Grain Costs Pound Tyson

Profits plunge 40%, and the meat producer pulls its guidance. Still, the results beat expectations.
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Tyson Foods'

(TSN) - Get Report

fiscal first-quarter profit plunged 40%, slammed by rising grain costs and lower sales volumes, but the earnings managed to top Wall Street's expectation.

The meat producer, citing ongoing uncertainty in the commodity markets, also withdrew its guidance for the fiscal year. Still, the earnings beat sent shares climbing 39 cents, or 2.9%, to $13.65 in recent trading.

For the quarter ended Dec. 31, Tyson's profit fell to $34 million, or 10 cents a share, from $57 million, or 16 cents a share, a year earlier. Analysts polled by Thomson Financial projected earnings of 4 cents a share.

Sales climbed to $6.77 billion from $6.59 billion a year earlier, as price increases helped offset lower volumes. The top line, however, missed Wall Street's target of $6.88 billion.

The company's largest segment by revenue, beef, saw its sales rise to $3.15 billion from $3.06 billion a year earlier. That growth was spurred by a 5.2% price hike; beef volumes declined 2.3%.

Chicken volumes tumbled 8%, but prices jumped 16.1%. Overall chicken sales rose to $2.1 billion from $1.96 billion the prior year.

Pork fared better, with volume climbing 6.7% and prices falling 5.3%. Total pork sales rose to $835 million from $827 million a year earlier.

Based on higher grain costs, Tyson said prices likely will continue to rise substantially. The company now expects grain costs to exceed $500 million in fiscal 2008, up from its November forecast of $300 million.

"The continued escalation of grain prices, driven largely by government mandates for corn-based ethanol, has caused a domino effect for other inputs," said President and CEO Richard Bond. "Cooking oil, flour and other feed ingredients are all on the rise. For the foreseeable future, consumers will pay more and more for food, especially protein, because grain represents a proportionally higher percentage of input costs compared to other foods."

The company withdrew its earnings forecast for the fiscal year amid the pricing volatility. In November, Tyson projected earnings of 30 cents to 70 cents a share for fiscal 2008, well below analysts' average forecast at the time of $1.02.

"In this erratic and unpredictable operating environment, it is virtually impossible to make meaningful earnings forecast assumptions," Bond said.

This article was written by a staff member of