US meat processor Tyson Foods has lowered its fiscal 2007 earnings guidance in the face of what CEO Richard Bond described as “challenging” conditions in the fourth quarter.
In a presentation today (6 Sept) at the Lehman Brothers Back-To-School Consumer Conference, Bond said the company was revising its fiscal 2007 guidance to $0.72 to $0.80 per share. Its previous forecast was for earnings in the range of $0.82 to $0.92. Analysts are expecting an average of around $0.90 per share for 2007.
“The fourth quarter is turning out to be more challenging than expected,” Bond said. “Our beef business has been affected by higher than expected live cattle costs and a decline in beef revenues due to a disruption in South Korean beef trade. Meanwhile, live hog prices were higher due to speculation about Chinese pork imports.”
However, Bond told the conference that the company’s recovery plan would boost fiscal 2007 pre-tax earnings by US$700m, and after absorbing almost $300m in additional grain costs, would result in a $1bn operational improvement over last year.
Bond said Tyson had experienced strong progress in 2007 with solid earnings in the first, second and third quarters. Market conditions have improved and some export markets have reopened, he said, but the factors under the company’s control are where the biggest improvements had been seen.
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The company has rationalised three beef plants to improve capacity utilisation, closed two prepared foods plants that did not fit its business model, sold two commodity poultry plants and chose not to rebuild another poultry plant destroyed by fire. The company also cut costs significantly through a cost management initiative started in mid-2006, which is expected to result in more than $250m in savings for fiscal 2007.
Diluted earnings per share through the first nine months of fiscal 2007 totalled $0.66 and all segments of Tyson’s business are expected to be profitable in the fourth quarter, Bond said.
Tyson believes its long-term performance will be enhanced by some new product initiatives including its new “all natural” chicken range, which was launched in the third quarter.
“In the food business…you must continually innovate to survive and grow,” Bond said. “This is why we finished building our new research and development facility at a time we were cutting costs elsewhere.”
