Tyson Foods’ incoming CEO Tom Hayes rose quickly through the ranks

Tyson Foods is preparing for a management shift and it’s only the second time in the company’s long history where the incoming CEO is not a veteran employee of the Springdale-based meat giant.

Donnie Smith, 57, announced his retirement effective Dec. 31, though he will remain an advisor to the company and its board for three more years. Smith negotiated an annual advisory fee of $2.3 million through 2018. He also will walk away with stock positions valued at $27.425 million, not counting options and deferred income which will vest on Dec. 31.

Smith has spent his entire 36-year career at Tyson Foods working his way up the ranks to eventually assume the CEO role seven years ago. That is not the case for his successor Tom Hayes, who wasn’t even on Tyson Foods’ radar prior to 2014. In fact, Hayes was not among the five top paid company executives listed in this year’s Tyson Proxy filing with the U.S. Securities and Exchange Commission.

Hayes will take the reins as CEO Jan. 1, earning a base salary of $1.15 million, slightly more than the $1.124 million base pay rate of Smith last year. Hayes was promoted to president in June when the company divided the CEO and president roles.

“I am humbled to be named the next CEO of Tyson Foods and am grateful to the Board and the family for providing me with the opportunity to lead this incredible company. Tyson Foods is well positioned to realize numerous growth opportunities – our company has a solid strategy that leverages compelling market dynamics and an experienced and highly capable management team and many thousands of hardworking and dedicated associates,” Hayes noted in the announcement of his promotion.

Since joining Tyson Foods in 2014, Hayes has served as the chief commercial officer overseeing all North American sales in addition to the food service prepared foods business where he was also president. The contract Hayes negotiated with the company was made public on Tuesday (Nov. 22). Essentially, he has a two-year contract, which if terminated for good reason by either party, will include double salary and bonuses for two years, plus medical coverage for up to 18 months. Hayes is also entitled to 50 hours of personal use of the company-owned aircraft for fiscal 2017. The contract also has a 2-year non-compete clause after termination.

SUCCESSION TIMING
The retirement of Smith was somewhat of a surprise to Wall Street analysts given the pending class action litigation the company faces. When asked about the management change during the company’s earnings call Monday (Nov. 21), Smith said the timing was right given the solid financial footing of Tyson Foods and it has nothing to do the pending litigation.

“As we have said before, we dispute the claims, we are looking forward to our opportunity to defending ourselves in court on the litigation. So that has nothing to do with the transition. So, yes, there is not a better time, we have got a great team, Tom is a very capable leader. So in terms of all of that there couldn’t be a better time to be making this transition,” Smith told analysts on the call.

Smith also said since the promotion of Hayes to president in June, he and the Board have been constantly reminded why they hold him in high regard as a capable leader, strategic thinker and team player.

“He has the skills to deliver on our strategic goals and complete the transition toward our hybrid model,” Smith added.

It was Hayes who conducted the majority of Monday’s earnings call with analysts during which time he thanked Smith for his “unwavering support and advice.”

“He will be on my speed dial for sure,” he added.

THE TYSON BUSINESS MODEL CHANGE
There’s no question Tyson Foods is in the midst of a metamorphosis from a commodity meat packer and processor into a food company and a house of branded retail products for consumers as well as restaurants and food service customers. Tyson today looks less like its traditional poultry industry competitors and more like Hormel or the former Hillshire Brands which it swallowed up for a whopping $8.55 billion just two and half years ago.

Wall Street largely approves of this ongoing transition to a higher margin business model, and Smith has said higher margins is the reason Tyson earnings can be less volatile and it’s the direction in which the company must move.

Hayes has almost 30 years experience in branded products which carry a higher margin than traditional commodity meat and is likely one reason he was tagged ahead of other long-time executives to assume the CEO role. Now that Tyson Foods has stabilized chicken margins between 9%-11%, it will be up to Hayes to keep them there and perhaps grow them more. The same will be true for the highly commoditized beef margins of 1.5%-3%. Tyson’s pork margins are a healthy 10% and Hayes will need to perhaps expand that where and when possible.

The last time Tyson Foods promoted a CEO outside its own legacy pipeline was in 2006, when Dick Bond took the reins from John Tyson, now chairman of the board. Bond was a long-time executive of IBP, which Tyson acquired in 2001. Bond ran Tyson’s red meat business prior to assuming the CEO role. During Bond’s two year and nine-month tenure as CEO, the company endured a severe chicken glut, record grain prices and a beef industry shuttering plants amid a rapidly shrinking herd. Competitor Pilgrim’s Pride went through bankruptcy and Tyson Foods faced hefty losses that threatened its debt covenants.

In January 2009, the board of directors called former Tyson Foods CEO Leland Tollett out of retirement to replace Bond on an interim basis, which he did for most of that year until Smith was promoted to CEO. Smith recently said when he took over in late 2009 Tyson’s chicken business was a mess and he was tasked with fixing it. No one can argue about the turnaround which has happened under Smith’s leadership. But with the new direction Tyson is trying to move, it is Hayes who has experience with consumer food companies like Sara Lee, where he served as president as well as in top management roles at Kraft Foods, Stella Foods, ConAgra and U.S. Food Service Inc.

“The Board’s decision to name Tom CEO at this time was based on both his track record and how his skills align with the company’s strategic direction and continuing evolution,” John Tyson, chairman of the Board of Directors, said in a statement. “The Board has the utmost confidence in Tom’s ability to build on the platform Donnie has created, to expand further into developing markets, new product categories and proprietary food experiences, and to continue investing in our core nine categories.”

Tyson shares tumbled more than 12% on Monday (Nov. 21) when the company missed revenue expectations and announced the CEO transition. The stock price regained some of the losses Tuesday (Nov. 22) but still remain under the $60 mark at $58.63, up 1.79% amid a major rally of the Dow Jones Industrials and broader market indices.

Analysts have been re-calculating their earnings models following Monday’s call and the double-digit price decline in shares. That said. Moody’s Investors Services recently raised Tyson Foods’ credit rating slightly and gave the company a “stable outlook” rating based on a complete review of the Tyson’s financials since August. Moody’s said the rating upgrade reflected Tyson’s improved earnings diversity and restored financial metrics following the leveraged Hillshire deal. The agency said Tyson has successfully integrated the Hillshire business and reduced debt to more comfortable levels.