Tyson shareholders to convene this week

Tyson Foods CEO Donnie Smith and his executive circle will no doubt be smiling when they face shareholders this Friday morning (Feb. 1) at the company’s annual shareholder meeting in Springdale.

Tyson Foods’ stock is trading just cents away from its 52-week high as the diversified meat company continues to battle the challenges of record feed costs, a shrinking cattle supply and stiff market competition from other poultry processors.

Smith and company performed well in fiscal 2012, according to analyst consensus. Though fiscal 2012 profits were down 21% from the prior year, Tyson’s outlook for 2013 pushed the company stock to a 15.4% rally between October and Dec. 31.

Since January, shares have risen to a $22.50 high, last closing at $22.26 Monday, (Jan. 28).

Kenneth Zaslow, analyst with BMO Capital Markets, has upgraded Tyson shares to market perform with a price target of $27 in the next 12 months. His upgrade considers the structural changes in the beef industry with the recent news that Cargill will shutter a plant in West Texas because of reduced cattle supplies in that region. 

Smith told analysts in November the company still had challenging metrics to manage in grain costs and softer beef demand. But he pledged to grow the company’s chicken business by moving further away from commodity processing to the higher-margins found in value-added products.

He told investors Tyson is poised to grow its top line between 3% and 4%, with valued-added revenue improving 6% to 8% and international sales twice that, at 12% to 16%.

In an unexpected move this past October, the company increased its regular dividend to shareholders by 25%, made possible by a strong balance sheet, liquidity position and a desire to return cash to its investors.

This move was viewed as positive by Wall Street given the company’s cloudy forecast on grain costs due to prolonged drought, domestic and abroad.

EXECUTIVE PAY
Tyson Foods like a growing number of firms links executive pay to company performance.

CEO Smith earned a base salary of $900,000 in fiscal 2012, the same pay as 2011. But his total compensation last year, which included deferred stock gifts, benefits, taxes, insurance, pension contributions and other perquisites, totaled $7.844 million, up about 2.6% from the prior year.

Jim Lochner, chief operating officer, earned a base salary of $907,769, up 3% from 2011. His total compensation in 2012 was $7.801 million versus $7.683 million in the prior year.

Dennis Leatherby, chief financial officer, earned $2.578 million in 2012 and this included a base salary of $566,500. Leatherby received a 3% salary raise in 2012, but his total compensation declined from $2.656 million earned in 2011.

A proxy filed last month with the federal Securities and Exchange Commission states that Tyson Food’s board of directors consult with the Hay Group and set executive pay in line with industry competitors and other food or agri-related companies such as Archer-Daniels-Midland, Campbell Soup, ConAgra Foods, Kraft, General Mills or Pilgrims Pride.

As a rule of thumb Tyson executive pay falls within the 50th percentile of the companies previously mentioned.

BOARD COMPENSATION
Tyson Foods’ board of directors earns a base retainer fee of $80,000 along with generous stipends for committee service along with stock gifts.The company has nine directors and paid more than $1.714 million compensating them last year.

John Tyson, board chairman and son of the late Don Tyson, earns a base salary of $500,000 for 20 hours of consultant work per month. His total compensation for 2012 was $4.217 million.

Shareholders will vote to re-elect the nine directors to another year of service on Friday. The board members include:

John Tyson, 59, chairman, CEO from 2001 to 2006.
Kathleen M. Bader, 62, was President and CEO of NatureWorks LLC, Bader also spent more than 30 years with Dow Chemical, board member since August 2011.
Gaurdie E. Banister Jr., 55, is President and CEO of Aera Energy LLC, board member since November  2011. 
Jim Kever, 60, is the founding partner of Voyent Partners, LLC, an investment partnership founded in 2001, board member since 1999.
Kevin M. McNamara, 56, is chairman of Agilum Healthcare Intelligence, board member since 2007.
Brad T. Sauer, 53, is executive vice president, 3M Industrial Business Group, of 3M Company, since October 2012, board member since 2008.
Robert Thurber, 65, retired, served as vice president of purchasing for Sysco Corporation from 1987 to 2007, board member since 2009.
Barbara A. Tyson, 63, served as vice president of the company until 2002, when she retired and became a consultant.  She ceased serving as a consultant on Nov. 30, 2011.
Albert C. Zapanta, 71, is president and CEO of the United States—Mexico Chamber of Commerce and has served in that capacity since 1993, board member since 2004.

MEETING AGENDA
Shareholders will select its board members, vote to ratify PricewaterhouseCoopers as the company’s independent auditor. Other items up for vote are two proposals to amend the company’s pension plans.

There were no additional shareholder proposals filed according to the Proxy.

Tyson Foods is considered a controlled company, given that the Tyson Family controls 99.98% of the Tyson’s Class B shares which have 10 votes to every one vote by the commonly held Class A shares.

The Tyson Limited Partnership controls 70 million shares of restricted Class B shares.

There are 288.462.438 million Class A shares outstanding. These largest shareholders include:
Alliance Bernstein, 6% or 17.365 million
Vanguard Group, 5.83% or 16.805 million
BlackRock Inc., 5.81% or 16.771 million

EARNINGS PREDICTION
Tyson will also report its fiscal 2013 first quarter earnings prior to market opening on Friday.

The 12 analysts following the company are mixed on their sentiment; expecting 22 cents on the low end and 42 cents on the high end. The consensus is that Tyson Foods will net 32 cents a share, down slightly from the 42 cents a year ago. Total revenue is expected to be $8.6 billion, up from $8.33 a year ago.

Net profits should be close to last year at roughly $112.5 million for the quarter ending Dec. 31.

Stephens Inc. analyst Farha Aslam noted that breast meat prices rose counter-seasonally in the recent quarter, surprising the market, due to tight cold storage inventories and solid demand. (Stephens conducts investment banking services for Tyson Foods on occasion and is compensated accordingly).

Breast meat prices climbed 6.8% in the quarter, compared with a year ago, to an average $1.27 per pound. They’ve continued to rise to a current $1.32 per pound.

The outlook for leg quarters is brightening, Aslam said. Leg quarter prices increased 2.3%  to an average 47 cents per pound in the quarter, on strong demand from Mexico.

There is talk that Russia may increase poultry imports because efforts to boost domestic production have fallen short, and optimism that a favorable ruling by the WTO next year could cause China to eliminate its steep anti-dumping duties.

She also notes that wing prices are up 41.1% from a year ago with an average $1.84 per pound in the quarter.

Aslam said future wing pricing could continue to rise if McDonald’s expands a test of its Mighty Wings.

J.P Morgan analyst Ken Goldman recently noted, “Tyson Foods has earned $2.18, $1.90 and $1.91 in its last three fiscal years. Though this does not exactly portray a company growing quickly, it does reveal that earnings can be much less volatile for Tyson than for some of its ag/protein peers. It also illustrates that during a time of higher (and very volatile) grain costs, Tyson is able to pass on much of its operational cost inflation to customers.”

Goldman is neutral on Tyson Foods shares.