Tyson Foods reports 4Q loss on charge in beef business, analysts worry about chicken into 2010

Tyson Foods posts 4Q loss on beef charge

MILWAUKEE — Tyson Foods Inc. said it made strides in the meat business this year and predicts more improvements next year, but analysts worry the company’s all-important chicken business is lagging others in the industry.

The world’s largest meat producer, based in Springdale, Ark., said on Monday a hefty impairment charge in its beef business left it with a loss for the fourth quarter. But all of its business units, including chicken and pork, were profitable, when excluding the $560 million noncash charge.

The company said it expects those profits to continue as an improving economy will lead to better demand next year. Consumers have been watching their money tightly in the recession, eating less expensive food and limiting trips out to restaurants. That has hurt Tyson’s business by pulling down prices for key items like chicken breast meat.

The company did not issue guidance for 2010, other than saying it expected to see more progress. There are still issues, such as feed costs rising again — though not as high as records from summer 2008 — and fluctuating foreign currencies.

“We have our beef, pork and prepared business where they should be, and we’re on our way to getting our chicken business there, too,” Donnie Smith, who was promoted to Chief Executive officer last week, told analysts on a conference call Monday.

The company’s chicken business was hurt the most in the downturn, and last January it tapped former CEO Leland Tollett to restore the segment to growth. He was replaced last week by Smith, Tyson’s senior group vice president of poultry and prepared foods, a sign that the company thinks its chicken business has improved.

But according to the latest numbers, the chicken business is performing worse than those of Tyson’s peers, said KeyBanc Capital Markets analyst Akshay Jagdale.

Other companies in the industry — including Pilgrim’s Pride Corp, which filed for bankruptcy protection amid the downturn — have cut production, which bolsters prices and helps ensure profits. But Tyson only shed inventory and made no mention of chicken production cuts next year, Jagadale said. Chicken volumes were up 10.4 percent in the quarter.

“They were very bullish about this fourth quarter just a few months ago and this ended up being a really bad quarter and their peers have had a very good quarter,” he said.

Pilgrim’s Pride said Monday it earned $82.7 million in the fourth quarter, an improvement from a loss of $802 million last year. Its chicken sales volume fell 14 percent due to production cutbacks.

Tyson lost $455 million, or $1.22 per share in the three months ended Oct. 3. That compares with a profit of $48 million, or 13 cents per share, a year ago.

Tyson lowered the value of its beef segment with the $560 million noncash charge, saying its cost of capital has gone up. It is used to determine fair market value, so the company had to lower the segment’s worth. Tyson bought beef processor IBP Inc. for $3.2 billion in a cash and stock deal in 2001.

Excluding the impairment charge of $1.50 per share, Tyson earned 28 cents per share.

Sales rose slightly to $7.21 billion from $7.2 billion, with chicken sales up 11 percent to $2.64 billion from $2.38 billion.

Excluding the charge, Tyson’s performance beat the expectations of analysts surveyed by Thomson Reuters, who forecast a profit of 26 cents per share on revenue of $6.88 billion.

Shares of Tyson fell 19 cents, or 1.5 percent, to close at $12.88 Monday.

For the year, Tyson lost $537 million, or $1.44 per share, compared with a profit of $86 million, or 24 cents per share, the year before, which included one less week.

Adjusted earnings were 6 cents per share after removing the impairment charge.

Annual sales dipped 1 percent to $26.7 billion from $26.86 billion.

AP Business Writer Michelle Chapman contributed to this report from New York.