Adds comments from CEO in paragraphs 5-6 and analyst in paragraph 12

By Tom Polansek and Neil J Kanatt

May 4 (Reuters) - Tyson Foods TSN.N reported better-than-expected quarterly earnings and raised its full-year income forecast on Monday, as rising chicken sales helped counter a sharp drop in demand for high-priced beef.

Protein-hungry but cash-strapped consumers have shifted toward buying more affordable types of meat, such as chicken and pork, as beef prices have set records due to dwindling U.S. cattle supplies.

While profit margins for chicken jumped during the quarter that ended on March 28, Tyson's beef business continued to lose money because soaring costs for cattle have outpaced gains from higher selling prices for steaks and hamburger meat.

CEO Donnie King said he stayed awake many nights thinking about cattle supplies, which fell to a 75-year low in 2026 following a persistent drought in the western U.S. that burned up grazing lands.

"We're in the depths of this cycle. We can't do anything about that," King told analysts on a call. "What I do have the answer for is us controlling what we can control."

Tyson closed a major beef plant in Nebraska this year and reduced operations at a facility in Texas, laying off thousands of workers. The cutbacks will help the company to compete, COO Devin Cole said.

Even so, Tyson said it expects an adjusted operating loss of $350 million to $500 million in its beef business in fiscal 2026, compared with an earlier forecast loss of $250 million to $500 million.

IMPROVED FULL-YEAR OUTLOOK

Tyson increased its total adjusted operating income forecast to $2.2 billion to $2.4 billion for fiscal 2026, from $2.1 billion to $2.3 billion earlier. Shares gained 4%.

Chicken sales volumes rose 1.7% during the second quarter, while the unit's adjusted operating margin increased 12.2%.

"The positives from chicken outweigh the negatives from beef," said Stewart Glickman, a research director at CFRA.

BEEF PRICES CLIMB

In November, President Donald Trump accused meatpacking companies of driving up beef prices through manipulation and collusion and ordered the Department of Justice to investigate.

White House adviser Peter Navarro said on Monday that the department plans to settle a case against data company Agri Stats in an agreement officials hope will lower food costs.

Tyson said beef prices climbed 11.5% during the quarter while sales volumes sank 13.1%. Its beef business posted a quarterly adjusted operating loss of $202 million as cattle costs surged about $600 million.

"We continue to expect results below historical margin levels until cattle supplies normalize," King said.

Company-wide, adjusted earnings of 87 cents per share beat analysts' average estimate of 78 cents, according to data compiled by LSEG.