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Tyson Settles Clean Air Charges

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Meat processing giant Tyson Foods Inc. (TSN - Free Report) has finally reached a settlement with the Environmental Protection Agency (‘EPA’) by agreeing to pay $4 million to the latter. The environmental safety watchdog EPA had alleged that Tyson had violated the Clean Air Act at their processing sites.

The regulatory authority had accused Tyson over a series of accidental chemical releases at Tyson plants in Missouri, Kansas, Iowa and Nebraska. The EPA charged the meat giant with non-compliance of the Clean Air Act's provisions on multiple occasions between 2006 and 2010.

The incidents involved release of anhydrous ammonia which is used as a refrigerant by Tyson, but exposure to which can cause temporary blindness and eye damage, as well as irritation of the skin, mouth, throat, respiratory tract and mucous membranes. Inhaling the gas in high concentrations also results in lung damage and can prove fatal in extreme cases.

Management commented that although it does not agree with many of EPA’s allegations, it admits that there was a period when Tyson failed to meet some requirements of the EPA, as some refrigeration improvement projects had fallen behind schedule during that period.

The Springdale, AR-based Tyson Foods has agreed to conduct pipe-testing and third-party audits of its ammonia refrigeration systems so that they comply with the requirement of the Clean Air Act. Moreover, the company has agreed to allot $3 million to buy emergency response equipment for fire departments in its plants located in the Midwest.

The meat processor has been accused of polluting with poisonous anhydrous ammonia. The company has, however, sought to make up its proven shortcomings through other types of activities, such as the provision of nutritious meal options to school children.

Tyson has picked up on the fact that more and more Americans are becoming conscious about obesity caused by high protein and fat content of meat products. It has brought up tastier and healthier lunch options for kids. Recently, the company teamed up with Alliance for a Healthier Generation to provide affordable and easily available food product adhering to federal nutrition standards to school children.

In its recently concluded first quarter 2013, Tyson delivered adjusted earnings of 48 cents per share that surpassed the Zacks Consensus Estimate of 39 cents by 23.1%. Quarterly earnings also increased impressively by 14.3% year over year, backed by strong sales in chicken as well as due to operational efficiencies. It expects 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 summer 2012 in the U.S.

For fiscal 2013, the company expects sales to increase to approximately $35 billion, driven by anticipated price increases as domestic availability of protein goes down and raw material costs increase.

Currently, Tyson Foods carries a Zacks Rank #2 (Buy). Peer companies like Hillshire Brands , Hormel Foods (HRL - Free Report) and Pilgrim’s Pride (PPC - Free Report) all carrying a Zacks Rank #2 (Buy) are currently doing quite well.

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