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What pink slime? Meat company Tyson's profit up 4.4%

May 07, 2012|By Tiffany Hsu
  • A hamburger made from ground beef containing what is derisively referred to as "pink slime." Despite the controversy, meat processor Tyson said its profit was up in the second quarter.
A hamburger made from ground beef containing what is derisively referred… (Jim Cole / AP Photo )

What was meat-processing giant Tyson Foods Inc.’s response to the pink slime controversy this spring? A 4.4% boost in its earnings in its second fiscal quarter.

The Springdale, Ark. company made a $166 million profit, or 44 cents a share, up from $159 million and 42 cents a share it earned in the second quarter of 2011. The higher prices Tyson charged for its protein helped balance out lower sales volume.

Since Tyson’s quarter this year ended March 31, the results don’t include any effects on demand that may have been caused by the April discovery of a case of mad cow disease or unrelated concerns about a bonding agent dubbed “meat glue.”

But the so-called “pink slime” scandal – which dealt with an ammonium hydroxide-treated ground beef product known officially as lean, finely textured beef – was in full rage in March.

The “unwanted controversy … temporarily destroyed demand for ground beef and beef in general virtually overnight,” said Tyson’s Chief Operating Officer James V. Lochner in a conference call with analysts.

The company’s beef business suffered a $1 million operating loss and volume sales dropped 11%. But because the price of the meat was 13.2% higher than it was during the same period a year earlier, overall beef sales ended up more than 1% to $3.4 billion.

Ground beef sales in retail stores such as supermarkets fell 7% over the quarter, compared with a 3% slide for pork and flat sales for chicken.

Chicken volume slipped 1.6% but prices were up 8%, causing total sales of the poultry to rise 6.3% to $2.9 billion. Tyson Chief Executive Donald J. Smith said he expects “a significant amount of chicken features at food service this summer,” given that chicken nuggets, wings and other options have been selling well.

Overall, the company’s revenue was up 3.4% to $8.3 billion from $8 billion in the second quarter of 2011.

It’s not only food safety concerns contributing to weakness in the meat market. Slow consumer confidence and demand due to high gas prices and continuing economic concerns are also factors, Smith said in the conference call.

Meat sales at restaurants, especially in the sausage, bacon, chicken and steak sandwiches now popular at breakfast, are recovering, Smith said. But some of the growth may be driven by inflation instead of increased volume.

Still, he said he is “cautiously optimistic that the worst is over for the food service industry.” Tyson expects exports of beef, which reached record highs industrywide last year, to remain strong this year.

To ensure such growth, Smith said the company is treading carefully in major markets such as China, where meat quality has encountered its share of doubts. Key to Tyson’s plan: “Placing an emphasis on food safety, quality and supply chain integrity.”


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