Tyson Foods: Chicken Little

It would be easy to assume the sky is falling at Tyson Foods, one of the world's largest chicken producers. The Springdale, Ark., company lost $127 million, or 37 cents a share, for the quarter that ended April 1 as sales dipped 1.7% to $6.25 billion. Avian influenza has sapped the demand for poultry. And bird flu will grab more headlines as the U.S. government announces its plans to deal with the virus if it becomes pandemic.

Chicken isn't the only protein problem for Tyson. Its beef business reported a $188 million operating loss in the quarter. That division has languished since 2003 when a case of mad cow disease was found in the United States. Chief executive John Tyson blamed a worldwide meat glut for the company's anemic quarterly performance.

But Credit Suisse analyst David Nelson says that the chicken market has bottomed out, which should bode well for Tyson's shares (symbol TSN). "The magnitude of the weakness is behind us," Nelson says.

Tyson Foods usually increases chicken production for the summer but won't this season. In fact, the company has cut its supply of chickens by 25%. Tyson executives say cases of bird flu have waned and forecast that poultry demand in Western Europe will improve. Moreover, they expect the reopening of Taiwan to beef imports to buoy that division.

Indeed, the earnings picture is improving. A few weeks ago, analysts, on average, expected Tyson to lose 11 cents a share for the fiscal year that ends September 30. Now, they expect a profit of one cent a share.

That's not much, but it indicates that analysts' perceptions of Tyson's prospects are improving, and that bodes well for the stock, which closed Tuesday at a little under $15 and is about 31% off its mid-2004 high. Nelson expects Tyson to earn $1.20 per share in the fiscal year that ends September 2007, so the stock trades at a modest 13 times that number. Nelson rates the stock "outperform," with a price target of $18.

-- Thomas M. Anderson