Tyson reports 2nd-quarter net income partly on improved chicken business, beats view

Tyson returns to 2Q profitability on rising demand

NEW YORK — Meat producer Tyson Foods Inc. returned to profitability in its second quarter on improvements in its chicken business and higher beef and pork revenue.

The company said it expects the trends to continue as demand picks up for exports and in restaurants at home.

Results beat analyst expectations, and the company said the second half of the year should be strong too as pricing continues to improve and demand keeps increasing as people start going to restaurants and eating more meat again.

The industry has been working through a downturn brought on by a combination of high production costs — because of volatile commodity prices — and slumping demand as shoppers pulled back on their spending. That crimped profit margins and forced companies to cut production to raise prices and make more money, which is happening now for Tyson.

“While we did predict tightening domestic availability of protein would lead to stronger fundamentals, it happened sooner than expected,” CEO Donnie Smith said in a news release.

He later told investors on a conference call the company is adjusting production based on its own business and not looking at what competitors, such as Pilgrim’s Pride Corp., are doing.

Shares of poultry producers were stung last week when competitor Pilgrim’s Pride said it would raise production by 10 percent in the next two years. That could pressure prices lower and reverse benefits the industry has started to see from cutting production to boost prices.

Shares fell 38 cents, or 2 percent, to $18.24.

The industry always has tended to make more chicken than it needs and is quick to turn up production when business improves, said Akshay Jagdale, senior food agribusiness analyst at KeyBanc Capital Markets. He said the industry is still lagging other meats because it is not as consolidated as pork or beef, making it more difficult to enforce production cuts.

But for pork and beef, which are typically more profitable, the recovery is well under way, particularly in beef.

“You look at last year, demand was at historical lows, yet this industry was profitable,” Jagdale said. “That just tells you how disciplined the suppliers have been and the processors have been.”

Tyson, based in Springdale, Ark., earned $156 million, or 42 cents per share, for the three months ended April 3. That’s a reversal from a net loss of $119 million, or 32 cents per share, a year earlier.

Revenue climbed 10 percent to $6.92 billion from $6.31 billion.

Analysts surveyed by Thomson Reuters predicted lower earnings of 34 cents per share on revenue of $6.54 billion. These estimates normally remove one-time items.

Tyson’s chicken division, which has been hit by oversupply and consumer spending cuts, reported $2.49 billion in revenue, compared with $2.36 billion a year ago, on increased average prices. Grain costs rose by $19 million in the quarter.

The company noted that dark meat chicken is selling at highs never seen before in the U.S. Company spokesman Gary Mickelson said the company is producing a wider variety of dark meat products, such as boneless thigh meat. People like the taste and the lower price, he said in an e-mail. The country’s diversifying demographics are also creating more demand for dark meat.

Beef revenue climbed to $2.76 billion from $2.42 billion, helped by higher export sales volume and better operating margins. For pork, revenue increased to $929 million from $844 million partly on improved operating margins.

Smith said the company is seeing more demand from restaurants, particularly for expensive items such as beef tenderloin, which “rebounded dramatically.” Casual dining restaurants are a major outlet for that cut, and so seeing it rebound shows people are becoming more confident in spending money in restaurants, he said.

The prepared foods unit also posted better revenue, as sales climbed to $734 million from $684 million on improved sales volume and increased average prices.

AP Retail Writer Michelle Chapman contributed to this report.