The Wall Street Journal-20080129-Earnings Digest- Tyson-s Profit Drops 40- On Beef Loss- Rising Costs

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Earnings Digest: Tyson's Profit Drops 40% On Beef Loss, Rising Costs

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Tyson Foods Inc. said its fiscal first-quarter profit fell 40% from a year earlier, dragged down by wider losses in its beef business and surging grain and fuel costs.

Near record-level costs for corn and soybean meal is taking its toll, and Tyson said it plans to raise costs for its chicken and beef products that account for 78% of its total sales.

"We have no other choice but to raise prices substantially," said Chief Executive Richard Bond in a conference call. "We are raising prices because we can't absorb these costs. Despite concerns about the economy, people have to eat, and they will continue to eat protein."

Tyson boosted its full-year grain-cost forecast to more than $500 million, 67% higher than its prior outlook issued in November. Corn prices have soared as more of the grain has been used to make the biofuel ethanol. It's a situation the company hasn't faced before. In the past, higher grain prices were due to supplies and were short- term, Mr. Bond said.

The Springdale, Ark., company will stop offering financial forecasts, calling the commodity markets too "volatile" to make accurate predictions.

Tyson said higher average selling prices for chicken and beef helped offset lower shipment volumes in the quarter ended Dec. 29. Pork sales were lifted by strong exports and Tyson said global demand for chicken and pork is increasing as the standard of living in developing countries improves.

Its shares were up 73 cents, or 5.5%, to $13.99 in 4 p.m. New York Stock Exchange composite trading.

Meanwhile, the company is facing more beef-slaughter capacity than available cattle as well as sluggish demand for U.S. beef overseas. It plans to cease slaughter operations at its Emporia, Kan., beef plant in the next few weeks, resulting in 1,500 lost jobs.

In its fiscal first quarter, Tyson's beef unit reported an operating loss of $85 million, wider than the loss of $23 million a year ago. The company's overall gross profit margin fell to 4.5% of sales, from 5.1%.