Tyson reports earnings beat, but high beef prices stress its consumers

By Tom Polansek and Granth Vanaik

(Reuters) -Tyson Foods reported better-than-expected quarterly earnings on Monday and said its chicken business is benefiting from U.S. plant closures, briefly sending shares to a nine-month high.

Shares were up 1.6%, off earlier highs, as investors digested executives' warnings that the maker of Jimmy Dean sausages and Ball (NYSE:BALL) Park hot dogs must do more to improve operations, and faces uncertain demand from consumers still grappling with high prices.

Tyson's biggest unit, its beef business, swung to a loss as prices climbed and remains under pressure from U.S. cattle supplies that dropped to their lowest level in seven decades.

"We've taken some steps in the right direction but we have a lot of work to do," Chief Executive Officer Donnie King said on a conference call.

The Arkansas-based company closed five chicken processing plants over the past year and two facilities where workers cut and packaged beef in a bid to boost results. It plans to shut another chicken plant this year.

More closures are still possible, Chief Financial Officer John R. Tyson said in an interview.

"We are realizing the results of getting our footprint where we want it to be," he said.

Tyson's adjusted operating income fell 9.2% to $411 million in the first quarter ended Dec. 30.

The chicken unit's adjusted income climbed almost 150% to $192 million. Tyson's chicken prices dropped 3.9% while sales volumes declined 1.5%, though.

"While we're cautiously optimistic about chicken, there remains a lot of uncertainty and a lot of time left in the year," John R. Tyson, great-grandson of the company's founder, said on the conference call.

He added severe weather impacted all segments in the second quarter.

Tyson's beef business suffered an operating loss of $117 million in the first quarter, compared with income of $129 million a year earlier. That included inventory losses of about $56 million linked to a slide in cattle futures, executives said.

Beef sales rose 6.4% as prices jumped 10.5% and volumes fell 4.1%. Prices have soared after ranchers slashed cattle herds because a drought reduced grazing lands.

"The beef segment margin was slightly disappointing, though not enough to offset healthy results elsewhere," JPMorgan analyst Ken Goldman said.

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Volume in Tyson's pork business increased 7.7% from a year earlier, while prices sank 8.5% amid plentiful hog supplies.

Overall adjusted earnings of 69 cents per share beat analysts' estimates of 41 cents. Net sales rose 0.4% to $13.32 billion, exceeding estimates of $13.27 billion, based on LSEG data.