Tyson Cautions On US Meat Demand After Buoyant 3Q

Tyson Foods Inc. (TSN) said Monday that near-term demand for beef and chicken has dipped in a sign that U.S. consumer sentiment and spending plans remain fragile.

The country's largest meatpacker by revenue reported a sharp rise in fiscal third-quarter profit as margins returned to a "normalized" range for the first time in two years marked by sluggish demand, oversupply and soaring input costs.

However, interim chief executive Leland Tollett admitted on a conference call that demand for its current quarter trailed internal expectations after falling off in the second half of July.

"We are simply not seeing the demand recovery we expected," added Donnie King, head of its refrigerated and deli unit.

Tyson shares slipped 3% to $11.09 in recent trade, despite the third-quarter performance.

U.S. meatpackers had been driven to and beyond the brink of bankruptcy by weak demand and rising feed costs, with the latter triggering huge losses on hedges when commodity prices reversed last year.

Tollett said supply and demand in beef and chicken, its two largest segments, had finally moved into balance after widespread production cuts.

However, demand in the retail and restaurant sector remains weak, weighed by a depressed economy that has seen consumers trade down to cheaper brands and meal options, including what Tollett described as more reliance on "leftovers."

"It's part of the economic softness," he said, noting demand typically falls off after the July 4 holiday, with the upcoming Back to School period likely to provide fresh insight of whether consumer sentiment is improving.

Tyson already expects its return on sales to be lower in the fiscal fourth quarter than the three months to June 27.

Net profits rose to $134 million from $9 million in the third quarter as hedges rolled off and pricing firmed.

Its chicken unit provided much of the leverage, reversing a $30 million loss in the year-ago quarter to generate a $143 million operating profit.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; [e-mail]