Tyson Foods Inc's first-quarter profit blew past Wall Street estimates and the meat processor said it expects beef margins to recover in the back half of the year, helping to send its shares up more than 5 percent.
The shrinking beef supply has raised costs for buyers like Tyson, the No. 1 U.S. meat processor, and McDonald's Corp . At the same time, slack consumer demand has made it difficult to pass on the full extent of those cost increases, putting pressure on margins.
"Our beef segment is experiencing a rough patch as a result of challenging market fundamentals," said Tyson Chief Executive Donnie Smith on Friday. He also praised Tyson's diversity of business, selling chicken, beef, pork and prepared foods.
"Today's results illustrate why Tyson deserves a premium multiple, in our opinion, to many of its protein peers," Goldman said in a research note.
"When one segment suffers, others can come to the rescue, leading to much smoother and less volatile earnings" than those of other meat companies like Smithfield Foods, Pilgrim's Pride and Sanderson Farms.
Beef is Tyson's largest unit, accounting for nearly 42 percent of sales in the latest quarter, followed by chicken with 33 percent of sales. Pork operating income was $165 million, or 11.2 percent of pork sales.
Tyson shares were up 5.2 percent at $19.58 on Friday afternoon on the New York Stock Exchange.
The company stood by its 2012 forecast calling for sales to exceed $34 billion, helped by price increases related to tighter meat supplies and higher raw materials costs. Still, the company expressed caution about its prior earnings forecast, which called for full-year profit in excess of $2 per share.
"We still feel pretty good about coming in around the $2 mark, but we think it would be overly optimistic to say 'in excess of' at this point, because of the headwinds we're facing in beef, not to mention the volatility in the grain markets," Smith said.
Because exports are likely to remain strong, Tyson expects total domestic availability of meat -- including chicken, beef, pork and turkey -- to be down 2 percent to 3 percent from 2011, which it said should support higher prices.