Where's the beef? How about at chicken giant Tyson Foods
High-protein, low-carbohydrate diets have been blamed for the high price for beef. Demand for the red meat is up. Someone had to profit -- so far, it's Tyson.
Overall, operating profits were up 64% for the quarter. And the earnings call was fittingly upbeat. Management looks to reduce debt-to-equity to 45% in 2004, down from today's 48%. Beef sales are expected to stay strong.
So, what's not to like? How about $3.1 billion in long-term debt? How about even if earnings come in at the low end of the 2004 guidance of $0.90 to $1.20, they will be down for the third consecutive year?
Or, that not everything looks good from the Chicago Mercantile Exchange (CME) where cattle futures are traded. December cattle are trading at $0.98 a pound. Live cattle for October 2004 delivery are trading at $0.76 cents a pound.
The CME is probably predicting the return of Canadian cattle to the U.S. If so, beef margins will be strained at Tyson. To meet high-end earnings projections, Tyson is going to have to benefit from recent streamlining at chicken plants and new prepared food introductions -- hardly the things that management can guarantee.
Finally, how about the composition of this year's operating income?
Operating Income Operating Margin 9/27/03 9/28/02 9/27/03 9/28/02Beef $320 $220 2.7% 2.1%Chicken $158 $428 2.1% 5.9%Pork $75 $25 3.0% 1.0%Prp.Foods $57 $158 2.1% 5.2%Other $227 $56 N/A N/ATotal $837 $887 3.4% 3.8%
Clearly, "Other" turned in an outstanding year. That includes $167 million from settlements received in vitamin antitrust litigation. Chicken was hurt by higher feed costs and plant closings. And there was the impact of volatile commodity prices.
Perhaps Tyson appears cheap at 15 times earnings, but be patient. Earnings guidance accommodates the possibility of at least one more down year, and that could begin to weigh on investors -- and the stock price.
W.D. Crotty can be reached at firstname.lastname@example.org .