Tyson Foods Inc.’s first-quarter profit blew past Wall Street estimates and the meat processor said it expects beef margins to recover in the back half of the year, helping to send its shares up more than 5 per cent in morning trade.

The U.S. cattle herd shrank for the fifth straight year in 2011, to a 60-year low, as a devastating drought and record-high feed costs hit production.

The shrinking beef supply has raised costs for buyers like Tyson, the No. 1 U.S. meat processor, and McDonald’s Corp . At the same time, slack consumer demand has made it difficult to pass on the full extent of those cost increases, putting pressure on margins.

“Our beef segment is experiencing a rough patch as a result of challenging market fundamentals,” said Tyson chief executive officer Donnie Smith on Friday. “Although we are still outperforming industry indexes, if current conditions continue, our beef results will be pressured in our second quarter.”

Still, Tyson said beef would be profitable for the full fiscal year, due to expectations that beef margins will return to a “normalized range” in the second half.

That forecast was surprising considering that beef industry trends have been worsening, said JPMorgan analyst Ken Goldman. He also praised Tyson’s diversity of business, selling chicken, beef, pork and prepared foods.

“Today’s results illustrate why Tyson deserves a premium multiple, in our opinion, to many of its protein peers,” Mr. Goldman said in a research note.

“When one segment suffers, others can come to the rescue, leading to much smoother and less volatile earnings” than those of other meat companies like Smithfield Foods, Pilgrim’s Pride and Sanderson Farms.

Beef is Tyson’s largest unit, accounting for nearly 42 per cent of sales in the latest quarter, followed by chicken with 33 per cent of sales.

While beef was the biggest sales contributor, it carried the lowest operating profit as a percentage of sales among Tyson’s four units. Beef operating income was $31-million, or 0.9 per cent of nearly $3.47-billion in first-quarter sales. Pork operating income carried the highest rate at $165-million, or 11.2 per cent of roughly $1.48-billion in sales.

Tyson also said its chicken segment returned to profitability in the quarter, despite higher feed costs. It also cited strong performance in its prepared foods business.

Tyson’s net income fell to $156-million, or 42 cents per share, in the fiscal first quarter ended on Dec. 31, from $298-million or 78 cents per share a year earlier.

Analysts on average were expecting 33 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 9.4 per cent to $8.33-billion, meeting analysts’ estimates. Sales volume fell 5 per cent as the company processed less meat in anticipation of reduced demand.

Average prices rose 14.6 per cent due to price increases meant to offset higher commodity costs and increased sales of more higher-priced items.

The company stood by its 2012 forecast calling for sales of at least $34-billion, helped by price increases related to tighter meat supplies and higher raw materials costs.

Because exports are likely to remain strong, Tyson expects total domestic availability of meat – including chicken, beef, pork and turkey – to be down 2 to 3 per cent from 2011, which it said should support higher prices.