010347 IBP Earnings to Fall Below Estimates

New York - Meat processor IBP Inc. said its first-quarter earnings could fall well below analysts' estimates, due in part to soaring cattle prices, but the company still expects its full-year results to remain near its previously disclosed guidance.

Dakota Dunes, SD-based IBP said in a statement it would be “reasonable” to expect its first-quarter earnings to be around the 12-cents-per-share projection made by CSFB analyst David Nelson. The consensus analyst estimate compiled by earnings tracker First Call/Thomson Financial was 53 cents for that period.

Nelson said he based his first-quarter estimate on “the continuation of rather devastating beef-packing margins in both the beef and pork industries.” He said the same factors also forced him to slash his full-year estimate on IBP to $1.08 per share from $2.50.

IBP gave no reason for agreeing with that estimate in its prepared statement, but a company spokesman said the reduction was due to a combination of fewer available cattle on the market, the highest cattle prices since 1993 and lower cattle weight due to the severely cold winter.

“It is not common practice for us to issue earnings projections, however given recent statements about the company's 2001 financial performance, we feel compelled to provide our perspective,” said Robert Person, IBP's chairman and chief executive, in the statement.

Industry analysts said the drastic reduction in Nelson's full-year estimate helped push IBP's shares down 7% Tuesday. After initially being halted for trade Wednesday, IBP shares stood unchanged at $24 in late morning trading before being halted a second time for news pending.

However, IBP said that it now anticipates earning between $1.80 to $2.20 per share for the full-year, a range company officials said is consistent with a projection of $1.93 per share IBP made last fall.

That range also falls below the current First Call projection of $2.33, although the First Call estimate does not include two forecast reductions released by Midwest Research and Salomon Smith Barney.

Midwest Research cut its first-quarter estimate to 24 cents from 64 cents and reduced its full-year estimate to $1.34 from $2.50. Salomon Smith Barney lowered its full-year estimate to $1.65 per share from $2.21.

IBP indicated in a release that an increase in livestock supplies should help boost second- and third- quarter results in its beef segment. Greater hog supplies during the last half of 2001 should also help produce lower costs and higher earnings for IBP's fresh pork and Foodbrands America operations, the company said.

Nelson and other analysts however are taking a wait and see approach.

“IBP's judgement is probably better than most, but who knows?” Nelson said. “My $1.08 estimate may yet turn out to be conservative.” I felt a responsibility as an analyst on this stock to inform investors out there that things are looking pretty grim.”

“There's a lot of uncertainty,” said John McMillin, an analyst with Prudential Securities, who said he was maintaining his $2.10 full-year estimate on IBP for now. “I know they had a rough start to the year, but we're not even sure how rough because they haven't reported their fourth-quarter results yet.”

The earnings forecast comes one day after IBP restated its earnings for the first three quarters of 2000 to reflect an ongoing U.S. Securities and Exchange Commission probe into the company's DFG Foods Unit. That probe has stalled Tyson Foods Inc.'s planned $3.2 billion acquisition of IBP.

Analysts have speculated that Tyson, which dropped its cash tender offer for IBP last month in favor of an outright cash merger, would seek to renegotiate the deal after the SEC ends its probe.

“I thought what they did restate was relatively minor, but I still expect Tyson will look to renegotiate,” McMillin said.

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