Tyson optimistic about 2010, outlook for 2011

by Bryan Salvage
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SAN FRANCISCO –Tyson Foods Inc. Chief Operating Officer Jim Lochner and Chief Financial Officer Dennis Leatherby told investors at this week’s CLSA AsiaUSA investor conference that Tyson has improved its chicken business over the past year plus they believe the changes Tyson has made, along with favorable market conditions, should bring good returns in the 2010 and 2011 fiscal years.

Mr. Lochner said the key is declining domestic availability of protein. For the first time in 40 years, forecasters predict a reduction of available protein (chicken, beef, pork and turkey) in two consecutive years.

“U.S. per capita consumption is projected down due, in part, to reduced supplies, which should mean higher prices,” Mr. Lochner said. “Long-term protein supplies are driven by profitability – or the lack of profitability. Beginning with the 2006-2007 crop, corn and soybean prices became extremely volatile, coupled with a supply-demand imbalance. Most livestock and poultry producers lost money in ’08 and ’09, which led to cutbacks in the herds and flocks and less protein available in the marketplace.”

They said Tyson is well positioned to benefit from these market circumstances. The company’s Beef, Pork and Prepared Foods segments are operating well and produced returns above their normalized operating margin ranges in the first fiscal quarter of 2010. Although Tyson’s Chicken segment has underperformed in recent years, both Mr. Lochner and Mr. Leatherby said they are confident the on-going operational improvements will lead to long-term success.

“We expect our chicken segment to be in the 5%-7% normalized operating margin range for fiscal 2010,” Mr. Leatherby said.

“Strong cash flow has enabled the company to reduce its net debt level significantly,” he added. During the first quarter of fiscal 2010 and through Feb. 5, Tyson used cash and restricted cash on hand on hand to repurchase and retire $510 million of the company’s debt.

Tyson feels it could potentially bring incremental profitability in the long-term with renewable product initiatives such as renewable diesel made from non-food grade fats, greases and oils. Dynamic Fuels, Tyson’s joint venture with Syntroleum Inc., is set to open its first plant this summer. Tyson also launched a line of 100% natural premium pet treats under the True Chews brand in February. Tyson was able to open its idled plant in Independence, Iowa to produce True Chews.

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