For the first quarter of fiscal year 2011, Tyson Foods reports that first quarter 2011 earnings per share (EPS) was $0.78 compared to $0.42 last year. This included $11 million, or $0.03 per diluted share, related to a gain on a sale of interests in an equity method investment.

First quarter sales were $7.6 billion, up 14.8 per cent compared to last year, while overall operating margin was 6.5 per cent. Operating income for the company's businesses were Chicken, $181 million (6.9 per cent of sales); Beef, $116 million (3.6 per cent of sales); Pork, $177 million (14.3 per cent of sales) and Prepared Foods, $28 million (3.5 per cent of sales).

Donnie Smith, president and chief executive officer of Tyson Foods, commented: "Tyson produced record sales and earnings for the fiscal first quarter of 2011. The Chicken, Beef and Pork segments produced operating income in or above their normalised ranges. With strong operating cash flows, we reduced our net debt to a 10-year low of $1.4 billion, down $132 million from the fiscal fourth quarter of 2010. Return on invested capital was strong at 26 per cent.

"Our performance is due to on-going, sustainable operational improvements across all four segments. Our view of 2011 is basically the same as it was a few months ago. Beef and Pork are off to a great start, and their combined results in 2011 should be similar to 2010. Since 2008, our Chicken segment has produced approximately $600 million in performance improvements, with nearly all of that amount coming from operational efficiencies. There are more opportunities to realize, which will contribute to Chicken's profitability in the remaining quarters of the fiscal year.

"Because of the structural changes we've made throughout our businesses, we are competing effectively, even within the volatile markets we're facing. While 2011 will have its challenges, it has the potential to be comparable to 2010," added Mr Smith.

Fiscal 2011 outlook

In fiscal 2011, overall domestic protein (chicken, beef, pork and turkey) production is expected to slightly increase. Because exports are likely to grow as well, Tyson's forecasts total domestic availability of protein to be down slightly compared to fiscal 2010, which should continue to support pricing. The following is a summary of the fiscal 2011 outlook for each of the segments.

Chicken – Going into fiscal 2011, we planned seasonal production cutbacks, which we then continued into our second quarter in order to match our supply with customer demand. Based on USDA data, the company expects industry production will increase from fiscal 2010 levels. In addition, current futures prices indicate higher grain costs in fiscal 2011 compared to fiscal 2010 of approximately $500 million. Tyson's expects to offset a significant portion of the increased grain costs and the impact of additional supplies with operational, pricing and mix improvements.

Because of these factors, operating margins are expected to be lower for the remainder of fiscal 2011, as compared to the first quarter fiscal 2011. Unlike fiscal 2008 when the industry experienced a similar production and grain cost environment, the company expects to remain profitable during the remainder of fiscal 2011. Expectations are based on the significant operational improvements of approximately $600 million realized since 2008. Additionally, a significant portion of the increased capital expenditures focused on spending for production and labour efficiencies, yield improvements and sales mix flexibility. These improvements, which began in late fiscal 2010 and are scheduled to continue into fiscal 2011, are expected to result in an additional $200 million of savings in fiscal 2011.

Beef – Tyson's Foods expects to see a gradual reduction in fed cattle supplies of one to two per cent for the remainder of fiscal 2011 as compared to fiscal 2010, while live weights should increase. No significant change in the fundamentals of its Beef business are expected for the balance of fiscal 2011. The company expects adequate supplies in the regions it operates plants and for beef exports to remain strong in fiscal 2011.

Pork – The company expects hog supplies in fiscal 2011 to be comparable to fiscal 2010 and to be adequate in the regions of operations. It also expects pork exports to remain strong in fiscal 2011. The first quarter of fiscal 2011 was a record quarter due to strong exports and demand. While results should remain above the normalized range for the balance of the fiscal year, Tyson's does not expect the remainder of fiscal 2011 to be at first quarter levels.

Prepared Foods – Tyson's expects operational improvements and increased pricing to offset the likely increase in raw material costs in fiscal 2011. Because many of the sales contracts are formula-based or shorter-term in nature, the company is typically able to offset rising input costs through increased pricing. However, there is a lag time for price increases to take effect, which was the experience during the first quarter of fiscal 2011.

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