Higher Costs Eat Into Tyson Foods Second Quarter Profit Margins

Andrew Klips |

Tyson Foods Inc. (TSN), one of the largest chicken processors and marketers in the world, Monday reported a bigger-than-expected decline in second-quarter profits, pressured by lower margins as feed costs remained high due to last year’s drought. Further, the Springdale, Arkansas-based company cut its full year forecast, sending shares lower in early trading action.

For the quarter, Tyson reported revenue of $8.42 billion, up from $8.27 billion in the same quarter last year. Net income tumbled to $95 million, or 26 cents per share, from $166 million, or 44 cents per share, in the year prior quarter. Adjusted net income, which excludes an impairment charge on non-core assets in China and a currency translation gain, totaled 36 cents per share.

Wall Street was expecting adjusted profits of 45 cents per share on revenue of $8.6 billion.

Tyson boosted its prices during the quarter to help offset $165 million in additional feed costs. The company’s beef business also suffered “margin compression” with the pork segment was hit by a loss in some export markets.

Operating margin dipped to 2.1 percent in the latest quarter from 3.1 percent last year on a 3.6 percent climb in input expenses.

Sales of chicken increased from $2.91 billion to $3.09 billion during Q2, while the beef business edged upward in sales from $3.37 billion to $3.45 billion. Pork segment sales declined from $1.37 billion to $1.31 billion. Sales of Tyson’s prepared foods also slipped, fading from $807 million to $803 million.

While all segments decreased in profits, the beef segment was the only to record an operating loss (of $26 million versus a $1 million operating loss last year).

"Our second quarter typically is our most challenging, and this quarter was no exception," said Donnie Smith, Tyson Foods' president and chief executive officer at Tyson. "However, our business is structured to withstand adverse conditions, and we worked through the issues while positioning ourselves for what we believe will be a strong performance in the second half of the year.

Smith added that although profits weren’t where he wanted them to be, that he was still confident that 2013 will be better than 2012.

During the quarter, Tyson repurchased 2.1 million shares for an aggregate amount of $50 million. At the end of the quarter, there were still 28 million shares authorized for repurchase as part of their latest plan.

For the full year, Tyson had originally seen sales at $35 billion, but those expectations were modestly lowered with today’s statement. The company now sees sales of $34.5 billion, which is in line with analyst predictions.

Shares of TSN had risen about 39 percent as on last Friday’s close, but are giving some of that back on Monday morning, down about 5 percent to $23.50.

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Companies

Symbol Name Price Change % Volume
TSN Tyson Foods Inc. 58.82 1.43 2.49 4,464,179
VRTS Virtus Investment Partners Inc. 119.90 2.80 2.39 68,817

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