Outlook favorable for Tyson
Question: My husband and I own shares of Tyson Foods Inc. Can they continue to do as well as they have been doing, or is the run over?
Answer: The world’s largest meat company, with leading positions in the processing of beef, chicken and pork, is benefiting from more Americans cooking at home. Processors had reduced their production in 2008 because of higher feed costs and the economic slowdown, with the resulting lower supply now leading to higher meat prices.
Shares of Tyson Foods (TSN) recently were up more than 30% this year following last year’s 42% increase. The company, which posted a profit in its most recent quarter versus a year-earlier loss, has been streamlining plants, trimming staff and reducing debt.
Beef represents about 40% of revenue, chicken 36%, pork 13% and prepared foods the remainder. Selling through food services and supermarkets under the Tyson brand, the company increasingly is emphasizing the more profitable prepared and microwavable foods.
It received a boost from Russia’s decision to resume U.S. imports of chicken, which had been halted this year on claims that a chlorine rinse violated Russia’s food safety rules. On the other hand, China has imposed tariffs on U.S. chicken products this year.
Shares of Tyson Foods receive a consensus “buy” from Wall Street analysts, according to Thomson Reuters, consisting of six “strong buys,” two “buys” and seven “holds.” Moody’s Investors Service raised its outlook for the company to stable from negative because of “greater stability in feed input costs and better pricing for the protein sector.”
Longtime executive Donnie Smith became Tyson’s chief executive in late 2009. Retired Chairman Don Tyson controls nearly 70% of the firm’s voting stock.
Dependent on volatile commodity prices, Tyson Foods has shortened production cycles and will be helped in the near term by lower grain prices. Avian flu, swine flu or mad cow disease can potentially pose problems for the entire meat industry.
Tyson Foods has settled a decadelong Labor Department dispute in which it agreed to pay $500,000 in overtime wages to workers at an Alabama plant for the time they spent putting on and taking off sanitary gear at the beginning and end of their shifts.
Earnings are expected to rise sixfold this year and decline 3% next year. The projected five-year annualized return of 10% compares with a 33% increase expected for the meat and food industry.
Question: What fees are tied to annuities?
Answer: A number of fees are connected with annuities, which are part insurance policy and part investment product. Terrence Herr, managing partner with Herr Capital Management, notes:
• The mortality and expense fee, which represents the cost of doing business with the insurer, ranges from less than 1% to more than 1.5%.
• The fund or subaccount expense ratio, covering costs associated with the underlying investment, usually is less than 1%.
• The income or living benefits fee ranges from 0.5% to 1.75%. It guarantees an income stream as a hedge against market decline (not available on all annuities).
“Today it is the reason we find most people are buying annuities,” Herr said. “If you put in $100,000 and there’s a 5% guarantee, next year that account is worth $105,000 regardless of the market.”
• The surrender cost, which is the fee for early withdrawal, is typically 7% the first year and declines each year.
“If you’re in an annuity for the right reason [a long-term commitment] you shouldn’t be concerned with early withdrawal,” Herr said.
Andrew Leckey answers questions only through the column. E-mail him at yourmoney@tribune.com.
