Tyson Foods, Inc. has reported its second quarter results, with highlights including reported EPS was $0.26 and adjusted EPS at $0.36 compared to $0.44 last year.

Overall operating margin was 2.1 per cent. Net interest expense was $34 million, down 28 per cent compared to last year. A total of 2.1 million shares were repurchased for $50 million. Liquidity totalled $1.8 billion on 30 March 2013

Donnie Smith, Tyson Foods' president and chief executive officer, commented: "Our second quarter typically is our most challenging, and this quarter was no exception. However, our business is structured to withstand adverse conditions, and we worked through the issues while positioning ourselves for what we believe will be a strong performance in the second half of the year.

"In our Chicken segment, we continued to emphasise operational efficiencies, upgrading our product mix and pricing to offset $165 million in additional feed costs for the quarter. Our Beef segment suffered margin compression as consumers opted for the relative value of chicken. Our Pork segment faced periods of supply and demand imbalance after the loss of some export markets, while soft demand in food service impacted our Prepared Foods segment.

"Our EPS for the quarter wasn't at the level we'd like but on an adjusted basis, we're about where we were at this point last year.

"I'm still confident our results for 2013 will be better than 2012," added Mr Smith.

Second quarter and six months of fiscal 2013

• Operating income was reduced by $56 million related to the impairment of non-core assets in China, which is included in Tyson's Chicken segment.
• Chicken - Despite increased domestic and international production, total sales volumes decreased in the six months of fiscal 2013 due to reduced open-market meat purchases and mix of rendered product sales. The increase in average sales price in the second quarter and six months of fiscal 2013 was primarily due to mix changes and price increases associated with increased input costs. Since many sales contracts are formula-based or shorter-term in nature, the Company was able to offset rising input costs through increased pricing and mix. Operating income was positively impacted by increases in average sales price, improved live performance and operational improvements, as well as improved performance in foreign-produced operations. These increases were partially offset by increased feed costs of $165 million and $335 million for the second quarter and six months of fiscal 2013, respectively.
• Beef - Fed cattle supplies decreased, which drove up average sales price and livestock cost. Sales volumes decreased due to a reduction in outside trim and tallow purchases. Operating income decreased in the second quarter and six months of fiscal 2013 as the result of volatile market conditions, regional lower availability of live cattle supplies, reduced demand for premium beef products and increased operating costs.
• Pork - Live hog supplies increased, which drove down average sales price and livestock cost. Sales volumes decreased as a result of balancing supply with customer demand and reduced exports. While reduced compared to prior year, operating income remained strong in the six months of fiscal 2013 despite brief periods of imbalance in industry supply and customer demand.
• Prepared Foods - Although up slightly in the six months of fiscal 2013, total sales volumes decreased in the second quarter of fiscal 2013 due to reduced demand for certain food-service products. The decrease in average sales price in the six months of fiscal 2013 was due to product mix and reduced raw material costs. Operating income decreased in the second quarter and six months of fiscal 2013 due to product mix changes related to reduced foodservice demand and additional costs incurred as we invested in our lunchmeat business.

Outlook

Tyson Foods reports that capital investment in its businesses will continue to help maintain strong operating results. In fiscal 2013, the Company expects overall domestic protein production (chicken, beef, pork and turkey) to increase approximately one per cent from fiscal 2012 levels. The drought conditions in 2012 reduced grain supplies, which is resulting in higher input costs as well as increased costs for cattle and hog producers.

The following is a summary of the fiscal 2013 outlook for each segment, as well as an outlook on sales, capital expenditures, net interest expense, debt and liquidity and share repurchases:

• Chicken – Current USDA data shows US chicken production to increase tow to three per cent in fiscal 2013 compared to fiscal 2012. Based on current futures prices, Tyson's expects higher feed costs in fiscal 2013 than fiscal 2012 of approximately $450 million. The capital investment and significant operational improvements it has made in the Chicken segment have better positioned the Company to adjust to rising feed costs. Additionally, many sales contracts are formula-based or shorter-term in nature, which allows the offsetting of rising input costs through pricing. However, there may be a lag time for price changes to take effect. Tyson's anticipates the Chicken segment will return to its normalized range of 5.0 to 7.0 per cent for the second-half of fiscal 2013.
• Beef – The Company expects to see a reduction of industry fed cattle supplies of two to three per cent and beef exports to decrease in fiscal 2013 as compared to fiscal 2012. Although it generally expects adequate supplies where it operates plants, there may be periods of imbalance of fed cattle supply and demand. For fiscal 2013, it believes the Beef segment will remain profitable but will be below its normalized range of 2.5 to 4.5 per cent.
• Pork – Tyson's expects industry hog supplies to be flat and pork exports to decrease compared to fiscal 2012. For fiscal 2013, it believes its Pork segment will be in its normalised range of 6.0 to 8.0 per cent.
• Prepared Foods – Operational improvements and increased pricing to offset increased raw material costs are expected. Because many sales contracts are formula-based or shorter-term in nature, Tyson's is typically able to offset rising input costs through increased pricing. For fiscal 2013, it believes its Prepared Foods segment may be below its normalised range of 4.0 to 6.0 per cent.
• Sales – Fiscal 2013 sales are expected to approximate $34.5 billion mostly resulting from price increases related to expected decreases in domestic availability of certain protein and increased raw material costs.
• Capital Expenditures – Fiscal 2013 capital expenditures will approximate $550 to $600 million.
• Net Interest Expense – Fiscal 2013 net interest expense will approximate $140 million.
• Debt and Liquidity – The Company's next significant debt maturity is scheduled for October 2013, and it currently plans to use current cash on hand and/or cash flows from operations for payment. It may also use additional available cash to repurchase notes when available at attractive rates. Total liquidity at 30 March 2013 was $1.8 billion, well above our goal to maintain liquidity in excess of $1.2 billion.
• Share Repurchases – Tyson Foods expects to continue repurchasing shares under its share repurchase programme. As of 30 March 2013, 28 million shares remain authorised for repurchases. The timing and extent to which the Company repurchases shares will depend upon, among other things, its working capital needs, market conditions, liquidity targets, debt obligations and regulatory requirements.