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Tyson Foods Inc.'s (TSN - Analyst Report) fiscal 2013 first-quarter adjusted earnings (excluding impairment charges and currency translation gains) of 36 cents per share missed the Zacks Consensus Estimate of 46 cents by 21.7%. Quarterly earnings also slipped significantly over the prior-year quarter earnings of 44 cents by 18.2%.

Profits declined due to margin compression in the Chicken segment due to higher feed cost, lower sales in the Beef segment as consumers opted for low-fat chicken and meat products, as well as a supply-demand imbalance in the Pork segment during the quarter.

Revenues and Margins

Net sales declined 1.2% to $8.4 billion in the quarter. Sales also missed the Zacks Consensus Estimate of $8.5 billion. Sales growth in both Chicken and Beef segments were offset by declines in the other two segments -- Pork and Prepared Foods.

Tyson's operating income declined 42.4% to $174 million in the quarter. Quarterly operating margin contracted 160 basis points (bps) to 2.1% of sales, due to higher input cost.

Segment Details

Chicken: Sales increased 6.8% year over year to $3.1 billion. Sales volume climbed marginally by 0.1% due to a decrease in open market purchase of meat and mix of rendered product sales.

Operating margin shrank 250 bps to 2.5% from the year-ago quarter, portraying higher feed costs faced by the company during the quarter.

Beef: Sales in the Beef segment went down 2.3% year over year to $3.44 billion. Sales volume contracted 3.9% in the fourth quarter due to reduction in outside trim and tallow purchases. The company suffered operating losses of $26 million due to an increase in cattle feed cost.

Pork: The Pork segment sales slipped 4.4% year over year to $1.31 billion. Sales volume decreased 2.2% due to a supply-demand imbalance in the domestic economy. Operating margin contracted 290 bps to 5.5% from the year-ago quarter due to less pork margins owing to the excess domestic availability of pork products.

Prepared Foods: Prepared Foods’ sales slipped 0.5% to $803 million compared with $807 million in the year-ago quarter. Sales volume slipped 0.8% due to reduced demand for certain foodservice products. Operating margin shrank 200 bps to 3.5%, due to product-mix changes related to a reduced foodservice demand and additional investments in lunchmeat business.

Balance Sheet and Share Repurchase

Tyson Foods held $762 million of cash and cash equivalents as of Mar 30, 2013 compared to $951 million as of Dec 29, 2012. Long Term Debt stood at $1.90 billion as of Mar 30, 2013 compared to $1.91 billion as of Dec 29, 2012. The company repurchased 2.1 million shares for $50 million in first-quarter fiscal 2013.

Guidance

Tyson believes that overall domestic protein (chicken, beef, pork and turkey) production will decrease by 1% in fiscal 2013 from 2012 levels due to increased costs for cattle and hog producers owing to the drought conditions in the summer of 2012 in the U.S.

For fiscal 2013, the company expects sales to increase to approximately $34.5 billion compared to $35.0 billion as anticipated previously. The increase was driven by expected price increases caused by the decrease in domestic availability of protein and rising raw material costs.

The company projects capital expenditures of $550-$600 million in fiscal 2013, compared to $550 million as expected previously. Tyson also expects interest expense of $140 million for fiscal 2013, which is at the higher end of the previous range of $130 million to $140 million.

Tyson, along with competitors Pilgrims Pride (PPC - Snapshot Report) and Smithfield Foods , currently carries a Zacks Rank #3 (Hold).

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