Tyson Foods Inc.’s ( TSN - Analyst Report ) third-quarter 2012 earnings of 50 cents per share missed the Zacks Consensus Estimate of 55 cents by 9.1%. Quarterly earnings also declined 2% over the prior-year quarter due to rising input costs and soft demand for meat in U.S.

Revenue and Margins

Net sales grew a marginal 0.7% to $8.3 billion in the quarter, but missed the Zacks Consensus Estimate of $8.7 billion. Sales growth in the Chicken segment was offset by declines in the other three segments -- Beef, Pork and Prepared Foods.

Tyson’s operating income went up by 7.7% to $336 million in the quarter. Quarterly operating margin stood at 4.0% of net sales.

Segment Details

Sales increased 3.6% y/y in the Chicken segment to $2.9 billion. Sales volume dropped 4.1% due to a decrease in domestic production in order to match the declining demand.

Operating margin went up to 5.3% in the Chicken segment against 1.4% in the year-ago quarter, portraying positive pricing, operational efficiencies as well as improved mix.

Sales in the Beef segment went down 0.7% year over year to $3.48 billion. Sales volume contracted 13.9% in the quarter due to low demand for beef products. Operating margin contracted 200 basis points to 2.0% due to increase in cattle feed cost.

The Pork segment revenue slipped 4.7% year over year to $1.3 billion. Operating margin contracted 370 basis points to 5.1% from the year-ago quarter due to lower average sales price coupled with reduced domestic demand.

Prepared Foods sales declined 5.2% to $764 million compared with $804 million in the year-ago quarter. Operating margin however expanded 250 basis points to 6.2%, fueled by mix changes and lower raw material costs.

Guidance

Tyson lowered its previously provided fiscal 2012 revenue guidance in response to weak U.S. demand for meat. The company reduced its sales guidance by $1.0 billion to $33.0 billion for fiscal 2012.

Tyson believes that overall domestic protein (chicken, beef, pork and turkey) production will decrease in fiscal 2013 from 2012 levels due to high cost for cattle feed owing to the prevailing drought conditions in the U.S.

The company projects capital expenditure of $700 million in fiscal 2012 compared with the previous target of $800-$850 million. For fiscal 2013, capital expenditure is estimated at $500-$550 million.

Further, the company expects a net interest expense of approximately $340 million in fiscal 2012 and $130 to $140 million in fiscal 2013.

We are encouraged by Tyson Foods’ significant presence in the international market. The company has advanced processing capabilities. However, the company faces stiff competition from both national and regional players like Smithfield Foods Inc. ( SFD - Analyst Report ) and Pilgrim's Pride Corporation ( PPC - Snapshot Report ) .

Currently, we have a Zacks #3 Rank on Tyson, which translates into a short-term Hold rating. On a long-term basis, we provide a Neutral recommendation on the stock.