- Oversupply of proteins negatively impacted sales prices and operating
results
- Fiscal 2006 diluted loss per share is now estimated to be $0.41 to $0.51
- $200 million cost savings plan initiated
- Tax account balance review initiated
SPRINGDALE, Ark., July 31 /PRNewswire-FirstCall/ -- Tyson Foods, Inc.
(NYSE: TSN), today reported a loss of $0.15 per diluted share for the third
fiscal quarter ended July 1, 2006, compared to $0.36 diluted earnings per
share in the same quarter last year. Third quarter 2006 sales were $6.4
billion compared to $6.7 billion for the same period last year. Operating
loss was $25 million compared to operating income of $256 million, and net
loss was $52 million compared to net income of $131 million, for the same
period last year.
Loss per diluted share for the first nine months of fiscal 2006 was
$0.41 compared to diluted earnings per share of $0.71 in the same period
last year. Sales for the first nine months of fiscal 2006 were $19.1
billion compared to $19.5 billion for the same period last year. Operating
loss for the first nine months of fiscal 2006 was $57 million compared to
operating income of $557 million, and net loss was $140 million compared to
net income of $255 million, for the same period last year.
Pretax loss for the first nine months of fiscal 2006 included $59
million, or $0.11 per diluted share, of costs related to beef and prepared
foods plant closings.
Pretax earnings for the third quarter and nine months of fiscal 2005
included costs of $33 million related to a legal settlement involving the
Company's live swine operations, and $10 million and $15 million,
respectively, related to poultry and prepared foods plant closings. The
nine months of fiscal 2005 included $12 million received in connection with
vitamin antitrust litigation and a gain of $8 million from the sale of the
Company's remaining interest in Specialty Brands, Inc. The combined effect
of these items decreased diluted earnings per share by $0.08 and $0.05 for
the third quarter and nine months of fiscal 2005, respectively.
"Our Beef, Pork and Prepared Foods segments' operating results improved
$126 million over the second quarter, excluding plant closing charges of
$59 million," said Richard L. Bond, president and chief executive officer.
"However, despite improvements, the third quarter remained challenging with
losses in the Chicken and Beef segments. The oversupply of chicken and
forward sales of leg quarters led to lower average sales prices in the
third quarter as compared to the same quarter last year. In our Beef
segment, May and June were positive, but not enough to offset a very
difficult April. In addition, our Canadian operations continue to struggle,
compounded by the strong Canadian currency.
"According to poultry industry production data, supply and demand
should be in better balance during the remainder of the fourth quarter, and
we expect our Chicken segment to post positive results. Although forward
leg quarter sales adversely affected July, leg quarter pricing for August
and September will be significantly better. As cattle supplies continue to
increase year over year, we expect our Beef segment to break even in the
fourth quarter. We expect Prepared Foods earnings to improve and the Pork
segment should remain flat.
"The Company's operating results improved significantly from the second
quarter to the third quarter, and we expect the improvement to continue
into the fourth quarter. We are projecting a diluted loss per share range
of $0.41 to $0.51 for the fiscal year.
"We are taking aggressive measures to return the company to
profitability as soon as possible. Our chicken inventories have been
significantly reduced from historical highs, and we are reviewing our
structure and processes to ensure efficient and cost effective operations
throughout our company," Bond said. "We have implemented a comprehensive
cost management initiative to generate approximately $200 million in cost
reductions. Approximately half will be divided equally among consulting and
professional fees, sales and marketing. The remaining $100 million is
expected to be divided equally between staffing costs and other expenses."
Tax Account Balance Review
Tyson announced it started a review of its tax account balances. In
connection with its renewal of certain leases, the Company noted
differences in deferred tax liabilities related to temporary book to tax
basis differences. At this time, the tax effect of the aggregate basis
differences related to the leases is an understatement of approximately $22
million.
Tyson initiated a review process to assess the adequacy of tax
liabilities recorded for basis differences and for all of its tax account
balances, not just those related to its lease agreements. As this process
continues, additional information, including additional temporary
differences, positive or negative, may be discovered which could materially
impact the accounting for the preliminary differences indicated above.
However, management does not believe this will have a material impact on
the results of operations for the nine months ended July 1, 2006 or July 2,
2005. Once the review is completed, which is currently expected to be by
October 31, 2006, the Company will make a final determination as to what,
if any, adjustments should be recorded in the Company's financial
statements and in which period any such adjustments should be recorded.
Outlook
Based upon the Company's outlook for fiscal year 2006, including its
view of all the various markets, the Company now estimates its fiscal 2006
diluted loss per share to be in the range of $0.41 to $0.51.
Segment Performance Review (in millions)
Sales
(for the third quarter and nine months ended July 1, 2006,
and July 2, 2005)
Third Quarter Nine Months
Avg. Avg.
