Beef and pork sector profits more than outweighed losses in Tyson Foods' chicken sector in its fourth fiscal quarter, but the company missed Wall Street expectations and painted a dreary poultry outlook for next quarter, driving its stock lower in morning trade.

Tyson reported a net profit for the quarter ended Sept. 27 of $48 million, or 13 cents per share, up from $32 million, or 9 cents per share, a year ago. The results included a one-time charge of $10 million, or 2 cents per share, putting earnings excluding the charge at 15 cents per share compared to a Reuters survey of Wall Street estimates, which averaged 19 cents per share.

Tyson shares initially fell as much as 12 percent on the news, and then traded down 8 percent, at $6.86 per share in late morning trade on the New York Stock Exchange.

Sales for the quarter totaled $7.2 billion, up 9.6 percent from a year earlier.

Beef and pork

All the good news came from beef and pork. Operating profits from the beef segment were $159 million for the quarter, up from $5 million a year ago and achieving a 5 percent operating margin.

The pork segment reported a $75 million profit, up from $27 million last year and its best July-September quarter ever. A 7.5 percent operating margin was attributed to ample hog supplies and strong exports.

Chicken blues

Tyson lost $91 million from its chicken unit, compared to an operating profit of $63 million a year ago. Tight credit has hurt export demand. Leg quarter demand has been particularly hard hit as Russia decreased its import quota.

Meanwhile, Tyson said its grain costs rose $231 million in the fourth quarter and $593 million for the year, partially offset by net gains of $78 million and $127 million, respectively, from commodity risk management activities. Operating results were also hit by increased plant costs, including cooking ingredients, logistics and labor, as well as other feed ingredient costs.

The results prompted several Wall Street analysts on a conference call to ask President and CEO Richard Bond why he isn't planning to cut chicken production. Bond said while he is watching it week to week, he still sees good enough demand for Tyson products to continue at current levels.

Near-term forecast grim

"We are going to lose some significant dollars in the first quarter," Bond told Wall Street analysts on a conference call, referring to the chicken segment. "It will be a negative quarter in chicken and most likely a negative quarter overall."

Bond and CFO Dennis Leatherby also addressed the following in response to analysts' questions:
• Tyson is confident its bankers will work with the company if it needs to adjust its loan covenants, a possibility neither Leatherby nor Bond would rule out.
• Foodservice business, particularly from the casual dining sector, was worse in October and worse so far in November than it was in August and September.
• Asked if a beef export slowdown could lead to more production cuts, Bond said, "I can tell you there will not be another action by Tyson." The company closed its beef slaughter operations in Emporia, Kan., in February and sold its Canadian beef operation in June; a deal Bond said will close in the first quarter of 2009.
• Bond said he expects Tyson beef exports to increase in 2009 on expected stronger beef sales to South Korea after a near-term decline as the pipeline is currently full.
• Bond said he expects Tyson pork exports to increase slightly in 2009 on strong sales to Japan and Mexico, and due to sow liquidation in Canada and the European Union.
• Tyson expects fiscal 2009 revenues of $28 billion to $29 billion compared to 2008 revenues of $26.86.

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