slightly over the same quarter last year; however, operating income was down significantly due to increased raw material costs, including wheat, dairy and cooking ingredients in addition to charges related to flood damage at our plant in Jefferson, Wisconsin," Mr Bond said.

"The Chicken segment remains under pressure from higher input costs, although we have been able to offset some losses through pricing and risk management activities. Grain costs were up an additional $140 million compared to the third quarter of 2007 and are expected to increase approximately $550 million for fiscal 2008. There has been a tremendous effort by our poultry operations, sales and marketing teams to improve efficiencies and develop products to meet our customers' needs in this economy. I am confident our chicken business will be well positioned when the economics improve," said Mr Bond.



Segment Performance Review (in millions)
----------------------------------------
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Sales
(for the third quarter and nine months ended June 28, 2008,
and June 30, 2007)
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Third Quarter Nine Months
-----------------------------------------------------------
Avg. Avg.
Volume Price Volume Price
2008 2007 Change Change 2008 2007 Change Change
-----------------------------------------------------------
Chicken $2,251 $2,068 1.9% 6.9% $6,503 $6,065 (2.6) 10.0%
Beef 2,980 3,022 (3.9)% 2.6% 8,557 8,569 (3.5)% 3.5%
Pork 926 853 5.8% 2.7% 2,583 2,485 7.4% (3.2)%
Prepared
Foods 683 666 4.1% (1.6)% 1,991 2,004 0.8% (1.4)%
Other 9 9 n/a n/a 27 32 n/a n/a
-----------------------------------------------------------
Total $6,849 $6,618 0.6% 2.9% $19,661 $19,155 (1.0)% 3.7%
-----------------------------------------------------------
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Operating Income (Loss)
(for the third quarter and nine months ended June 28, 2008,
and June 30, 2007)
---------------------------------------------------------------------
Third Quarter Nine Months
-----------------------------------------------------------
Operating Operating
Margin Margin
2008 2007 2008 2007 2008 2007 2008 2007
-----------------------------------------------------------
Chicken $(44) $95 (2.0)% 4.6% $(70) $229 (1.1)% 3.8%
Beef 3 36 0.1% 1.2% (73) 33 (0.9)% 0.4%
Pork 54 37 5.8% 4.3% 193 111 7.5% 4.5%
Prepared
Foods 6 26 0.9% 3.9% 58 77 2.9% 3.8%
Other 26 18 n/a n/a 85 61 n/a n/a
-----------------------------------------------------------
Total $45 $212 0.7% 3.2% $193 $511 1.0% 2.7%
-----------------------------------------------------------

Third quarter fiscal 2008 operating income excludes $18 million related
to Lakeside discontinued operations.

Items Impacting Operating Income (Loss)

Q3 2008:
$7 million charge related to flood damage at our Jefferson, Wisconsin, plant (Prepared Foods)
$6 million charge related to impairment of unimproved real property in Memphis, Tennessee (Chicken)

Q3 2007:
$10 million gain on sale of two poultry plants and related support facilities (Chicken)
$5 million charge related to software impairment (allocated among segments)

YTD 2008:
$17 million charge related to restructuring of our Emporia, Kansas, operation (Beef)
$13 million charge related to closing of our Wilkesboro, North Carolina, Cooked Products plant (Chicken)
$12 million charge related to impairment of packaging equipment (Beef $8 million; Pork $4 million)
$7 million charge related to flood damage at our Jefferson, Wisconsin, plant (Prepared Foods)
$6 million charge related to impairment of unimproved real property in Memphis, Tennessee (Chicken)
$6 million charge related to severance (allocated among segments)
$5 million in charges related to software impairments (Chicken)

YTD 2007:
$10 million gain on sale of two poultry plants and related support facilities (Chicken)
$9 million gain on disposition of aircraft (allocated among segments)
$6 million charge related to an intangible asset impairment (Prepared Foods)
$5 million charge related to software impairment (allocated among segments)

Chicken Segment Overview



Chicken (32.9% of Net Sales - 3rd Quarter 2008)
(33.1% of Net Sales - Nine Months 2008)

Chicken segment sales were $2.3 billion and $6.5 billion, respectively, in the third quarter and nine months of fiscal 2008. Operating loss was $44 million and $70 million, respectively, in the third quarter and nine months of fiscal 2008. Sales increased as compared to the same periods in 2007 due to an increase in average sales prices, as well as an increase in sales volumes when excluding the impact of the sale of two poultry plants in fiscal 2007.

Operating results were adversely impacted by an increase in grain costs for the third quarter and nine months of fiscal 2008 of $140 million and $349 million, respectively, partially offset by net gains of $59 million and $49 million from our commodity risk management activities related to grain purchases, as compared to the same periods of fiscal 2007. Operating results were also negatively impacted by increased raw material, logistics and energy costs.

Selling, general and administrative expenses were higher for the nine months of fiscal 2008 as compared to the same period last year, largely due to increased advertising costs and a gain recorded in fiscal 2007 related to the sale of an aircraft. Operating results for the third quarter and nine months of fiscal 2008 included charges of $6 million related to impairment of unimproved real property.

Operating results for the nine months of fiscal 2008 included charges of $13 million related to closing our Wilkesboro, North Carolina, Cooked Products plant and $5 million in software impairment charges. Operating results for the third quarter and nine months of fiscal 2007 included a $10 million gain on sale of two poultry plants and related support facilities.

5m Editor