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Feed Costs Starving Tyson Profits

29 July 2008

US - Tyson Foods, Inc. has reported diluted earnings per share for this fiscal quarter, as the elevated feed prices continue to have a dramatic effect on the profit margins of the meat company.

Operating income for Tyson's third quarter of fiscal 2008 was $45 million compared to $212 million, and net income was $9 million compared to $111 million, for the same period last year.

On June 25, 2008, Tyson entered into a letter of intent with XL Foods Inc. to sell the beef processing, cattle feedyard and fertilizer assets of Lakeside Farm Industries Ltd in Alberta, Canada. The transaction remains subject to government approvals, the receipt of commercially reasonable financing by XL Foods and the execution of a definitive agreement between Tyson and XL Foods. Tyson hope to complete the sale by the end of fiscal 2008. The results for Lakeside, current and prior periods, are reported as discontinued operations.

"In the third quarter of fiscal 2008, Tyson Foods' diversified business offset the losses incurred by our Chicken segment, which is experiencing more difficult market dynamics," said Richard L. Bond, president and chief executive officer. "Our Beef, Pork and Prepared Foods segments were profitable, while our Chicken segment suffered a loss.

"Beef performed better than expected, although results were masked by a negative $75 million impact from application of mark-to-market accounting treatment related to our unrealized derivative losses for forward cattle purchases and forward boxed beef sales," Bond said. "Although we will profit from this risk management activity over the coming months, it disguises an otherwise solid performance in our beef operations this quarter.

"For the third consecutive quarter, our Pork segment achieved a margin above the normalized range. Sales were up for the quarter as well. Prepared Foods sales and volume were up slightly over the same quarter last year; however, operating income was down significantly due to increased raw material costs, including wheat, dairy and cooking ingredients in addition to charges related to flood damage at our plant in Jefferson, Wisconsin," Bond said.

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