Friday, meat producer Tyson Foods, Inc. (TSN) said it is closing its Ponca City, Oklahoma processed meats plant and is shifting production to other company facilities as part of its efforts to improve operational efficiency. The Springdale, Arkansas-based company said the closure will affect about 580 people and is expected to result in a non-cash charge of about $0.02 per share to be reflected in the fiscal second quarter earnings.

The people who will be affected by the closure are being given a 60-day notice on Friday, and the company noted that the actual termination of operations and displacement of workers will take place gradually. The closing process will begin in late May and may be completed by July or August.

Representatives of Tyson's Human Resources staff are expected to meet with affected Ponca City workers in the coming weeks to discuss other employment opportunities within the company. They will also work cooperatively with the Oklahoma Employment Security Commission, which will provide information about unemployment benefits and other job opportunities, Tyson Foods said.

The plant has been in operation since 1995, producing a variety of deli-style luncheon meats and ham products. The production, according to Tyson, will gradually be shifted to its plants in Buffalo, New York; Cherokee, Iowa and Houston, Texas.

Tyson is trying to find a buyer for the Ponca City plant. Although company officials have been in contact with potential buyers, no sale has been completed.

Commenting on the decision, Dick Belsito, senior vice president of processed meats for Tyson Foods, said, This is a very difficult decision because it affects the lives of our people, their families and the community; however, it is critically important to our business.This decision was based on improving asset utilization, not on their job performance.

The meat industry has been experiencing a tough time recently as prices of corn and soybean, the key ingredients of poultry feed, soared significantly in the past one year. To cope with weak demand and sulking profit margins, producers have cut production and increased prices.

In January, Tyson reported a loss for the first quarter, compared to a profit last year on lower margins, hurt by poor operating results for chicken and pork segments. The company reported a net loss of $112 million or $0.30 per share, compared to net income of $34 million or $0.10 per share in the prior-year quarter. Sales for the quarter grew to $6.52 billion from $6.48 billion in the same quarter last year.

KeyBanc Capital Markets Inc. recently initiated coverage of the company's stock with a Hold rating. A weak macro environment, low visibility into chicken segment earnings, weakening beef and pork segment profitability and liquidity concerns keep us on the sideline, the brokerage said.

Meat producer Hormel Foods Corp. (HRL) last month reported a decline in its first-quarter profit, hurt predominantly by higher hog costs and weaker primal markets. The company also warned that it expects continued challenges to its business in 2009 due to the turbulent economy.

TSN is currently trading at $9.59, down $0.34 or 3.42% from the previous close, on 493,126 shares.

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