Tyson Foods Inc reported weaker-than-expected quarterly sales and earnings and lowered its full-year outlook due to weak U.S. demand for meat.
But the company on Monday also said its chicken business would remain profitable next year, even as the worst drought in a half-century pushes up corn prices.
Tyson shares were fractionally lower in premarket trading after initially falling 4 percent following the earnings news.
The company's beef and pork segments have been experiencing "very difficult market conditions" that will result in lower-than-expected 2012 profit, Chief Executive Donnie Smith said, adding that rising grain costs would hurt earnings next year.
"While we ultimately expect to pass along rising input costs, these costs, coupled with continued soft demand, are likely to pressure earnings in 2013," Smith said.
He highlighted better performance in Tyson's chicken and prepared foods segments, businesses the company has been focused on growing.
Despite higher grain costs, Tyson expects its chicken business to be profitable next year, something that J.P. Morgan analyst Ken Goldman said was a "significant upside surprise" to his expectations.
"We think Tyson's optimism here should be interpreted as the most important part of the release, and a positive for the stock," Goldman said in a research note.
Tyson said its beef segment should remain profitable, but margins could be below the typical range. Margins in the pork segment should be at or above the normal range, while prepared foods' margins should be in the normal range, it said.
The company did not say what was hurting demand for meat, but U.S. shoppers have remained frugal in a still-recovering economy.
Also, domestic demand for ground beef took a hit in the spring following a controversy over a filler product critics called "pink slime."
Tyson said net profit tumbled to $76 million, or 21 cents per share, for the fiscal third quarter ended June 30, from $196 million, or 51 cents per share, a year earlier.
Excluding a $167 million charge for the early extinguishment of debt, earnings were 50 cents per share. On that basis, analysts on average were expecting 54 cents, according to Thomson Reuters I/B/E/S.
Sales rose to $8.31 billion from $8.25 billion a year earlier. Analysts were expecting $8.72 billion.
The company said it now expects 2012 sales of $33 billion, $1 billion less than its previous estimate. It expects 2013 sales of $35 billion due to price increases related to a likely decline in the U.S. meat supply and higher raw material costs.
Analysts were expecting sales of $34.02 billion for 2012 and $35.40 billion for 2013.
The company also lowered its forecast for capital spending this year, saying its ongoing projects will not be completed.
Tyson shares fell 4 cents to $15.36 in premarket trading, down from Friday's close at $15.40 on the New York Stock Exchange.