Sales Sales
Sales Sales Volume Price Sales Sales Volume Price
2006 2005 Change Change 2006 2005 Change Change
Chicken $1,922 $2,085 7.0% (13.9)% $5,968 $6,207 4.8% (8.3)%
Beef 3,032 3,102 6.3% (8.0)% 8,804 8,671 4.2% (2.6)%
Pork 754 811 (1.9)% (5.2)% 2,275 2,484 0.0% (8.5)%
Prepared
Foods 661 696 0.9% (5.7)% 1,995 2,119 (0.8)% (5.1)%
Other 14 14 n/a n/a 46 38 n/a n/a
Total $6,383 $6,708 4.9% (9.3)% $19,088 $19,519 3.4% (5.4)%
Operating Income (Loss)
(for the third quarter and nine months ended July 1, 2006,
and July 2, 2005)
Third Quarter Nine Months
Operating Margin Operating Margin
2006 2005 2006 2005 2006 2005 2006 2005
Chicken $(59) $198 (3.1)% 9.5% $73 $445 1.2% 7.2%
Beef (10) 36 (0.3)% 1.2% (262) 1 (3.0)% 0.0%
Pork 12 (19) 1.6 % (2.3)% 32 15 1.4% 0.6%
Prepared Foods 13 28 2.0 % 4.0% 46 60 2.3% 2.8%
Other 19 13 n/a n/a 54 36 n/a n/a
Total $(25) $256 (0.4)% 3.8% $(57) $557 (0.3)% 2.9%
Chicken (30.1% of Net Sales - 3rd Quarter 2006)
(31.3% of Net Sales - Nine Months 2006)
* Increased Chicken sales volumes were more than offset by decreased
average sales prices including lower leg quarter pricing
While Chicken sales volumes increased 7.0% and 4.8% in the third
quarter and nine months of fiscal 2006, respectively, as compared to the
same periods last year, lower average sales prices in the third quarter and
nine months of fiscal 2006 resulted in decreased Chicken segment sales of
7.8% and 3.9%, respectively.
Chicken segment operating results decreased $267 million and $384
million in the third quarter and nine months of fiscal 2006, respectively,
as compared to the same periods last year, excluding plant closing related
accruals of $10 million recorded in the three months of fiscal 2005 and $12
million recorded in the nine months of fiscal 2005. The decreases in
operating results were primarily due to lower average sales prices,
predominantly caused by an oversupply of proteins in the marketplace.
Additionally, operating results were negatively impacted by the forward
sales of leg quarter inventories at lower prices. Also, operating results
were negatively impacted by higher energy costs, higher grain costs and
decreased margins at the Company's operations in Mexico. Chicken operating
results for the nine months ended July 1, 2006 were positively impacted by
a net loss of less than $1 million from the Company's commodity risk
management activities related to grain purchases as compared to net losses
of $28 million realized in the same period last year.
Beef (47.5% of Net Sales - 3rd Quarter 2006)
(46.1% of Net Sales - Nine Months 2006)
* Increased Beef sales volumes were more than offset by decreased average
sales prices
* Quarter three operating results improved significantly as compared to
the second quarter
While Beef sales volumes increased 6.3% in the third quarter of fiscal
2006, as compared to the same period last year, lower average sales prices
more than offset the volume increase and resulted in decreased Beef segment
sales of 2.3%. Beef segment sales increased 1.5% in the nine months of
fiscal 2006 as compared to the same period last year. The increase in sales
for the nine months of fiscal 2006 was primarily due to a 4.2% increase in
sales volumes, offset partially by a 2.6% decrease in average sales prices.
Beef segment operating results decreased $46 million and $208 million
in the third quarter and nine months of fiscal 2006, respectively, as
compared to the same periods last year, excluding plant closing related
accruals of $45 million recorded in the nine months of fiscal 2006 and $10
million received in the nine months of fiscal 2005 in connection with
vitamin antitrust litigation. The decreases in Beef segment operating
results were primarily due to significant operating margin reductions at
the Company's Lakeside operation in Canada. Additionally, beef operating
results for the three months ended July 1, 2006, were negatively impacted
by net losses of $19 million from the Company's commodity risk management
activities related to its fixed forward boxed beef sales and forward live
cattle purchases, a decline of $10 million from the same period last year.
Beef operating results for the nine months ended July 1, 2006, were
negatively impacted by $40 million from the Company's commodity risk
management activities, a decline of $29 million from the same period last
year.
Pork (11.8% of Net Sales - 3rd Quarter 2006)
(11.9% of Net Sales - Nine Months 2006)
* Lower live costs were more than offset by decreased average sales prices
Pork segment sales decreased 7.0% and 8.4% in the third quarter and
nine months of fiscal 2006, respectively, as compared to the same periods
last year. The decrease in sales was primarily due to lower average sales
prices.
