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Tyson Pares Its Outlook, Posts Loss
posted by admin on 02/08/06

Price Increases, Output Cut To Be Taken Amid Pressure Of Continuing Chicken Glut

By SCOTT KILMAN
August 1, 2006; Page A2

Tyson Foods Inc., in a sign the chicken industry still is struggling to get control of a glut and the effects of avian-flu worries, cut its fiscal-year outlook for the third time and announced plans to further reduce production.

The nation's largest meat company by sales also reported Monday a deeper-than-expected loss in its fiscal third quarter. At 4 p.m. in New York Stock Exchange composite trading Monday, Tyson's Class A shares fell 42 cents, or 2.9%, to $14.15.

The U.S. meat industry is being battered on several sides, including problems in foreign markets at the same time costs of everything from fuel to chicken rations are climbing. The Springdale, Ark., company, which processes chicken, beef and pork, said its electricity and fuel costs climbed $137 million during the first nine months of the fiscal year that ends Sept. 30.

[Rough Cut]

To cope with these pressures, Tyson said it is raising prices for hundreds of its meat products, pushing through percentage increases in the "high single digits." The company also is making plans to cut its chicken production 5% this year -- an unusually sharp reduction for Tyson, which controls about one-quarter of the U.S. chicken market. Tyson hopes to follow other industries, from cereal makers to paper-products providers, hoping to pass higher costs on to customers.

Foreign demand for U.S. chicken plunged earlier this year as the deadly Asian H5N1 strain of bird flu appeared in European flocks. Its appearance prompted many consumers there to temporarily cut chicken from their diet, though health authorities say eating chicken poses little risk to consumers, particularly in regions where the poultry industry is highly industrialized. Prices of U.S. chicken breasts fell to their lowest level in decades.

At the same time, Japan has been slow to reopen the borders it shut to U.S. beef in December 2003, when the first U.S. case of mad-cow disease was detected.

Tyson said its expects to generate a fiscal-year loss in the range of $142 million, or 41 cents a share, to $176 million, or 51 cents a share. Earlier, the company's fiscal-year forecast ranged between a loss of 25 cents a share and earnings of a dime a share.

Tyson reported a third-quarter loss of $52 million, or 15 cents a share, for the period ended July 1. In the year-ago period, Tyson earned $131 million, or 36 cents a share. Sales fell 4.8% to $6.38 billion from $6.7 billion a year earlier.

While agricultural commodity processing titans often use cyclical downturns to devour weaker competitors, Tyson made clear Monday that it has little appetite for any major deals. Tyson, which already has announced plans to cut its work force by 850 positions, doused speculation it might pursue Brazilian poultry company Perdigão SA, which rejected a takeover offer last month from a rival Brazilian company that valued Perdigão at $1.7 billion.

Tyson executives also said they had turned up their noses at the branded-meats business sold by ConAgra Foods Inc. Monday to Smithfield Foods Inc. for $575 million. Smithfield, the nation's biggest pork processor by sales, is acquiring the Butterball turkey brand, as well as Eckrich and Armour packaged-meat brands. These brands generate annual sales of $1.8 billion.

Write to Scott Kilman at scott.kilman@wsj.com


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