Tyson Reports Loss on Grains Costs for Chicken

Chicken losses reflect increased grain costs of $183 million and increased net losses of $197 million from our commodity risk management activities related to grain purchases, as compared to the same quarter last year.

27/01/09 Tyson has reported that 1st quarter sales increased $45 million, or 0.7%, versus same quarter last year. Pork and Prepared Foods operating margins were 6.3% and 4.7%, respectively. Beef operating results were breakeven in 1st quarter 2009, as compared to a $68 million loss a year ago. Chicken losses reflect increased grain costs of $183 million and increased net losses of $197 million from our commodity risk management activities related to grain purchases, as compared to the same quarter last year.

“I’m honored to lead this great company once again as we work aggressively to return our chicken business to profitability and best-in-class performance,” said Leland Tollett, interim president and CEO of Tyson Foods.  “While the first quarter of fiscal 2009 was clearly challenging, our chicken segment fundamentals are improving.  Product values are up, and our input costs are down.  When our demand began a noticeable decline, we reduced production by approximately 5% in early December.  We also remain intensely focused on improvements in such areas as product mix, yields and efficiencies.”
 
Tollett indicated the outlook for Tyson’s Beef, Pork and Prepared Foods segments, as well as international trade and renewable products initiatives, remains positive.
 
“We’ve experienced improvements in beef market conditions since December,” Tollett said.  “Pork margins are expected to remain above normalized levels, and we believe our Prepared Foods business will continue to experience solid returns because of the demand for processed meats such as pizza toppings, hams, bacon and lunch meat.”
 
Tollett expressed optimism about the direction of Tyson International, as well as the company’s Renewable Products division.  “I’m excited about the progress of our new poultry initiatives in South America, China and India,” Tollett said.  “I’m also pleased that construction is underway for the Dynamic Fuels plant in Louisiana, which will convert animal fat and greases into renewable diesel and jet fuel. I am confident these new endeavors will generate shareholder value in the future.”

Chicken segment sales were $2.2 billion and operating loss was $286 million in the first quarter of fiscal 2009.  Sales and operating results were impacted positively by higher average sales prices and increased sales volumes, primarily due to our foreign operations. Operating results were adversely impacted by an increase in grain costs of $183 million and net losses of $197 million from our commodity risk management activities related to grain purchases, as compared to the same period of fiscal 2008. Operating results were also adversely impacted by an increase in net losses of $18 million from our commodity risk management activities related to energy purchases, as compared to the same period of fiscal 2008. These net losses exclude the impact from related physical purchase transactions, which will impact future period operating results. Operating results also included a non-cash inventory adjustment for a lower-of-cost-or-market valuation allowance of $20 million.

Beef segment sales were $2.7 billion and operating results were breakeven in the first quarter of fiscal 2009. Operating results were positively impacted by increased average sales prices and lower average live prices, partially offset by a decrease in sales volume. Operating results were positively impacted by net gains of $41 million from our commodity risk management activities related to forward futures contracts for live cattle as compared to the same period of fiscal 2008. This amount excludes the impact from related physical purchase and sale transactions, which will impact future period operating results.

Pork segment sales were $878 million and operating income was $55 million in the first quarter of fiscal 2009. Operating results were impacted positively by increased average sales prices, offset by higher average live prices and decreased sales volume. Operating results were negatively impacted by a decrease in net gains of $20 million from our commodity risk management activities related to forward futures contracts for live hogs as compared to the same period of fiscal 2008. This amount excludes the impact from related physical purchase and sale transactions, which will impact future period operating results.

Prepared Foods segment sales were $746 million and operating income was $35 million in the first quarter of fiscal 2009. Operating results were impacted positively by higher average sales prices and increased sales volumes, offset by higher raw material costs.