Pork segment operating results decreased $2 million and $14 million in
the third quarter and nine months of fiscal 2006, respectively, as compared
to the same periods last year, excluding $33 million of costs related to a
live swine legal settlement recorded in the three and nine months of fiscal
2005 and $2 million received in the nine months of fiscal 2005 in
connection with vitamin antitrust litigation. Operating results were
negatively impacted by an oversupply of proteins in the marketplace,
resulting in decreased average sales prices, partially offset by lower
average live prices.
Prepared Foods (10.4% of Net Sales - 3rd Quarter 2006)
(10.5% of Net Sales - Nine Months 2006)
* Lower average sales prices and higher operating costs resulted in
decreased operating margins
Prepared Foods segment sales decreased 5.0% and 5.9% in the third
quarter and nine months of fiscal 2006, as compared to the same periods
last year. The decrease in sales was primarily due to lower average sales
prices.
Prepared Foods segment operating income decreased $15 million and $3
million in the third quarter and nine months of fiscal 2006, respectively,
as compared to the same periods last year, excluding plant closing related
accruals of $14 million recorded in the nine months of fiscal 2006 and $3
million recorded in the nine months of fiscal 2005. The decreases were
primarily due to lower average sales prices and higher operating costs.
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
Sales $6,383 $6,708 $19,088 $19,519
Cost of Sales 6,180 6,189 18,388 18,226
203 519 700 1,293
Selling, General and
Administrative 230 220 700 688
Other Charges (2) 43 57 48
Operating Income (Loss) (25) 256 (57) 557
Other (Income) Expenses:
Interest Income (11) (2) (17) (7)
Interest Expense 74 58 189 179
Other (12) (1) (13) (12)
Income (Loss) before
Income Taxes (76) 201 (216) 397
Income tax (benefit)
expense (24) 70 (76) 142
Net Income (Loss) $(52) $131 $(140) $255
Weighted Average Shares
Outstanding:
Class A Basic 249 243 246 243
Class B Basic 96 102 99 102
Diluted 345 358 345 357
Earnings (Loss) Per Share:
Class A Basic $(0.15) $0.39 $(0.41) $0.76
Class B Basic $(0.14) $0.35 $(0.38) $0.68
Diluted $(0.15) $0.36 $(0.41) $0.71
Cash Dividends Per Share:
Class A $0.040 $0.040 $0.120 $0.120
Class B $0.036 $0.036 $0.108 $0.108
Sales Growth
(Decline) (4.8)% 1.1% (2.2)% 1.2%
Margins: (Percent of Sales)
Gross Profit 3.2% 7.7% 3.7% 6.6%
Operating Income (Loss) (0.4)% 3.8% (0.3)% 2.9%
Net Income (Loss) (0.8)% 2.0% (0.7)% 1.3%
Effective Tax Rate (32.4)% 35.2% (35.3)% 35.9%
TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
(Unaudited)
July 1, 2006 October 1, 2005
Assets
Current Assets:
Cash and cash equivalents $44 $40
Short-term investment 760 -
Accounts receivable, net 1,209 1,214
Inventories 2,095 2,062
Other current assets 113 169
Total Current Assets 4,221 3,485
Net Property, Plant and Equipment 4,040 4,007
Goodwill 2,500 2,502
Other Assets 485 510
Total Assets $11,246 $10,504
Liabilities and Shareholders' Equity
Current Liabilities:
Current debt $1,049 $126
Trade accounts payable 954 961
Other current liabilities 914 1,070
Total Current Liabilities 2,917 2,157
Long-Term Debt 3,063 2,869
Deferred Income Taxes 589 638
Other Liabilities 167 169
Shareholders' Equity 4,510 4,671
Total Liabilities and Shareholders' Equity $11,246 $10,504
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended Nine Months Ended
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
Cash Flows From
Operating Activities:
Net income (loss) $(52) $131 $(140) $255
Depreciation and
amortization 130 126 383 377
Plant closing-related
charges (6) 8 46 12
Deferred income taxes
and other 10 16 (111) (12)
Net changes in working
capital (139) 183 (62) 289
Cash Provided by (Used for)
Operating Activities (57) 464 116 921
Cash Flows From Investing
Activities:
Additions to property,
plant and equipment (113) (163) (470) (395)
Proceeds from sale
of assets 1 7 14 23
Investments in marketable
securities 50 (8) 11 (42)
Purchase of short-term
investment - - (750) -
Other 1 14 11 16
Cash Used for Investing
Activities (61) (150) (1,184) (398)
Cash Flows From Financing
Activities:
Net change in debt 126 (307) 125 (467)
Proceeds from Notes
offering - - 992 -
Purchases of treasury
shares (10) (9) (30) (36)
Dividends (14) (14) (41) (41)
Stock options exercised
and other 12 11 31 16
Cash Provided by (Used for)
Financing Activities 114 (319) 1,077 (528)
Effect of Exchange Rate
Change on Cash 9 2 (5) 4
Increase (Decrease) in Cash
and Cash Equivalents 5 (3) 4 (1)
Cash and Cash Equivalents
at Beginning of Period 39 35 40 33
Cash and Cash Equivalents
at End of Period $44 $32 $44 $32
Tyson Foods, Inc., founded in 1935 with headquarters in Springdale,
Arkansas, is the world's largest processor and marketer of chicken, beef
and pork and the second-largest food company in the Fortune 500 and a
member of the S&P 500. The company produces a wide variety of protein-based
