US beef ban gives Tyson a 'difficult Q1'
increasing pork prices has forced Tyson Foods to forecast that its
full-year earnings would be lower than expected.
The warning comes after a very difficult first quarter for the meat processing giant. For the first fiscal quarter ended 1 January 2005, operating income was $129 million compared to $161 million and net income was $48 million compared to $57 million for the same period last year.
"The first quarter was extremely difficult for us this year," said Tyson chief executive John Tyson. "Continued market restrictions for beef, as well as a lack of live cattle supplies, and a tougher pricing environment for pork combined to impact our earnings.
"As we said last quarter, we expect market conditions to remain challenging during the first half of our fiscal year. However, we do expect significant improvements in the second half of the year."
Tyson's beef unit posted a net operating loss of $16m, compared to a loss of $29m last year. However excluding the impact of a one-time gain from a vitamin anti-trust settlement, the first quarter loss at beef was $58m.
Pork's operating profit fell to $15m from $49m last time, due to high hog prices. Prices are high because hog raisers are receiving high prices as a result of exceptionally strong overseas demand for US pork.
"Nevertheless, our chicken business continued to perform well, our cash flow from operations was strong, and we reduced our debt by $292 million," said Tyson.
Key markets, such as the lucrative billion-dollar market in Japan, have been closed to US beef processors following the country's first case of Mad Cow Disease in 2003. The US has been pressuring Japan to resume imports of American beef, but talks have continually stalled over Japan's insistence that the United States follow it practice of a blanket test on all slaughtered cattle, or adopt an equivalent measure.
The two sides struck a deal in October 2004 to resume limited imports of American beef from cows younger than 21 months old into Japan. But those plans have been delayed by a dispute over how to determine the age of cattle, and local media reports have predicted the ban is likely to stay in place until at least the spring.
In addition, the beef trade with Canada was suspended after the first case of bovine spongiform encephalopathy was discovered in a Canadian cattle herd in 2003.
In a conference call, Tyson said that beef remains the biggest issue of uncertainty. "It will get better if we can get supply associated with the re-opening of the Canadian border," he said. "That should enhance our earnings."
The US and Canada have agreed to slowly re-open their border for live cattle shipments on 7 March 2005, which could pave the way to better results for Tyson in the future.
