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Tyson Reports Drop in Income

7 August 2012, at 8:00am

US - US meat and poultry giant Tyson Foods has seen income for the first nine months of the year down to $398 million compared to $653 million in 2011.

The drop in income was on the back of rising sales which went up from $23.862 billion to $24.905 billion in the sme period.

The income included a pretax charge of $167 million, or $0.29 per diluted share, from the early extinguishment of debt.

“We produced solid results in our fiscal third quarter despite softer than expected domestic demand for protein,” said Donnie Smith, president and chief executive officer of Tyson Foods.

“I am especially pleased with the performance of our Chicken and Prepared Foods segments. Our Beef and Pork segments have been operating in very difficult market conditions that will result in our earnings for fiscal 2012 coming in lower than we previously projected.

“Grain costs have been increasing significantly and rapidly, largely as a result of the on-going U.S. drought. While we ultimately expect to pass along rising input costs, these costs, coupled with continued soft demand, are likely to pressure earnings in 2013.

"However, we still anticipate solid earnings for the year, and we are performing well during challenging circumstances. With our strong balance sheet, customer relationships, new product development capabilities, and efficient operations, we believe Tyson Foods is in the best position in our industry to succeed now and in the future.

“We're often faced with challenges in our business, but our strategy will allow us to manage through trying times for continued success. We are focused on growing our prepared foods, international poultry and value-added poultry businesses. We can't make it rain, but we can execute against our strategy by producing high quality foods using innovative and cost effective processes. It's tough right now, but I'm confident we will come out of this in even better shape than we are in today.”

He added: " Our continued capital investment in our businesses, strong liquidity and reduced interest expense will help us finish fiscal 2012 strong and put us in a good position as we begin fiscal 2013. In fiscal 2013, we expect overall domestic protein production (chicken, beef, pork and turkey) to decrease slightly from fiscal 2012 levels. The recent drought conditions have reduced expected grain supplies, which will result in higher input costs as well as increased costs for cattle and hog producers. The following is a summary of the fiscal 2013 outlook for each of our segments."

The compoany said that the current USDA data shows US chicken production to be relatively flat in fiscal 2013 compared to fiscal 2012.

However, changing crop conditions and pricing could change this estimate. The capital investment and significant operational improvements we have made in our Chicken segment have better positioned us to adjust to rising grain prices and remain profitable. Due to the current run up in grain prices, we will be challenged in fiscal 2013, but anticipate our Chicken segment will remain profitable.

In the beef sector, the company said it expects to see a reduction of industry fed cattle supplies of 1-2 per cent in fiscal 2013 as compared to fiscal 2012, with the reduction predominately in the second half of fiscal 2013. Although we generally expect adequate supplies in regions we operate our plants, there may be periods of imbalance of fed cattle supply and demand. We anticipate beef exports will remain strong in fiscal 2013. For fiscal 2013, we believe our Beef segment will remain profitable, but could be below our normalized range of 2.5 per cent-4.5 per cent.

In the prok sector, Tysaon said it expects industry hog supplies in fiscal 2013 to be up 1-2 per cent compared to fiscal 2012 and we expect pork exports toremain strong in fiscal 2013. For fiscal 2013, we believe our Pork segment should remain at or above our normalized range of 6.0 per cent-8.0 per cent.

IN Prepared Foods it forecasts operational improvements and increased pricing to offset increased raw material costs. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through increased pricing. For fiscal 2013, we believe our Prepared Foods segment should remain in its normalized range of 4.0 per cent-6.0 per cent.

"Through the first nine months of fiscal 2012, we used cash and cash flows from operations to reinvest over $700 million back into our business through capital expenditures and share repurchases. The following is a summary of the outlook for the balance of fiscal 2012 and fiscal 2013 for sales, capital expenditures, net interest expense, debt and liquidity and share repurchases," Mr Smith said.