Tyson Shares Slide as Company Names New CEO and Warns on Profit
President Tom Hayes to succeed Donnie Smith
Tyson Foods CEO Donnie Smith, pictured, is stepping down by the end of 2016, to be succeeded by President Tom Hayes. PHOTO: MARC F. HENNING FOR THE WALL STREET JOURNAL
Tyson Foods Inc. moved to replace its chief executive as investors questioned growth prospects for the biggest U.S. meat company, sinking its shares.
The company’s president, Tom Hayes, will take over from current CEO Donnie Smith at the end of this year, while Tyson reported lower-than-expected quarterly profit and sales that followed a decline in its core chicken business.
While Mr. Hayes, 51 years old, had been groomed as Tyson’s new CEO for more than a year, the timing of the succession was expedited partly because of the dimmer outlook on profit, according to a person familiar with the matter. A Tyson spokesman said the timing “was not specifically driven by any event.”
The Springdale, Ark.-based meat giant faces a tougher path after several years of torrid growth, fueled by sliding grain and meat prices that have fattened profit margins for meat companies. Lower animal prices reduced raw material costs for meatpackers like Tyson, while consumers’ appetite for chicken sausages and cold cuts has stayed strong. Tyson estimates it produces one-fifth of all chicken, beef and pork in the U.S.
Analysts, however, questioned Tyson’s prospects in chicken, its largest source of profit, after the division sharply underperformed Wall Street expectations in the fourth quarter. Tyson executives attributed a 3.2% decline in quarterly revenue to higher marketing costs, a planned production slowdown and a increase in the cost of soybean meal, a key ingredient in chicken feed, which helped boost costs by about $20 million in the quarter.
U.S. chicken companies have also faced controversy over the way they price chicken in recent months. A key industry benchmark for retail poultry pricing has drawn broad market scrutiny, and poultry processors face a lawsuit that has alleged collusion in the $29 billion market in “broiler” chickens raised for their meat.
Processors such as Tyson, Pilgrim’s Pride Corp. and Sanderson Farms Inc. all dispute the allegations.
One of Mr. Hayes’ first tasks was to field analysts’ questions about Tyson’s growth trajectory. After posting record profit for four straight years, for its fiscal year that began in October, Tyson on Monday projected earnings between $4.70 to $4.85 a share, below the $4.98 estimate from analysts polled by Thomson Reuters.
That sent shares down 14.5% Monday, after gaining 54% in the past 12 months through Friday’s close.
“As we move through the year, we feel like we’re going to be in great shape,” Mr. Hayes said. Tyson this year plans to invest more than $1 billion to expand production capacity, improve operations and build an e-commerce business.
Mr. Hayes on Monday played down the significance of the Georgia Dock index, a chicken-pricing benchmark that has drawn scrutiny after The Wall Street Journal and other publications raised questions about how it is calculated.
The index, used to price chicken sold to supermarkets, is maintained by the Georgia Department of Agriculture and based on prices reported by chicken companies maintaining operations in Georgia, though these aren’t independently verified.
Mr. Hayes told analysts that Tyson prices 3.5% to 4% of its chicken volume off the measure and that it has generally “had very little influence on our pricing strategy,” as retail buyers increasingly look to other factors such as the price of feed grain.
A representative for the Georgia Department of Agriculture said the agency was addressing concerns raised about the index while drafting a new model for calculating it.
Tyson has disputed separate claims made in a lawsuit alleging price-fixing by major U.S. chicken companies. The suit, which is seeking class-action status, has been contributing to price swings in meat companies’ shares since it was filed in September.
Mr. Smith, 57, and Mr. Hayes said the chicken-pricing matters didn’t factor into the CEO shift.
The C-suite handoff to Mr. Hayes was expected by investors after he was promoted to president in June, and followed a rapid rise through Tyson’s ranks over the past two years. Mr. Hayes came to Tyson via its $7.7 billion purchase of Hillshire Brands Co. in 2014, hastening Tyson’s evolution to a more-diversified food company from its roots as a commodity meatpacker.
Mr. Smith, a 36-year veteran at Tyson who helped steer the company through a tough patch for the chicken industry after he took over as CEO in 2009, said he would be available to consult for the company over the next three years.
For its fourth quarter, which ended in October, Tyson posted a profit of $391 million, or $1.03 a share, up from $258 million, or 63 cents a share, a year earlier. Excluding certain items, per-share earnings were 96 cents a share, up from 83 cents.
Analysts surveyed by Thomson Reuters had forecast per-share earnings of $1.17.
Revenue slid 13% to $9.16 billion. Analysts had anticipated $9.38 billion.
