A profitable third quarter for Tyson Foods, thanks largely to a strong performance in its chicken business, had company executives in a good mood Monday, but they remain cautious about market dynamics going forward.

Tyson said operational improvements are paying off as third-quarter results showed profitability in chicken, beef and pork, but the summer's over, and overall soft demand for meat is still a looming challenge.

"Soft demand for protein is likely to make the fourth quarter more challenging than the third quarter, but I'm feeling much better about our position than I would be if were sitting on a lot of inventory," said Leland Tollett, interim president and CEO of Tyson Foods.

The Springdale, Ark.-based firm reported a profit of $134 million, or 35 cents per diluted share, compared with a profit of $9 million, or 3 cents per share, in the year-ago quarter. The results beat the estimates of Wall Street analysts, who, on average, expected a profit of 22 cents per share, according to Thomson Reuters.

Sales fell 2.8 percent to $6.66 billion.

Chicken

The star performer in the third quarter for Tyson was its chicken unit. Operating income was $143 million, compared with a loss of $30 million in the year-ago period. Company officials said a 5 percent increase in sales volume and higher average sales prices helped sales and operating results. The sales volume increase stemmed from inventory reductions and sales volume from recent acquisitions. A $91 million decrease in grain costs also benefitted the unit, the company said.

Tyson forecast a tougher time for chicken in the current quarter, but Tollett told investors on an analysts' call that USDA figures on pullets and chicks placed indicate there should not be an oversupply.

Beef

The beef unit posted an operating profit of $66 million, compared with a $9 million profit in the third quarter of 2008. Lower average live cattle prices were a positive impact on results but were partially offset by lower average sales. Tyson also enjoyed better results from commodity risk management activities related to forward future contracts than it did last year.

Jim Lochner, senior group vice president of fresh meats, said he expects a similar performance from beef in the fourth quarter, noting the industry has exercised discipline in balancing supply with softer demand.

Pork

Tyson's pork segment posted operating profit of $28 million, but that was down from $57 million in the same period last year. Lower average live prices were offset by lower average sales prices. Company executives noted the H1N1 influenza outbreak's drag on U.S. pork exports pressured domestic prices.

The company expects hog supplies to be down, but adequate in the fourth quarter. Expected hog liquidations will help, officials said.

Prepared foods

Meanwhile, Tyson's prepared foods unit reported operating profit jumped to $40 million from $9 million, thanks to lower raw material costs, although those were offset partially by lower average sales prices. Results included charges of $15 million due to closure of the company's Ponca City, Okla., processed meats plant.

Shares of Tyson Foods were $11.25, down 18 cents, during late-morning trading on the New York Stock Exchange.

(UPDATE corrects information related to Tyson's Ponca City, Okla., plant.)

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