USA - Tyson says rising corn prices may mean costlier meat

Tyson Foods Inc., the world's largest meat processor, warned Nov. 13 that rising corn prices could mean U.S. consumers will have to pay more for chicken, beef and pork next year as it ended its fiscal year with a third straight quarterly loss. The Springdale, Ark.-based company, which has six plants in Tennessee, forecast a return to profitability in the new fiscal year, which started Oct. 1, as it gets a grip on costs and focuses on more efficient operations. Its shares rose 58 cents, or 4 percent, Monday to close at $14.93 on the New York Stock Exchange. "The best thing I can say about fiscal 2006 is, it's over," Richard L. Bond, Tyson president and chief executive officer, said in a statement. Bond said the price of corn, which is used as animal feed, is going up because of demand from ethanol plants that are springing up to provide alternative fuel sources to oil. Corn prices recently reached 10-year highs. "I believe the American consumer is going to have to pay more for protein. We are at new levels on corn that are not likely going to be retrenching back to '06 levels," Bond said in a conference call with analysts. Bond said meat producers, processors and retailers will have to pass the higher grain price on to consumers because they cannot absorb it in their profit margins. Bond did not provide more details but suggested the higher consumer prices could come when meat demand typically increases during the spring and summer. "Quite frankly the American consumer is making a choice here. This is either corn for feed or corn for fuel, that's what's causing this," Bond said. Tyson is pursuing joint ventures in South America and China and creating a renewable energy division to generate new revenue sources, it said in a statement. Tyson expects to set up two joint ventures in South America in early 2007, a poultry operation in Brazil and a beef operation in Argentina, and a poultry joint venture in China sometime this fiscal year. On renewable energy, Tyson said it has created a new business unit to find ways to make money from its byproducts by converting animal fats and possibly chicken litter into biofuels. Tyson said the loss for the quarter ended Sept. 30 was $56 million, or 17 cents per share, compared with a profit of $117 million, or 33 cents per share, during the same period a year earlier. Fourth-quarter revenue was flat at about $6.5 billion in both periods. Analysts polled by Thomson Financial expected a loss of 4 cents per share for the fourth quarter on revenue of $6.47 billion. Results were hurt by charges of 6 cents per share related to tax and accounting changes and 4 cents per share related to a previously announced cost-cutting program. Tyson said in July that it would cut $200 million in costs, including slashing 420 mainly managerial jobs and not filling 430 open positions in its total work force of about 110,000. It also said it would focus on value-added products, international expansion and improving operational efficiencies. "For most of the year, we were plagued by supply and demand imbalance as well as export market disruptions in our chicken and beef segments," Bond said in a statement. "Despite some continuing problems in the protein sector, during the quarter our core business showed improvement and continued to strengthen." Tyson said it expects fiscal 2007 earnings per share in a range of 50 cents to 80 cents. Analysts' consensus estimate for fiscal 2007 earnings is 69 cents per share. Its shares rose 58 cents to close at $14.93 on the New York Stock Exchange. Prudential Equity Group analyst John M. McMillin said he does not expect Tyson earnings to rebound to more than $1 per share until at least fiscal 2009. "One of these years Tyson Foods just might earn in the range of $1.00-$1.30 per share, but with higher corn prices it is unlikely to be any time soon as management gives fiscal 2007 guidance in the $0.50-$0.80 range," McMillin said in a research note. Bond said he is "very confident" the company will be profitable again starting in the current quarter. He said the full-year forecast was conservative after the company had to lower its guidance three times during fiscal 2006. "We missed guidance a number of times on fiscal '06 and our intent is not to do that again in fiscal '07," Bond told analysts. Tyson saw fourth-quarter losses in three of its four segments -- beef, chicken and prepared foods. Only the pork business, which accounted for 12 percent of sales, posted an operating profit, thanks to low prices for live animals. The chicken and beef businesses were hurt by a glut of meat on the market, a problem the industry has faced all year. Agricultural economists have blamed the meat glut on a range of factors, including shifting consumer diets, beef and chicken health scares overseas that reduced U.S. exports, and overproduction after high market prices for animals in the past two years. Tyson is the world's largest chicken producer and also the world's largest meat processing company. Tyson breeds its own chickens but gets other meat from independent producers.