http://www.nytimes.com/2004/08/31/business/31place.html?hp
Tyson Went on the Atkins Diet, but Its Profit Slimmed Down
By CLAUDIA H. DEUTSCH
Logic would seem to dictate that with low-carbohydrate diet mania raging
across the land, bottom lines of meat producers would balloon even as
the waistlines of their customers shrank. After all, the migration from
carbohydrates to meats and such has been cited as a chief cause of havoc
at companies like Krispy Kreme and Interstate Bakeries
</redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/cus
tom/nyt-com/html-companyprofile.asp&symb=IBC> .
Apparently, though, the high-carb industry's bane has not been a boon
for Tyson Foods Inc.
</redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/cus
tom/nyt-com/html-companyprofile.asp&symb=TSN> , the world's largest meat
processor. The company, citing depressed demand coupled with losses on
grain contracts, warned analysts yesterday that its earnings in its
fiscal fourth quarter, which ends Oct. 2, would probably be 18 cents a
share, a far cry from the 33 cents that analysts had expected.
"We believe that America's interest in protein remains strong, but
consumers have just reacted badly to high prices,'' said Gary Mickelson,
a spokesman for Tyson, which is based in Springdale, Ark.
Investors reacted badly, too, sending Tyson's shares plunging $1.47, to
$16.26. But analysts are not yet seeing disaster. According to Thomson
First Call, analysts reduced their full-year earnings estimates for the
company to $1.37, from $1.45, but none changed recommendations. The
First Call consensus remains a weak buy.
"This is a business that has to worry about margins, and there's no
question the margins have been squeezed,'' said G. Leonard Teitelbaum,
an analyst at Merrill Lynch
</redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/cus
tom/nyt-com/html-companyprofile.asp&symb=MER>  who is neutral on Tyson's
stock. "But while demand has softened, it's still good.''
Meat industry experts say that Tyson has faced an unparalleled series of
blows lately. It began the year with demand, and prices, at healthy
levels as McDonald's
</redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/cus
tom/nyt-com/html-companyprofile.asp&symb=MCD>  and other fast-food
chains rushed to promote white-meat chicken items and lower-fat beef
items in an attempt to cash in on the popularity of the Atkins diet.
But the huge demand, analysts say, drove prices to a point where
consumers and food retailers rebelled. Supermarkets stopped featuring
promotions on chicken even as fast-food restaurants cut back on buying
and started working off inventory. Although there is usually a drop in
demand for chicken and beef between the Fourth of July and mid-September
as vacations take people away from the home dinner table, Mr. Mickelson
said the drop was steeper than Tyson had expected.
To make matters worse, chicken exports were badly hurt by the outbreak
of avian flu earlier this year, and the mad cow scare of late December
continued to keep borders in Japan and Canada closed to United States
beef exports.
Yet even as demand for meat was softening, prices for the corn and
soybean meal needed to feed flocks and herds were soaring, in good part
because of robust demand from China. "Beef prices weren't sufficient for
ranchers to pay the high grain costs, so they cut back on production of
cattle and chicken,'' said Clinton O. Mayer, an analyst with Burnham
Securities.
Tyson, which derives about 11 percent of its revenue from processed
food, was in the awkward position of paying more for the chicken and
beef it uses in its own products, even as consumers were balking at
paying top dollar for the unprocessed beef, chicken and pork that
provide the rest of its revenue stream.
To make matters worse, Tyson, which controls about a quarter of the
market for chicken, beef and pork, speculated that grain prices would
continue rising, and earlier this year it invested heavily in grain
futures contracts. Prices have since fallen, and Tyson sold its grain at
much lower prices than it had expected.
"Hedging of corn and soybean meal would come first on the list of
significant factors behind our earnings revision,'' Mr. Mickelson said.
He added that softened demand for beef and chicken followed, and higher
raw material costs for processed food rounded out the list.
Tyson's competitors faced problems, too, of course. Last week, Sanderson
Farms
</redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/cus
tom/nyt-com/html-companyprofile.asp&symb=SAFM> , a big chicken producer,
also cut its earnings forecast. And Sanderson and Smithfield Foods
</redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/cus
tom/nyt-com/html-companyprofile.asp&symb=SFD> , another big meat
producer, have both lost money on grain contracts.
But Tyson has had problems that are unique. In February, a jury found
Tyson Fresh Meats, the beef division that Tyson formed when it bought
IBP Inc. in 2001, guilty of colluding with some cattle producers to
manipulate cattle prices on the open market and ordered the company to
pay $1.28 billion. Although a federal judge threw out the verdict in
April, lawyers for the cattlemen who brought the suit say they will
appeal.
Also, the Securities and Exchange Commission is looking into whether the
company properly reported as much as $1.7 million in payments it made to
Don Tyson, its former senior chairman, and is investigating benefits it
provides to its current chief executive, John H. Tyson.
The profit squeeze comes at a time when the company is gearing up for a
$75 million marketing push to transform its longstanding image as a
provider of chicken to that of a provider of beef and pork as well. That
may backfire, too, though, analysts warn, because the Tyson brand
appears not just on Atkins-friendly poultry and beef but on breaded
steak fingers and other high-calorie foods.
Nonetheless, most analysts see Tyson's current woes as momentary blips.
"These are all near-term issues for Tyson,'' said Ephraim Bernstein, a
retail analyst at Highline Capital Management, a hedge fund in New York.
"The Japanese will reopen their markets; American consumers will start
buying.'' And, he added: "I think next year will be a good one for
them.''

Chris Holbein | Vegan Campaigns Assistant
People for the Ethical Treatment of Animals
(757) 962-8384 | chr...@peta.org
GoVeg.com  MeetYourMeat.com

"You have just dined, and, however scrupulously the slaughter-house is
concealed in the graceful distance of miles, there is complicity."  -
Ralph Waldo Emerson