By Dan Burrows, MarketWatch
Last Update: 9:47 AM ET Jul 31, 2006


NEW YORK (MarketWatch) -- Tyson Foods Inc., the world's largest meat processor, said Monday it swung to a fiscal third-quarter loss, as sales and margins declined, mostly because of an overabundance of chicken in the marketplace.
Tyson (TSNTyson Foods Incorporated
TSN ) , of Springdale, Ark., missed analysts' average estimate and also forecast a full-year loss far deeper than Wall Street's target.
Shares fell as much as 9% to $13.26 soon after the markets opened.
Meat processors have been struggling with weak demand and lower selling prices, partly because fears of avian flu are suppressing demand for exported chicken.
Moreover, cattle supplies are gradually increasing, leading to a decline in prices, and the pork market is being pressured by the overabundance of chicken and beef. Rising costs for corn and diesel fuel are also hurting results.
Complicating matters, fears of bovine spongiform encephalopathy, or mad cow disease, led South Korea and Japan to close their borders to beef imports. Japan recently reopened its borders to U.S. beef, with restrictions, and Tyson hopes to begin shipping beef to that country soon. The South Korea ban remains in place.
For the most recent quarter, the company posted a loss of $52 million, or 15 cents a share, versus year-ago income of $131 million, or 36 cents. Sales for the three months ended July 1 fell to $6.38 billion from $6.71 billion in last year's third quarter.
Analysts polled by Thomson First Call, on average, forecast a loss of 3 cents a share on sales of $6.63 billion.
For the full year, Tyson forecast a loss of 41 cents to 51 cents a share, against analysts' view for a loss of 4 cents.
"The third quarter remained challenging with losses in the chicken and beef segments," said Richard Bond, president and chief executive, in a news release.
"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 mid-July the company said it will eliminate 850 jobs in a bid to trim $200 million in costs. Tyson will layoff 420 employees and leave another 430 jobs unfilled.
"The third quarter was tough," said John Tyson, chairman, on a conference call with analysts. "We're not where we need to be, but we are showing steady and gradual improvement. Although we began seeing signs of improvement in market conditions this quarter, it will take some time before it's reflected in our results."
Energy and fuel costs abated somewhat in the third-quarter compared with the second, Bond said on the call, but still increased about $25.5 million over the year-ago period. For the first nine months of the year, energy and fuel costs rose $137 million over last year.
Bond added that Tyson is raising list prices Monday in its foodservice business and for many of its consumer products in September to help offset rising costs for energy, fuel and health insurance.
Dan Burrows is a reporter for MarketWatch in New York.

Tyson can put their chickens up their illegal aliens. We'll not buy any here!