Tyson Soars as Profit Forecast Raised Amid Lower Feed Costs

  • Meat supplier also increases projected chicken, pork margins
  • Ospraie’s Dwight Anderson says management has `outperformed'

Tyson Foods Inc. jumped to a record after the largest U.S. meat processor raised its forecast for fiscal 2016 full-year profit as margins expand on cheaper animals and feed while the company tries to grow its packaged-food business.

Tyson gained 9.9 percent after saying Friday that earnings excluding one-time items are projected to be $3.85 to $3.95 a share for the year through September, compared with a previous view of $3.50 to $3.65. The Springdale, Arkansas-based company also posted better-than-expected first-quarter profit.

“We plan to carry this momentum generated in the first quarter through the rest of this year and on into 2017,” Chief Executive Officer Donnie Smith said on a conference call with analysts.

Ample supplies of corn and soybeans have meant cheaper feed for cattle, hogs and poultry, a situation that’s unlikely to change anytime soon. The cost of the animals it slaughters and processes at its plants has fallen, too. The domestic cattle herd is showing signs of starting to rebound while chicken and hog producers keep expanding.

Smith also cited gains at Tyson’s chicken business, which is increasingly focused on value-added items, and the growth in its packaged-foods business. The company said it expects cost savings this year of more than $500 million from the integration of Hillshire Brands Co., the sausage maker it acquired in 2014. That’s more than $200 million above the level of savings achieved last year, and Tyson sees even more efficiencies in 2017. Tyson bought Hillshire to reduce its exposure to volatile commodity prices and expand its range of higher-margin packaged foods.

Sales Forecast

“Management has outperformed our expectations,” Dwight Anderson, founder of New York-based commodities hedge fund Ospraie Management LLC, said in an interview with Bloomberg Television Friday. “It is much more company and management than the actual headwinds or tailwinds" that are driving the company’s improved outlook.

Net income was $1.15 cents a share in the three months through December compared with 74 cents a year ago. That beat the 89-cent average of nine estimates compiled by Bloomberg.

Still, sales fell to $9.15 billion from $10.8 billion, trailing the $10 billion average estimate. Tyson lowered its full-year 2016 sales forecast to about $37 billion from about $41 billion as prices for beef and pork decline.

The shares closed at $57.10 in New York for the biggest gain since Nov. 23.

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