Tyson Foods Inc. (TSN), meat processor, expects improving pricing in 2012 on the back of total domestic availability of protein forecast set to see a downside of 2-3 percent due to strong exports. The company also sees sales to exceed $34 billion for 2012 on price hikes of proteins and raw material costs. But the margins continue to remain a concern.
Meanwhile, the company's earnings and revenues for the first quarter came in above Street estimations.
Q1 Results
Tyson Foods reported net income of $156 million, down 47.7 percent from $298 million and earnings dropped 46.2 percent to 42 cents a share from 78 cents a share in the year-ago quarter.
Sales grew 9.3 percent to $8.33 billion from $7.62 billion in the previous year quarter. On average, Street analysts' predicted the company to earn 33 cents a share on revenues of $8.30 billion.
The company realized average price increase of 19 percent for Beef, 16.1 percent for Pork, 11.3 percent for Chicken and 8.4 percent for prepared foods. In all, Tyson realized 14.6 more in average price despite volume witnessing a 5 percent downside.
Operating margins took a beating by plummeting to 3.3 percent from 6.5 percent in the year-ago quarter. Only Prepared Foods division's operating margin grew to 5.9 percent from 3.5 percent. Operating margin for Chicken plunged to 1.2 percent from 6.9 percent, whereas Beef witnessed a fall to 0.9 percent from 3.6 percent. Pork's operating margin slipped to 11.2 percent from 14.3 percent in the previous year quarter.
Generally, the company found it tough to pass on the increased input costs to consumers resulting in poor margins. Tyson's gross margin too dropped to 5.92 percent from 9.77 percent last year.
Outlook
Moving ahead, the company sees sales to exceed $34 billion mostly from price hikes and rise in input costs thus indicating continued weakness in volume. Street analysts expect the meat processor to generate revenues of $34.31 billion.
Tyson sees a downside of 2-3 percent in domestic availability of protein outlook due to strong exports likely to see upside. The company also expects total domestic protein production to fall in 2012.
Tyson expects Chicken production to see 4 percent fall in 2012. This is expected to improve pricing scenario during the remainder period of the year. The present future prices represent increased feed costs than in 2011. Similarly, fed cattle supplies are expected to see a downside of 1-2 percent.
Our Take
Sales increase has come mainly from increased price due to higher input costs. The company is unable to pass it on the rising costs to consumers resulting in weak margins. Tyson needs to come up with a plan to arrest the falling margins. Otherwise, segment like Beef will suffer operating loss. The hope is on the production cut for increased price realization for better margins.