By Matt Andrejczak Tyson Foods Inc. (TSN) has lost $118 million in the chicken business over the past 12 months. And it's willing to absorb more.
Tyson Chief Executive Richard Bond told analysts Monday the company won't cut volume production levels at its chicken plants even though it may not make any money until April. This is bad news for Tyson's struggling rival Pilgrim's Pride Corp. (PPC) and for Tyson.
Tyson shares dropped 10% Monday, while Pilgrim's Pride sank 19%.
"As of right now, we still believe that the demand supply balance for us is still reasonably good," Bond said of Tyson's chicken business. "We're not building inventory, we are selling product week in and week out."
Unlike Pilgrim's Pride, Tyson also sells beef and pork, businesses that are helping to offset huge chicken losses. Tyson reported a $48 million fiscal fourth-quarter profit Monday.
Asked in a conference call why Tyson isn't cutting back on the number of chickens it processes each week, he explained that fast-food companies have expressed supply concerns, retail sales have picked up, and the export market will rebound in the winter.
This didn't impress analyst Timothy Ramey at D.A. Davidson & Co., who cut Tyson's stock rating to neutral and lowered his price target to $7.50 a share, from $22.
"Because they feel like they were the ones who cut production in previous quarters - now it was time for others to feel the pain," Ramey said, describing Tyson's posture on chicken. "Unfortunately those who have felt the pain acutely are Tyson shareholders."
The U.S. chicken business, faced with high feed-grain costs, too much supply, and weak prices, could look very different next year.
Pilgrim's Pride, the No. 1 U.S. chicken processor by volume, is scrambling to secure major financing to avoid a possible bankruptcy filing. Its shares took a beating Monday after Tyson revealed it won't cut production capacity at its chicken plants.
On Monday, Pilgrim's Pride hired William Snyder to be chief restructuring officer at the request of its lenders, who last month granted Pilgrim's Pride a temporary waiver under its credit facilities to give the company time to land a financing package.
The one-month reprieve lasts until Nov. 26. If a deal isn't reached by then, Pilgrim's Pride could ask for another extension so it has enough cash to run its business.
Pilgrim's Pride hasn't set a date to report its fiscal fourth-quarter earnings.
Its more stable rivals are eager to scoop up any assets Pilgrim's may sell to raise cash.
Sanderson Farms is looking to sell stock to raise money for possible acquisitions. Sanderson filed a registration statement Oct. 9 with securities regulators but haven't set a sales date.
Tyson sold 20 million shares and convertible senior notes in September, raising more than $700 million. It has used some of those funds to buy three poultry companies in Brazil.
- Matt Andrejczak; 415-439-6400; AskNewswires@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=IDbR9DERIRN9iLRqXQUEig%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
November 10, 2008 16:46 ET (21:46 GMT)

Publié le 10 novembre 2008 Copyright © 2008 Dowjones