080212 Tyson Foods Looks to Boost International Sales

Springdale, AR - Tyson Foods Inc. is looking to China and Brazil to add about $1.2 billion to its bottom line by 2010.

Facing tough market conditions at home, Tyson Foods recently invested in two joint-venture deals with foreign poultry companies that will likely help the meat giant reach its $5 billion international sales goal by 2010. International sales in the company's recent fiscal year totaled $3.8 billion.

Tyson Foods CEO Dick Bond said Tuesday that the company expects to ramp up international sales by 32 percent - $1.2 billion - by 2010 in hopes of countering its higher costs for grain and fuel. The company has said its grains costs will rise by $800 in 2008.

The immediate expansion by Tyson Foods will be in the chicken segment.

The company recently formed a joint-venture with Jiangsu Jinghai Poultry Group in Haiman City, near Shanghai, and is in the process of closing another deal with a Brazilian poultry company.

Bond said demand for high quality, fresh chicken in China is growing faster than the existing domestic supply.

Owning a Brazilian poultry operation would give the company access to European and Middle Eastern markets not available to the company through its U.S operations, Rick Greubel, president of the company's international division, said in a December phone interview.

While China and Brazil are key to the company's long term expansion plans, Tyson Foods said it is also exploring the possibility of an expansion with Tyson de Mexico - a Monterrey-based vertically integrated poultry operation that employs about 5,300.

Bond recently said the Mexico operations have reached capacity. He noted that Tyson de Mexico experienced double- digit retail sales growth in value-added chicken products in recent years.

Chicken sales to and within Mexico totaled $378 million in 2007, up $48.7 million from the previous year. In 2007, Mexico comprised 27 percent of the company's total international chicken sales.

Bond said the company is expanding its reach toward the southern and central regions of Mexico through acquisitions or joint ventures. No time frame for this expansion was given.

Aside from international expansion in 2008, Tyson Foods said it is also benefiting from the weaker dollar and robust economic growth in many importing countries.

Tyson Foods credits the weaker dollar for supporting U.S. poultry exports in general.

Last year, the company reported its international chicken sales were $1.4 billion, a $510 million increase from 2006.

Richard Lobb, spokesman for the National Chicken Council, said the industry posted a 56 percent increase in export revenue from 2006, despite tough competition from Brazil.

The top U.S. poultry export product is 40-pound boxes of frozen leg quarters, compared to frozen whole broilers from Brazil. Poultry economist Paul Aho of Poultry Perspective, said the price of the Brazilian chicken has doubled to $2,000 per metric ton compared to $1,000 a year ago. A metric ton equals 2,205 pounds. He said this makes U.S. leg quarters a bargain at $1,000 per metric ton in the international marketplace.

"If politics do not cause a problem, I would expect U.S. poultry companies to expand exports quite easily this year. I would be shocked if they did not," Aho said.

Though chicken has historically been a domestic business with less than 15 percent of total production leaving its country of origin, analysts said that is rapidly changing, due in part to less profitable margins at home.

Farha Aslam, industry analyst with Stephens Inc., expects chicken processing margins to be negative across the industry again in February. (Stephens Inc. conducts investment banking services for Tyson Foods and is compensated accordingly.)

She said chicken processing margins are expected to shrink in 2008 as companies struggle to balance production with demand, while paying record prices for feed.

In a Feb. 20 research report, Aslam estimates chicken processing margins of 1 cent per pound for the week, down from 5 cents a year ago.

If Tyson Foods reaches its 2010 goal, international sales will comprise 16.6 percent of the projected $30 billion in total sales. In 2007, international sales were roughly 14.2 percent of the company's overall revenue. In 2006, international sales were 11.32 percent of the company's total revenue.

Tyson Foods' finances also could be helped if recent 2008 forecasts for beef and pork exports become reality.

The U.S. Meat Export Federation predicts U.S. beef exports will increase 20 percent in 2008. The federation based its assumptions on South Korea and Japan's beef trade resuming more normalized levels during the first half of the year.

However, the U.S. Department of Agriculture forecast beef exports will increase only slightly in 2008, from $1.9 billion to $2.4 billion, helped mostly by the weaker dollar.

The government expects U.S pork exports to jump 16 percent in 2008 on strong demand from China, Mexico and Russia.

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