Source: Janie Gabbett, MEATINGPLACE.COM, 1/8/09
A Wall Street analyst said she was encouraged that Tyson Foods is making progress on cutting costs, will reap increased revenues from international investments and may be quietly cutting chicken production, based on recent conversations with key Tyson managers.
In a note to investors, BB&T Capital Markets analyst Heather Jones predicted a larger earnings-per-share loss for Tyson's first fiscal quarter, which ended in December, but raised her forecast for fiscal 2010 earnings and predicted the company will remain "comfortably in compliance with its debt covenants."
BB&T now puts Tyson's first quarter earnings at a loss of 28 cents per share, compared to 20 cents per share forecast earlier, based on larger mark-to-market loss assumptions on grain hedges. It now pegs fiscal 2010 earning at $1.10 per share, up from $1.02 previously.
Foreign investments
Jones said Tyson managers reported encouraging developments in its international operations. She predicted infrastructure build-out would support significant growth and strong market position for the company in Brazil, India and China.
"In our opinion, it is very reasonable to assume these ventures should contribute meaningfully to earnings within two years," she wrote.
Cost cutting
Tyson managers acknowledged its cost structure was significantly worse than the average company ranked by Agri Stats during 2006 and 2007, but indicated cost structure changes have improved relative performance significantly.
Jones noted that while improvement has been meaningful, "the remaining potential improvement is as large as that already realized."
Production cuts
Analysts and industry observers have debated Tyson's intentions regarding cutting chicken production in the wake of CEO Dick Bond's abrupt departure earlier this week. While some have argued that a "return of the old guard" at Tyson could harbinger increased resolve to not cut production, analysts have been guessing from declining industry egg set numbers in recent months that Tyson might be quietly cutting production.
Jones predicted Tyson would cut production by 5 percent to 10 percent through a combination of headcount reductions and lower weights. She said Tyson managers acknowledged demand had softened over the past 60 to 90 days and that further production cuts are required for the industry to return to normal profitability.
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