Tyson Foods is replacing CEO Donnie Smith with president Tom Hayes after announcing dismal prospects for next year and fourth-quarter results yesterday that were worse than analysts anticipated.
“Smith's departure surprised some on Wall Street, who regard him as the company's most successful CEO,” write Reuters’ Lisa Baertlein and Sruthi Ramakrishnan while reporting that shares of the Springdale, Ark.-based meat processor dropped 14.6% in afternoon trading after having risen 26.3% this year. And they were up 54% over the last 12 months.
“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,” writes Jacob Bunge for the Wall Street Journal. “A Tyson spokesman said the timing ‘was not specifically driven by any event.’”
Smith, 57, had been CEO at Tyson for seven years, capping a 36-year career there. “In the lead-off question during a presentation with Wall Street analysts, BMO Capital Markets analyst Ken Zaslow grilled the team,” reportsFortune’s John Kell.
“Donnie, I have to say that your timing of your retirement may not be perceived as optimal,” Zaslow said. “Tyson is in the middle of a class action suit. Earnings fell short of expectations on the perception that you’ve kind of reached peak earnings … why not hand the reins over once the dust settles a little bit?”
“Smith responded by saying that the litigation — which alleges price collusion in the chicken market — had nothing to do with the executive transition, which he said was planned at an ‘excellent time.’ Smith is also planning to make himself available to consult for Tyson Foods for a three-year period,” Kell writes.
Seeking Alpha has transcribed the entire presentation.
“For decades, the price of a broiler — the standard, non-organic, non-halal, non-kosher chicken that makes up 98% of what’s sold —followed a boom and bust pattern: Rising demand led to higher prices and more production, then to oversupply and a drop in prices,” Bloomberg’s Deena Shanker wrote in a September analysis of the lawsuit filed in Chicago federal court that month.
“In 2008, that began to change,” Shanker continued. “The reason, according to the 113-page lawsuit, is that the producers launched a coordinated strategy, one facilitated by shared proprietary information and countless industry events involving top executives.”
Tyson, Pilgrim’s Pride and Simmons Foods denied the antitrust allegations and said they would fight the antitrust class action led by New York food distributor Maplevale Farms, Shanker reported.
New CEO Hayes has also served as Tyson’s chief commercial officer, as well as its president of food service. Previously, he was chief supply chain officer for Hillshire Brands Co., which Tyson acquired in 2014. Before that, Hayes was SVP and chief supply chain officer for Sara Lee North America and president of Sara Lee Foodservice.
“Donnie is leaving the company in great hands, having developed an impressive pipeline of management talent while positioning us for continued growth and change,” said board chairman John Tyson in a statement.
The company “posted net income of $391 million for the period ended Oct. 1, up 51.6% from 2015's fiscal fourth quarter. That fell short of S&P Global Market Intelligence expectations of $462 million. On a per-share basis, earnings totaled $1.03,” reports Nathan Bomey for USA Today. “Sales fell 12.8% to $9.2 billion as a sweeping decline in food prices took a toll, and volume also fell. S&P analysts had projected revenue of $9.4 billion.”
“The seller of Jimmy Dean sausage and Ball Park hot dogs … cit[ed] increased investment spending, the double whammy of spiking chicken feed costs and lower demand, and a prepared foods production hiccup following the closure of a factory that makes pizza toppings” for its disappointing results, according to Reuters.
“Tyson Foods ended its fiscal year with net income of $1.768 billion, 45% more than the previous fiscal year, thanks in part to lower grain costs, better margins in the chicken segment and continued success with its prepared foods business,” according to “Morning Edition” on KUAR/FM.
Observing that investors “chickened out of Tyson” yesterday, Barron’s Johanna Bennett reports that it “isn’t the only food stock getting fried today. Sanderson Farms fell 1.9% to $79.53, while Pilgrim’s Pride fell 0.4% to $18.24.” And she reminds readers that Barron’s recommended in March that its “readers take profits, reversing the bullish stance it took the previous year, arguing that despite more growth ahead the stock’s valuation was unattractive.”
They finally took stock of that advice yesterday.