UPDATE: Tyson: No Recovery In Chicken Sector Before October

CHICAGO -(Dow Jones)- Tyson Foods Inc. (TSN) warned Monday that its U.S. chicken business would take longer than expected to recover from the impact of high feed costs, despite solid demand.

Dick Bond, president and chief executive of the largest U.S. meat producer by revenues, also cautioned that the viability of the U.S. chicken business was under threat, with foodservice companies prepared to pay higher prices to guarantee supply.

Tyson and rivals such as Pilgrim's Pride Corp. (PPC) have suffered from oversupply in the chicken industry, leaving them unable to pass on higher feed and transport costs to customers.

The Springdale, Ark.-based company had hoped its chicken unit would recover profitability by the end of its fiscal fourth quarter in September.

However, Bond said a rebound would take longer, with losses in the fourth quarter likely to exceed the $44 million operating deficit in the three months ended June 28.

Tyson's chicken sales rose 1.9% to $2.25 billion in the latest quarter, with prices 6.9% higher on average.

The problems in the chicken industry countered profits from its beef and pork segments as Tyson reported a net profit of $9 million, or 3 cents a share, in the fiscal third quarter, compared with a profit of $111 million, or 31 cents a share, a year earlier. The latest quarter included a $75 million unrealized loss on derivative positions.

The performance fell short of analysts' expectations and Tyson shares were down 5.5% at $15.33 in morning trading, with Pilgrim's Pride - the largest U.S. chicken producer by revenue - down 8% at $12.38.

Bond said that an additional $200 million in feed and transport costs and weak pricing in the higher-margin breast meat segment would weigh on the chicken unit in the current quarter. Pilgrim's Pride reports earnings Tuesday.

He said that chicken was historically more "recession proof" than other meats and that was holding true in the current U.S. economic downturn.

Biodiesel Versus Ethanol

Tyson is focusing on international sales and its nascent renewable energy business to drive future profits, as well as sales of higher-margin prepared foods.

Beef, its largest segment by sales, has benefited from the reopening of exports to South Korea after a protracted trade dispute over food safety standards. Pork sales, notably to China, are also producing above-average margins.

Bond said the fourth quarter was shaping up to "be a blockbuster" for the beef business.

Tyson's push into renewable fuels includes joint ventures with ConocoPhillips Inc. (COP) and Syntroleum Corp. (SYNM) to produce biodiesel from animal byproducts that would not be fed back into the food chain.

Bond has been the most vociferous food industry critic of subsidies to the ethanol industry, which he said crowds out feed supplies for animal and human consumption and inflates prices.

He has called for the removal of U.S. subsidies and import tariffs for ethanol - which Tyson calls "a well-established industry" - but supports tax credits and other support for what it describes as "new alternative fuels", including diesel made from waste animal fats.

"I do believe that these (ethanol subsidies) will be altered," Bond said Monday.

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