and prepared food products, which are marketed under the "Powered by
Tyson(TM)" strategy. Tyson is the recognized market leader in the retail
and foodservice markets it serves, providing products and service to
customers throughout the United States and more than 80 countries. Tyson
has approximately 114,000 Team Members employed at more than 300 facilities
and offices in the United States and around the world. Through its Core
Values, Code of Conduct and Team Member Bill of Rights, Tyson strives to
operate with integrity and trust and is committed to creating value for its
shareholders, customers and Team Members. The company also strives to be
faith-friendly, provide a safe work environment and serve as stewards of
the animals, land and environment entrusted to it.
A conference call to discuss the Company's financial results will be
held at 9 a.m. Eastern today. To listen live via telephone, call
888-791-1856. A pass code and the leader's name will be required to join
the call. The pass code is Tyson Foods and the leader's name is Ruth Ann
Wisener. International callers dial 210-234-0000. The call also will be
webcast live on the Internet at http://ir.tysonfoodsinc.com. Financial
information, such as this news release, as well as other quarterly
information, including Company distribution channel information, can be
accessed from the Company's web site at http://ir.tysonfoodsinc.com. A
telephone replay will be available through August 30 at 866-455-0475.
International callers dial 203-369-1261.
Forward-Looking Statements
Certain information contained in the press release may constitute
forward- looking statements, such as statements relating to expected
earnings and results. These forward-looking statements are subject to a
number of factors and uncertainties which could cause the Company's actual
results and experiences to differ materially from the anticipated results
and expectations, expressed in such forward-looking statements. The Company
wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made. Among the
factors that may cause actual results and experiences to differ from the
anticipated results and expectations expressed in such forward-looking
statements are the following: (i) fluctuations in the cost and availability
of inputs and raw materials, such as live cattle, live swine, feed grains,
and energy; (ii) the company's ability to realize anticipated savings from
its cost reduction initiatives; (iii) market conditions for finished
products, including competition from other global and domestic food
processors, the supply and pricing of alternative proteins, and the demand
for alternative proteins; (iv) risks associated with effectively evaluating
derivatives and hedging activities; (v) access to foreign markets together
with foreign economic conditions, including currency fluctuations,
import/export restrictions and foreign politics; (vi) outbreak of a
livestock disease (such as avian influenza (AI) or bovine spongiform
encephalopathy (BSE)) which could have an effect on livestock owned by the
Company, the availability of livestock for purchase by the Company,
consumer perception of certain protein products or the Company's ability to
access certain domestic and foreign markets; (vii) successful
rationalization of existing facilities, and the operating efficiencies of
the facilities; (viii) changes in the availability and relative costs of
labor and contract growers, and the ability of the Company to maintain good
relationships with employees, labor unions, contract growers and
independent producers providing livestock to the Company; (ix) issues
related to food safety, including costs resulting from product recalls,
regulatory compliance and any related claims or litigation; (x) changes in
consumer preference and diets, and the Company's ability to identify and
react to consumer trends; (xi) significant marketing plan changes by large
customers, or the loss of one or more large customers; (xii) adverse
results from litigation; (xiii) risks associated with leverage, including
cost increases due to rising interest rates or changes in debt ratings or
outlook; (xiv) changes in regulations and laws (both domestic and foreign),
including changes in accounting standards, tax laws, environmental laws and
occupational, health and safety laws; (xv) the ability of the Company to
make effective acquisitions and successfully integrate newly acquired
businesses into existing operations; (xvi) effectiveness of advertising and
marketing programs; and (xvii) the effect of, or changes in, general
economic conditions.
SOURCE Tyson Foods, Inc.
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Related links:
http://www.tyson.com
http://ir.tysonfoodsinc.com
CONTACT:
Media - Gary Mickelson, +1-479-290-6111,
Investors - Ruth Ann Wisener, +1-479-290-4235, both of Tyson
Foods, Inc.
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