Friday, November 19, 2010

Tyson Foods Inc. (NYSE: TSN): Q4 Earnings Preview 2010

Tyson Foods Inc. (NYSE: TSN) is scheduled to report third quarter earnings before the opening bell on Monday, November 22, 2010. Analysts on average expect the company to report earnings of 56 cents per share on revenue of $7.75 billion. In the year ago period, the company reported earnings of 28 cents per share on revenue of $7.21 billion. 

Tyson Foods, Inc. and its subsidiaries engage in the production, distribution, and marketing of chicken, beef, pork, prepared foods, and related allied products worldwide. It operates in four segments: Chicken, Beef, Pork and Prepared Foods.

In the preceding third quarter, the Springdale, Arkansas based company's net income was $248 million, or 65 cents per share, compared to $131 million, or 35 cents per share, in the prior-year quarter. Revenue rose to $7.438 billion from $6.662 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 57 cents per share on revenue of $7.26 billion.

The company has benefited from operational improvement and top line sales growth. In addition to improved operational performance, Tyson has reduced its debt load significantly. The company has generated cash flows sufficient to pay down its debt by more than $900 million through the fiscal third quarter of 2010 to its lowest level since 2001. Debt-to-capital was 34% at the end of the third quarter, while net debt-to-capital (i.e., debt less cash) stood at 26%. Reduced debt should mean reduced interest expense from about $335 million in 2010 to around $245 million in 2011 following recent upgrades in ratings from Standard & Poor's and Moody's, which further reduced interest expense.

Meat producers such as Tyson Foods Inc. and Smithfield Foods Inc. are continuing to rebound from their low recession levels, as demand remains high and the measures they took to increase efficiency during the recession continue to take effect. The growing wealth in Asia has been a boon to the pork industry, as the meat is popular in this part of the world so demand has been strong. Meanwhile, Russia has now not only lifted its poultry ban but also some of its restrictions on pork imports which is positive for the industry. The opening of Russia to U.S. poultry is being seen as a strong earnings catalyst for chicken processors. However, there are still few concerns as Russia has indicated that the country will will ban sales and processing of deep-frozen poultry meat from January 1, both domestic and imported, because freezing hurts the quality of the meat. Tyson Foods Inc. is the largest U.S. chicken processor based on 2009 production. About 10 percent of its chicken exports last year went to Russia.

Late in September 2010, China announced new tariffs on chicken imports from the US of up to 105%. Tyson and other companies are lobbying Congress and China to remove the new tax, which went into effect on September 27. Tyson's imports will be charged a 50.3% duty. Tyson Foods ships $200 million worth of chicken to China every year.

In terms of stock performance, Tyson Foods shares have gained nearly 21% since the beginning of the year. 

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