Tyson Foods raises full-year profit forecast as costs fall

By Sruthi Ramakrishnan

(Reuters) - Tyson Foods Inc (NYSE: TSN), the biggest U.S. meat processor, raised its full-year profit forecast, helped by a sharp drop in feed and livestock costs, sending its shares to a record high on Friday.

Shares of the company, which also reported a better-than-expected rise in quarterly profit, were up 12 percent at $58.15 in morning trading.

Feed costs have fallen in the United States as a global glut of corn and soybeans has kept grain prices depressed for three straight years.

However, Tyson's revenue fell 15.4 percent to $9.15 billion as higher domestic availability of cattle and hogs drove down average sales prices in the first quarter.

Retail U.S. beef prices declined seven months in a row till December as healthy pastures, cheaper corn and record high cattle prices a year ago encouraged ranchers to bolster their herds.

Cattle herds are also recovering after years of drought reduced supplies, which had fallen to a 63-year low in 2014.

"The worst is over in terms of the cattle supply," Tyson's Chief Executive Donnie Smith said on a conference call.

Tyson's beef business, its largest by sales, reported an operating profit of $71 million, compared with a loss of $6 million in the year-earlier period, due to lower livestock costs.

Operating margin in its chicken business also rose, helped by a $60 million drop in feed costs.

"We were particularly impressed by the 13.6 percent EBIT margins in the Chicken segment given the margin compression the chicken industry has experienced recently," Jefferies & Co analyst Akshay Jagdale wrote in a note.

Tyson's rivals Sanderson Farms Inc (NASDAQ: SAFM) and Pilgrims Pride Corp (NASDAQ: PPC) are also expected to benefit from lower feed costs. Their shares were up as much as 3.5 percent on Friday.

Tyson's cost of goods sold fell nearly 20 percent to $7.95 billion in the first quarter ended Jan. 2.

Net income attributable to Tyson rose 49 percent to $461 million, or $1.15 per share, handily beating analysts estimates of 89 cents per share, according to Thomson Reuters I/B/E/S.

The company said it expected adjusted earnings of $3.85- $3.95 per share for the year ending September, up from its previous forecast of $3.50-$3.65.

However, Tyson, which will also hold its annual shareholder meeting on Friday, cut its full-year sales forecast to about $37 billion from about $41 billion.

(Reporting by Sruthi Ramakrishnan in Bengaluru, Editing by Anil D'Silva)

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